July 18, 2005 http://www.nytimes.com/2005/07/18/opinion/18greider.html?th=&emc=th&pagewanted=print America's Truth Deficit By WILLIAM GREIDER Washington
DURING the cold war, as the Soviet economic system slowly unraveled, internal reform was impossible because highly placed officials who recognized the systemic disorders could not talk about them honestly. The United States is now in an equivalent predicament. Its weakening position in the global trading system is obvious and ominous, yet leaders in politics, business, finance and the news media are not willing to discuss candidly what is happening and why. Instead, they recycle the usual bromides about the benefits of free trade and assurances that everything will work out for the best. Much like Soviet leaders, the American establishment is enthralled by utopian convictions - the market orthodoxy of free trade globalization. The United States is heading for yet another record trade deficit in 2005, possibly 25 percent larger than last year's. Our economy's international debt position - accumulated from many years of tolerating larger and larger trade deficits - began compounding ferociously in the last five years. Our net foreign indebtedness is now more than 25 percent of gross domestic product and at the current pace will reach 50 percent in four or five years . For years, elite opinion dismissed the buildup of foreign indebtedness as a trivial issue. Now that it is too large to deny, they concede the trend is "unsustainable." That's an economist's euphemism which means: things cannot go on like this, not without ugly consequences for American living standards. But why alarm the public? The authorities assure us timely policy adjustments will fix the matter. Reporters and editors typically take cues from the same influential sources and learned experts in business, finance and government. If the news media decided to cast these facts as the story of the world's only superpower losing ground in global competition and becoming financially dependent on strategic rivals like China, the public would take greater notice. But governing elites would regard such clarity as inflammatory. America's awesome trade problem is instead portrayed as something else - an esoteric technical dispute about currency values, the dollar versus the Chinese yuan. The context is guaranteed to baffle and benumb citizens. The possibility that the United States can no longer afford globalization, at least not as it now functions, is what opinion leaders do not wish to discuss. A few brave dissenters have stated the matter plainly and called for significant policy shifts to stop the hemorrhaging. Warren Buffett, the legendary investor, says the United States is destined to become not an "ownership society," but a "sharecropper society." But his analysis, and others like it, are brushed aside. An authentic debate might start by asking heretical questions: Why is the United States one of the few advanced economies that suffers from perennial trade deficits? Why do new trade agreements, despite official promises, always leave the United States with a deeper deficit hole, with another wave of jobs moving overseas? How do the authorities explain the 30-year stagnation of working-class wages that is peculiar to America? Are we supposed to believe that everyone else is simply more competitive or slyly breaking the rules? In the last three decades, American policymakers have succeeded in closing the trade gap with only one event - a recession. The American predicament is shaped by operating dynamics grounded in the global system, singularly embraced by Washington because Washington originated most of them. At the outset, these practices were both virtuous and self-interested for the United States - encouraging industrialization in poor countries, binding cold war allies together with trade and investment, furthering the global advance of American business and finance. With its wide-open market, America played - and still plays - buyer of last resort for world exports. Its leading companies and banks gained access to developing new markets, often by sharing jobs, production and technology with others. American policymakers also got to run the world. The utopian expectations behind this arrangement turned out to be wrong, judging by empirical evidence rather than theory. But why wrong? American political debate is enveloped by the ideology of free trade, but "free trade" does not actually describe the global economic system. A more accurate description would be "managed trade" - a dense web of bargaining and deal-making among governments and multinational corporations, all with self-interested objectives that the marketplace doesn't determine or deliver. Every sovereign nation, the United States included, uses its vast arsenal of policies to pursue its national interest. But on the crucial question of how policy makers define "national interest," Washington stands alone. Western Europe, whatever its problems, manages economic policy to maintain modest trade surpluses. Japan manages to insure far larger surpluses in recessions (its export income subsidizes inefficient domestic employers). China strives to acquire a larger, more advanced industrial base at the expense of worker incomes and bank profits. Germany and Japan, despite vast differences, both manage to keep advanced manufacturing sectors anchored at home and to defend domestic wage levels and social guarantees. When they do disperse production and jobs overseas, as they must, they do so strategically. By contrast, Washington defines "national interest" primarily in terms of advancing the global reach of our multinational enterprises. Elites are persuaded by the reigning orthodoxy that subsidiary domestic interests will ultimately benefit too. The distinctive power of America's globalized companies is reflected in trade patterns. Nearly half of American exports and imports are not traded in open markets - the price auction idealized by neoclassical economics - but within the companies themselves, moving materials and components back and forth among their far-flung factories. A trade deficit does not show on the company's balance sheet, only on the nation's. In recent years, much of the trade deficit has reflected the value-added production and jobs that companies moved elsewhere. The United States is thus especially vulnerable to the downward pressures on working-class wages that exist on both ends of the global system. American producers are generally free - and even encouraged by Washington - to shift production to low-wage locations. Companies regularly