You may have noticed the alarming headlines today declaring global markets are in sharp decline due to China's market collapse. Reported the Huffington Post:
Chinese market chaos rooted in long-held but sporadically-acted-on fears of economic malaise, negative U.S. manufacturing data and instability in the Middle East combined to create an unfortunate grab bag of reasons for traders to sell.
In the U.S., the S&P 500 index was down a little over 2 percent Monday afternoon. In London, the FTSE 100 index fell by 2.4 percent, while the German Dax index was down 4.3 percent. The Japanese Nikkei index fell 3.06 percent.
Those declines, while sharp, are relatively minor compared to the fall in Chinese markets that seems to have precipitated the global decline: The CSI 100 index fell 5 percent, triggering a temporary halt to trading under newly implemented rules intended to prop up the country's wobbly markets. When trading resumed, the market quickly fell another 2 percent and trading was suspended under the same rules, which limit a day's losses to 7 percent.
Market fluctuations and the general health of the economy appear to most people as completely random numbers that run across their television screens during the news: the NASDEQ is up or down, the Dow Jones has opened at a meaningless number, and global financial markets are performing well or badly. All of this means virtually nothing to the average citizen, who is only concerned about the global economy as it relates to gas prices and mortgage rates. Up is good, down is bad, or whatever business reporters say it is.
The truth is, global financial markets are so volatile and complicated that no one really understands what is going on -- other than of course the insiders and people who designed the system and benefit from its inherent volatility. We now take for granted that the global economy is perpetually on the edge of complete collapse -- an anxiety inducing proposition that serves to keep us working longer and harder for less and less. But this volatility and instability has been purposefully built into the system through a radical program of liberalization.
Whether or not you agree with Noam Chomsky's interpretation of power politics, his analysis of global economic trends are astonishing astute, and prescient. Back in 1999, he characterized the global economic system as such:
Markets have become more volatile, with more frequent crises. The IMF has virtually reversed its function: from helping to constrain financial mobility, to enhancing it while serving as "the credit community's enforcer" (IMF economist Karin Lissakers). It was predicted at once that financial liberalisation would lead to a low-growth, low-wage economy in the rich societies. That happened too. For the past 25 years, growth and productivity rates have declined significantly. In the US, wages and income have stagnated or declined for the majority while the top few per cent have gained enormously.
These trends have not reversed, and by all indicators, appear to have gotten much worse. The destructive financial crisis in 2008 was entirely predictable if you understand the mechanisms behind the current system. Liberalized financial markets increases speculation as investors have greater freedom to move capital around. They can pull out of investments in the blink of an eye in order to protect their own interests with little regard for the social consequences. As Chomsky notes:
The point of the liberalization of capital and its effect is to diminish democratic control everywhere and to undermine social programs. It ensures that policy will be geared toward enriching investors, the holders of financial capital, which becomes more and more speculative, therefore harming the general economy.
The rich and powerful are conveniently protected from catastrophic failure by the nation state that will intervene should their bets not pay off. When the US economy went into free fall in '08, the Bush Administration stepped in with a huge bailout package that absolved the risk taking banks of their sins, and passed the debt off to the public. This also paved the way for a greater consolidation of power as the super wealthy were able to pick up assets at rock-bottom prices. Reported David Cay Johnston in Reuters:
The 1934 economic rebound was widely shared, with strong income gains for the vast majority, the bottom 90 percent.
In 2010, we saw the opposite as the vast majority lost ground.
National income gained overall in 2010, but all of the gains were among the top 10 percent. Even within those 15.6 million households, the gains were extraordinarily concentrated among the super-rich, the top one percent of the top one percent.
Just 15,600 super-rich households pocketed an astonishing 37 percent of the entire national gain.
This is how the game works: the rich win if their gambling pays off, and the rich win again when it doesn't.
Today's bad news is of course, not bad news for the architects of our world who will merely look for ways to exploit it. Sadly, the rest of us will deal with the 'externalities' of this liberalized market ideology: more wage cuts, unemployment, and the decimation of our savings.
If we continue to accept the principles of unfettered capitalism as fact, this is essentially the world we can look forward too. So let's start by rejecting the premise completely, and look to something new that actually works for the majority of human beings.