International corporations use “free market” capitalism ideology to justify globalization and create a “world-market-state.” Supposedly, “free market” capitalism makes America’s economy efficient and, therefore, far more prosperous. In practice, however, international corporations promote laws based on “free market” capitalism—for their own benefit.
Economists, for 45 years, promote laissez-faire “free market” capitalism doctrine of reducing the size of government through deregulation, privatization of government services, and globalization. Economists tell us that using now efficient markets to manage the economy, rather than politicians, will dramatically increase US wealth. However, recent scientific research and real-life economic results disprove this myth. Instead, evidence shows that deregulated “free market” capitalism policies are damaging the US economy.
“Free market” economists believe deregulated markets allocate scarce resources efficiently. Therefore, the now effective markets allow the overall economy to function optimally, making Americans better-off.
However—markets fail! Markets are manipulated by big players, lack transparency, have incomplete, imperfect or one-sided information, and have negative externalities such as the need to control pollution or communicable diseases. In addition, when it is difficult to charge each citizen individually for a state service—such as the armed forces, police or firefighters—markets are impractical.
Scientific evidence refutes the doctrine that deregulation makes markets efficient. Late 19th century to early 20th century US stock market data are examined—prior to US government securities regulations. The deregulated US stock market is inefficient during this early period. Therefore, government financial deregulation may hinder rather than help solve the ongoing worldwide 2008 credit crisis. The scientific reason why deregulation does not make financial markets efficient is explained in my Economics and Finance Review publication entitled, “EARLY EVIDENCE ON US STOCK MARKET FFICIENCY: “Market vs. State” Debate and Deregulation Implications.”
Privatization: “Market vs. State” Debate
How much of the economy to place in private hands, versus the government, is called the “market versus state” debate. The “mixed economy” model typically assumes state control of: schools, water, sewers, roads, electricity production and distribution, trash collection, air traffic control, firefighters, defense, police, prisons, courts and regulation. Most other functions are in private hands. However, “free market” capitalism incorrectly validates the privatization of state services.
An example of a significant portion of the US economy—once in state hands, privatized, and now back in state hands—is in the housing market, involving Fannie Mae and Freddie Mac.
Fannie Mae and Freddie Mac are Government Sponsored Enterprises (GSE), with access to low-cost financing. The government begins Fannie Mae to aid the housing market, during the Great Depression, and is privatized in 1968. The government establishes Freddie Mac as a public company in 1970, to increase the secondary market for US mortgages.
On September 7, 2008, fearing Fannie Mae and Freddie Mac bankruptcy, because of the subprime mortgage credit crisis, they fall into government “conservatorship.” Fannie Mae and Freddie Mac are effectively nationalized. Consequently, the US government is directly backstopping an additional +$5 TRILLION dollars of Fannie Mae and Freddie Mac debt, yet this GSE debt is not reported on US government books, but should be. Fannie Mae and Freddie Mac’s privatization is a mistake.
Sallie Mae, founded in 1972, originates, services and collects on federally insured college student loans—and is privatized in 2004. Student loan debt totals +$1 trillion dollars, with 10% of student borrowers defaulting on their federally funded or insured loans within two years of beginning repayment. One can assume this is another example of a privatized GSE whose debts will be nationalized—but only after the private owners plunder Sallie Mae and drive it into bankruptcy.
Privatization results show crony insiders make the money up front, loot the companies, and then leave the US taxpayers to pay the bills, making the US economy inefficient, wasteful and unfair.
Held and McGrew, in their Global Transformations series of books, describe how international corporations, economists, the International Monetary Fund (IMF), World Bank and World Trade Organization (WTO) champion globalization—the increased integration of the world’s economy—to create a global deregulated “free market” for goods and services.”
Different countries’ uneven regulations—of their capital, commodity and labor markets—allow international corporations to arbitrage conditions, worldwide, to their advantage. Typically, this involves the use of cheap foreign labor or lax environmental law countries for production.
Economist Takis Fotopoulos explains that globalists plan to integrate political, economic and cultural institutions worldwide, dominated by large international corporations , including banks. International corporations say this new world order is justified because deregulated “free markets” make better economic decisions, when allocating scarce resources, than duly-elected politicians—making us all better off. In reality, this is just a power grab!
Globalization in Practice
The design and implementation of fraudulent financial securitized debt and OTC derivatives, sold globally, are at the heart of the ongoing worldwide 2008 credit crisis. These so called “innovative” financial products are developed and marketed based on “free market” capitalism dogma.
