Saturday, August 18, 2007

Overall Weakness of a Global Economy

by Athanasius

Today we are constantly inundated with the concept that bigger is better. When Americans lose jobs that go over seas to countries with lower standards of human dignity, we are told that this is a great thing for business, and for industry because it means prices will go down.

The problem with this view, made ever more apparent by the continual collapse that Wallstreet has been in, is that eventually we come to a point where we don't produce anything. On top of that, no real trade is actually occurring. Instead of producing in America, companies are producing under the same name and brand in East Beijing. What is really going on is labor is sent out to other countries. When this occurs not only in America, but in any economy, it becomes more expensive to produce one's own goods than it is to buy them from abroad. This leaves a nation in an inherently dependent situation. If a nation does not produce any of its own goods, apart from taking away jobs from its local citizens, it has no stable economic market. Everything must be shipped thousands of miles before it gets into a Walmart, or a Target, or a neighborhood Supermarket, which requires....gas.

Now let us suppose something catastrophic were to occur, such as a war with Iran which produces 20% of the world's oil, or with Venezuela which produces a large percentage, I can't remember how much. One does not even need a war necessarily, let us assume that China could afford to buy the same oil we do currently from these countries, they could just decide they don't want to sell to Americans because they hate us. Either way, if we were to start bombing Iran, which Bush Administration rhetoric makes increasingly clear is on the table, oil could go up to obscene prices. How high? According to Peter Brooks, the Head of the National Security Foundation and Center for Asian Studies, oil could go up to $200 a barrel. At present oil is $70 a barrel, and we pay around $3 here in Southern California. Perhaps my colleagues on the East pay something around that figure. If the proportions remain similar, let us imagine a 200% increase in gasoline prices, that would be $9 a gallon.

First let us figure that cost here in southern California. Unlike New York, or San Francisco, or Washington D.C., there is no public transportation. What little we have is more expensive than driving, such as commuter trains, which are a very limited capacity. Every day men and women commute as much as 180 miles to work in Los Angeles from North and South, even people who live north of me. First off, that is because we have no local economies in the suburbs north of city, and the only thing that can pay a mortgage is a service based job in Los Angeles. If gas was $9 a gallon, that commute would be impossible to afford even on a 60k income from LA. That would lead to a huge economic recession in this area.

That is only considering a small corner of the ill effects of globalization. In grocery stores, retail outlets, etc., the costs of basic groceries will rise beyond what the average consumer could possibly pay. Goods produced in Asia might very well be cheap wholesale, but the shipping costs would rise proportionally to oil costs. This is an inherent weakness to an economy dependent upon a commodity that is not produced locally in large quantities, such as oil. If that commodity were to disappear the economy would collapse.

Now if on the other hand, we had local economies, where food was grown locally by a series of growers and supplemented by trade, there would be much more stability. When jobs exist locally and money is created in a local community, it tends to stay within that local community increasing its strength. It wouldn't matter if kiwi were shipped in from New Zealand, as long as fruits, grains and vegetables were grown locally. But if all fruits, grains and vegetables are grown abroad and shipped in, the community is inherently unstable because a few minor catastrophes could create a famine.

Thus, if globalization meant increasing foreign trade to supplement stable local economies with goods they do not produce, it is something that could scarcely be opposed. However such is not the reality, and what ultimately results is not a freedom of choice, but a freedom from choice. If the American consumer decides to boycott goods coming from China for instance, it is next to impossible, and almost entirely impossible with food which rarely has a place of origin marked. Seafood is the only exception on this count. The choice is removed from the community because it is not the producer of anything, but only the consumer, and at the mercy of the owner of the means of production. In essence a global economy which supplants rather than works with a local economy, removes stability and choice from markets and limits the power of the consumer, presuming he still has the income to buy the products in question. If it were not for easy credit, the majority of sales at today's retail industries would not occur and they would not be in business. That is the only thing that separates the American consumer from the African consumer who can not afford to buy the shoes he produces in the Nike factory, that the American has credit cards and the African does not. One day however, just as the sham of the global economy must inevitably come crashing down, so must the sham of easy credit, and in their wake a depression which will dwarf 1929.

1 comment:

Kevin said...

Incidentally, is this what a continual collapse of Wallstreet looks like?