"When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals.
We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues"

( JM Keynes, "Economic Possibilities for our Granchildren" 1930 )

Sunday, May 6, 2012

The Parveh Economics of Inequality

“Parveh” : Neutral food, not meat and not dairy ( from the Jewish tradition) is a term used to describe a neutral opinion or position . "Sitting on a fence" 

Prof. Krugman (Nobel Prize 2009) published in his column at the NY Times an interesting post http://www.nytimes.com/2012/05/04/opinion/krugman-plutocracy-paralysis-perplexity.html talking about the relation between Inequality and the Crisis. The line of reasoning of the article reveals the growing understanding that inequality is a factor to be taken into account, but its development goes, as usual to the Partisan arena ( i.e. the Republican bad guys) thus missing the main political and economic conclusions. Put it in other words, a step forward, but still a small one.

The article opens with the following statements ( Note : I make use of one article and one author but the issue is not a personal critique).

“Before the Great Recession, I would sometimes give public lectures in which I would talk about rising inequality, making the point that the concentration of income at the top had reached levels not seen since 1929. Often, someone in the audience would ask whether this meant that another depression was imminent. Well, whaddya know?”….

Did the rise of the 1 percent (or, better yet, the 0.01 percent) cause the Lesser Depression we’re now living through? It probably contributed”.

The statement “probably (“Probably = almost certainly; as far as one knows or can tell”, from the Oxford Dictionary) contributed” is rather “Parveh”, even trivial. We should already know that any social phenomenon is a potential “ contributor ” to a major economic crisis .The really deep interesting question is not the contribution per se but the relative importance of the phenomenon . Was it determinant ? What are the other components that contribute to the recession? And so on ….

Prof. Krugman continues

“But the more important point is that inequality is a major reason the economy is still so depressed and unemployment so high”.

The reasoning here is a bit confusing: When the question was from the “contribution” ( i.e. cause) side, inequality was a just mere probable contributor. Now when we deal with the solution side, inequality becomes a ” major reason” that impedes to return to normal growth. What a change! Common sense indicates that “cause” and “solution” in any question are correlated, in our case if inequality is now a major depressor, shouldn´t we to expect that it may be also a major detonator for the crisis? The answer to the apparent inconsistency appears now, in the text.

From now on , and for the rest of the article the focus of the debate turns from Economics to the partisan arena. Since the political color of the writer is well known, the main attack is against the Republican Party (as if the Democrats were some sort of Social Democrat part y or it members were not also part of the American oligarchy) . So if the writer is not able to throw even a small stone on his own political house, there is nothing really surprising in his words. Now we understand that inequality is a problem because the Republican Party is owned by a small mega rich group that impedes a normal political debate with the good souls, the Democrats.

Finally, when it comes to the solutions, the writer returns to the old Keynesian creeds leaving.

“Many pundits assert that the U.S. economy has big structural problems that will prevent any quick recovery. All the evidence, however, points to a simple lack of demand, which could and should be cured very quickly through a combination of fiscal and monetary stimulus.

No, the real structural problem is in our political system, which has been warped and paralyzed by the power of a small, wealthy minority. And the key to economic recovery lies in finding a way to get past that minority’s malign influence”.

So for the Economy , Keynesianism and for politics to get rid of the malign influence. Once again, the logic is confusing: If the problem is an excessive political concentration of power due to an excessive concentration of wealth, shouldn´t we deal with the cause? Why there is not an explicit call to deal with the root of the problem by reducing inequalities? Why to stick only to the traditional instruments of Keynesianism and not to mention that equality was a major component in the New Deal?

Summarizing, there is a renewed interest in distribution aspects, but mainstream economists are still unable to propose a political economic agenda in that direction in economic terms. Maybe because the Parveh mainstream economists are unable to deal directly with the Taboo? Who knows... the  fence is already too (intellectually) fragile, and Economists should understand that the days that distribution was a taboo are over.