The private-debt secondary market implosion is a result of the bursting housing bubble, causing the 2008 insolvency of Lehman Brothers, Bear Stearns and AIG. Bankers on Wall Street, economists at the Fed and those in government and academe, who remain supporters of “free market” capitalism, refuse to face the following facts.
“Free Market” Capitalism Results
Since 2000, the US national debt—comprised of federal, state and local debt—increases by +293%, from about +$5.6 trillion dollars to +$16.4 trillion dollars. In 2009 and 2010, Chairman Bernanke takes the extraordinary step of using quantitative easing (QE) 1 & 2, to purchase mortgage backed securities (MBS) and monetize treasury debt—thus markedly increasing the Federal Reserve’s balance sheet. On September 13, 2012, the Federal Reserve (Fed) implements open-ended QE-3 (running at +$40 billion a month), and on December 12, 2012, the Fed announces a revision to Operation Twist, called QE-4 (running at +45 billion dollars a month), which will continue until the US unemployment rate drops below 6.5% or until inflation expectations increase above 2.5%. The Fed is financing, through electronic money printing, almost 100% of all additional government deficit spending in 2013.
The Fed’s balance sheet totals about +$2.9 trillion dollars, and is expected to grow to +$4.0 trillion dollars by the end of 2013. Fed balance sheet increases, because of monetizing the government’s debt—which is another name for money debasement—and purchasing toxic MBS for 100 cents on the dollar are not reported on the government’s books as debt, but should be. Most troubling, Dallas Fed governor Richard Fisher says the Fed has no exit strategy to safely unwind these new positions.
Japan is in its ninth round of quantitative easing. Nevertheless, Japan is back in recession. Standard & Poor’s (S&P) has an AA- credit rating, with outlook negative, on Japan’s sovereign debt. The United Kingdom (UK) uses 20% of its GDP for QE, but UK unemployment worsens while QE is ongoing, and employment remains weak. UK GDP is still well below its 2007 peak, at the start of the Great Recession. Standard & Poor’s, on December 13, 2012, reduces UK’s AAA credit rating outlook to negative.
There is no evidence QE increases employment or improves economic conditions. Nonetheless, the Fed persists in using QE. There must be an ulterior motive. Suggest the real purpose of the Fed’s QE is to maintain the status quo by supporting those in power, including Wall Street bankers, hedge fund owners and private equity managers.
Add Fannie Mae and Freddie Mac GSE debt of +$5 trillion dollars, because of failed privatization, with the Fed’s balance sheet and the US national debt—brings the “grand” US national debt to +$24.3 trillion dollars, or 154% of GDP. By 2016, the “grand” US national debt will be about +$34.2 trillion dollars or 190% of GDP, if nothing is done. This is INSANITY! Greece’s national debt to GDP is about 198%, and look at their problems.
President Obama’s unprecedented US sovereign-debt spending over the past four years—including, massive federal budget deficits of -8% to -10% of GDP, and the Fed monetizing debt by electronically printing trillions of dollars—“saves for now,” the “free market” financial system from collapse and his crony capitalist friends from bankruptcy.
Better Markets, a Washington D.C. nonprofit think tank, calculates the ongoing 2008 credit crisis is costing Americans at least +$12.8 TRILLION dollars, based on the output gap between potential GDP vs. actual GDP. Giving bankers trillions of tax dollars, on trust, to save a failed economic policy is absurd.
TrimTabs' Charles Biderman says, over the past four years, after tax take home pay, including capital gains, when adjusted for inflation, is down over -10%—which is more important than GDP in judging economic wellbeing. For the first time, the US is no longer in the top ten countries in the Legatum Prosperity Index—which measures the economy, entrepreneurship & opportunity, governance, safety & security, health, personal freedom, education and social capital—falling to 12th position, behind Ireland and Luxembourg.
Professor Joseph E. Stiglitz, in his book, "The Price of Inequality: How Today's Divided Society Endangers Our Future” (2012), says growing US wealth and income inequality is counterproductive—making America poorer—and only government can counteract this consequence of “free market” capitalism. It is estimated the return on a corporation’s political contributions and lobbying, to change laws favorable to big business, is 10-to-1. Charles Koch, one of the billionaire Koch brothers, reportedly says, “I want my fair share, and that’s all of it.”
