Graham Lovell, Author at Democratic Capitalism

Increasing Jobs and Wages

Managing trade is a government responsibility. It should lead to increasing jobs and wages.

Business and Trade

Someone has suggested that trade is good for the economy, since the advocacy of business for more trade proves this to be the case. Yet it would be unnatural (and should not happen from a governance perspective) for businesses to put increasing jobs and wages for the nation as a whole as a priority in their boardrooms. Just saying this makes it sound as ridiculous as Senator Sanders’ continual attack, in the US context, upon business profits.

Adam Smith’s “Invisible Hand”

It is the government that has actually made Adam Smith’s “Invisible Hand” work with all the power it has manifested in the 19th and 20th century. It did not happen by some wonderful and mysterious alchemy, as some economists seem to think. Yes, protectionist trade policies can lead to increasing jobs and wages.

It is the government’s job to make sure that trade agreements it signs increase jobs and wages; it is not the job of business.

Yes. It is amazing, but the governments of USA and Australia have delivered the fundamentals of economic growth, mostly through protectionist policies in the 19th century (USA) and in the 20th century (Australia). They did actually increase jobs and wages.

In the US context, only Donald Trump has realised the truth of this obvious point. Certainly not most “economic experts.”

Economists are yesterday’s prophets

Recent history has shown that so-called economic experts are blind to economic and political facts. They are stuck in a 1820’s paradigm. Despite having had nearly 200 years to check out whether Comparative Advantage works or not for ordinary workers without government oversight, they haven’t bothered.

Nationalism is the only way forward

Most commentators are totally blind to benefits of a revival of nationalism. Yet this will again see governments looking after the interests of voters. How can it be otherwise in a democracy? Do commentators think that increasing jobs and wages for ordinary workers (voters) is not important?

Today, in the Australian, Bernard Salt pointed out that only 300,000 jobs have been lost in manufacturing over the last 16 years, but 1.3 million jobs have been added elsewhere. Yet despite the superficial appeal of this analysis for the zero-tariff argument, it actually means that 300,000 people are now out of a job and will not be able to retrained in anything like the jobs that they have lost. They are NOT going to get jobs in the rapidly growing medical / health industry, except as janitors and ancillary staff. Perhaps they can all become baristas in the food service industry! Is that the best we can offer?

Yet a modest tariff regime that would increase the probably of these people being employed in paid jobs, suited to their skills and abilities. Sure, well-paid medical workers and economists might have to pay 10% more for some goods, but they can afford it!

Sometimes we forget that an average IQ is 100, not 150, even in the USA or Australia! Not everyone can be trained for a highly-skilled job.

Increasing jobs and wages

Jobs and wages are more important than ever-cheaper goods. Who can deny it? Apparently, almost all economists. Unfortunately they are leading a declining bunch of out-of-date politicians by the nose to their decline and eventual irrelevancy.

Nationalism will eventually prevail over the current ideologically driven, dominant, economic approach.

Bring on the day! In USA, Donald Trump has began to introduce a tariff regime that is fair to the USA.

Emmanuel Macron offre un faux espoir

Emmanuel Macron offre de faux espoirs à la France et aux marchés financiers, qu’il peut mener la France dans un avenir meilleur. Il ne peut pas.

Partager les marchés adorent Emmanuel Macron

Au cours des 2 derniers jours, les marchés de la part du monde ont augmenté de 1% à 2%, ce que les experts attribuent à la marge étroite que Emmanuel Macron a obtenue sur Marine Le Pen au premier tour de scrutin. Plus précisément, ce «sentiment positif» est appuyé par le mouvement des dirigeants socialistes et républicains français pour endosser Emmanuel Macron, afin de s’assurer que l’agenda radical de Marine Le Pen ne gagne pas le terrain central.

C’est un faux espoir

Bien sûr, si Emmanuel Macron gagne la présidence, le capital mondial sera superficiellement le gagnant, de sorte que la réponse des marchés mondiaux est assez rationnelle. Cependant, il sera effectivement contre-productif.

Une économie nationale robuste doit fonctionner pour tous, pas seulement pour les gagnants. Malheureusement, l’agenda d’Emmanuel Macron est un programme pour les gagnants, pas pour tout le monde. Il veut supprimer l’état de la protection du salaire des travailleurs. En d’autres termes, il veut faciliter la concurrence dans un monde où le capital mondial peut déplacer le travail d’un pays à l’autre, en poursuivant le coût salarial le plus bas en fonction des compétences requises. Cela augmentera les bénéfices mondiaux des entreprises à court terme, mais cela réduira également la taille du marché français pour la production des sociétés mondiales.

