Sunday, September 18, 2005

The world is changing. Globalization is here to stay. Globalization essentially got its start in America’s whole-scale subsidization of western Europe in the aftermath of the World War, not only through the Marshall Plan, but also through the opening up of American markets for western European products, in order to bind Europe closer to the US, and to forestall the appeal of communism. America went even so far as to directly subsidize, through the CIA, various social democratic parties in Europe (including that of Finland) in order to split the left. The various social welfare states which received support from these policies (expanding from earlier, but weaker, beginnings) were thus an anomaly: they were born out of the realities created by the artifice of the Cold War. They were only politically necessary; they were not economically necessary.

After the collapse of the Soviet Union, we now have an economic entity in the world which is almost as artificial as that of the Soviets, in the form of the European welfare state. It is an entity which, in its construction, cannot but hoard wealth, in order to survive. It does not act as an economic stimulus to other, less-developed parts of the world, since it is essentially an end-user: no recycling of wealth takes place, as the Europeans fritter away the wealth earned from outside trade by indulging in easy living. And it cannot survive if not for a market for its exports which, by necessity to Europeans, cannot have a welfare state in turn if the European model were to survive (i.e. the less-taxed, cash-flush market composed of the American worker-consumer).

Thus there is exploitation since, ironically, in a globalized world, the fact that some parts get taxed more than others means others get exploited, as the benefits of that taxation is not transferred to others. In fact, high taxation becomes a huge problem, as it winds up restricting global trade, and thus becomes an obstacle to the developing world.

Now, running a trade deficit is not transferring wealth, but the selling of debt instruments certainly is. A trade deficit which is financed by loans from the seller is not exploitation at all: the world is filled with business deals such as these, from car loans from manufacturers, to easy credit terms from banks and realtors. And it has been incredibly useful in helping those who need help – in this case, lifting hundreds of millions of Chinese out of poverty. FDR even had a term for it: “pump priming”, a farming term that referred to water being forced through a pump in order to get it to work. US consumption acts as the necessary pump primer for Chinese growth. The trade deficit, however, could not be financed if not for Asian purchases of US securities. Thus the Chinese and the US have a mutually beneficial relationship – no exploitation takes place. And the Chinese, it turns out, are better than the Europeans in allocating the resources earned in trade, as they don’t fritter away the wealth in easy living, thus increasing the likelihood that the US will have a better trading partner in the future.

Consumption is not a favor one does to someone else, but it is an economic tool, in addition to being an end goal. Its most effective implementation as a tool is realized not by state consumption, but by taxpayer consumption, since outsiders can respond more readily to the tangible consumption needs of consumers, rather than the intangible, untradeable benefits of a welfare state. A taxpayer whose consumption increases because of lower taxes also increases market efficiencies, since the market is always more responsive than the state in allocating resources.

Yet the welfare states refuse to acknowledge the present state of affairs, being ruled by elites who have an interest in maintaining the status quo. So the exploitation continues. However, what we do see rising is a realization that the inequitability of European freeriding cannot be permitted to go on. The justification for the elimination of the European welfare state is there. Whether the extermination process has to happen willingly, or by force, remains to be seen.


Blogger Twilight Fairy said...


err.. was planning the meet in Finland only..that would have of course depended on where you are...something I wasnt quite aware of.

11:53 AM  
Anonymous Anonymous said...

You say the welfare states were politically necessary for the US and this is why America helped create them. Now America should overthrow them by force?

If China is so much better than Europe then why don't you advocate the one-party Communist model for all European states as an easy way out of the welfare state?

7:14 AM  
Blogger Tero Lehto said...

Fortunately globalization hasn't gone too far yet. I mean, where will I spend my holidays in the future, if there aren't any poor people in the world?

Next month I will visit Thailand for two weeks. I love going there, because I can feel like a roayl. Luxurious hotels, Thai massage, good food, very affordable beer, wonderful clothes from the local tailors and so on.

Last Christmas and New Year's eve I spent in Miami Beach and was sad to see how poor I actually am with my Finnish average level income. A long dinner in a nice restaurant was easily US$150 and then taxis and other expenses in addition to this. It's sure I won't spend my holiday in the U.S. before getting a lot better level of income.

Oh, I loved the good service and nice atmosphere in Miami Beach. It was just too expensive compared to developing countries.

It seems that many people don't actually understand how much of our standard of living is relative; based on that there are enough poor people in the world.

7:50 PM  
Anonymous Kevin said...

Funny how US$ go to Asia to purchase imports, then are cycled right back to the US as capital inflows ... kinda like an electronic circuit.

Tero: You know, you can get good eats in the US for less than $150 a meal. I know a place gives you a big hot dog and a coke for $1.50. How do you think we got to be so fat? Seriously, perhaps you could try a vacation in Texas, or San Diego, lotsa cool places.

10:00 PM  
Blogger Tero Lehto said...

"You know, you can get good eats in the US for less than $150 a meal. I know a place gives you a big hot dog and a coke for $1.50."

I don't want fast food, but instead big steaks, pizzas, good pasta, fish, shrimps and so on.

Of course I had some cheap fast food for lunch too, but actually my point was to provoke discussion about relative differences in standard of living even between Europe and the U.S.

Anyway, I'm sure I'll spend my vacation in the U.S. again in the future, even though it's a bit too expensive compared to poor countries.

11:57 PM  

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