The Long-Term Damage Done by Consensus Thinking
Two recent big-time media articles again suggest how we have been misled by the consensus of economic opinion. I referred to one last week.
Many economists, including Ben Bernanke and the powers at the Commodities Futures Trading Commission, argued that speculation did not drive up the oil price. This enables them, with support from many and perhaps most mainstream economists, to argue there need be no regulation or even much greater transparency about who is trading.
On Friday, the Wall Street Journal noted that the CFTC has now identified one of the giant traders as a speculator. That raised the number of those who trade actively and are not in the oil business to nearly 50 percent on the NY Merc. Even thirty or forty percent is enough to drive prices up to irrational levels -- and crate pain and overreaction by central banks around the world. The resistance among so many economists to believing that a financial assets can be seriously influenced by speculation is just outrageous.
The more recent story is a fine one in Monday's NY Times by Lou Uchitelle. It noted that the low dollar is helping us sell more US products abroad. But here's the problem: they are far more agricultural products than manufactured goods. Sound like a Third World country?
The fact is America does not have that much to sell abroad anymore other than foodstuffs. Why? Some argue that manufacturers had to globalize and place facilities overseas. Of course they did. But not to this extent. The barrenness of the US manufacturing landscape was very much the consequence of a dollar that was too high for too long.
Conservative economists kept defending the high dollar as a sign of American strength. Foreigners just loved to invest in the wonderful US economy, they argued. The trade deficit was a sign of success not failure.
More to the point, it kept inflation down -- the conservative bugaboo. Most important -- here we go again -- it kept Wall Street happy. A high dollar kept attracting buyers for US securities.
And in light of that, you hardly heard a peep from more centrist mainstream economists. Oh, some wanted a lower dollar. Fred Bergsten of the Peterson Institute for International Economics is a centrist mainstreamer who argued for a lower dollar.
But for the most part, centrists ducked and joined those who wanted to keep hands off the high dollar. They won the day.
Now we have to rebuild manufacturing capacity, R&D, and a manufacturing work force. And of course the high dollar allowed consumers to borrow and spend, rather than earn and save.
There is no robust debate in America about economic policy.
Loading comments…
Want to reply to a comment? Hint: Click "Reply" at the bottom of the comment; after being approved your comment will appear directly underneath the comment you replied to
Regean and Daddy Bush sure lowered the value of the dollar. We have yet to get their National Debt paid off when along come BABY BUSH who thriples the National Debt to $ 9 trillion with 360,000,000 billion dollar interest payments now due!!!!!!!!!!!
Attributing the loss of our manufacturing base ignores many other factors. Germany, for instance, has not transferred its manufacturing base to China, and the German Mark is still strong. In fact, had Germany become a debtor society, like the U.S. did, then we would have seen a collapse in the Mark.
I believe one can make the argument that the disastrous fall in the value of the dollar is a result of a conscious decision to send our manufacturing overseas, rather than that the loss of our manufacturing was due to a high dollar. In other words, you have it 100% wrong.
I agree and would add that the results are going to be major pain for the average American citizen and this will ripple into and affect politicians, businesses and educational institutions to a degree that we have not seen since the thirities. I think we are looking at a major retooling necessary literally and figuratively speaking. I think in the long run it is a good thing that our economy is deteriorating, because the reason it is doing so has been due to mismangment. Once we realize this we can correct course. The robber barons have been operating in the dark for too long. People in this country have for too long lived like drunken sailors on shore leave. When they wake up in the morning with no clothes, and no wallet they will have learned a valuable lesson. Let the games begin. Americans are too fat and too greedy for their own good. They need their butts slapped a bit. It's the best thing to happen in America.
DreWill. Consensus thinking should not be the name of this article unless Jeff Madrick is referring to that consensus of Bernacke, a few sycophantic central bankers and the Treasury Secretary (a former banking big wig) who was one of the authors of make believe money and banking.
Consensus decision making results from the very best data, knowledge and accompanying ideas to be derived from the most reputable citizens from all levels and groupings of the organization. From the prioritized recommendations of these authorities, apppointed and elected members the chief executive must chose the right policies, procedures that benefits best the organizatiion towards the mission statement, that is, the Preamble of the Constitution.
Since the age of Reagan, the economic, financial decisions have derived from the consensus of a few to benefit the few. It may have appeared that the consensus represented an American consensus because the defective information organs were conrolled by the consensus of the few making the decisions. However, it was not consensus decision making. Instead it was and is a closed system using fantatically held ideas and manipulated data that benefit a few self interests to steer our Nation's economic destiny. Such decisions have effectively wrecked our economy and financial system.
Am I the only one who thinks that oil futures kept going up in price until a sufficiently large number of suckers got into the market, and that's when they started going back down?
I can't figure out why the SEC or the Federal Reserve did not see the subprime crisis coming and at least warn everyone about it.
You have stated the obvious that the financial interests of Wall Street have mortally damaged the manufacturing interests. Trade is manufactured products to us and our raw materials and agricultural products to our creditors. That is a mercantile system. The receivers of such a system are always the losers.