Federal Reserve Economic Data (FRED) reports Total Credit Market Debt Owed (i.e., total US debt) in the 3rd quarter of 2012, totals $55.3 trillion dollars—consisting of: 1) debt outstanding domestic nonfinancial sectors ($39.3 trillion dollars); 2) debt outstanding domestic financial sectors ($13.8 trillion dollars; and 3) debt outstanding foreign financial sector ($2.3 trillion dollars). Third quarter 2012; seasonally adjusted, annual US GDP is $15.8 trillion dollars. Total-US-debt-to-GDP equals 350%. Putting this in perspective, total-US-debt-to-GDP is 260% at the start of the Great Depression in 1929, and decreases to a low of 130%, by 1952. The US has hit a debt wall and increasing either government or private debt will only make the eventual US economic devastation exponentially worse, when it comes.
Structural reform—i.e., clearing bad debt, to reset and begin anew because these bad decisions have already been made, and prosecuting fraud, to restore basic trust in the system—is needed. Not just more money covering up the ongoing worldwide 2008 credit crisis—and thus saving the wrongdoers from bankruptcy. By continually throwing good money after bad—thereby giving money to the wrong people—the US stunts its economic growth, thus jeopardizing its position as a world power.
US Credit Rating Downgrades
For the first time, on August 5, 2011—because of the massive federal budget deficits, requiring an increase in the federal debt ceiling—Standard & Poor’s downgrades the US government’s credit rating from AAA to AA+. Fitch and Moody’s change their ratings outlook to negative.
Egan-Jones cuts its US government credit rating a second time, on April 5, 2012, from AA+ to AA, and a third time, on September 14, 2012, from AA to AA-, because of the rapid increase in the US national debt to GDP percentage, with no policy changes expected. Potentially, this could significantly increase US government’s borrowing costs, bringing down the US economy.
Markets Are Not The Answer
First, markets are scientifically shown to be inefficient, please see HERE and HERE. Second, Karl Polanyi’s renowned book “The Great Transformation: The Political and Economic Origins of Our Time” (1944), explains how self-regulated markets lead to social catastrophe. Markets are dependent on the state for political stability and the rule of law, thus instilling trust in marketplace participants. Without this, anarchy ensues. The paradox is that deregulated “free markets” carry the seeds of their own destruction—witness the ongoing worldwide 2008 credit crisis.
Only governments can guarantee that markets are not rigged and customers get what they pay for. This is essential when payment is upfront, with only a promise to pay by the company later (e.g., insurance) or it is difficult to know if customers are being cheated (e.g., pharmaceuticals). Customers who feel they are treated unfairly will lose trust in the market and stop participating. MF Global’s bankruptcy results in customers having +$1.6 billion dollars stolen from their segregated accounts. Wronged customers are unlikely to resume trading. In addition, the government refuses to right this injustice, making others leery of trusting financial markets.
The twin forces of: 1) the market; and 2) those in political power—tend to prey on society. The state does not defend society from the market, only democracy does. Markets can only be kept in check and saved from its own blunders, by democracy. The downfall of the USSR demonstrates what happens when economic efficiency is attempted, using a command economy, absent a democratic process.
The Eurozone creates a single European currency, but forgoes uniting Europe democratically. Instead, the European monetary marketplace is formulated and implemented bureaucratically, outside of democratic controls. As expected, economic recession turns Europe into an austerity dictatorship. Unfortunately, these disasters do not change international corporations’ plans for continued globalization and a “world-market-state.”
International corporations champion deregulated “free markets” and globalization—to privatize world economic resources by “mega-capital.” Economist Takis Fotopoulos says the aim is to transition from traditional “nation states”—based on geographical location—into “mega-capitalism.”
International corporations want to dominate this new “world-market-state.” The IMF, World Bank, WTO and bureaucrats at central banks (i.e., at the Federal Reserve, ECB, Bank of England, Bank of Japan, and PBOC) will help determine the political and economic agendas of the “world-market-state”—at the expense of democratically set priorities by politicians of the “nation states.” This now happens in Europe.
International corporations use "free market" capitalism ideology to convince politicians to write even more laws bolstering globalization, thereby implementing a "world-market-state." The following quote is what big business leaders have Washington politicians believing, today: "It is crucial to reduce the federal budget deficit through tax reform and cutting entitlement expenditures, at the same time, increasing free trade, resource extraction and immigration."