Thursday, April 12, 2012

Lethal Markets

From "The Economist"
JAMES CARVILLE, an advisor to Bill Clinton, famously once said he would like to be reincarnated as the bond market, because then "you can intimidate everybody". The European Union now has a huge rescue fund in place for member countries that come under attack from the bond vigilantes, and is working on plans to replace this with a permanent mechanism. Spain, a big, indebted euro member often thought of as a potential target for market vigilantism, is now straining to set its finances straight and avoid a roughing-up.”

In the Spanish case it seems that Mr. Carville´s description fell short of real life. The recent austerity plans put as a reaction to the markets´ demands are not only intimidating but could fall into the category of “Lethal”

First of all, lets see the relation between the intimidating monster and the policies policies. The evolution of the austerity policies adopted by Spain´s government can be followed through the evolution of the “Spread” ( i.e. the difference between the German and the Spanish Bond.

And in a more close perspective we can see that since the BCE ceased to buy Spanish paper the Spread went up

As expected Spain´s Government Pavlovian style reaction to the recent spike was immediate: The government unleashed an additional austerity cut of 10 billion € (approximately 1% out of GDP) announced last weekend. For those not familiar with Spain´s budget this is a COMPLEMENTARY measure beyond the cut pack included in the 2012 budget. The main victims of the actual measures are Health and Education budgets, which in relative terms sum up to app. 10% of their actual budget framework. I will deal in this blog only with the Health component, hoping that the cuts in Education effect did not yield , yet, the expected outcome of endless illiterates unable to read or understand this short note …. 

How the cut will be performed? The official version is that the cuts will be concentrated in rationalization measures (which by themselves, rationalization is always welcomed … ) but such rational raises two main questions

1. What is the margin of rationalization? To what extent the system is inefficient? ( I will remind my loyal readers the famous story told about the farmer that reduced his horse daily ration by half every day until the horse one day died of hunger …)?

2. If the cut is not only about rationalization but real cuts, what is the expected consequence in terms of human lives?

The first question can be answered by comparing the Health expenditures of different countries, in that case with countries with a similar level of income for the period 1960-2009 ( in real terms ) and contextualizing the figure with life expectancy at birth

(Source OECD Statistics “Health Expenditure and Financing” /capita, US$ at 2000 PPP rates, own elaboration of the data)

As can be seen from the above graph, Spain ( Red circles) Public Health System is able to generate one of the highest Life Expectancy rates among developed countries with fewer money than other countries (in 2009 at app.1600 USD/ Capita . In other words, it seems that the Spanish Health system is already rather lean so it would be more than probable that any cut in expenses is expected to hurt the flesh and bones, not the nonexistent of the system. Question 1answered.

So what could be the impact in human terms? In order to deal with this question I´ve run a simple linear regression between “Expenditures” and “Life expectancy” (50 observations between 1960 and 2009). The results indicate a high correlation between the magnitudes (above 90%) which means in practical terms that an increase/ reduction of 160 USD implies a lower Life Expectancy by ap. 7 months up to 1.3 year ( depending on the statistical tool used) , for the sake of the debate let´s take the one year figure as reference . Answer to question 2.

Final remark: We limited our analysis to Life Expectancy terms but bear in mind that Health is not just mere “quantity” but “quality” as well. Therefore a cut in Health Expenditures may affect not only the shortening of our lives but a poorer quality of service (for example, suffering for months from pains before having the opportunity to see a surgeon or a specialist … something becoming very common in Spain)

Conclusion : In comparison to the data presented above, Carville´s observation looks as a subtle understatement, when European countries like Spain are obliged to adopt policies literally lethal for their citizens. Therefore  the evaluation of the market "Diktats" exceeds the sphere of "Economics" and become  a matter to be handled in the arena of moral principles .

The question should be : Are we ready to live in a society that exchanges "financial stability" or "credibility" with its hardest coin,  the lives of its citizens??? I personally prefer longer lives even if that implies poorer banks or lower paychecks for top executives. How to do it? If the thug of the neighbourhood, the "market", speaks "Intimidationish", the citizenship should learn how to handle that Newspeak of determination and firmness . I can guarantee you that Mr. Carvell monster could become much less intimidating that it appears. It´s a matter of social choice.  

Saturday, April 7, 2012

Post Passover Thoughts - Does it matter who built the Pyramids ?

