Some years ago (June 27, 2007), Harvard economist Dani Rodrik outlined what he called his “impossibility theorem”, which said that “democracy, national sovereignty and global economic integration are mutually incompatible: we can combine any two of the three, but never have all three simultaneously and in full”. In his brief article – The inescapable trilemma of the world economy – he made the case that “deep economic integration required we eliminate all transaction costs … in … cross-border dealings” and that “Nation-states are a fundamental source of such transaction costs”. Ergo, if you want ‘deep’ integration then the Nation-state has to surrender. His “trilemma” guides his view of how the “international economic system” should be reformed. He think that if “want more globalization, we must either give up some democracy or some national sovereignty”. This view has been adopted by political parties as if the conceptual framework is in some way binding. The trilemma has been skillfully sold as a narrative by right-wing think tanks and others who serve the interests of capital. The so-called progressive politicians have fallen into the trap and have shifted their political parties closer and closer to their right-wing opponents, such that now it is hard to distinguish between the major parties in most nations. The reality is that while the impossibility theorem beguiles the Left – its applicability as a binding constraint on government is limited. It is as vapid as the statements made by these career politicians on both sides of politics that they serve the people.…Another post we have been waiting for.
Bill Mitchell – billy blog
The impossibility theorem that beguiles the Left
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
16 comments:
Can you MMTers ever come up with views on whether free trade is harmful or not.
According to Mr Mitchell it doesn't do any harm. Just do a fiscal expansion.
MMT supports free trade.
"Can you MMTers ever come up with views on whether free trade is harmful or not. "
I'd say it is excessively binary simplifications that are harmful. Debt Jubilees, basic incomes, free trade. All excessively simplistic notions.
The real world is complicated with many shades of greys. Because it is full of people.
As I have been saying, neoliberalism, which characterizes itself as for "free markets, free trade, and free capital flows," is about imposing neo-imperialism, and neocolonialism externally and neo-feudalism domestically.
"Free markets, free trade, and free capital flows" are the devil's work. These are high sounding words to dupe the rubes. Everyone in any field of persuasion knows that the most powerfully persuasive word is "free."
What "free" means in the neoliberal context means is "free to exploit and extract."
What about open borders?
You would have a bunch of unemployed people walk in to a nation with a JG and they might think their life's work has been a complete failure as there would be unemployed people with a JG...
Hey Tom,
I think your "rent" issue is really the BIG issue for right now... did you see the US industrial production # today for January? +0.9% not too shabby...
ps was that from Marx? if so I might take it all back ;)
Ramanan:Can you MMTers ever come up with views on whether free trade is harmful or not.
According to Mr Mitchell it doesn't do any harm. Just do a fiscal expansion.
MMT supports free trade.
Right. Basically, free trade is helpful, of course. Of course one can concoct scenarios where it isn't. The problem is in using words like "fiscal expansion" to describe something better called "not strangling yourself". Sure, free trade can be harmful if one uses it as an excuse to strangle oneself harder. It hurts so good! But the problem is with deciding to strangle oneself, not the free trade. The burden of proof is obviously on free-trade opposers / asphyxiophiles.
What's the problem of doing a fiscal expansion if your economy is under capacity? The key here is over what being 'under capacity' means, because of that capacity comes from necessary inputs and consumption of those inputs rise nationally inflation will trigger eventually.
Is not so simple... Theoretically there is no problem with that, but in practice it depends a lot on the structure of your economy. Micro matters...
"Basically, free trade is helpful, of course."
The free trade has to be subject to controls. As are share markets when they become 'exuberant'.
You should have in place the ability to limit 'wanted' goods and services to allow the greater passage of 'needed' goods.
There is no doubt, for example, that import of food and medicine should take precedence over private jets, fur coats, or (as an Indian example) gold jewellery.
I agree with Tom.
I still can't understand why global economic integration is desirable. Seems to have almost all negative effects thus far. Economic integration just seems to be code for letting those in a position of power to leverage workers from different countries against each other. It's more like a global race to the bottom.
I think this idea of giving up national sovereignty is dangerous. Prime example is Europe. It's been a disaster.
Economists talk on the basis of models. Models are generalizations as well as approximations. To the degree they are empirical they are based on "stylized facts" derived from long-term statistical analysis, which is itself based on data of widely varying quality and different contexts. Economic models are also based on restrictive methodological assumptions that make the math tractable "for convenience."
In other words the idealized world of the model may not resemble the contemporary real world and its social, political and economic context, which involve many more relevant factors. Moreover, the output of economic models is based on what economists prioritize — growth and efficiency, for example, but not distribution and distributional effects.
Then they argue that economics is a science shows that proves conclusively that free trade, free trade, and free capital flow are beneficial to nations, committing the fallacy of division, which is the opposite of the fallacy of composition. They argue that what is good for a nation on the basis of economic criteria is good for the people of the nation.
