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Friday, March 25, 2011

Stephen Jones: The New Mercantilists

This is a post by contributing writer, Stephen Jones, of Las Cruces.

As the current recession has dragged on, the national debate seems to have turned to slashing national investment and eliminating national debt at all cost, while, at the same time, backing dirty, failing and outdated industries, rather than growing our way out of bad economic times. Instead of engaging in sound market-based solutions and working toward the sound public investment that supports innovation, leaders of both parties seem intent on abandoning any semblance of sound classical economic policy for the all-out support of an outdated policy of neo-mercantilism.    

Mercantilism was a theory of economic development that held that there was a finite amount of wealth in the world, and that national treasuries were entirely dependent on the monopoly trade in, and the extraction of, that fixed wealth. The mercantilist age was based on increasing debt in protected commercial combinations, supported by massive militarist states, whose national blood and treasure was spent in maintaining those protected monopolies. Mercantile traders used their accumulated wealth to buy control of governments, who in turn spent the treasuries of those nations to maintain the mercantile monopolies. The mercantile epoch is best remembered for galleons filled with Mesoamerican gold, Indian cotton and southeast Asian spices plying the ocean waves to feed Europe's little addictions.

For most of four centuries, up until the end of the 1800's, European mercantilists stacked their gold and silver bullion and forced their home kingdoms deep into debt, engaged primarily in maintaining colonial supply lines including, most notoriously, the Atlantic triangular trade. This trade involved moving raw materials extracted from the Americas to Europe, sending manufactured goods back to the the Americas and to Africa and turning human beings into commodities. The human commodities were traded as slaves, and most perished working in the sugar cane fields of the Western Hemisphere, the cash crop of the colonial powers of mercantile Europe.

Adam Smith, War and Revolution
By the time of the enlightenment era of the mid-eighteenth century, the radical thinkers of Europe had mustered the courage to speak up against the mercantilist masters of that continent. Among the seditious, Adam Smith, the Scottish economist and philosopher wrote, "A great empire has been established for the sole purpose of raising up a nation of customers who should be obliged to buy from the shops of our different producers all the goods with which these could supply them. For the sake of that little enhancement of price which this monopoly might afford our producers, the home-consumers have been burdened with the whole expense of maintaining and defending that empire."

It would be comforting to believe that the old mercantilist age came apart merely through the superior economic and political arguments of enlightened spokespersons like Adam Smith. In fact, however, the old order collapsed in decades of war and revolution, including a thirty-years-long world war between Britain and France that finally hurled both of those empires and their allies from the Western Hemisphere. It should be little wonder why the framers of the United States Constitution were so suspicious of national trade monopolies and standing armies. Two-and-a-half centuries on, we seem to find ourselves right back at square one.

A New Incarnation of the Mercantilists
Over the last few years, our Republican and libertarian friends would have us believe that they are the great defenders of Adam Smith's economic orthodoxy, champions of the "invisible hand" of the market, condemners of the large national debt and the defenders of enlightened economic growth, working to get us back to basics. Unfortunately, nothing could be further from the truth. In fact they are just a new incarnation of the old mercantilist hoodoo.

Like medieval burgesses in their counting-houses, the Republican leadership puts the defense of monopoly trade combinations ahead of support for competitive small businesses, backs obsolete and dirty extractive industries over green technologies, opposes infrastructure development, whether it be rail, smart-grid energy, or rural broadband, and holds an outdated military-industrial complex sacrosanct, and all the enormous national debt that goes with it, at all costs. They place corporate protection ahead of innovation; they place government policing of individual "lifestyle" ahead of education, and military expenditures ahead of infrastructure, education, health and human resource development. Above all they defend tax breaks for oil companies over everything else. Drill here, drill now!

The Facts on Debt and Deficits
The inconvenient facts are readily available. Most of our national debt has been piled up almost entirely by Republican Administrations. Prior to sometime last year, when they got some kind of economic religion, the GOP told us, in the words of Dick Cheney, that "deficits don't matter." Ronald Reagan began his first term with a total debt of only $930 million and increased that total debt to $2.7 trillion, more than all the presidential administrations before him combined, including the "New Deal" of Roosevelt and "Great Society" of LBJ. The first Bush Administration expanded the national debt to over $4 trillion, and then George W. Bush nearly doubled the debt from $5.6 trillion to more than $10 trillion. Rather than calling for shared sacrifice, the second Bush fought two unfunded wars, while slashing the tax rates for the wealthiest Americans, and told the rest of us to just "go shopping."

Most of our deficits come from support of one industry, of course, and that is maintaining the endless international supply lines of the oil industry.