The Jewish Passover ceremony (by far my favorite ) has one and sole purpose: To retell and transmit the story of the Exodus of the People of Israel from Egypt that took place some 3000 years ago. The ancient sages defined that principle from the very beginning of the Haggadah ( the "textbook" of the ceremony) in the following way:  

“Even if all of us were wise, all of us understanding, all of us knowing the Torah, we would still be obligated to discuss the exodus from Egypt; and everyone who discusses the exodus from Egypt at length is praiseworthy”. ( From the Haggadah)

Many people understand the above principle mainly through its culinary aspect, with a special emphasis on “The more, the better”...  generally turning the celebration into a mere and succulent  feast accompanied with a robotic manual called "Haggadah" ...a sort of  "Read and Eat". However, I personally understand my ancestors´ advice as a challenge, an invitation to an active reflection beyond the traditional texts. Therefore , even a modest post with a modern political economic flavor should deserve to be seen as part of the “Seder”.

And now, to the content ( developed from a post I wrote two years ago)  

Some two years ago, the press announced a surprising archaeological discovery in Egypt: Under the surface and nearby the famous Giza Pyramids archaeologists discovered a few graves which contained the rests of  people which ,apparently, took part in the process of building the local pyramids (app. 2400 BCE).

“….These tombs were built beside the king’s pyramid, which indicates that these people were not by any means slaves. If they were slaves, they would not have been able to build their tombs beside their king’s…” said Dr. Hawass (Secretary General of the Egyptian Supreme Council of Antiquities). Source : “Egypt tombs suggest free men built pyramids, not slaves” http://news.bbc.co.uk/2/hi/8451538.stm January 2010

I am not archaeologist, but common sense should tell us that deriving important conclusions about ancient labor relationships from just a few graves is a bit too early. For example , isn´t it possible that out of the millions slaves involved in the construction of the monuments, a few “lottery winners”,were allowed to enjoy an eternal life close to the royalty?. Who knows ? However, that was a side note about the conclusion since the main interesting issue related to the Pyramids lies in another place.

On my humble opinion, the legal status of thousands of human beings that spent 30 years of their lives (Herodotus) carving, shipping and piling millions of heavy stones underneath the Egyptian burning sun is a secondary issue. Any dispute concerning the legal status of the builders cannot hide the pervert and twisted nature of the Pyramids (you can call it Cathedrals, Palaces, Coliseums, Temples etc.) , i.e. the waste of human work and lives for useless ends.

First, let´s see the figures to get an idea: The Giza Pyramid is a 2.5 million block pile (2.5 ton/block) which required the physical work of 10,000 people (Herodotus wrote 100,000) for 30 years. ...just for one Pyramid ….and remember that the Egyptian soil is covered with Pyramids, Tombs, Temples, etc.

That army of workers had to be fed; someone had to supply cloth , tools, infrastructure and other means, and all of it in exchange for nothing : In the economic sense of the word, the Pyramids lack from any intrinsic value. The only possible source for food and materials for the huge army of workers was the surplus the Nile valley originated beyond subsistence which was funneled through coercive means mixed with a good dose of religion and property rights) to the mouths of the workers/slaves.

If Egypt could generate such enormous surplus, why wasn´t it applied  in “real” and useful ends? For example,  improving the infrastructure of the country, modernizing its irrigation system.….or alternatively, why not to finance the development of science ? Or upgrading the medical services for a population whose life expectancy was about 35 for men and 30 for women, a society that reaching adulthood was a challenge by itself as one-third of the kids just couldn´t make it and died in infancy? And don´t tell me they couldn´t do it : If they were able to develop amazing mummification techniques, they could probably improve  the overall state of medicine. All those bothering questions make me define the pyramids construction as a “perversion”.

Are the perversions of the ancient Egypt still among us? The British economist Lord Keynes in his "General Theory" observed that in the context of involuntary unemployment

 “…Pyramid-building, earthquakes, even wars may serve to increase wealth, if the education of our statesmen on the principles of the classical economics stands in the way of anything better…”. p. 129).

