Molly Ivins August 30

AUSTIN, TEXAS — Some things to think about as we watch the global economy wobble:

According to The Associated Press, federal bankruptcy filings reached 1.42 million in the 12-month period ending this June 30, a record for any one year. The extent to which our economy is built on debt is staggering. The ratio of price to earnings has exceeded the point at which the market crashed in 1987. Our trade deficit is ragingly unhealthy and can only get worse, as already-collapsed nations struggle desperately to export their way out of trouble. In sum, it's not looking good.

As has been previously noted in this space, what we are dealing with worldwide is overcapacity. Think of it as a global version of supply-side economics.

We have concentrated on supply, supply, supply — more stuff, more factories, built all over the world to use cheaper and cheaper labor. And what's at the other end of this? No demand. People not paid enough to afford all the stuff that's being cranked out; going into debt just to stay even.

Robert Brenner's article in the current issue of New Left Review, "The Economics of Global Turbulence," points out that, from 1973 to the present, average annual growth in U.S. productivity and hourly real wages have been the lowest since the 19th century (a fact I gleaned from reading Alex Cockburn of The Nation, who is certainly not a Stalinist — a libel that some fool recently attributed to me).

(In case you are wondering why I would quote some lefty publication on what's wrong with capitalism, I point out the historical record in this regard. Leftists, from Karl Marx on, have done excellent work in the descriptive analysis of capitalism. That their prescriptive analysis leaves much to be desired is another problem. I consider lefty economists and The Wall Street Journal equally crucial for understanding capitalism.)

The folly of this supply-side emphasis has been apparent for some time. The consequence is an increasing imbalance, a greater division between haves and have-nots, with the whole rickety structure now in peril. The problem is aggravated by the instantaneous flow of capital.

Jamie Galbraith, a University of Texas economist, says that all countries should have the sovereign right to control capital flight across their borders, just as they control the flow of labor.

"We've been operating on the exact opposite principle, and it's a formula for instability," he argues.

"The countries in Asia which have been hit hardest were those relying most heavily on short-term American money. American banks have been earning very high interest on short-term money lent to Russia, on which the Russians have now defaulted. It's a fool's game unless you're the first person out; the game is finding the fool."

Among the many good reasons for having countries control capital flow is that the Big Guys weasel out of the messes they leave behind. A South Texas banker once told me that he knows whenever Mexico is about to devalue the peso because big Mexican money suddenly starts showing up in banks on this side of the border. First a trickle, then a flood — then, boom, the peso is devalued, and the average citizen of Mexico is left worse off than ever. And you watch — the next thing we'll see will be big American banks, caught playing the fool in Russia, whining about how they need to be bailed out by ... us, of course. Too big to fail, and all that jazz.

The Left Business Observer, another valuable publication, did a major takeout on capital flows in its January issue. "It's amusing to hear U.S. analysts now denouncing the corrupt, inbred, opaque world of Asian capitalism, since it was the injection of foreign capital into these very structures that allowed the region to shift into hyperdrive over the last few years. In Korea, Malaysia, the Philippines and Thailand, investment ran way ahead of domestic savings, thanks to the extra capital from abroad."

Personally, I have long mourned the demise of those excellent old populist villains, "the gnomes of Zurich," who used to be blamed for 19th-century economic fiascoes. I like the thought of a stealthy group of stunted fellows, preferably foreign, whom we could blame for all this. But I'm afraid that, as usual, there is no conspiracy — only stupidity.

The Left Business Observer notes: "One should never overestimate the sophistication of foreign investors or the IMF, which is supposed to exercise 'surveillance.' Judgments about countries are formed on the most superficial evidence — at Wall Street rating agencies by the young and credulous, and the IMF by small teams of economists who parachute in and talk to a few ministers and central bankers."

A populist mayor of Syracuse, N.Y., once noted that bankers all have hearts the size of caraway seeds — and in my opinion, their brains are even smaller. And if you think the big banks made some dumb loans abroad, wait'll you see the results of "subprime lending" — i.e., loans to those with shaky credit ratings — here at home.

Molly Ivins is a columnist for the Fort Worth Star-Telegram. To find out more about Molly Ivins and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.

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