The Genesis of Today’s Global Economy. When the international trade regime (GATT, WTO, NAFTA, etc.) that dominates the world today was created between 1947 and the 1990s, it was based on several assumptions about economics, politics, and social welfare. These trade agreements and their implicit assumptions were shaped by the politicians and corporate executives of the largest corporations and countries. The worldview of these people was informed and shaped by their understanding of the principle of “economic liberalism”. (This has nothing to do with “political liberalism”.) Their actions were driven by their desire to primarily maximize their particular interests, while secondarily maximizing the interests of other stakeholders within the International System.
The Genesis of Economic and Social Catastrophe. In theory, economic liberalism seeks to reduce transaction costs and maximize wealth by applying the principle of “comparative advantage” to the global economy. From this perspective, the goal is to create a planetary economy in which the total balance of global trade is maximized, which presumably increases the wealth and quality of life for the maximum number of people. This may seem logical, but imposing a policy of economic liberalism on a planet without effectively enforcing international rules of trade and creating meaningful incentives for corporations to distribute wealth more evenly throughout global societies merely results in a regime of global economic imperialism. Like the European colonialism, genocide, and humanitarian atrocities of the past perpetrated under the guise of “civilizing the barbarians”, neo-economic imperialism perpetrated under the guise of economic liberalism is already having catastrophic economic and humanitarian costs.
What Determines Economic Winners and Losers? Let’s say we have a nominal liberal economy in which political and social welfare considerations are substantially ignored. If a trading “partner” is cheating to circumvent the mutually agreed rules of trade, then that artificially amplifies their comparative advantage, which accelerates their growth and wealth accumulation at the expense of others. Viewing this situation through the lens of pure economic liberalism, one might say, “Whatever reduces economic friction and transaction costs and maximizes global wealth is good for all of us!” But in every economy there are winners and losers. What determines whether we are winners or losers depends on two basic factors: (1) the relative benefit we receive from the aggregation of all transactions and (2) the time scale of our analysis.
Economic Mutation and Speciation. “Cheating” (however defined) transforms a free-market liberal economy into a manipulated or “managed” economy. At that point, we are no longer talking about “economic liberalism” or free-market capitalism; the system has mutated into a fundamentally different species of economy. Thus, it is either corporatism, crony capitalism, mercantilism, socialism, communism, or some combination thereof, but it’s no longer economic liberalism or free-market capitalism.
Compromises in the Short-Run Don’t Create Wealth in the Long-Run. What if a cheating party only hurts a few companies but benefits millions of consumers in the form of cheap prices—is the cheating ok then? No, because this scenario implicitly defines “benefits” only from a short-term perspective. Politicians and shareholders of large corporations benefit in this scenario, but the aggregate benefit of all transactions for large populations cannot be observed over a short period of time. This is why the two factors of time and aggregate transactions are intertwined and essential for any good-faith analysis of the benefits of any international trade regime.
Corporatism and Its Cumulative Negative Affects. Earth’s macro-economy today should be defined as “corporatism”, which is an economic system that is politically and structurally designed (consciously or unconsciously) to primarily benefit the largest corporations, their shareholders, and the political class within each country. Regulations, tax policies, and geopolitical events are all viewed within the context of how large corporations will respond. However, regardless of whether one stakeholder or 1 billion stakeholders benefit from corporatism at any particular point in time, if the analysis is extended over a longer period of time, the cumulative negative consequences of corporatism become obvious. (Note: Corporatism is often falsely labeled as “economic liberalism” or “capitalism”, but they’re not the same.)
Trade Deficits Are the Result of Lost Wealth. By definition, national trade deficits are an economic condition in which a nation collectively pays more money for its goods and services than it receives. Thus, for every year a nation has a trade deficit, it is allowing more wealth to leave its country than it is accumulating for its citizens. Despite the corporatist propaganda that we have all heard to justify the international trade regime that dominates the world today, cheap prices for discretionary goods and services do not create wealth. Wealth is created only when individuals and nations keep more value than they lose from the aggregation of all the economic transactions that affect them over time.