This generally misunderstood... (people claim that Keynes was in favor of pyramids....) and deeply sarcastic comment is trying to tell us that pyramids (or wars…) become “solutions” to unemployment when the rulers are dumb enough to stick into their education or "Classical Economics " pack instead of an open mindedness Lord Keynes advocated for. With all the humility, I would like to remind to our readers that ancient Egyptians were not very familiar with “Classical Economics”, and Eaton is  a modern British institution, not an Egyptian one …. Therefore the common denominator between “Now and Then” should be looked after in a different place than just education or economy.

So, my conclusion is that the “real thing that stands in the way of anything better” is simple as the raison d'etre of any ruling class: to maintain, the RELATIVE distribution of incomes, wealth and power. Lord Keynes may have told us us in a  subtle and British way that it´s all about power (and I add exploitation), not only an education obstacle. For example to regard “war” or "earthquake" as a way to increase “wealth” sounds like a bad joke unless you interpret it in the ruling class way: The misery of a whole society (war = destruction) is a mean to increase Wealth of the few ( and in the case of the Pyramids also to symbolize the rule of the few over the rest).

If we understand that in the broader way,Pyramids had the same task as Wars or Earthquakes : the tool and the symbol which transmits a clear message toward the rest of  mortals: You are here, in this world, only to serve , fight or die for us. Therefore, it really doesn´t matter if the workers were forced as “slaves” or as “free workers” to take part in the perversion called Pyramids. They just sweat for the eternal lives of the others.  

True, Pharaohs´ pretensions were radically perverse since they had in mind  not only to maintain his superior status among his contemporaries but also to preserve his status forever ( and the evidence is that we are dealing with a monument built 3000 years ago.... ) . However, since the principles of classical “pyramidal economics” are still among us, I can easily find a lot of “Modern Pyramids” – beginning with Cathedrals, Armies, Brands, Luxury products, the celebrity industry etc… all of them function as a mean to soak the surplus but also to create the symbols of the superiority of a minority .The choice, as Keynes pointed , between "Wars, Earthquakes or Pyramids " and " Anything better " is still, on my humble opinion, very relevant for our modern times, regardless the nominal status of our working force, call it "Slaves", "Wage Workers" or whatever.

A final comment or the opening of a new debate . According to the biblical sources,

"And the Egyptians made the children of Israel to serve with rigour." ( Exodus 1 :13)  

As you can notice, that literal phrase ( Sorry , I am not familiar with the exegesis) that does not indicate the legal status of the working force. Therefore it could fit into the recent archaeological findings . Eureka?
Alternatively , Perhaps , the legal status of the workers was not very important in the eyes of the ancient "worker/slaves"?  (as a matter of fact, Moses did not demand from Pharaoh to end slavery but to leave country .....  and in the beginning he just asks for 3 days of vacations.... )

Perhaps, these humble and  poor ancestors  understood with their intuition that the line between ”Slavery” and “Free Worker” is blurrier than we, the sophisticated modern citizens tend to think?

Sunday, February 19, 2012

Spanish Roulette - Gambling with OPM

Spain is famous for its lotteries and the devotion of its people for gambling. Therefore, we shouldn´t be surprised if the recent labor reforms ( Essentially deep cuts of social and labor rights) announced by the Spanish government look, more than anything else , as a huge gamble. Yes, a gamble but with a twist : They pay , We win... what is called gambling with Other´s People Money ( “OPM”) or what I would  call " The Spanish Roulette". I will try along the next few paragraphs to explain the lik between gambling and policy 

First of all a few words on Gambling : Gambling does not fit into the traditional definition of a rational economic behavior. Why is that ? The explanation is simple : The chances to win ( a lottery, for example ) are generally too small in comparison to the cost of the ticket. So when facing an unfavorable perspective a "rational" person would prefer not be involved. Some would even claim that gambling is basically an unfair business, but no one would doubt that the “non rational” gamblers are fully aware of the expected losses. Under normal circumstances the bets and the chances to win or loose are transparent and measurable ( for example , the chance to win in a roulette is 1/37).