La macroéconomie d’Emmanuel Macron est inefficace

La perte de la prospérité générale, qui se poursuivra sous les «prescriptions» politiques d’Emmanuel Macron, est quelque chose que les macroéconomistes, comme Emmanuel Macron, ne comprennent pas. Quelque chose de plus qu’une macro-pensée est nécessaire.

Les entreprises mondiales produisent principalement des biens que le quart supérieur de la population mondiale veut, et non ce que veulent les plus pauvres des trois quarts. Les besoins de ce dernier sont toujours axés sur la nourriture, les vêtements et les abris. Ils n’ont pas besoin de voitures de luxe, telles que celles produites en France, ou des vêtements coûteux ou de haute couture. (Il est possible que certaines entreprises alimentaires mondiales puissent convaincre les Africains pauvres que le lait en poudre est meilleur pour leurs enfants que le lait maternel, mais je laisserai cela d’un côté).

Prendre des emplois loin des Français réduira la prospérité de la moitié inférieure de la population de la France. Ils cesseront d’acheter leurs biens, car ils ne peuvent plus se le permettre. En outre, les petites entreprises de France seront appauvries en raison d’une perte de ventes aux consommateurs français ordinaires. À leur tour, ils ne pourront plus se permettre d’acheter plus de véhicules à moteur à la hausse.
Pour ceux qui ne comprennent pas la dynamique positive de la circulation circulaire des richesses des plus riches aux plus pauvres (pas par l’aide sociale ou un salaire minimum universel), je leur suggère de lire George Money’s Money, Blood and Revolution, présenté sur ce site.

Emmanuel Macron ne se préoccupe pas des travailleurs ordinaires

Il ne fait aucun doute que Emmanuel Macron est sur le chemin de tromper les électeurs et les travailleurs ordinaires. Je laisserai son ordre du jour à l’ordre du jour.

Il propose de convaincre Berlin au cours des six prochains mois d’adopter une politique d’investissement active et de progresser vers une plus grande solidarité en Europe.
Il a promis de réduire le taux d’imposition des sociétés de 33 pour cent à 25 pour cent.
Il veut garder la semaine de travail juridique à 35 heures, mais laisser la négociation des heures réelles de travail aux entreprises.
Il a également fait valoir que les salariés à faible revenu ne reçoivent pas certains avantages sociaux.

Ce sont toutes des politiques raisonnables pour faire face au malaise économique de la France, mais n’aura aucun impact sur la perte d’emplois et les salaires pour les travailleurs adultes et ne fixera pas le chômage des jeunes. Ils peuvent réparer les problèmes qu’il peut voir, mais pas ceux qui affligent la nation.

Au lieu de cela, un véritable correctif peut être construit autour d’un mouvement pour augmenter le travail effectué par les Français, même en augmentant leurs heures de travail. Cela ne peut pas être fait si la France reste désavantageusement liée à l’économie allemande via l’euro. Il sera également très difficile à réaliser si la France continue de ne pas maîtriser le nombre de nouveaux travailleurs potentiels entrant dans leur pays.

La solution d’Emmanuel Macron ne sera pas efficace – ce n’est même pas une “solution”. C’est juste un moyen de retarder le mauvais jour de la vérification. Son élection va empirer une mauvaise situation et se hâter d’une solution encore plus radicale. Les électeurs français ne toléreront pas longtemps les politiques inefficaces de l’élite intellectuelle.

Emmanuel Macron offers false hope

Emmanuel Macron offers false hope to France, and to the financial markets, that he can lead France into a better future. He cannot.

Share markets love Emmanuel Macron

Over the last 2 days, share markets around the world have risen by between 1% and 2%, which pundits attribute to the narrow margin that Emmanuel Macron achieved over Marine Le Pen in the first round of voting. More accurately this “positive sentiment” is supported by the move by both the French Socialist and the Republican leaders to endorse Emmanuel Macron, in a effort to ensure that the radical agenda of Marine Le Pen does not gain the central ground.

It is a false hope

Sure, if Emmanuel Macron gains the presidency, global capital will superficially be the winner, so the response of the world’s share markets is quite rational. However, it will actually be counter productive.

