JW Mason — At Dissent: A Cautious Case for Economic Nationalism

I have an article in the new issue of Dissent, arguing that “As long as democratic politics operates through nation-states, any left program will require some degree of delinking from the global economy.”…

One thing that’s probably not as clear as it should be in the Dissent piece, is that the case for delinking is much stronger for most other countries than for the United States. For most countries, free trade and, even more, free capital mobility, drastically reduce the choices available to national governments. (This “disciplining” of the state by foreign investment is sometimes acknowledged as its real function.) For the US, I don’t think this is true – I don’t think the threat of capital flight meaningfully constrains policy here. And in particular I don’t think it makes sense to see a more positive trade balance as necessary or even particularly desirable to boost demand, for reasons laid out here and here.

The US is a special case in many respects and American leaders, media and much of the public project the American case on the world either as the general case or the general case to be achieved, and often this is not even the actual case but the dominant narrative.

J. W. Mason's Blog
At Dissent: A Cautious Case for Economic Nationalism

JW Mason | Assistant Professor of Economics, John Jay College, City University of New York

China's exchange rate

James Hamilton explains a complication of Rodik's trilemma for China.

Econbrowser
China’s tetralemma
James Hamilton

Also

Short answer: maybe, but probably not.

Is China’s Currency Undervalued? A Reality Check

Menzie Chinn

JW Mason — A Cautious Case for Economic Nationalism

How do we negotiate these three terms—nation-states, markets, and the people who we hope to represent within or against them? If you’re an economist, one natural starting point is Dani Rodrik’s widely cited formula of “the trilemma.” Rodrik argues that, of national sovereignty, democratic government, and international economic integration, you can have two of them but not all three. When Rodrik introduced the trilemma in the 1990s he, like most liberals, believed it was the nation that should go. Globalization is inevitable; if it prevents national governments from delivering what’s needed for democracy, then political authority must shift to a supranational level. But now he’s having second thoughts. Recently he wrote in the New York Times, “We must reassess the balance between national autonomy and economic globalization . . . we have pushed economic globalization too far . . . [and put] democracy to work for the global economy, instead of the other way around.”

For both liberal advocates of economic integration and for its critics, this question, the political question, is key. The strongest arguments against (and for) continued globalization focus not on the direct effect of trade and finance on living standards and economic outcomes, but on the ways in which those links constrain the choices of governments. As long as democratic politics operates through nation-states, it is likely any left program will require some degree of delinking from the global economy.

Dissent
A Cautious Case for Economic Nationalism
JW Mason | Assistant Professor of Economics, John Jay College, City University of New York

Dani Rodrik — How to tell apart trade agreements that undermine democratic principles from those that don't

I discussed in an earlier post on Brexit how to think about international agreements and the constraints on state action they entail in terms of democratic legitimacy. Since that discussion has relevance beyond Brexit, I've pasted the relevant part here below. The basic point is this: the fact that an international rule is negotiated and accepted by a democratically elected government does not inherently make that rule democratically legitimate.…

Another paradox of liberalism: Just because a policy decision has been arrived at "democratically" does not imply that the policy is democratic (of the people, for the people, and by the people).

Dani Rodrik's Weblog
How to tell apart trade agreements that undermine democratic principles from those that don't

Dani Rodrik | Ford Foundation Professor of International Political Economy at the John F. Kennedy School of Government at Harvard University

Bill Mitchell — The impossibility theorem that beguiles the Left

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

Ambrose Evans-Pritchard — Hysteria over China has become ridiculous

Owing to the "impossible trinity" of a maintaining a fixed exchange rate, an discretionary monetary policy, and free cross-border capital flow. China either must impose capital controls or float the RMB.

The later is the obvious choice. This would reduce the cost of Chinese exports abroad and increase the cost of imports, allowing for import substitution.

The Chinese leadership should take a lesson from Russia instead of trying to beat the neoliberals at their own game.

The Telegraph
Hysteria over China has become ridiculous
Ambrose Evans-Pritchard

Branko Milanovic — The two trilemmas today

At a talk on global inequality that I gave at IESE Business School in Barcelona this week, Professor Francesc Trillas asked me a very good and unexpected question: how do you reconcile the Rodrik trilemma with what he kindly called the Milanovic trilemma (defined in my The haves and the have-nots). I had to confess that I never thought of these two trilemmas together, but the question looked most interesting and I promised to think about it. So, here is the preliminary result....