However, the level of “non rational” behavior can reach new highs. For example when the gambler pays for a lottery ticket without knowing the odds and /or the winning price. I guess that even the most heavy gamblers would avoid such lottery. However there might be one small exception : If the ticket is paid by someone else, while the prize goes into the gambler´s pocket, gambling turns to be the most rational game in town. Playing with OPM ( Other´s People Money) is the most lucrative business.That is the business the Spanish Governemt is developing trough the labor reform.

This OPM gambling game is precisely what the Spanish Government announced : The denominated “Labor Reform” is equivalnet to a "bet" : The reform includes the loss of labor rights such as the lower severance pay, the introduction of an almost arbitrary right to fire, the abolition of collective agreements ( if a company FORESEES lower sales along 9 months..... ) and more. In “Gambling” terms, the cost of the ticket of the national lottery is clear and palpable on particular and collective terms , exclusively on the working class.

Now, any political ( or economic ) decision that involves huge social or economic certain cost should be weighted against future benefits for the Spanish society ( Example : Churchill´s “Blood Sweat and Tears “ was the price, but the reward was Victory) Otherwise, how can we evaluate the Reform? For example, is there any minimal level of unemployment reduction that justifies the reform? What is the timetable to begin to have some positive results? Did the Government elaborate a “Plan B” in case the actual plan does not work ? And so on....

So I looked around to see whether any important politician and / or economist ( BTW most of them supporting the reform) can enlighten our way with clear and measurable objectives. Unfortunately the only thing you can hear from them are pathetically vague slogans such as “ A step in the right direction”, or “The results of the reform will not immediate, it will have a medium term “ or “ The rationalization of the Spanish labor market “ and so on. So the benefits for the huge sacrifices are not so clear , lets say not existing from a practical perspective. An if there are , please show us …..So isn´t it fair to denominate the new gambling scheme “ The Spanish Roulette”?

As a matter of fact such behavior is typical for politicians which always avoid serious commitments to prevent future critics ( if the results are less than expected) and leave room for maneuver. Fair Enough. However, what really surprises is the reaction of the vast majority of my colleagues, the Economists. We are trained to evaluate figures and facts, and in case we deal with uncertain situations ( such as the future) the discipline developed tools ,models and probabilities to assess the benefits of uncertain economic scenarios . Therefore aby automatic support (or disapproval) of a policy measure without clear figures or model is closer to the field of beliefs and religion than to the field of a social ( although inaccurate ) science.

Is the support for vague and not quantified promises the result of a shallow, not critical thinking of my fellow economists ? Or maybe this is not a question of professional competence, but the recognition that the “Spanish Roulette” scheme will be always “rational” as long as the ticket for the lottery is paid by OPM ( especially the working class) ? I will leave these open questions for the reader to answer.

Monday, January 30, 2012

We Are All Marxian Now

As the crisis  goes on, it becomes evident that the European “Fiscal Austerity “ was just the foreplay. The real game ahead is "Competitiveness " ( especially in the Southern  periphery countries).

Fiscal Austerity is an accepted dogma in Europe and its implementation   is already depressing demand (ex. Spain unemployment to 22+%) . “Competiveness” is the private dimension  of a restrictive economic policy with its support for  wage cuts as a prerequisite to restore balance in the Continent (with the obivious implications on consumption and demand). However many economists, including some who dissapprove the Public Austerity policy, support the wage reduction policy as a substitute for "internal devaluation" in order to restore the economic European balance.

Lets see a few quotes

Diverging competitiveness among EU nations: Constraining wages is the key Mickey  Levy , Chief Economist of Bank Of America
“..The policy implications (for Europe EF)  are clear. Realigning real wages with productivity in Greece, Italy, Portugal, and other EU nations is as important, if not more important, than required fiscal austerity. However, this will be easier said than done.” 