A robust national economy needs to work for everyone, not just for the winners. Unfortunately, Emmanuel Macron’s agenda is a program for winners, not for everyone. He wants to remove the state from the protection of workers’ pay. In other words he wants to make it easier to compete in a world where global capital can move work from one country to another, chasing the lowest wage cost commensurate with the skills required. This will increase global corporate profits in the short term, but it will also reduce the size of the French market for global corporations’ output.

Emmanuel Macron’s macro-economics is a dud approach

The loss of general prosperity, which will continue under Emmanuel Macron’s policy “prescriptions” is something that macro-economists, like Emmanuel Macron, cannot understand. Something more than macro-thinking is required.

Global corporations mostly produce goods that the top 25% of the world’s population want, not what the poorer 75% want. The latter’s needs are still focused on food, clothing and shelter. They do not need luxury cars, such as are produced in France, or expensive food, or haute couture clothing. (It is possible that some global food companies might convince poor Africans that powdered milk is better for their children than mothers’ breast milk, but I will leave that to one side for the moment.)
Taking jobs away from the French will reduce the prosperity of the “bottom” 50% of the population of France. They will stop buying their goods, because they can no longer afford them. In addition, the small businesses of France will be impoverished because of a loss of sales to ordinary French consumers. In turn, they will no longer be able to afford to buy more up-market motor vehicles.

For those who cannot understand the positive dynamics of the circular flow of wealth from the richer to the poorer (NOT via welfare or a universal minimum wage), I suggest they read George Cooper’s Money, Blood and Revolution, introduced on this site.

Emmanuel Macron doesn’t care about ordinary workers

There is no doubt that Emmanuel Macron is on a path to dud ordinary voters and workers. I will let his policy agenda speak for itself.

He proposes to convince Berlin in the next six months to adopt an active investment policy and move towards greater solidarity in Europe.
He has promised to lower the corporate tax rate from 33 percent to 25 percent.
He wants to keep the legal work week at 35 hours but leave negotiation of real work hours to companies.
He also argued that low-wage earners not receive certain welfare benefits.

These are all reasonable policies to address the economic malaise of France, but will have zero impact on the loss of jobs and wages for adult workers, and will not fix youth unemployment. They may fix the problems that he can see, but not those actually afflicting the nation.

Instead a real fix can be built around a move to increase the work done by French people, even increasing their hours of work. This cannot be done if France remains disadvantageously linked to the Germany economy via the Euro. It is also will be very difficult to achieve if France continues to have no control over the numbers of new potential workers entering their country.

Emmanuel Macron’s solution is a dud – it is not even a “solution.” It is just a means of putting off the evil day of reckoning. His election will make a bad situation worse, and will hasten-on an even more radical solution. French voters will not tolerate the ineffective policies of the intellectual elite for much longer.

Higher Minimum Wages in the Developing World

Higher Minimum Wages in the developing world will increase prosperity everywhere.

G20 & WTO should lead

The G20 and the WTO have dropped the ball on trade. They should be taking the lead in “forcing” downtrodden nations go for higher minimum wages. But they don’t – the G20 and WTO just hand all such matters over to the leaders of global industries, aka “the market.”

While increased trade has resulted in some improvement in living standards in some developing nations, in general the gap between the developing world and the rest has not narrowed very much, especially if you leave China, Taiwan and South Korea out of the picture. The difference in those places is that the leaders of these nations didn’t believe the more trade would be enough: they also decided to control the situation more tightly.

These two “organizations” congratulate themselves on having done a good job in increasing the standard of living in the developing world.

They congratulate themselves too much. China has been the biggest beneficiary from free trade with the West. They have done this by keeping much of their own protective regime in place, and closely managing their own economy vis-à-vis the rest of the world. They call this “communism with Chinese characteristics.” There is no way that the Chinese will put themselves in the hands of global capital, but this exactly what the G20 and the WTO are advocating. At the same time they take much of the credit for the improvement in China’s economic situation. Well, good for them! I hope it keep them happy at night, as their own constituents lose their own standard of living at the same time.

Mexico needs a higher Minimum Wages

Take Mexico as an example. Many commentators believe that Mexico has benefited from NAFTA. Certainly the Mexican government believes this to be the case. However, Mexican workers receive $15 day, whereas their wage competitors in the USA receive $15 hour. This is not because Mexican workers are only one eighth as productive as US domiciled workers, as someone has ridiculously suggested.

