Federal Reserve Chairman Praises Globalization for Keeping Inflation Low
On occasion, the ruling class is surprisingly candid about the current state of affairs in America.
In a 60 Minutes interview with CBS correspondent Scott Pelley, Federal Reserve Chairman talked about a whole host of issues regarding the economy. One point that he made caught the attention of George Szamuely, senior research fellow at the Global Policy Institute and a staunch critic of globalism.
Szamuely tweeted, “Fed Chairman Jerome Powell blurts on @60Minutes how governments achieve, year after year, the apparent miracle of no inflation: just ship jobs overseas. And of course keep importing cheap labor. https://cbsnews.com/news/jerome-po”
The foreign policy analyst referred to one section of the interview, in which Powell was questioned about inflation and why it’s no longer much of an issue.
Powell’s response was revealing. He stated:
In addition though, the economy has changed because the globalization of the economy and technology have enabled manufacturing to take place all around the world. It’s very hard for people in wealthy countries to raise prices or to raise wages. It’s hard for workers to raise wages when wages can move overseas. So it’s just a different economy. And one manifestation of it, if you look around the world in other wealthy countries, they’re all experiencing very low inflation and really have for the last quarter of a century.
Nationalists have long warned about many of the politically contrived trade deals that benefit multinational corporations while stiffing American workers by shipping jobs overseas. The low inflation of which Powell speaks about may be a welcome sign at the FOMC meetings, but, considering his explanation, not for American workers desperate for a raise.
The disinflationary nature of trade deals established in the last 50 years is rather devious. People see the low prices of goods and services, but they ignore the socio-economic destruction that comes with excessive globalization. This is the most salient in the American heartland’s hollowed out industrial sector. Not only have many workers been economically displaced but they’ve fallen down a nasty cycle of depression and despair.
Globalization has been very beneficial to elites and has helped them create a Potemkin village of an economy whose statistical figures look good at the macro level, but upon further review there are lots of flaws in America’s economic foundations.
More cynically, globalization has served as a mechanism to keep inflation in check, while the administrative state grew in size and the elites protected their loot as America began to expand its reach through managed trade deals. The US pursued a pretty hardcore guns and butter program in the 1960s when it cranked up social spending and got involved in a total military boondoggle in Vietnam. Coupled with an expansion of the workforce and consumer base largely brought about by the Civil Rights Revolution’s anti-discrimination and equal opportunity employment laws, America’s economy was heating up and was potentially on the brink of a nasty inflationary crisis.
It is perhaps no coincidence that the US. went off the gold standard on August 15, 1971 and then proceeded to normalize political relations with China in 1972 in order to lay the groundwork for future economic integration with China.
Though the US faced unprecedented inflation in the 1970s, Fed Chair Paul Volker was able to clamp down on it in the 1980s by raising interest rates. Compounded with the increased economic intercourse between the US and China, along with other developing markets with low labor costs, inflation was able to be held in check. Albeit, with a cost — the destruction of its manufacturing base.
At the end of the day, the most sustainable way of containing inflation is through the establishment of sound money, which protects the wealth of all socio-economic classes and allows for the economy to make productivity gains that don’t appear confined to the upper echelon of the economy. One of the first steps in realizing that goal is to discredit central banking and introduce competing currencies and systems of credit.
Cryptocurrencies have emerged, at least partially, due to such forces. And, if you’ve seen the price of Bitcoin in US Dollars lately, you have a sense that inflation isn’t quite as under wraps as Chairman Powell suggests.
However, thinking that trade expansion will be a silver bullet is misguided at best. The obsession with the current iteration of trade deals is not only off the mark but also serves corporate interests. A case can be made for simplified form of bilateral trade deals that more obviously advance the interests of all American.
Unfortunately, we’re nowhere near that kind of paradigm. A new paradigm shift is needed in terms of how we analyze economics and craft solutions to current problems.