use this cost-cutting technique as a competitive weapon without regard to the domestic consequences. The practice works for companies and investors, but not so well for a nation. INDEED, the cumulative effects of retarding labor incomes worldwide repeatedly threatens stagnation or worse for the entire system. Workers, to put it crudely, cannot buy what the world can make. Too much capital leads to the speculative "bubbles" that bounce around the world, visiting financial crisis on rich and poor alike. At a different moment in history, American leadership might have stepped up to these disorders and led the way to solutions. If globalization is to continue without encountering more crisis and random destruction, governments must together shift the balance of power so labor incomes can rise in step with rising productivity and profits. If the United States is to avert its own reckoning, it must take decisive action to draw firm limits on its exposure to trade deficits, that is, resign its position as the open-armed buyer of last resort. In effect, Washington would also reform its own national interest imperatives so that they more closely resemble what other nations already embrace. Ultimately, American remedial action may protect the global system from its own crisis - the moment when trading partners discover they have just lost their best customer. But to describe plausible remedies is to explain why none are likely. The webs of mutual interests connecting government, corporate boardrooms and Wall Street are too deeply woven, as are habits of thought among policy makers and politicians. So I do not expect anything fundamental will be altered in time. We are going to find out if the dissenters are right. William Greider, the national affairs columnist of The Nation, is the author of "One World, Ready or Not." *** Nixon's madman strategy By James Carroll | June 14, 2005 The Boston Globe <http://www.boston.com/news/globe/editorial_opinion/oped/articles/2005/06/14/nixons_madman_strategy/> "I CALL IT the madman theory, Bob," Richard Nixon said to Robert Haldeman. With the recent revelation of the identity of "Deep Throat," the nation's memory has been cast back to the Watergate crisis, which began with a burglary 33 years ago this week. Nixon is remembered as having threatened the US Constitution, but his presidency represented a far graver threat than that. Various published tapes have put on display his vulgarity, pettiness, and prejudice and his regular drunkenness. But what has generated insufficient alarm is Nixon's insane flirtation with the actual use of nuclear weapons. "I want the North Vietnamese to believe," he went on, "that I've reached the point that I might do anything to stop the war. We'll just slip the word to them that for God's sake, you know Nixon is obsessed about communism. We can't restrain him when he's angry, and he has his hand on the nuclear button, and Ho Chi Minh himself will be in Paris in two days begging for peace." Six months into his presidency, Nixon's frustration with Hanoi's refusal to budge in its demands at the Paris peace talks was extreme, and he put his madman ploy into gear. For this account, I depend on the political scientists Scott D. Sagan and Jeremi Suir, whose 2003 article in the journal International Security brought the incident to light. >From Oct. 10, 1969, through the rest of the month the US military was ordered to full global war readiness alert, without any provocation, and with no explanation to US commanders as to the alert's purpose. Nuclear armed fighter planes were dispersed to civilian airports, missile countdown procedures were initiated, missile- bearing submarines were dispersed, long-range bombers were launched, targeting was begun. On Oct. 27, in the climactic action designed to make it seem the madman was loose, the Strategic Air Command was ordered to dispatch B-52 bombers, loaded with thermonuclear weapons, toward the Soviet Union. Eighteen of the bombers took off from bases in the United States in an operation named Giant Lance. "The bombers crossed Alaska," Sagan and Suri wrote, "were refueled in midair by KC-135 tanker aircraft, and then flew in oval patterns toward the Soviet Union and back, on 18-hour vigils over the northern polar ice cap." The ominous flight of these H- bombers to, and then at, the edge of Soviet territory continued for three days. This was all done in total secrecy -- not from the Soviets, of course, since they knew quite well what was happening, but from the American people. Unbeknownst to Nixon, his "madman" gamble coincided with a border dispute simmering just then between China and the Soviet Union. The two communist rivals were themselves approaching war footing, and Moscow already had reasons to be wary of America's tilt toward Beijing. Thus, when signals of an American nuclear countdown were picked up, Moscow would have had every reason to assume that the United States was preparing to attack in support of Beijing, perhaps launching a preemption of Moscow's own contemplated attack against China. The Soviets could have seen the American threat not as "irrational," as Nixon intended, but as consistent with a reasonable strategic purpose. As if such accidental complications were not unsettling enough, as Sagan and Suir point out, the entire "madman theory" of coercion was flawed in its essence, depending as it did on twisted logic that assumed an adversary would respond to a calculated show of irrationality with something other than irrationality of its own. Presumably, Nixon wanted a frightened Moscow to convince a frightened Hanoi to change its behavior in Paris as a way of heading off Washington's insanity. Rational Russians would save the world from crazy Americans. Come again? If Leonid Brezhnev, that is, behaved as Richard Nixon did in October of 1969, the world would have been plunged into nuclear horror. In the event, the Soviet Union did not respond irrationally to the ploy. The North Vietnamese ignored it. The secrecy of both regimes makes it impossible to know for sure what they made of the aggressive alert. But what do Americans today make of it? Watergate is a reminder of the primal fact that US presidents are flawed human beings. Because he presides over a nuclear arsenal, this otherwise common fact of the human condition makes each president like every leader of the nuclear-armed nations a threat to the Earth. The "madman theory" proves the point: Nuclear weapons themselves are mad and must be abolished. James Carroll's column appears regularly in the Globe. 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