Jane D’Arista: System depends on US as importer of last resort but wages too low and credit not there
PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I’m Paul Jay in Washington, and we’re joined again by Jane D’Arista. She’s an economist at the Political Economy Research Institute (PERI) in Amherst, Massachusetts. She also cofounded Committee of Economists for Financial Reform, called SAFER. So thanks for joining us again.
JANE D’ARISTA, ECONOMISTS FOR FINANCIAL REFORM: Thank you.
JAY: So in the last segment we ended up with the question, so why can’t this just keep going on? The Chinese and the Japanese can keep the American dollar afloat. And then the general thinking is sooner or later the banks and private capital will decide assets are kind of bottomed out and it’s time to start buying it again. And we’re told unemployment has slowed—is not increasing, at least. So why isn’t this a recovery, and what makes you think we could be heading for a new type of collapse?
D’ARISTA: Again, it’s a system that is based on the fact that the key currency country, whoever that may be—it happens to be the US now—has got to be the importer of last resort, and we have an economy that cannot afford that level of imports to keep the global system going. The banker function of the US out of Wall Street, as it were, with the money coming into the country and then being much too much for our own economy, being then sent out to the rest of the world, that has stopped. Trade, the fall in trade and the volume of global trade, is much worse now than during the Great Depression. So to get that trade going again, in order for other countries not to fall into deeper depression, then we have to change the system. The system doesn’t work.
JAY: Okay. The argument we’re hearing from the Obama administration and most of the sort of the conventional banking punditry establishment is that we’ve kind of reached a point of bottoming out. The private capital employers are starting to produce again. Employment’s starting to go up a little bit. People think assets [are] close to or have reached as low as they’re going to go, so it’s time to start buying again. In other words, we’re at the end of a normal cycle of a recession, and that if this starts again, then United States can once again become the great global consumer. So what’s wrong with that?
D’ARISTA: What’s wrong with that is that we are at historically high levels of debt as it is. We can’t go further. And I think you see that the American consumer is at a point where you’re not buying. I mean, a little bit, yes, but more saving. The problem with writing those checks out that the Treasury did was that people put them in their bank accounts. They didn’t spend them. They can’t spend. Do they know where their next job will be?
JAY: Or they’ll pay off debt with them.
D’ARISTA: Right, or they pay off debt, which they have. You mentioned China. So the word is out: oh, it’s their fault; they keep their currency—
JAY: Artificially low.
D’ARISTA: —yes, artificially low; and they need to raise the value of their currency. The problem for them is same as it would be for the euro area. They don’t want to play this role. They know what happened to the United States—no, thank you. They don’t want to have their currency out there where everybody has to sell them goods in order to earn their currency in order to buy all the things in the global economy that they need and don’t produce at home.
JAY: There’s one other hypothetical alternative, at least in the short run, but not one that I think is going to happen. But it’s not like there isn’t a lot of wealth that’s come into the United States. Over the last—since Reagan, the amount of wealth that’s gone from the world into the top echelon of American elites’ pockets is unparalleled.
JAY: So there could be—if there was more income distribution in the United States, if wages went up, there would be more real purchasing power, which would—I’m not saying is the final solution to this global problem, but it would be a solution that certainly would mitigate the issue. But you never hear the word “wages” even discussed in this. Like, you hear in Congress, Senate finance committees, and you hear from the Obama administration; the fact that wages haven’t moved since the early 1970s never gets talked about.
D’ARISTA: And it is a big problem. I mean, we have an unfair distribution and uneconomical distribution, because people do not buy the things that are being produced. The US cannot import at the level that it did before, and will not be able to until you fill that number of jobs that have been lost. The wages are not there and the credit is not there.
JAY: So part of a solution is a new global financial regime.
D’ARISTA: A global clearing house, which is a platform suggested by John Maynard Keynes back in the 1940s when we got into Bretton Woods. We didn’t take his ideas, but many people have held on to them over the years. The idea of a global clearing house, if you will, is that it would operate at the global level like a bank: it would take checks and clear them against balances that are held by countries with the clearing house. So if I write a check to you in my currency and you take it to your bank, it goes to your central bank, then goes to the international clearinghouse and gets cleared there against the balance that that country has, and the money comes back to you in your own currency.
JAY: So how in fact are they going to decide what a currency’s worth? ‘Cause people are saying gold, if you have some kind of market mechanism based on precious metals—.
D’ARISTA: Ah, but this would be a market mechanism, in the sense that if I have, as a country, an account in the clearinghouse and it gets run down, then obviously my currency loses value.
JAY: This exchange bank is keeping track of how much you’re buying and how much you’re selling, how much is going in, how much is going out. And if you’re in deficit, your exchange rate goes down, and if you’re in surplus, your exchange rate goes up. So there’s some kind of measurement about the actual strength of your economy.
D’ARISTA: Exactly. So it’s not a decision by a global authority on these exchange rates; it’s a reflection of what’s actually going on in the markets.
JAY: What would the effect of this be on the US dollar and the US economy?
D’ARISTA: It would be, hopefully, a neutral effect, in the sense that the US would find itself in a situation in which the value of its currency could go down without disrupting the world.
JAY: I mean, right now you’d think it would go down, given the enormous trade deficit. If this is a measurement of trade in and out, it would go down.
D’ARISTA: Right. But if we no longer are buying as much from the rest of the world, then we might be buying more from ourselves, and this might—.
JAY: So this could be a spur to domestic production.
D’ARISTA: Exactly. And that would be an ideal situation.
JAY: Okay. So we’ll talk about more solutions with Jane D’Arista on The Real News Network.
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