Don’t expect global corporations to encourage developing nations to introduce higher minimum wages. They love low wages. They won’t fix them, and indeed, they can’t. To pay more for labor than the market requires would be a breach of their governance standards.

WTO could support Higher Minimum Wages

A real fix would be for the G20 and the WTO to introduce a rule that says something like this: “Country based tariffs can be introduced where the effective minimum wage built into the goods being imported is less than half the effective minimum wage in the importing country.”

Taking Mexico as an example, if higher minimum wages were introduced the Mexican government would be compelled to introduce a minimum wage that was equal to half the effective minimum wage in the USA. Such an action would see real benefits being achieved from that nation’s increased export activity.

Nevertheless, while the G20 will have to backtrack on its impotent rage against Trump’s trade rhetoric following his election, it will do nothing of any use in fixing the trade problems of the world. Apparently, the G20 leaders do not understand that crushing the wages of ordinary workers actually reduces national wealth. They do not understand how global corporations work, and that they are not a force for improving the wages of ordinary workers. Perhaps they should read George Cooper’s Money, Blood & Revolution.

Fake News – What is happening?

In his recent Press Conference, Donald Trump implied that mainstream Media were continuously pumping out “Fake News.” Was this a fair assessment or not?

There is an general assumption that mainstream Media have a code of conduct that results in news being presented in an objective manner. That is what media outlets operating in this space think that they are doing. Therefore they are gob-smacked that the President would say that they are pumping out “Fake News.” Their surprise is understandable, given the assumptions they are making about their own behavior.

Defining “Fake News”

Among an audience of journalists, “Fake News” would imply that a story is fabricated. On this standard, it is unlikely that mainstream media is pumping out “Fake News.”

Despite this, a large part of the wider audience can see that the presentation of news about Donald Trump is biased against him, even if the media are too blind to see it. In fact, this is not a matter of “Fake News” per se, but rather a matter of selection of the material, and the way questions are framed.

We are all aware of “Fake News” element of a question like, “When will you stop beating your wife,” implying that the person asked is actually beating his wife, even if it has not yet been established as a fact. While mainstream media are probably not asking questions as blatant as that, there is an ever-present danger, with a hostile media, that questions are designed to demonstrate that the person asked has committed some offense, yet without giving the interviewee a chance to address the implied substance of the question. If that were done, it certainly could be classified as “Fake News.”

Fake Reporting

It is more likely that Donald Trump is facing a different phenomenon, namely “Fake Reporting.”

“Fake Reporting” can be defined as reporting that purports to be objective, but is not. It is when reporters become partisan players, and not objective observers.

While many in the media think, “Surely everyone knows that the media play a vital role in the running of a democracy.”

If mainstream media want to be considered to play “a vital role in the running of a democracy,” they have to be more than partisan players: they have to be objective. Also, if they are really going to be constructive players they should give some thought to the end result of their forays into political agitation. It is expected that politicians will think about the long-term consequences of what they say – that is why some of Donald Trump’s pronouncements provoked such a reaction: he didn’t do this as he was expected to do. Yet now the media’s reckless behavior is considered to be normal and doesn’t provoke any self-examination at all.

An objective media is not supposed to act as a second opposition party, running a defacto counter-government line on every question. What is needed is balanced consideration of both sides of every question. Instead, what is delivered is something that can be described as “Fake Reporting.”

Every media outlet is entitled to deliver news in whatever way they consider serves their own objectives. This has always been the case, with papers that have served a Communist ideology on the one hand, and magazines that have particularly served a Capitalist ideology of the other hand. Also other papers have done well by publishing material that have served the reading needs of less educated readers. All that is OK, with no reason for this situation to be changed. However, most educated readers will turn to the mainstream media to get their news, and they trust that it will be objective.

So it is particularly offensive for media outlets that think that they are being objective to have departed so far from their own charter, yet keep up the charade that they have not changed. Elsewhere I have listed one fairly mild example of such behavior: I am sure that there are many worse cases. We even have been able to observe an invited journalist shouting out in a partisan way as the President was leaving his press conference.

I know for a fact that there is a continual stream of non-objective commentary on the Australian government funded “our ABC” on Donald Trump, which I find particularly offensive. (Make me a king for a day and I would cut their funding, immediately.) If reporters want to be partisan, let them at least not be government funded, and certainly do not claim to be objective.

