The Elite Wants You To Hate ...

“Trade Wars are Class Wars – How Rising Inequality Distorts the Global Economy and Threatens International Peace” by Matt Klein and Mike Pettis, 2020

This is another book whose title only grazes its main topic.  Klein and Pettis are two Keynesians who analyze trade but especially financial flows to uncover what they feel is the basic problem with globalism as practiced under bi-partisan neo-liberalism.  It has led to austerity for the majority of the world’s workers, while leading to higher levels of personal debt, severe inequality among the classes and now trade and sanction wars which basically benefit elites.  It is a Keynesian 'under-consumption' argument that ignores production as the key to capitalist crisises.

Their solution is to restore the buying power of workers, especially in key countries like China, Germany/the EU, Japan and the U.S. through dropping the dollar standard and combating world-wide elite preoccupation with hoarding assets.  How this will be done without a new global class war is unsaid.  They take their cue from John Maynard Keynes, advisor to the British government in the middle of the 20^th century.  Keynes suggested a stateless global currency, the bancor, at Bretton Woods in 1947 and a focus on broad consumption as the key to saving capitalism.  Instead the U.S. insisted on the dollar/gold standard and got it – even after the end of the gold standard in 1971.

But the book’s not that simple.  They take a historical tour through capital’s financial crashes since 1824, showing how excess capital accumulation in wealthy countries leads to credit booms and over-lending to dubious clients, starting first in Latin America.  These colonial/imperial banking flows led to subsequent world crashes in 1837, 1867, 1873, 1890, 1905, 1931, 1981, the significant Asian financial crisis in 1997 and the Great Recession in 2008.  The recession of 2020 is yet to be analyzed.  They do not look at profit rates from production.

The 2008 Great Recession was of this familiar type.   They pinpoint one of the causes of that recession as the need for ‘safe’ fixed income investments in the U.S. by European rich people and capital market banks, which ‘forced’ Wall Street to come up with fabricated mortgage securities.  Essentially the Europeans (read Germans) and Chinese were not spending enough on their own countries and on their own working-classes, so their capital had to go somewhere.  Since the U.S. is the ‘safest haven’ due to the world-wide dollar standard, corporate and elite money pumped into U.S. markets in various ways, including T-bonds.  This cash provided part of the large capital market for collateralized mortgage/debt obligations, which were based on shoddy and even illegal ‘due diligence.’  This is what precipitated the 2008 financial collapse as an immediate cause.

The authors identify the failure of pure ‘trade’ data to account for actual international economic flows, given corporate and rich people’s tax avoidance, intellectual property and patents, tax havens and production methods by major international corporations using complex value chains.  Which is why the authors add financial flows, using ‘current account’ figures for each country to combine the two, trade and finance.  As to trade, they seem to imply they are ‘free traders’ but do make criticisms of NAFTA, the TPP and TIPP.  Oddly for a book of this title, they pretty much shy away from the political details of these pacts. 

They call the dollar standard a burden for the proletariat, not an exceptional asset, but its political use by the corporate elite and their government lackeys is exceptional.  As one example, the elites can bar trading in dollars for countries like Iran, Syria, Venezuela and Russia, crippling their abilities to function on the global market.  Oil, the key commodity in the world, is denominated in dollars, as are nearly all international trade transactions.  Countries go into debt in dollars or dollar-denominated assets or peg their currencies to the dollar, all of which gives U.S. capital and its banking system vast power across the world. 

One of the authors, Pettis, is stationed in Beijing and there is a long and valuable chapter on infrastructure over-production and elite wealth hoarding in China, having a deleterious effect on Chinese workers, leading to under-consumption by them.  Under-consumption involves Chinese policies like the banning of independent labor unions, the hukou system, weak retirement/medical programs and the mass purchasing of U.S. Fed bonds by the Chinese government.  Again, they do not look at profit rates in China.  No word on Chinese billionaires though, as the authors support privatization.  They do not think China is capitalist, as they recognize the government has control of the upper and mid-levels of finance, industry and politics.  They identify the Chinese ‘elite’ at one point as government and state industry, not the private billionaires inhabiting the economy and even the Chinese Communist Party.  China’s Belt & Road initiative is described by them as providing an outlet for Chinese exports and construction efforts, which might be interpreted as excess capital. 

Have I Got an Austerity Plan for You!

In another long chapter the authors cover the austerity policies of Merkel’s German CDU, policies which were actually initiated and endorsed by the German Social Democratic Party against the leftist Die Linke and later exported to the whole Euro-zone.  This after the wholesale swallowing of East Germany in 1989, which cost more than expected.  Interestingly Germany has not invested in infrastructure, as its bridges are falling apart and its fiber installation lags behind many other poorer European countries, this another consequence of their balanced budget obsession.  Klein/Pettis call Europe the biggest threat to the world economy, which seems a bit rich.  The U.S. comes in for less blame because it is the exception that ‘consumes’ and also sucks in investments. 

The authors characterize countries as to consumption - either ‘surplus’ or ‘deficit’ countries, ‘savers’ or ‘buyers,’ the former relying on exports and a paucity of local investment and low pay, while the latter serve as buyers of other countries’ exports, the U.S. being the prime example of the latter.  This capitalist imbalance - combined and uneven development - affects the proletariat world-wide, as austerity becomes the fate of ‘saver’ proletarians while debt becomes that of ‘buyers.’  According to Klein/Pettis while being a government-led ‘saver’ society might make sense in the initial phase of an economy as a form of ‘primitive accumulation,’ (they reference the USSR, China, even the U.S. on this…) it becomes a hindrance in a maturing economy.

The authors thunder against inequality and wealth and propose modest reforms to lessen inequality, but not to eliminate it.  In their analysis they remain unaware of labor exploitation and profit, seeing consumption as key.  They actually whine about how long longshoreman took to load and unload ships before containerization.  Yet inside ‘mature’ over-producing and over-accumulating capitalist economies the need for more ‘stuff’ begins to slow and economies can stagnate, but Keynesian logic is still based on GDP growth.  They pine for a perfect GDP trade and financial flow balance between nations in a world-wide system, satisfying consumers everywhere.  They seem unaware that the class system itself is the cause of the class war, and capital is based on classes, not consumption. Inequality and imbalances are merely a placeholder for the underlying reality of surplus value, profit and subsequent upper-class wealth.

This book is sometimes complex for the general reader, as these two are both sophisticated economists. It is full of useful and numerous graphs, statistics and percents supporting their positions.  It indulges in a very slow progression toward their main contention that class war results in trade war, but if you can hang in there it makes sense in the end.  They do not spend much time on the issue of peace and war.  But even to them it is transparent that the U.S. ruling class bipartisan consensus – that’s the heroic Democrats and the dastardly Republicans - has moved to an economic and military ‘cordon sanitaire’ around China.  These moves can be preludes to actual military conflict in an imperialist-dominated world.   Beware.

Other prior blog reviews on this subject, use blog search box upper left:  “Modern Monetary Theory,” “Value Chains,” “Socialist Revolution,” “USMCA Fraud,” “What is the Matter With the Rural U.S.?” “Capital in the 21^st Century” or the word “China.”

And I bought it at May Day Books!

Red Frog

July 10, 2020