NYRB economics

I remember when The New York Review of Books gave birth to itself back in the days when the NYT was brought to its knees by the publishing strike of 1963. I was a subscriber and faithful reader for some years and a sporatic reader in recent decades (when we grew fond of calling it "the New York review of each others' books" for the tendency of a certain class of liberal authors to exchange adulation in its pages). It's a great pleasure to notice that, on the whole, its quality remains high after all these years. The amazing archive of past articles attests to this. To get a feel for its strengths, search "sontag," "arendt," "beckett," and "isaiah berlin." (And, if inclined, you can find evidence of its weaknesses by searching "pastan," "sutcliff," and "leguin," all favaorite authors of mine whom the NYRB shuns.)

This is prelude to my main point. The NYRB for May 11 has a long, unsimplistic, and extremely interesting article on youth demonstrations in France and the global capitalism of this era -- France: The Children's Hour, by William Pfaff (NYRB, Volume 53, Number 8, May 11, 2006). From the title, you'd think the main focus was on events in France, but it's just as much about the current mode of open-market capitalism whose stakeholders are not the societies to which corporations contribute wealth but only shareholders and chief officers.

The trickle-down or rising boats theories are used to justify laissez faire approach to corporate regulation and taxation. It says corporate wealth results in a prosperity in which all have a share. Pfaff and many others note, however, that recent experience in the US has been otherwise. Here, benefits to the wealthy (including shareholders) have been great but the incomes of most Americans have increased little, stagnated, or declined.

Pfaff also points out that this narrow-focused capitalism exists in a global rather than national environment. He says: "The crucial effect of this for society in the advanced countries is that it puts labor into competition with the poorest countries on earth. The Nobel laureate Joseph Stiglitz is one of many arguing that trade liberalization puts downward pressure on skilled as well as unskilled wages."

He wraps up this part of the essay with a useful insight:

We need to note the classical economist David Ricardo's neglected "iron law of wages," which says that in conditions of wage competition and unlimited labor supply, wages will fall to just above subsistence level. This "law" in the past seemed irrelevant since there never before has been unlimited access to labor. Thanks to globalization, that is now in prospect. The consequences have only begun to be felt.

In this perspective, what in France seems a sterile popular defense of an obsolete social and economic order might instead be understood as a premonitory appeal for a humane successor to an economic model that considers labor a commodity and extends price competition for that commodity to the entire world. The apparently reactionary or even Luddite position inspired by French reactions might prove prophetic.

He doesn't mention, though others commonly do, that those at the very bottom of the labor supply system reap benefits from this system. These are the poorest peasants in the backward sections of developing nations (like China) and the marginally-surviving inhabitants of many nations whose populations are almost entirely poor. It's also important to notice that for many of these desparate poor people, these benefits are precarious (cutthroat price competition at the bottom of the industrial pyramid can wipe out export platforms overnight and they are just as vulnerable to policy changes, as when import quotas or duties are altered even a little).

As the IMF frequently points out, frequently quoted on this blog, there's economic justice to be had by careful regulation of the global economy as a whole and all its constituent parts, but great danger in independent action (as in protectionism) to serve the interests of only one nation or constituent part of the system. Pfaff's appeal for a new economic order makes sense only if this new order is adopted across the board.