Selection of Material

The brouhaha over the Russian scandal is a case of “Fake Reporting” partly due to the selection of material, and partly due to the way the material is handled.

Here is a summary of the situation as I see it from Australia:

John Podesta, the chairman of Hillary Clinton’s campaign, revealed his email password to a Russian hacker, either through his negligence or through incompetence in the DNC administration (if they failed to detect a phishing email – not hard to detect).
The Russians, who could see no hope for an improved relationship with USA via Hillary Clinton, released the content of the emails to the press, which the press duly reported, thus damaging Clinton’s prospects, as Russia hoped.
John Podesta’s emails were interpreted to show that Hillary Clinton belonged to liberal elite, and did not have great concern for her nominal base, the working men and women of the USA. This turned voters against her.
Donald Trump was very pleased to have this negative information about Hillary Clinton circulating and, at a rally, encouraged the Russians to keep doing it. This was one of many cases of Donald Trump’s stepping outside of the established norms of public behavior. Even though voters recognized that this was not a normal response (and many didn’t like it), they voted for him anyway, and he won the electoral college.
Then, in this interregnum before inauguration, Trump’s National Security Adviser designate talked to the Russian ambassador about future relationships with the Trump administration. Some claim that this is not permitted under the US constitution, even though this interpretation would be particularly unworkable. It also is based upon a clause in the constitution that has never been prosecuted and therefore has never been subjected to judicial review. (In addition, taken to this extreme, an incoming President would be particularly hamstrung.)

What is achieved by pursuing this matter endlessly? Hillary Clinton lost because she failed to convince sufficient voters in sufficient states that she should be elected president.

Unless I have missed something, the whole “Russian thing” is a storm in a teacup. It is case of “Fake Reporting;” partisan reporting pretending to be objective.

Fake News or Fake Reporting – who cares?

The “positive” outcome that the mainstream media seem to want is the impeachment of Donald Trump, and the consequential restoration of the former ascendancy of the liberal elite. The latter will not happen: it has had its day. If the former does happen, heaven help the USA. Surely a democratically elected president should not be impeached because he offends the liberal elite. Does anyone really think that such action will heal the divisions in the USA? Rather, the divisions in the USA will be healed by restoring the jobs and wages of ordinary workers, which is Donald Trump’s agenda.

Liberal Elite – A Song of Despair

The liberal elite were happy in their little worlds, the London metropolitan crowd and the Washington Beltway crowd.

They peered out of their ivory tower from time to time and monitored the headline statistics, everything was fine.

The liberal elite were unaware of the working poor. The Washington Ivy League graduates and the London privately educated just don’t mix with these sort of people.

They want an inclusive society, but don’t really want to include themselves in it, they are the liberal elite; sure of their values and relevance; dismissive of those without their degrees and high-flying jobs.

The working poor don’t even show up in the unemployment statistics. The other statistics show all the rewards going to the 1%, and rising exponentially within the 1%.

Suddenly they ask, “BrExit and Trump, how did that happen?” It was out of the blue.

The liberal elite were unaware of the problems that were developing outside their ivory towers.

While the working poor don’t show up in the statistics, but, surprise, surprise, they do vote.

The Conservatives found the working poor after BrExit, together with a new truly conservative leader, who wants the country to work for everyone.

Trump has appealed to those abandoned by the liberal elite. Surprise, surprise, he now runs the country.

He even fights back against selective reporting in the press that is designed to bring him down. The press say, “Surely he can’t now be punching back – it’s our place to punch him. The rules say that he should only defend himself from our blows!”

The liberal elite now peer out of their ivory tower, and feel the pain of their new irrelevance.

Still unaware of the working poor, they say, “BrExit and Trump, how did that happen?”

The liberal elite are not happy in their little worlds, the London metropolitan crowd and the Washington Beltway crowd.

Adapted from Sound of Suburbs

Media Bias – The Challengers don’t like to be Challenged

Media bias reflects the fact that most of the major media organizations have their own agenda. It starts with unrestrained free trade and ends in the hope that everyone will benefit. Donald Trump has pricked their balloon, and they don’t like it. In fact, they are highly embarrassed that their complicity in the current economic malaise is being exposed by an “outsider.”