Interview with W. Buiter City´s Chief Economist
“ The only thing Spain can do is radical reforms, a more flexible labour market and much lower real labour cost”. These are the clear terms   expressed by Mr Willem Buiter, City`s Chief Economist   about the reality of the Spanish economy, on which he openly speaks about in pessimist terms..."   (Translated from “El Mundo January 29th 2012)   

The message is clear: “Realignment,” “Reform” "Lower labour costs" with the objective to gain Competiveness. This is a serious challenge : we are not dealing with  a proposal  coming from an interested part (such as employers) which can dismissed as a "Class warfare" statement. The proposal carries the seal of professional, neutral  economists  and as such should be analyzed with analytical tools .
First comment : The analytic  focus on labour ALONE is deeply wrong from a 21-century economic perspective ( it is RIGHT from a Marxist perspective... we´ll deal with that later ) .  Past Economists like 19 century D. Ricardo developed the concept that prices (the basis for competitiveness, as in the end you compete with prices and costs) are the sum of   production factors. Back to Econ 101? 

 Labour+ Capital (Earning included) + Land= Cost  

 Therefore those who claim that the Spanish economy (in our case) is not competitive should present a comprehensive analysis of the cost and efficiency of ALL production factors. Otherwise, it is a partial and misleading analysis.

Second Objection :  Even if we maintain the  focus on labour, the actual figures simply do not corroborate the conclusion of our  Economist. Lets have a look on figures taken from the OECD statistic database  (2010)

  Million  Euros
Work Force
Overall Labor  Compensation
   Million   Euros
( GDP / Workforce)
   k Euros 
Average Wage
(Labor Compensation / Workforce) 

 k Euros

As can be seen from the table, the German average worker is more productive than his Spanish counterpart by 14%, but he also earns more, app. 20% more. In other words, if comparing the labour component, the Spanish employee can be competitive with the German worker, and she got a 6% edge on  cost level. So how it comes that Germany is considered more competitive than Spain?   

First of all, we should analyze the relations between both the countries and the rest of th world . Second, we just analyzed the labour component in price, so  in order to get a comprehensive picture we must add Capital (and Rent) . The result might be that the Spanish problem is a too high CAPITAL return in comparison to its productivity and not Labor. 

This is the big TABOO nobody wants to deal with , as it is always easier to accuse the working people for being non productive or earning too much (which in our case fits with racist stereotypes…) . 

Least and not last:  The assessment which considers labour as the main cost generator (as the above economist do) , THE real engine behind values, and  as such THE “key to competiveness” is nothing new to the Economic analysis. . As a matter of fact this is an updates version of the “Labour Theory of Value”, the 19th century idea developed up to its most “pure” level by  …Karl Marx!.

The idea that Labour is the sole value generator of the commodities (including Capital) became under Marx’s   hands a tremendous analytical tool he used to develop a deep social criticism. I doubt that this is the intention of the Wage Cut advocates, but in a certain way they could claim that after decades of ideological debates, WE ARE ALL MARXIAN NOW.    

Friday, January 27, 2012

Davos Proposal of "Free Work" = Slavery?

From Davos Conference ( January 2012)

"Young people should work for free for up to two years to gain experience, youth and business leaders said at the World Economic Forum in Davos Thursday.
A new UN resolution to enshrine the importance of a couple of years of voluntary work for young people was urged by delegates including Maurice Lévy(1), chairman and chief executive of Publicis Groupe, as part of a CNBC-moderated debate on how to avert a lost generation of unemployed youth...”. (http://www.cnbc.com/id/46152716)

Youth unemployment is indeed A PROBLEM, in several countries of dramatic magnitudes (ex.: The level of YU in Spain is close to 50%). So, in that case the issue at stake is not how to define ( or recognize) the problem but how to deal with it. As a matter of fact, innovative ideas  have been already "put on the  tables" ...

Sunday, January 22, 2012

Globalization : The Unfinished Job

The reference for this post will be a recent article titled “Charity needs capitalism to solve the world’s problems” ,written by former US President Mr. Bill Clinton (“Financial Times” website). The article opens with the following statement:

“Charity alone will not solve the world’s problems. Capitalism can help and at the same time put people back to work……” (FT , January 20, 2012)

The cooperation plan between Capitalism and Charity are explained along the article, resumed in one of its ending paragraphs.

