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Against the Grain - May 23, 2012 at 12:00pm

Against the Grain, for May 23, 2012 - 12:00pm

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Against the Grain

Dean Baker discusses stimulus measures and "the need to get the dollar down"; Richard Wolff talks about the pattern of bailouts, government borrowing, deficits, and austerity.

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Besides these two comments

Besides these two comments one has to think more clearly in knowing that money is a system of justified discrimination. Its an institutionalized way of thinking where one group of people with money are allowed to live better and prejudice against people with less money. It is nothing more than a systemitized way of thinking, it has no value or truth to it, it isn't real in any way other than people believing in it and making it real as they impose it on themselves and others. The solution is knowing that money is a false god, stop working for it and ordering your life around it, build shelter, grow your own food, help each other as a community that's it, no need for money.

Richard Wolff is someone I

Richard Wolff is someone I appreciate for his critique of our rigged two-party political system. This two-party system persuades many of us we actually have democratic elections, despite the fact our system means ‘one dollar, one vote,’ rather than ‘one person, one vote,’ and despite the fact alternative political parties are obstructed from participation.

However, Wolff seems to accept antiquated notions of money. Wolff argues, U.S. government, which creates U.S. currency, a sovereign currency—the dollar—must borrow not only from the users of the currency, but from the ruling class (élites, corporations, and commercial bankers). Also, Wolff even mentions the U.S. government created the billions and trillions, which went to the FIRE sector. Yet, Wolff didn’t show how that increase in money supply or government creation of money caused any inflation. So, apparently, he contradicts himself here. Sure, Wolff critiques the austerity, which goes along with government borrowing from the private sector, but Wolff doesn’t question, much less challenge, notions of money.

Wolff dismisses government printing/issuing of money as inflationary. Yet, commercial banks create money (credit) all the time and no one derides that money creation (or increase of the money supply) as inflationary. Clearly, Wolff is opposed to capitalism. (And I agree; Marx is required reading.) But simply offering vague appeals to public embrace of amorphous concepts of socialism versus capitalism isn’t compelling. Even a ‘socialist’ government must wrestle with the challenges of political economics, of trade, of currency—money.

To me, what’s more compelling is to question precisely what money is and what role government plays in its creation, especially, as our collective faith in fiat currency, such as the U.S. dollar, is predicated upon government of, for, and by the people. So, if we ostensibly have a government of, for, and by the people, we also have a currency of, for, and by the people. As Dr. Michael Hudson has noted:

"The important thing to realise is that every economy is planned. The question is: Who is going to do the planning? Will it be […] by Main Street, by government on behalf of Main Street to help long-term growth, to help employment? Or will it be planned by Wall Street or, even worse, by your bankers, which are even worse, even more predatory, even more enjoying evil than I have ever seen on Wall Street. The bank planning is geared toward austerity, not towards economic advance.”

All of these speech excerpts may stir emotions, stimulate healthy debate, and serve to enliven political consciousness. But there are no easy answers. Clearly, we must raise the level of our financial literacy and understanding of political economics, which affects the health of our daily lives and our hopes for true democracy in the USA. I encourage people to read New Economic Perspectives at .

Dean Baker argues in order to

Dean Baker argues in order to reduce the USA’s trade deficit, we must devalue the dollar. Baker offers the example of U.S. versus Chinese trade. If the dollar is devalued by 10%, he says, Chinese goods will cost 10% less. But doesn’t this argument require current Chinese yuan and U.S. dollar exchange rates to be currently equal? Yet, they, obviously, are not. The U.S. dollar currently equals about 6.3444 Chinese yuans. Doesn’t this mean, the dollar would have to be devalued some 534% in order to even equal the yuan before Chinese goods cost less or the USA’s trade deficit is reduced?

Baker’s argument of the dollar being devalued 10% leading to Chinese goods costing 10% more seems false given the fact the dollar is worth over six times more than the yuan. Moreover, the USA simply doesn’t produce/manufacture the goods, which China does. So, one may be hard-pressed to figure out exactly which U.S.-made goods Baker referring to, as the U.S. has long transitioned to a largely service-based economy. Baker seems to completely ignore the most crucial cost of production—labour. Goods are made in China, even under the auspices of U.S. corporations/firms because those corporations refuse to pay living wages. Yet, Baker seems to assume simply devaluing the dollar will restore the USA’s manufacturing infrastructure and lead to manufacturing jobs. Yet, we know the reason U.S. corporations outsource to foreign labour markets is due to the global labour exploitation race to the bottom.

Also, Baker’s approach to pressuring China to “raise the value of currency against the dollar” is to protect the copyrights and patents of corporate monopolies like Microsoft and Pfizer. It’s very interesting to note Baker’s solutions involve protecting the rights of corporations rather than those of workers. It’s important to remember ‘prominent’ economic analysts do not exist in a vacuum independent of national and international political superstructures. I’d bet Dean Baker is politically aligned with the Democrat Party. Baker’s tepid critique of Obama doesn’t persuade me otherwise.

Similarly, Paul Krugman also functions to obfuscate political economics and working-class realities. Consider Dr. Michael Hudson’s recent critique of Krugman’s neoclassical worldview (similar to Baker’s):

“Without recognizing the role of debt and taking into account the magnitude of negative equity and earnings shortfalls, one cannot see that what is preventing American industry from exporting more is the heavy debt overhead that diverts income to pay Finance, Insurance and Real Estate (FIRE) expenditures. How can U.S. labor compete with foreign labor when employees and their employers are obliged to pay such high mortgage debt for its housing, such high student debt for its education, such high medical insurance and Social Security (FICA withholding), such high credit-card debt – all this even before spending on goods and services?

In fact, how can wage earners even afford to buy what they produce? The problem interfering with the circular flow between producers and consumers (“Say’s Law”) is not “saving” as such. It is debt payment. And unless debts are written down, the U.S. economy will shrink just as will the economies of Greece, Spain, Portugal, Italy, Ireland, Iceland and other countries subjected to the Washington Consensus of neoliberal austerity.”

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