Media Bias – A Western Pattern

I listen to PBS, France24 & the Australian ABC. Also I read the (UK) Financial Times, the Australian Fairfax press and the Australian. All except for the later, which has a reasonably 2-sided presentation, treat Donald Trump as a punching bag (especially the government funded national broadcaster, “our ABC”). None of them like it when Donald Trump punches back. I say, it is about time that the media is held accountable for their biased reporting.

Media bias is obvious to any objective observer. As an historian, I know that history is a matter of selection – what will be included – what will be excluded. We know what the media are including. Today I listened to the NewsHour “debate” between Mark Shields and David Brooks. As today’s show demonstrates, the two contributors and the host were keen to highlight anything that puts Donald Trump in a bad light. Here are just a few examples:

“Not enough positions with confirmable candidates have been confirmed.” That is not Donald Trump’s fault. It reflects more directly on the action of Democratic Senators, not a failure on Donald Trump’s part. If the Democrats are holding up appointments (for good or spurious reasons), the delay cannot be put solely at Donald Trump’s feet, but that is what the 2 debaters and the host did today.
The disgraceful situation where leading figures in the intelligent community are openly passing on confidential information to press was not criticized once in this discussion. These leakers should be prosecuted as Obama tried to do with Snowden, and has done with Manning. Yet this was not mentioned as a caveat to the discussion on the “Russian situation.”
The implication that Trump is a boy in a man’s job, which came from Mark Shields, will be shown to be a nonsense. It is just out of the current Media Bias play-book. Rather than Donald Trump not being up to the job, he is willing to address the ridiculous situation when US workers on $7.50 and hour or more have to compete for their jobs with Mexican workers on $15 day, whereas neither the Democrats or the pre-Trump Republicans even thought this was an issue that could be addressed.
Trump was willing to bell the cat on the impossible situation in the West Bank, which cannot be solved via a 2-state solution (since that region has been permanently cantonized by settlements for over 20 years), despite official UN approval of this ridiculous approach. Diplomacy has failed the world here and also in Syria, with the attempt to replace a stable government with one that is likely to be led by Saudi-influenced Sunni radicals.

Where is the discussion of the breath of fresh air that Donald Trump has brought to such matters? Nowhere to be seen on PBS, France24, Aust ABC, Aust Fairfax or in the Financial Times. Apart from resistance to his necessary and economically compelling agenda, we just have complaints about Donald Trump pushing back against a constant media onslaught. Certainly the media do not want anything like a level playing field and are not willing to even think about the possibility of Media Bias from their own organizations.

End Media Bias for your own good

My advice to the so-called Main Stream Media, is “Grow up.” Learn from the election result. Donald Trump won the electoral college by a thumping majority. Surprise, surprise: the liberal elites lost the election. Their mutual love-in, led by Barack Obama and for which Hillary Clinton was their default candidate, which has seen ordinary working people lose their jobs while others earn an extraordinary rate of pay, has been dispatched by democratic forces.

In addition, we can say that the expectation of Mark Shields that Trump will lose electoral support is a dream. The US economy has already turned the corner, and that has been just on the anticipation that Trump will put his plans into operation. Just be aware that when the numbers on the economy come in at the end of this year, the media will change their clothes, because if they do not, they will be all out of job and new media will take the place of the current media.

Prosperity, Insecurity and Poverty

We live in a time of great prosperity, unparalleled plenty, variety, health and peace. We also live in a period of intense and global competition, where not one job has even a scrap of the security that a job might have had 50 years ago.

Unparalleled Prosperity, with increased Insecurity

We are more prosperous than ever before, but would any ordinary working person willingly accept that getting everything 20% cheaper is really worth the employment insecurity that the current free trade arrangements are causing? I doubt it.

Automation is NOT the problem

For those who argue that it is automation, not unrestrained free trade, that is causing increased employment insecurity, I say, “Balony!” I spent a large amount of my working life implementing automation, and it didn’t lead to widespread unemployment. That is because the governments of the world hadn’t yet handed over power to global corporations, via unrestrained free trade.

Prosperity provides an opportunity to fix poverty

We can use the world’s prosperity to lift nations out of poverty, via trade, but we have to do it differently. It is no good just using our prosperity to lift the incomes of the top 20%.

We have given up the opportunity that prosperity has provided, since the great democracies of the world have surrendered their authority and power to global corporations. Shame, shame and more shame upon them all.

How to fix

There is a fix. It is in the hands of voters. It is also in the hands of the world leaders, via the WTO. It is Donald Trump who has provided the catalyst. Those who condemn him are among the worst offenders in regard to causing the current malaise. So I support Trump’s abrupt and counter-cultural rhetoric! Shock, horror!