How The “World-Market-State” Is Implemented
Naomi Klein authors “The Shock Doctrine: The Rise of Disaster Capitalism” (2007), saying that unpopular “free market” policies are planned long before and implemented soon after major political, economic, military or national disasters. For example: 1) Hurricane Katrina—privatizing New Orleans’ public schools; 2) September 11th—passing the USA Patriot Act, Iraq War, privatization of Iraq’s economy, and establishing the Department of Homeland Security; 3) fall of the USSR—privatization of the Russian economy; 4) ongoing 2008 credit crisis— calls for Social Security privatization and benefit reductions; and 5) Hurricane Sandy—?
The US faces a fiscal cliff (FC) at the beginning of 2013. The Budget Control Act of 2011 repeals the Bush tax cuts, ends the 2% Social Security payroll tax cut, and applies the Alternative Minimum Tax to exempt taxpayers—while instituting across the board, evenly divided spending cuts in defense and government social programs. Year-over-year, federal tax revenue is expected to increase by 19.3%, with a 0.25% reduction in spending.
The Congressional Budget Office estimates FC revenue and expenditure changes will cause a double-dip recession—with GDP slowing to a negative -0.5% in 2013, and US unemployment increasing to 9.1%. Issuing more government debt will require an increase in the US debt ceiling. Rating agency downgrades are sure to follow, which could be fatal for the US economy. Thus, the US finds itself boxed in, by believing in false “free market” capitalism ideology.
Fiscal Cliff Discussion
Big business’ goal, by their admission, is to maximize shareholder value—rather than the wellbeing of customers, vendors, employees and the communities in which they operate. Consequently, almost everything big business top management does is short term, self-serving, with a view to managing analyst expectations—so their stock options have a large payoff. Big business top managements’ behavior is almost never in the public interest.
It is ironic that big business—which is causing the ongoing 2008 credit crisis—wants still lower corporate tax rates as a “reward,” even though big business is reporting record high profits. Thus making America’s debt imbalances even worse, but big business leaders, evidently, do not care.
Big business, using their corporate owned TV, radio and newspapers (i.e., six international corporations control 90% of all American media—News Corp; Disney; Viacom; Time Warner; Comcast; and CBS), is pressuring—through news reports, articles and ads—President Obama and Speaker Boehner to make a hasty deal on the fiscal cliff, during the lame-duck Congress before the end of the year. Even though it is obvious, issues associated with the fiscal cliff are too important to rush into.
Democrats should allow the Budget Control Act of 2011, which was correct for the 112th Congress to pass, to take effect in 2013, thus ending the Bush tax cuts and achieving reductions in military spending. Then bring up middle-class tax cuts next year in the 113th Congress. Dare the “Tax-cutting Republicans” to vote against a tax cut, they are sure to go along. The new Congress can eliminate any adverse FC effects, by writing laws effective as of the first day of 2013.
If Republicans are recalcitrant, the US will almost certainly relapse into a double-dip recession in 2013. But from a political standpoint, the Democrats can then blame the Republicans, and the timing is right, because the economy will be improving in time for the 2016 presidential election. This is preferable to the status quo, which assures a Japanese style lousy economy for as long as the eye can see—because of Japan’s use of multiple government stimulus packages and quantitative easing, for over 20 years. A limping, slow-growth economy plays into big business’ hands. Look at what is happening in Michigan, to right-to-work laws.
However, I believe Republicans will surrender. Big business is bluffing from a position of weakness, because they know if the US goes back into recession, after spending over seven trillion dollars on the current status quo system, they will be blamed and “free market” capitalism will be shown to be a false ideology. Consequently, big business is fighting hard to waylay the Budget Control Act of 2011, because the recession’s consequences would end their international corporate power. All “free market” capitalism policies would fail in one sharp crash, which big business is trying mightily to avoid, by spending, spending and more debt spending, by government and the Fed.
The theory of deregulated “free markets” being efficient—and thereby producing more prosperity than politicians when managing the economy—is proven incorrect in recent scientific research and in practice.
The worldwide 2008 credit crisis drags on because structural change would demonstrate that deregulated “free market’ capitalism ideology has failed in practice—which would endanger the powerful backers of globalization, who want to create a “world-market-state,” at the expense of “nation state” democracy.
Needed structural change is not taking place and malinvestment continues, making the US economically and fundamentally weaker. The Budget Control Act of 2011is a good law, because it correctly tries to redress massive US debt imbalances, thus supporting real economic growth. Let us go over the fiscal cliff. All legislative fiscal cliff modifications should happen in 2013, in the 113th Congress.