Keeping the dollar high was part of the problem. Rules of commerce became non-existent. Monopolistic retail conglomerates changed the nature of our middle class. Our congressmen became possessed by corporate, wall street and foreign interests as the middle American was eclipsed.
The terrible damage was disguised by manipulating the money supply and interest rates and permitting one financial bubble after another. Finally, the damage and emulation by foreign governments has placed in danger the entire world economic system.
You are right. There is no serious discussion of our economy. Leaders of both parties and the controlled media have no confidence in our moral integrity to be able to handle the unblemished and grim truth. Our leaders have lost faith and trust in democracy. And our reporters and their organs of communication are in the hands of authority with agendas of information that benefit themselves at the expense of the American citizentry.
The United States exports a large amount of "manufactured products", plus has oil as by far its biggest import - a raw material. In 2007 the largest gains in exports were in aerospace . Here was a report from Q3 of last year:
The export gains were led by a surge in the volatile commercial aircraft component, with exports of civilian aircraft, engines, and parts up 80% at an annual rate in the quarter, accounting by themselves for 18% of the total gains in exports of goods and services. But substantial gains were seen across a broad category of other exported goods:
Annual growth rates for 2007:Q3 for various components of real exports and percent of contribution to total export growth. Data source: BEA Tables 4.2.1 and 4.2.2. Category growth rate percent of total
Foods, feeds, and beverages 41.1 10.3
Industrial supplies and materials 19.6 19.2
Capital goods, except automotive 27.8 38.4
Automotive vehicles, engines, and parts 40.7 14.8
Consumer goods, except automotive 21.3 10.0
There is no robust debate in America about economic policy.
Exactly. The two nominees are the living proof that both parties long ago surrendered economic freedom of U.S.citize
At least Ralph Nader wants a debate. (Sorry, I forgot we're supposed to blame HIM for today's mess.,)
We definately need a healthy and vigorous debate about economic policy for our nation. Our current policies include:
*wasteful imperial military adventurism that weakens our military, bankrupts our treasury and bolsters terrorism,
*billion dollar hand outs to Israel, Pakistan, and Egypt for nothing substantial in return,
*outsourcing American citizen's jobs while insourcing illegal workers,
*corporate socialism (in the forms of bailouts, tax abatements, bankruptcy reorganization to destroy worker's pensions, and revenue loopholes to allow corporations to evade their fair share in tax payments) and
*a failure to manage domestic affairs efficiently (healthcare nationalization, oil company nationalization, serious green energy programs, rebuilding infrastructure, making education affordable) are leading to long term perils of our nation:
Ralph Nader said his first act in office would be to cancel NAFTA and the WTO. He also wants to make the minimum wage $10 per hour (should be $25 considering Dr. William McGuire CEO of United Health Group was earning $800,000 per hour) However both ideas are a great start to saving U.S. jobs for U.S. workers and allowing workers to earn a living wage and support their families.
Ralph Nader should definately be included in the debates as he is receiving federal matching money for his campaign, We as voters should have more choices not less and not allow obstructionist rules to hamper free and open debate on all the issues.
A contributing factor to the overvalued dollar was the way China pegged their currency to it at a rate that was favorable to them as an exporter. That sucked millions of manufacturing jobs from the US directly to China.
Back in the 90's when the dollar was climbing higher and higher, we should have forced China to break that peg. Instead, we sat back and complimented each other on how great we were and how the times were so good. Now that those chickens have come home to roost and the dollar is in the toilet, we simply can't afford to break that peg, since the Yuan is helping keep the dollar afloat. Suddenly allowing the Yuan to float freely now would send the dollar into freefall.
For some reason our government is set up to fail. When times are good, they don't bother reforming anything, because they're too busy patting themselves on the back. And then when times are bad they throw their hands up in the air and say "We are powerless to fix these serious problems", usually taking the opportunity to blame the other party and demand more power for themselves.
Look at all the people that gush over how WJC balanced the budget. But it took 8 straight years of peace and prosperity to get there, and during that time he ran up $1.6 trillion in new debt. That's unacceptable.
The debates over issues other than the economic crisis in America plays into the hands of those that refuse to acknowledge the mistakes of the Bush administration.
The world needs another standard to look up to, other than our Manifest Destiny and over-consumption. We need to scale back. That is hard for Americans, but we need to still produce food, save our environment, and reverse the dead zones in the ocean.
Also, if we start producing hemp, that we revitalize our manufacturing base and entrepreneurial spirit. Other than that, we are going to need to look into the energy, renewable energy sector (and guard against monopoly as in Southern California Edison, or corruption problems as wind farms wheedle their way into buying land, at the expense of local residents). It's all happening so fast.
The government, if it was looking out for us, would help indivuals become self-sufficient in energy use. Sustainability is not profitable. We need to drop the great benefits of capitalism, for a more cooperative enterprise. While capitalism has helped level the fields of racism and classism, the liabilities are too great, in its cut-throat, looking out for number one nature. We need to move on. We cannot continue to live this way.