The Wealth Pool. To understand this principle, visualize a pool with two vacuum hoses at opposite ends. The pool is filled with the total global supply of “wealth” (money, assets, buildings, land, stocks, bonds, commodities, intellectual property, food, clean air and water, economic liberty, political freedom, etc.). This is the “Wealth Pool”. One hose flows to Country A while the other hose flows to Country B. All forms of productive activity produce wealth, which flows into the Wealth Pool just before it is sucked out of the pool by each economic actor (individuals, corporations and countries). There are many forms of wealth, but on Earth, we usually measure most forms of wealth in terms of money.
How A Nation’s Wealth is Lost. If Country A has a trade deficit, that means it is paying more total wealth for its goods and services than the total wealth it is receiving. If Country B has a trade surplus, that means it is paying less total wealth for its goods and services than the total wealth it is receiving. If this scenario continues over a long period of time, then Country B will obviously suck more wealth from the Wealth Pool than Country A, regardless of the prices that Country A’s citizens might pay for various products at the individual level. Thus, at the national level, Country A’s economy is being depleted of its wealth, which inevitably leads to the collapse of its industries and ultimately the collapse of its entire economy.
Cannibalism Is Not a Sustainable Solution. Some people may say, “How is it possible to pay cheaper prices and not be better off over the long-run?” An analogy will make this process clear: From a purely biological perspective, you could literally eat your own flesh, bones, blood, and muscle tissue to survive for a short period of time. When faced with starvation, humans have actually resorted to cannibalism to survive in many cases throughout human history. You may prefer to eat your neighbor instead of yourself, but after you’ve eaten all your neighbors, who is left to eat?
Consumption Does Not Lead to Prosperity. Chewing on your easily-accessible fingers and juicy thighs a few millimeters per day may seem like a logical way to survive for a short period of time, but over the long-term, that behavior will eventually lead to the total collapse of your biological system. Now you’re dead; and no quantity of cheap products is going to bring you back to life.
Why Did the U.S. Economy Eat Itself? Cannibalism might be understandable in the context of life-or-death starvation, but would you ever eat yourself in any other situation? That’s an important question, which should be answered by the people who created the international trade agreements that govern the global economy today. There are specific politicians, economists, and corporate executives who dominated that process at each critical point, especially during the 1980s and 1990s. In virtually every case, if you look at their personal backgrounds, personal incentives, and conflicts of interest, you will find the answer to this question and many other questions associated to the dysfunctional global economy today.
America’s Experience Will be the Global Experience. What the champions of economic liberalism fail to understand is that the U.S. is the canary in the coalmine. The same mutation from economic liberalism to corporatism is underway in every emerging market today. The same mistakes that U.S. political and business leaders have made are being exported from the U.S. into every corner of the globe. The convergence of interests between powerful politicians and powerful corporations are mutually reinforcing one another while they cannibalize the economic and social fabric of their societies. This is leading to the massive income and wealth disparities that are popping up all over the planet, which creates a self-perpetuating cycle of wealth and political power concentration into the hands of an ever-shrinking class of transnational cannibals.
The Globalist Perspective is Detached from Local Realities. My career and life have given me a unique perspective on both sides of this ideological and economic divide. From this vantage point, it is clear that our planet is heading for a major political and economic eruption unlike anything that has occurred in human history. Many people were surprised by the Arab Spring, then they were surprised by Brexit, and then they were shocked by Trump’s presidential election. This is because they don’t truly understand the fundamental economic and social realities that are shaping the lives of billions of people worldwide today.
Surprise is Born from Ignorance. People are not surprised or shocked when they know and understand why something happens. Thus, surprise and shock are fundamentally produced by ignorance. The policymakers, corporate executives, and media organizations who are surprised by these major political and economic events are either deeply ignorant and/or deeply self-serving. Regardless, the cumulative result of this experiment with global economic liberalism-mutated-into-corporatism will ultimately destabilize and destroy the entire global economic system, resulting in far more losers than winners.