We will be the poorer if we don’t pick up the baton that he has placed in the next runner’s hand.

Lower Company Tax Rates will NOT fix Economic Malaise

Company Tax Rates are not the reason that economic growth is sluggish in the current global economy. Lowering Company Tax is not a priority

While cutting company tax rates to attract and keep businesses in the country is currently an attractive idea, it is without proper theoretical justification.

Company tax on Domestic Earnings

If I can earn 2% profit on domestic sales of $1b = $20m, and pay 10% tax, then the net income I can earn is $18m. However, if I can earn 5% profit on sales of $1b = $50m, and pay 25% tax, then the net income I can earn is $37.5m. I am much better off if I can increase my profit margin, rather than seeking lower company tax rates.

If imports are subjected to a 5% tariff, then this situation is more than possible.

Furthermore, if I need a 5% profit in order to profitably invest, then I won’t invest in a high-cost country. This is closer to the real situation in the world, where there is not a problem with corporate tax rates, but there is nothing in which to invest in the West. Competition from the East is driving away all investment opportunities, which is actually also hurting the East, since it markets are drying up.

The current situation is both appalling and lacking in a theoretical justification, despite the dominance of this ideology among the elites. If they don’t wake up, they will lose all influence in the West, as is beginning to happen in the USA, France, and even in Australia.

Global Trade Reform is required

As Donald Trump has demonstrated, the West’s voters are calling for a trade realignment. None of the main-stream parties are really on board (even the Republicans are running on Trump’s coat-tails and are not “true believers”). Indeed, President Trump has created a catalyst for global trade reform. The USA could use this opportunity to implement reform via WTO that will work for both developed and developing nations. Yet it remains to be seen whether Global Trade Reform will happen.

Since this not now (May 2018) likely to happen, governments need to look at smaller changes that they can make. For example, in Australia, the government could introduce an Overseas Out-Sourcing Tax. This should be levied to cover the additional costs that Australian companies have to pay for locally sourced labour. These costs are: Superannuation Levy 9.5%, payroll tax 5%, and leave payments 5%+. That then adds to a 20% levy that should be charged for every company purchasing services from overseas – it is just a case of moving towards the (impossible to achieve) aim of a “level playing field” (I use their terminology against my opponents). This can be easily collected via a self-assessment system, added into the BAS.

Company Tax on Export Earnings

In regard to exports, why would I set up in any high-cost country to export to the world? The reason must be the quality of the staff that I could employ, and the higher export sales (or lower final costs) I can achieve. Let us follow that scenario.

If I can earn 2% profit on export sales of $1b = $20m, and pay 10% tax, my net income will be $18m. However, if I can earn 2% profit on export sales of $2b = $40m, and pay 25% tax, my income will be $30m. If this were the situation, my decision to move my business to a high-cost country would be entirely rational on the grounds of higher potential net profit after tax, even with a higher rate of tax.

Surely, few can dispute the significant advantages of more skilled staff. If anyone wishes to do so, please explain why tech companies are located in high wages, high taxes, California, rather than in Bangladesh, with low wages, and a tax holiday.

Domestic Demand drives most Business Income

Most businesses primarily service domestic demand. If that fact were given more attention, the current economic malaise would be fixed overnight.

Nevertheless, mainstream leaders like to mix with the (export) winners, not with domestic players. Their obsession with a particular economic ideology will see the world being changed, but not in the direction they are planning. Lowering company tax should NOT be a first priority.

Steven Keen on Democracy and Capitalism

The radical Australian economist, Steven Keen, has somewhat surprisingly “come out” as an opponent of Free Trade, at least as currently practiced.

In an breakthrough interview published in The Epoch Times, Steven Keen explains how Donald Trump could revive American manufacturing. This article is tellingly entitled, “Why Free Trade Doesn’t Work for the Workers.”

Steven Keen argues Ricardo’s (1820) theory is flawed

Keen pointed out that the argument by classical economist David Ricardo (1772–1823) about wine and clothes involved the workers in one industry losing their jobs. Ricardo assumed, as do modern neoclassical economists, that workers in the losing industry can get a job in the winning industry. So it’s assuming full employment, everybody who wants a job gets a job, which is not the real world. And they also assume you can move resources from one industry into another. Certainly, workers can be retrained. While it takes time, it can be done.