The central bankers are in effect eradicating the middle class with their globalism. And if any of them took a history class, they should know that a society crumbles and falls apart when the middle class fails. They are part of this society. They are not above it.
The barrenness of the US manufacturing landscape was very much the consequence ...of NAFTA.
I think central bankers around the world really find these speculators as a boon, to illogically raising oil prices over $100 a barrel. They are extremely short-sighted, for being as educated as they are. They've been aiming to corner the markets for decades. Now that the markets are cornered, the resources are going to run dry.
Bush , Cheney et al, have been running this country as is it their own personal banana republic. We are not the world's superpower anymore. We need to have the Marshall Plan of energy and climate restructuring put into place, and maybe then we can be a light in the world again.
The US manufacturing landscape is not all that barren. There is strength in many sectors. Most people may not realize but industrial production in this country had been hitting all time highs from 2004 through the end of 2007, then has been at that level since. The chemical industry, heavy machinery industry, energy, steel, electrical machinery, etc continue to be very strong in the economy. Manufacturing has held up very well despite this recessionary environment this year; this is in contrast to the 2001-early 2003 recessionary environment where manufacturing was hit perhaps the hardest. I think we need to continue for a while longer with a weak dollar policy vs Europe, Canada, and Australia but be forceful with China (and possibly Japan) on strengthening their currency. We simply need to slow the movement of manufacturing to China and continue taking market share from the Europeans and Canadians. NAFTA was BTW a good thing in the 90s (and now) because it's helped reduce inflation in this country, making consumer goods much more affordable and abundant. Now that probably has to slow or stop, however.
NAFTA was a ruse to depress wages (i.e. "Inflation") and it worked wonderfully.
Now we all have to compete with "$5/week" indentured servants in south-east asia for our jobs.
You know how to stop the outsourcing of jobs to low-wage earners?
Outsource our CEO positions to South Asia where they will run our Fortune-500 companies for ONLY 1-2 million a year. See how the have-mores like it. I predict a "Save American Jobs" bill passed by Congress in under 30 seconds if this ever starts to happen.
You actually think the American Steel industry is strong? WHAT American steel industry?
All of the things you mentioned are artificially held up by Military spending, which is bankrupting the country.
Just add bad education and stagnant wages and you have a deadly mix for an economy. It is geography 101: the vicious circle. A company moves to a place for many of these reasons: Location, workforce education and availability, cost of facility and labor and political stability. With a high Dollar the numbers are stacked against American workers. But there is infrastructure as well. The reason the owning class moves jobs abroad is, there are from abroad themselves, or they do not care as in greed. It is time to regulate these industries better. Since Haliburton is no longer an American Company. It should be de - listed from the stock market, and national security restriction that apply to foreign companies.
Undesirable effects will flourish throughout the economy whether a particular administration or Fed Chairman proceeds with a strong dollar policy or a weak dollar policy. Clinton's strong dollar policy actually came close to balancing the budget, and if you don't include Social Security liabilities, he had a budget surplus. Traditionally, a strong dollar policy has meant a high trade deficit and small budget deficit. Bush Jr has somehow found a way to have a massive trade deficit and a massive budget deficit. Manipulating the value of currency one way or another is going to cause bubbles and busts throughout for various segments throughout the economy. It is really silly to advocate for one position over the other when all of the repercussions of making such a decision are so highly variable. The only logical position to have is one where governments and pseudo-gov
The dollar strengthened significantly in the 90s because of large productivity gains and superior economic strength relative to the rest of the world - the Asian economies were in recession and the European countries stagnated for much of the decade. Clinton's policies has much less to do with this. Over the last several years we've seen the dollar weaken significantly vs the euro, pound, Canadian looney, and the Australian currencies but haven't seen the dollar weaken much at all vs the yen or the Chinese yuan. Weakening the currency against Europe, Canada, and Australia has been very good for exporters and corporate profits (from business done in local currencies- and this can't be underestimated as a positive for a weak dollar) but hasn't helped the burgeoning trade deficit with China. We absolutely need China to strengthen it's currency as the trade deficit and balance of payments problem is simply unsustainable. In weakening the currency we may save or even gain some jobs, particularly in manufacturing, but we will go through a potentially dangerous bout of inflation, like after the breakdown of Bretton Woods in the early 70s. Weak dollar/save jobs/increase inflation-- strong dollar/lose manufacturing jobs/reduce inflation.
Soros just bought almost a billion dollars of Petrobras in Brazil. What's he up to? Nancy Pelosi is heavily invested in T.Boone Pickens alternative plans, and Al Gore stands to become a billionaire from his cap and trade schemes...
Yep...
Don't forget Richard Branson paying 1.5 BILLION to HIMSELF yet touting it as a donation to environmen
Think of all that money put into actually doing SOMETHING for the environment, rather than making rich people richer...
Michale...
Yeah, I see; Soros Pelosi and Gore are evil and T. Boone is a patriot!!
You must be logged in to comment. Log in or connect with