That doesn't follow though. On inspection the truth it is that free markets, free trade and free capital flow may be good for the power elite but it is often not good for most of the people, especially working people, who bear the brunt of negative externality, which economists conveniently exclude from their consideration.
This is just playing loose with words for advantage — sophistry. It is the result of either ignorance or complicity with those profiting from the misrepresentations.
Now the danger is giving more control to a transnational power elite that involves further degradation of both democracy and national sovereign, which weakens the ability of those who are disadvantaged by the arrangements to get redress through elections. This is a diminution of rights and therefore of freedom. Thus, "free markets, free trade, and free capital flows" are actually illiberal — another paradox of liberalism.
Neoliberalism doesn't exist, Tom. Matt Franko said so.
Calgacus:"Basically, free trade is helpful, of course."
Neil:The free trade has to be subject to controls....You should have in place the ability to limit 'wanted' goods and services to allow the greater passage of 'needed' goods.
The second sentence says it much better than the first. Controls are important for developing countries or emergencies. For rich countries, why bother? There are all those free trade treaties. Except for getting rid of the crazy investor rights - more properly understood as titles of nobility - hardly worth the bother.
Joe:I think this idea of giving up national sovereignty is dangerous.
Quite right. But free trade doesn't have anything to do with it. How is it giving up sovereignty? Europe's problems are entirely due to the massively destructive domestic effects of the Euro, not the small but real benefits of free international trade. Rodrik's "trilemma" depends on identifying "free capital flow" or worse, "global economic integration" with fixed-exchange rates. The problem is fixed exchange rates. Get rid of them, and no problem that a big grown-up country should worry about.
Don't want to have a global race to the bottom? Don't want a transnational power elite? I agree. So decide to not enter the global race to the bottom. Rich countries like the US or UK etc should and can just decide to have universal full employment at a good wage. What's the poor transnational power elite to do? :-(
Getting people to focus on (complex) irrelevancies, like free trade & ignore what is important and actually very simple and stupid: the decision to strangle yourself by not having 100% employment at a decent wage- is the trick. That how's stage magic & con games are operated.
The point is: Say an isolated USA uses functional finance & in particular has a high wage Job Guarantee. What is the problem? None, I hope all here agree.
Suppose the USA then has superfree trade blah, blah. It floats the dollar (so out goes Rodrik). Where is the problem?
There is no problem. Still has high wage- high real wage - full employment. Isn't the burden on the problem claimers to point out the problem? Basically, the second situation should yield some small improvements, both collectively and individually - and likely, particularly for the less well off. It is that simple. Only thinking and speaking about things in a way that is much more complicated than they really are lets one deceive oneself into believing in the imaginary problems. Abba Lerner carefully answered Rodrik's and Ramanan's (& everyone else's) less careful points before they were born.
The world already has managed markets, managed trade, and managed capital flows. There are rules in all these areas as well as in just about every other area. It's called "law," "regulation," "treaty", and "agreement." The question is in whose interest? What advantage do developed countries have? What advantages do large countries have? There are long lists of questions and issues need to be handled on a case by case basis wrt to alternatives, options, and tradeoffs.
To clarify. "Free markets," "free trade," and "free capital flows" are slogans. The implication is that if what is proposed as "free ….." the alternative is unfree — controlled and restricted. What was can be sold is already regulated, what can be exchanged across borders is already regulated, financial flows across borders are regulated. All these areas are already managed to some degree, at minimum to prevent crime. So is the flow of people across borders.
Management is the imposition of organization for effectiveness in achieving goals and efficiency is deploying means. What is the goal of markets, trade and finance? Is is just growth measured by GDP without consideration of welfare? Or are there alternatives, options and tradeoffs that are not being considered?
For simplicity I asked about the USA, where the dangers of full employment + free trade etc are most ridiculous. But the economic problems that most states have don't come from complicated real world stuff that might require all that stuff. They come from being persuaded to slit their own throats.
The question is [managed trade etc] in whose interest?
No it isn't. That isn't the important question. The question is understanding what your own interest is. The problem is that people, nations are seduced by the smoke & mirrors of all these other less important questions.
So they talk about things like "fiscal expansion". That is like calling not indulging in asphyxiophilia "carotid expansion".
Real world economic problems comes from simple stuff. Everybody understands & handles the complex very well, very easily, very naturally. But simply have ZIRP forever. Have a job guarantee, forever. Let your currency float, forever. Regulate banks, fraud & if you want, trade and immigration. These are simple enough.
Do this simple stuff & you will live long & prosper. Even if you don't make the smartest international deals.
All that complicated management stuff comes after deciding to not fall for the con game of the transnational power elite con men. And it is much less important. But you gotta believe in the existence of con games, you gotta know what one looks like to avoid one.
Until someone imposes sanctions on you.
Exactly what do you do "after deciding to not fall for the con game of the transnational power elite con men"?
The Greeks didn't get the result they voted for.
It all comes down to holds the power.
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