A Right-Wing Prescription for Failure
Instead of addressing the real cause of all that debt, the Republican Party takes aim at everything that has nothing to do with the deficits, including Social Security. Instead of moving us away from our oil addiction, the GOP moves to protect that one industry against any competition. As gas and food prices rise and national capital cash flows remain sluggish, Republican leaders take aim at everyone and everything other than the root causes of all that debt -- particularly education, health, infrastructure and services to the poor -- and instead pump cash into the coffers of central bankers, falsely believing such transfusions will somehow cure capital-flow problems.

In Wisconsin, the GOP's Governor Scott Walker attacks collective bargaining instead of building on that state's strong education facilities. In Michigan, Governor Rick Snyder seeks to cut corporate taxes by 86%, while raising individual income taxes and hatching a dubious scheme that would allow him to install un-elected corporate managers over elected local governments. New Jersey Governor Chris Christie calls for raising that state’s estate tax exemption from $675,000 to $1 million, while eliminating New Jersey's earned income tax credit. Maine Governor Paul LePage, a Tea Party favorite, has introduced a tax package that would raise the state’s estate tax exemption from $1 million to $2 million -- allowing four hundred of the state’s wealthiest estates to escape taxation -- while hiking property taxes to make up the difference.

New Mexico Governor Susana Martinez wants to slash funds for public education while blowing away any regulatory oversight of dirty extractive industries or her pet campaign contributors like Doña Ana County's dirty factory-dairy industry. Former Governor Gary Johnson, launching his vanity presidential campaign from a Taos-area ski slope, and looking to stoke the heart-strings of the so-called libertarian flock, tells us we should just go ahead and eliminate the whole national debt by next Thursday.

These schemes are not a recipe for recovery; they are a prescription for failure. They place protection for favored trade combinations ahead of innovation or sound market investment.

The Real Adam Smith
Even old Adam Smith, usually cited for his pure market orthodoxy, understood the need for public investment to public support the marketplace. Smith frequently called for government infusion of funds for key areas of development, including infrastructure and public education. Far from backing the unchecked support of corporate interests, Adam Smith was frequently among big business's greatest critics, especially when they worked with government partners to support old trade combinations and stifle small-market innovation. "Businessmen," Smith wrote in the Wealth of Nations, "are an order of men whose is never exactly the same with that of the public, who have generally an interest to deceive and even oppress the public, and who have, upon many occasions, both deceived and oppressed it."

The time is now for the government and the marketplace to invest in the future and oppose the policies of the new mercantilists, both those of the Republican Party and the corporatists in the Democratic Party, and to get back to basics and build for the future. 

To see more posts by Stephen, visit our archive.

March 25, 2011 at 09:35 AM in By Stephen Jones, Contributing Writer, Corporatism, Economy, Populism, Finance, Investments, History, Republican Party, Right Wing, Trade | Permalink

Comments

This is a good way to describe what is going on.

Another way to think about this can be gained from flying between either Houston and ABQ or DFW and ABQ.

From 30,000 feet natural gas or oil fields, whether currently working or abandoned, and wind farms look pretty similar. One can "fly" Google Earth, on the same routes and then poke around close to the ground for better definition.

The more northerly route shows more wind farms. You can see the blades moving. The more southerly route shows more oil and gas fields.

That is the difference between the past and the future. It is no accident that in both Texas and New Mexico the older industries invest hugely in politics, hoping to keep hold of the past.

Since 1973, when the gasoline supply crisis hit the US and there were long lines at gas stations everywhere, there have been competing visions of the future. One might recall that the book, "Limits to Growth" came out about then.

This inspired a number of people to commit themselves to careers based on finding ways to create a transition away from fossil fuels and towards what we now call alternative energy sources.

The oil and gas industry, as well as a long list of mercantile or consumer economy corporate interests responded by putting huge amounts of money into holding back the clock, at least politically.

That money is a tsunami which is flowing into New Mexico and is what elected Martinez.

It will take several more decades for the public to adopt conservation economics and the need for more aggressive innovation in energy resources and to fully embrace the need for full scale response to climate change.

The longer the transition to a Green Economy takes, held back by a tremendous flow of money from the fossil fuel and consumer advertising interests that fund almost all the media, the more pain will ultimately result.

Posted by: Stuart Heady | Mar 25, 2011 10:42:15 AM

Very interesting. I didn't realize to what extent the right wing was AGAINST free market principles. The word hypocrite comes to mind.

Posted by: Wm. | Mar 25, 2011 3:44:32 PM