Roderick's trilemma: globalization, national sovereignty and democracy.

Milanovic's trilemma: globalization, regional income gap, labor mobility.

Timely.

Global Inequality
The two trilemmas today
Branko Milanovic | Visiting Presidential Professor at City University of New York Graduate Center and senior scholar at the Luxembourg Income Study (LIS), and formerly lead economist in the World Bank's research department and senior associate at Carnegie Endowment for International Peace

Dani Rodrik — The Truth About Sovereignty

The conflict between democracy and globalization becomes acute when globalization restricts the domestic articulation of policy preferences without a compensating expansion of democratic space at the regional/global level. Europe is already on the wrong side of this boundary, as the political unrest in Spain and Greece indicates 

That is where my political trilemma begins to bite: We cannot have globalization, democracy, and national sovereignty simultaneously. We must choose two among the three.

If European leaders want to maintain democracy, they must make a choice between political union and economic disintegration. They must either explicitly renounce economic sovereignty or actively put it to use for the benefit of their citizens. The first would entail coming clean with their own electorates and building democratic space above the level of the nation-state. The second would mean giving up on monetary union in order to be able to deploy national monetary and fiscal policies in the service of longer-term recovery.

Project Syndicate
The Truth About Sovereignty
Dani Rodrik | Professor of International Political Economy at Harvard University’s Kennedy School of Government

In Charge and Clueless

Reading Central Banks Worldwide: Past, Present And An Uncertain Future gives the impression that the people in charge of the global financial system are clueless — and more concerned with their credibility than addressing their ignorance. This is doubly important because not only are central bankers in charge of managing a nation's finances, but also they are major players in determining the direction that the world economy takes in a century of increasing globalization.

I had this exchange with Warren Mosler in this thread:

TH: Right now central banking is the greatest threat to liberal democracy and national sovereignty. This is where global integration under a command system is emanating from.



WM: i’d say the largest threat is from the failure to understand monetary operations



TH: Warren, I agree on that economically. However, I am concerned about the political threat that cb independence and interdependence among cb’s constitute. I am sure that these people are well-meaning, and I agree that the direction is toward increasing globalism, but I don’t trust the direction they are taking to get there. If they understood monetary ops, that would be a help. but there is still [Dani] Rodrik’s trilemma to deal with, and I think they know this and have an agenda to force increasing integration at the expense of either national sovereignty or liberal democracy, since the three can’t all exist together. This is clear in the case of the EU/EZ, for example.

Rodrik's trilemma results from what he calls an "impossibility theorem."

DR: I have an "impossibility theorem" for the global economy that is like that. It says 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.

What we are witnessing in the EU, through the EZ, is that the ECB is leading Europe toward greater economic integration. It was clear from the outset that this could only be accomplished by greater political integration that involves surrendering at least some national sovereignty. For example, joining the EMU involves surrendering monetary sovereignty by adopting the euro in place of national currency. The plan was to herd Europe toward greater politically integration gradually, by imposing greater economic integration with less national sovereignty and less democratic choice and control.

Initially, the goal of greater political integration was opposed democratically. What is happening in effect is that the leaders are trying to impose economically a political arrangement that failed at the polls and remains unpopular.

This attempt can be seen as a test case for greater integration of the world economy along the same lines. Should we as a nation be trusting our fate to clueless bankers who are also "interested men" in Tom Paine's sense of the phase? If they understood how the monetary system works, we might have a chance. But in is clear that they don't, or are hiding it very effectively for some unknown reason.

We need to be thinking carefully about Rodrik's trilemma and debating choices instead of letting ourselves be herded by small groups of technocrats that are unelected and unaccountable since they are "politically independent." Moreover, some of them are not even citizens of this country. At any rate, virtually none of them really know what they are doing from an MMT perspective of monetary operations. Should the clueless be in charge?

DISCLAIMER: The views put forward here have nothing to do with NWO conspiracy theories such as that being put forward here.