I'm just back from two and a half weeks in the UK, seeing friends and giving lectures. Luckily, I got my honoraria in pounds, which really helped due to the terrible exchange rate, with the pound more than $2. My strictly amateur understanding is that the "buyer of last resort" theory plays an important role in keeping the dollar from falling even further. The idea here is that China, Japan (primarily) and South Korea (secondarily) continue to buy US debt in the form of T-bills to support their own export economies. The US consumer market attracts these exports (financed to some large extent on US consumer debt). The usual story then is that when the Chinese are able / willing to unleash their own domestic consumption, they won't need the US market so much and they won't be willing to buy our debt. (We are in debt to some extent due to Bush's maneuver of cutting taxes and spending madly, as in the Iraq fiasco). But in traveling about the blogosphere I came across this very interesting comment:
It seems that many Asian countries decided after the 1997-98 currency crisis that going to the IMF was something they must never do again, as IMF bailouts required forfeiting sovereignty over economic decisions. I’m thinking here of the IMF forcing Korea to break the government-industry link behind the Chaebols as a condition of getting a loan. Thus, the lesson was that if you want to have an economic policy different from that which the US would approve of, then you must stockpile reserves so that you will never again have to beg. So stockpiling reserves–and the undervalued currency that creates the stockpile–then became the key to economic sovereignty. Thus, while I like your argument very much, it seems that the world is actually moving in a different direction–the impetus is not toward rectifying imbalances, but rather the lesson learned from recent history is that imbalance (I’m thinking the Asian surpluses) is essential.
What I like about this comment is that it brings out the "political" in "political economy." And it resonates with the story Naomi Klein tells in her new The Shock Doctrine: The Rise of Disaster Capitalism, whose chapter on the 1997 Asian crisis I found very illuminating.
One of the talks I gave was at the University of Nottingham's Centre for the Study of Social and Global Justice, directed by Simon Tormey of the School of Politics and International Policy. I tried to put my Hurricane Katrina talk in the context of Klein's book. One of the attendees asked me whether I thought David Harvey's understanding of neo-liberalism wasn't superior to that of Klein's. I didn't like the question; I thought it was apples and oranges. David Harvey is one of the most important academics in the world today, perhaps the most important living geographer and a historically important one; Klein is a committed political journalist who has written two readable, interesting, and politically very useful books. In essence, I replied along the lines of Joseph Stiglitz's review of Klein's book, which will set up my point about the "political" in "political economy":
Klein is not an academic and cannot be judged as one. There are many places in her book where she oversimplifies. But Friedman and the other shock therapists were also guilty of oversimplification, basing their belief in the perfection of market economies on models that assumed perfect information, perfect competition, perfect risk markets. Indeed, the case against these policies is even stronger than the one Klein makes. They were never based on solid empirical and theoretical foundations, and even as many of these policies were being pushed, academic economists were explaining the limitations of markets — for instance, whenever information is imperfect, which is to say always.
The important point here, I'd say, is the word "policies." Friedman liked to gussy up his policy recommendations in a bunch of hand-waving "freedom" talk, giving it some sort of air of representing an essential component of human reality, while at the same time claiming to represent "laws" of economics. But neo-liberal shock therapy doesn't represent the "reality" of possessive individualism; it produces the conditions that necessitate that posture. That's why we should insist on talking about political economy, and emphasize the "political."
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