Drawing an example from China, Keen noted that China now produces more of everything, and that it is not possible is turning a weaving machine into a steel furnace. And that’s why you have the rust-belt. In the case of China and the United States, the steel plants in the United States won’t become weaving machines; they just turn into rust. So what you have is absolute destruction of physical resources in one country. Or they ship the capital to the place where the low wage workers are, like China or Mexico, and what you get is a class redistribution of income. The workers in the developed country lose, the capitalists in that country gain.

Steven Keen argues that Free Trade gives Capitalists a “Free Kick”

Keen observes that in this scenario, capitalists in the developed country still own the machinery and employ people but in a different country and at lower wages. Then they sell the products back into the American markets at the same prices but at lower costs. So they gain, and the working class has to finance their consumption with increased levels of debt because they don’t have the income anymore. The workers in the developing country also gain, so it’s also a wealth transfer from the developed to the developing country.

Why BrExit “won” & why Trump won

Steven Keen comments that in a democracy you get to the point where the workers have lost so much because of globalization, they get sick and tired of hearing the fairy tale that they won’t suffer and that it’s all for their own good. And they look at their decayed streets and factories and dismal jobs and lower share of income, and they say: “You know what, I’m going to vote against this.” And that’s what we are seeing globally now with Trump and Brexit, this revolt against globalization and financialization. The absolute losers of all of this are the working class of the first world. The winners are the multinational corporations.

Welfare vs Work

In an interesting and perceptive comment on human nature, Steven Keen says that humans get their sense of self-worth by contributing to a community. If you are human and you are being paid for staying alive, you are not particularly happy about it, your sense of self-worth is pretty low. But if you have a job and can contribute to a community, that’s where your sense of self-worth is going to come from. All this welfare is replacing work which is the case in the rust-belt areas makes people angry and resentful. Their self-worth is challenged and they are not going to be happy with the establishment.

He believes that is why Trump has such an appeal, and they don’t care about him being politically incorrect. They like the fact he is like a human hand grenade. They threw the human hand grenade into Washington.

Automation

Getting closer to a nuanced view on automation than most commentators, Steven Keen begins by arguing that part of the motivation for American businesses to move production offshore was cheap labor. But with better and better robots, you can have machines you can retrain for different assembly processes. And you have 3-D printing turning up, which has become mainstream. So it means you can produce onshore without cheap labor. But it also means you can produce without labor at all.

Although he does not define what “a well-functioning human society” would look like, he thinks that in such a society producing without any labor at all would not be a problem. He believes that the problem in a neoclassical capitalist system is that the workers lose out because their only source of income is wages. If there is no need for wages anymore, you don’t have an income anymore.

My Response

Steven Keen’s analysis of the modern economic dilemma is first class, however he does not offer anything substantive in the way of a solution.

A declared opponent of “neoclassical economics,” Steven Keen is quite happy to make comments like, “In a neoclassical capitalist system [in this scenario] the workers lose out because their only source of income is wages.” However, when he goes on to say, “If there is no need for wages anymore, you don’t have an income anymore,” but “in a well-functioning human society, that wouldn’t be a problem.” In this he is contracting his own point that welfare-dependency is a self-defeating solution to current economic problems.

From the full text of this interview, we know that he is still an opponent of tariffs as a way of achieving balance within an economy, and still hankers after the socialist ideal of a world without artificial borders.

In this area, this site is closer to Donald Trump on the need for tariffs supporting national objectives. Nationalism is deeply rooted in human psychology (beginning with a mother’s care for her child). This cannot be claimed for internationalist objectives of Ricardo’s Free Trade ideology or Marxist ideology. While Keen sees the future as being “post capitalist,” I see the future being in capitalism being brought (again) under the control of national parliamentary democracy, thus reflecting the needs and interests of the people.

I am confident that Steven Keen would agree with me in the proposition that an objective of the political system should be to deliver a result that is in the interests of ordinary people (the top 1%ers are quite able to look after themselves). I am not so sure he would agree with me in seeing a nationalist capitalist system as the basis of that model. Time will tell on that point.

I promote Democratic Capitalism because I believe it will serve the majority of people quite well. Indeed, the current trend is in support of the principles of Democratic Capitalism. As evidence for this, I can cite Theresa May in the UK (“Democracy that works for everyone”), and Donald Trump in the USA (“Make America great again”).