Friday, April 25, 2008

Decline of Dollar, Decline of Empire

Here's a summary of some videos on YouTube of "Decline of Dollar, Decline of Empire" a discussion at York University in Toronto (on January 18, 2008) about the subprime crisis and the decline of the dollar from a Marxist perspective. (see Law of value and capital accumulation)

The 600 billion in losses due to sub-prime crisis (as of that time) damaged the dollar's status as the primary reserve currency and further weakened the "Washington Consensus", which, in some views, is a polite name for American hegemony. (see Democracy and The Washington Consensus - J. Williamson)

Several developments give the current crisis the potential to threaten American imperialism. Credit markets have become complex and opaque. US capital is no longer willing to pay for an empire - federal revenue as a proportion of GDP has declined sharply with Reagan and has continued to decline. The dollar's status as the global reserver currency is in decline.

Dollar convertibility to gold ended in 1971. The Dollar's reserve status has been sustained by demand for US assets. This gave the US state the right of global seigniorage - the ability to print money accepted worldwide. This right is eroding. International reserves are moving away from the dollar. In 1999 the Euro was introduced. A regime of more than one center of world money is taking shape.

During the same periode, the working class in the US and europe maintained its standard of living not by wage increases but by credit - a process whose end may be signaled by the crisis.

(see also Ron Paul's End of Dollar Hegemony)

A gas tax holiday is a terrible idea

McCain used to have a respectable record of fiscal conservatism. That's why I'm disappointed in his recent "Gas Tax Holiday" proposal.

A gas tax holiday is a terrible idea. America needs to consume less oil and, as any student of the free market knows, the price signal is the means that will make this happen. The economic externalities involved in petroleum consumption, if anything, justify higher gas taxes. Expensive gas reduces the effective demand for oil and stimulates growth in badly needed alternative energy sources. Revenue from gas taxes could help reduce the federal budget deficit, which congress has so miserably failed to control.

We might also question the assumption that cutting the gas tax would really yield lower prices. Reducing a tax on a transaction benefits both parties in the transaction, but supply and demand determine how much benefit goes to which party. I'll leave it to smarter people than me to analyze the elasticity in demand of gas versus the ability to produce greater supply. But I will point out that the prospect of new refineries and oilfields being opened up to accommodate one summer's worth of gas-guzzling RVs seems unlikely.

The age of oil is coming to a close. If America wants to be a leader in the coming century, we will need to be a leader in alternative energy. Going deeper into debt to help people cling to a dying technology is a lose-lose proposal. The McCain campaign is capable of better.

Monday, April 21, 2008

Weingast on Violence, Power and a Theory of Nearly Everything

“Economists assume away the problem of violence.”

Barry Weingast was a guest on EconTalk in August of 2007. He describes a categorization of societies based on the means of dealing with violence.

  • Primitive order: hunter-gatherer societies of 20-100 people
  • Limited access order: System of privileges in which distribution of rents reflects distribution of power (access to violence). Monarchies and most developing countries fall into this category. Per capita income ranges between $400 and $8000.
  • Open access orders: modern free-market democracies. Per capita income above $20k. Open access to organizations of all types - political, economic, social, religious. Equality before the law.

If you wanted to criticize, you might point out that they've taken hunter-gatherer at one extreme and western democracies at the other and lumped everything else into the limited access category. But, I'm not sure the categories are the point. Too often economics ignores the social and political context. All other things are seldom equal.

A political economy

A recent piece in the Economist ( A new anthology of essays reconsiders Thomas Piketty’s “Capital” , May 20, 2107) ends with these words: &q...