“These efforts ( of Charity and Capitalism E.F.) benefit both the communities they target and the corporations and philanthropists involved, diversifying their businesses, expanding their markets, training more potential workers and helping to create a culture of prosperity. All this enhances profits, increases economic inclusion and gives more people a stake in a shared future”

Mr. Clinton actually offers a “Win- Win” deal: Achieving a moral end (“Solve the world problems”…. “Gives more people a stake in a shared future”) by appealing to the Capitalist intuition of profits seeking, a deal adorned with an unequivocal MBA new speak (“Diversifying business….expanding markets…training potential workers…). Social responsibility at its best!

In the philosophical sense, there is nothing really new in Mr. Clinton words. The idea a moral end (such as general prosperity) can be achieved through the pursuit of self interest has been already expressed some 250 years ago by the Philosopher/Political Economist Adam Smith.

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages” (Adam Smith. An Inquiry into the Nature and Causes of the Wealth of Nations)

These 18 century ideas were developed on later decades, becoming the pillar of free market ideology, the foundation of the Globalization for the last 20 years. If so can Mr. Clinton call for a “Capitalism and Charity” system considered as an implicit recognition that the original version of “Smithian” Globalization (launched along his own Presidency years…) actually failed ?

In order to answer the question we address the question what Globalization is all about?: One possible answer is "… (Globalization) When used in an economic context, it refers to the reduction and removal of barriers between national borders in order to facilitate the flow of goods, capital, and services and labour... (UN agency (ESCWA) From the Wikipedia)

True, barriers to Goods, Capital and Services were (partially) removed: The globalized world allows you an easy transfer of money abroad, the purchase of foreign currencies and/or financial obligations…. Alternatively when landing in a remote country you will find out that you and the native share not only the “human condition” but products, services, and corporations so familiar at home.

But, the above definition got another twist. UN agency is aware that “….although considerable barriers remain to the flow of labour... “

The observation that our “Globalized World” still impedes (20 years since its launch…) from human beings to move freely in the search for a decent life abroad is self evident. Still, the exclusion of labor from the free movement scheme has serious consequences on the whole Globalization edifice.

The theoretical framework of Globalization (or free markets as a general frame) requires that ALL production factors and products should be allocated freely. ALL. Theory can easily demonstrate that restrictions on freedom impacts competition, prices and quantities, all for the worst. Moreover, if the free movement of one “player” in the model is being restricted, the rest must be accommodated, even restricted, something that could unleash a dynamic of more restrictions and protectionism. In other words, Game over….

So, if the outcome from restrictions on labor is BAD, why the system operates this way? Well, it could bad for all,,,, but good for some players . The answer lies in the relative position of the countries and the short term benefits. Rich countries, the ones who dominate the scene have plenty of Capital and products in relation to their workforce. From the other side, Poor / Developing countries have to offer in that scheme plenty of labor and relative shortage of Capital.

It is turning to be a longer than planned post…. So in a very shortly comment, labor restrictions ( in addition to the imposition of production quotas on some products … that is another story …) favors rich countries as it permits to export their excesses and create a two tier production/ consumption system, poor workers vs. rich consumers .That is the main line that explains the widening gap between countries, that feeling we share with Mr. Clinton that his Globalization did not deliver the expected welfare fairly . Just have a look on wages, prices, working conditions, social security nets around the world to understand the bridge, better put the abyss between countries.

So, instead of embrace a half baked Capitalism/Charity ideas in the spirit of Mr. Clinton article, maybe the world should go a step forward and implement a full globalization and fair scheme, without restrictions simply frictionless as possible. The economy will do the rest, and no need for charity.

Even Mr. A. Smith would agree with such proposal. How do I know that? Last quote for today…. (the outlines are mine )

"It is not by the importation of gold and silver, that the discovery of America has enriched Europe. ...The commodities of Europe were almost all new to America, and many of those of America were new to Europe. A new set of exchanges, therefore, began to take place which had never been thought of before, and which should naturally have proved as advantageous to the new, as it certainly did to the old continent. The savage injustice of the Europeans rendered an event, which ought to have been beneficial to all, ruinous and destructive to several of those unfortunate countries." (An Inquiry into the Nature and Causes of the Wealth of Nations, by Adam Smith : Book IV: On Systems of Political Economy Chapter I: On the Principle of the Commercial, or Mercantile System )