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Economics for the 99% Free Markets: Yellow Brick Road to War

By John Weeks.

Troglonomics

The troglodyte economics of the mainstream (aka neoclassical economics) functions as a virus of the mind.  Like a computer virus it corrupts the brain's operating system, creating shot-circuits that by-pass both common sense and the brain's analytical software.  Once contracted through formal training in the classrooms of troglonomics it proves almost impossible to remove it from the thought process.  We find evidence of the difficulty of cleaning the mind of the neoclassical virus in the writings of the few self-exiles from the mainstream who consider themselves progressive - and are so considered by the public.

Joseph Stiglitz represents an obvious example of a prominent mainstream-trained economist whose progressive views are not up to the task of purging his mind of the basic principle of troglodyte ideology, that resources are scarce and human wants unlimited (see the first chapter of his macroeconomics text with Carl Walsh, and the teeth-grinding "Thinking like an economist" boxes scattered through the book).

It is a mystery how an intelligent person (not withstanding his so-called Nobel Prize in economics which is actually awarded by the Central Bank of Sweden not the Nobel Committee) could live in a world of persistent unemployment and believe that resource scarcity is the central problem of a capitalist economy (my critique of resource scarcity is in Chapter 4 of my new book).

Resources are scarce and wants unlimited (for the poor and the unemployed).

Krugman on War (yet again)

But few progressives are more virus-inflected than Paul Krugman.  Despite his commendably progressive views on a range of social and political issues, Mr/Professor/Laureate Krugman remains a true believer in the virtues of international trade, his critique of which is limited to concerns about "market failure" (see his 1997 book Pop Internationalism, which to my knowledge he has not abandoned).

This loyalty to the mainstream trade ideology goes far to explain his singularly bizarre view of the causes of war.  In the August 17 edition of the New York Times he argued that since ancient times wars have been fought "for fun and profit" (his exact words in "Why We Fight Wars", and see a critique in my Huffington Post blog).

He went on to argue that with the increasing integration ("interdependence") among countries during the second half of the 19th century made war among countries irrational because it disrupted the benefits accruing from trade.  The argument continues with the stunning insight that wars continue to occur because 1) "leaders may not understand the arithmetic" of the cost-benefit calculations for a war (again, a quotation), or 2) politicians seek an external distraction from domestic maladies.

Other than a passing reference to some rather obscure and methodologically dubious research by a neoclassical economist, Mr Krugman cites the 1909 book by Norman Angell, Europe's Optical Illusion (Krugman cites the expanded 1910 version that was re-named The Great Illusion).  In the book Angell argued that war among countries in an economically integrated world bring no gain even to the victor (Angell was awarded a real Nobel Prize, for Peace in1933, but not for his 1909 book I hope).

It appears that Mr Krugman overlooked the irony of the world's most brutal and murderous war in 1914 so soon after the publication of Angell's book.  If wars result from mistakes of calculation, the First World War (aka The Great War) stands out as the biggest arithmetical error in the history of humanity.  The Second World War would also qualify as a notable error of calculation.

Is it credible that in 1914 political leaders would make a calculation error that resulted in the deaths of 17 million people, then a mere 25 years later their successors would top that with faulty cost-benefit arithmetic leading to a second conflagration that would consume 60 million lives?

The "war for fun and profit" argument is not only absurd; it is in extremely bad taste, betraying an extraordinary insensitivity.  I would have thought that the former if not the latter would have occurred to Mr Krugman by reflecting for a moment on the explicitly genocidal objectives of the Nazi regime.  On the contrary, he repeated the argument, much of it word-for-word, in a column on December 21 ("Conquest is for Losers").  The purpose of re-run was to demonstrate the foolish and anachronistic militarism of President Putin of Russia, who according to Mr Krugman foolishly seeks to enrich Russia by conquest.

Berlin, May 1945. Hitler got the cost-benefit calculation wrong.

War and Trade

Mr Krugman asks, "Why did Mr Putin do something so stupid" as to provoke conflict with Ukraine?  The more relevant question is, why is Mr Krugman so stupid that he has such an absurd explanation of why wars are fought?  The question has an obvious answer -- the troglodyte (neoclassical) theory of international trade which Mr Krugman accepts with only minor revisions.

David Ricardo is perhaps the most misrepresented figure in the 250 year history of economics.  To him are attributed two of the cornerstones of troglodyte economics, "diminishing returns" and "comparative advantage".  Ricardo is innocent of having formulated either.  His versions of both bear no resemblance to the nonsense found in mainstream economics and taught to neophytes as universal laws.

Mainstream theory of international trade comes down to us not from Ricardo but from two Swedes, Eli Heckscher and Bertil Ohlin (worth noting that the latter was for over 20 years leader of the People's Party, the right wing opposition to the Social Democrats, and was the political mirror image of the great Swedish progressive Gunnar Myrdal).  The "H-O" theory concludes that trade among countries is unambiguously beneficial to all, raising the standard of loving ("welfare") for both countries.

If we believe mainstream trade theory it follows that war among countries must be irrational just as Mr Krugman, Mr Bhagwati, et cetera claim.  Why fight a war with blood and gore to get what could be obtained through neighborly bargaining --  "make trade not war, Mr Putin".

No one should believe the gains from trade story.  It is based on fanciful nonsense.  The reactionary nature of the story results from two blatant misrepresentation of international exchange.  First, the Heckscher-Ohlin theory treats international trade as if it were among countries.  In a capitalist system trade is always among companies, with households far down the distribution line.  Second, it views competition in general and specifically among companies as a benign and harmonious process.

These two misrepresentations allow the pernicious fiction that international trade benefits all of humanity by bringing to each country more efficient allocation of resources and through greater allocative efficiency cheaper commodities for everyone everywhere.  In reality international trade is contest and collusion among great corporations to generate profits.  A major part of this profit seeking comes through achieving economic and political power at the national level, by buying elections or buying politicians directly.

A very large portion of cross-border trade occurs not only between companies, but within corporations ("intra-trade").  The motivations for this internal corporate trade include 1) run-away shops to avoid unionization, 2) to escape taxation, and 3) to avoid national regulations that prevent destructive environmental practices.  Any benefits to the eponymous "consumer" are more than wiped out by job losses, elimination of small producers, the race to the bottom in wages and working conditions, and global pollution.

Thanks to the Australian National Museum.

Trade & Decline of Democracy

Even more important than these negative economic effects of corporate dominated trade is the detrimental impact on democratic institutions.  Far from stimulating accord and cooperation as Krugman suggests, unregulated international trade undermines democratic institutions, limiting the policy options of governments.  Obvious examples are the two decade old North American Free Trade Agreement and the proposed Trans-Atlantic Trade and Investment Partnership.

Key element in both of these corporate trade pacts is to remove companies from the jurisdiction of national governments.  The Trans-Pacific Partnership pact would go even further, allowing companies to sue national governments for regulations that restrict pursue of profits.

In the 21st century the domination of trade among countries by corporations includes restricting the democratic rights of citizens to petition their governments for redress of the damage created by those same corporations.  This assault upon democratic governance represents this century's version of what President Franklin D Roosevelt described in his address to the US Congress in April 1938,

Unhappy events…have re-taught us two simple truths about the liberty of a democratic people.  This first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it comes stronger than their democratic state itself.  That in its essence is fascism -- ownership of government by an individual, by a group.

Countries integrated into a system of trade may go to war with each other because trade itself contains the source of conflict, aggressive competition among institutions of private power stronger than governments.  This may not be rational for "the people" of any of the countries in a conflict.  Countries do not have homogenous populations; they are divided into classes and groups.  For some groups and classes, armed conflict may bring gains, making the choice for war quite rational even on a cost-benefit calculation.

International trade aggravates the three great crises -- of finance, development and the environment -- and to those three it adds another, of democracy.  Far from a benign process fostering harmony and welfare among nations, commodity and service trade, most of it carried out by powerful private institutions, creates tensions, corruption and conflict.  As a general rule, wars kill people and enrich corporations.  That, Mr Krugman, explains why not all but most of them continue to occur.

Thanks to doomsteadiner.

[A slightly different version of the article appeared in Triple Crisis]


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