Current events – “The Great Illusion”, New York Times, first published
August 15, 2008, recently focused as a highlight on
nytimes.com
Capitalism between globalization and nationalism
Dear Mr. Krugman,
Thank you for your article “The Great Illusion”, in which you speak
about the conflict between nationalism and globalization as one of the
major problems in the energy policy of the 21st century. You give the
examples of the Caucasus war with its impact on oil shipments and the
use of energy supplies by Russia to put pressure on Ukraine. Moreover,
you quote John Maynard Keynes describing the global economy before
World War I as much more internationally orientated. Finally, your
conclusion is that the global economic interdependence is a fragile
system, which could lead to nationalist wars for resources. The trade
with nations that do not share “democratic values” should be somehow
be accompanied by governmental agreements about international trade.
First of all, the globalization, understood as an increase of
interdependence between all parts of the world, is a great chance for
the spread of liberty and justice in more and more countries: As
Milton Friedman showed in “Capitalism and Freedom”, increasing
economic freedom always leads to more political freedom in the long
run. This theory has been proofed a lot of times in history: After
World War II, the establishment of a free market system in Germany
created a boom (often called the “economic miracle”) which was a
milestone for the development of a free society after the Nazi regime.
The same process could be seen in a lot of East European countries
after the fall of the Berlin wall. Columbia university economist
Jagdish Bhagwati recently showed in his book “In Defense of the
Globalization” that the booming Indian economy helped achieving more
civil liberties – e.g. the beginning questioning of the caste system
as a result of economic advancement of Indian workers from lower
castes, including women. Capitalism provides also a perspective for
oppressed women in Islamic societies.
In your article, you warn against the nationalist use of resources but
offer the same nationalism as a solution: Why should governments
restrict the trade between free individuals in the name of freedom?
This is not only a contradiction in itself but also fatal in its
result. Instead of improving the standing of “democratic values”,
their further spread would be stopped. The goal of exerting pressure
on totalitarian regimes may work so that concessions in bilateral
cases can be achieved – but the price to pay for this, the immediate
stop of social liberalization, is high.
It is very interesting that Keynes sees the economy before WWI as a
good example for the globalization nowadays. Of course, it is right to
blame the “the projects and politics of militarism and imperialism, of
racial and cultural rivalries, of monopolies, restrictions, and
exclusion“ for the disasters of the last century. I also agree with
the theory that WWI was the starting shot of WWII and the Cold war in
its aftermath. But was this possible? Was it only based on a change of
the philosophy in foreign policy? You do not give an answer on this
essential question. 1913, one year before the beginning of WWI,
President Woodrow Wilson signed the bill to found the Federal Reserve
System as the American central bank controlling the value of the
dollar. Later, he said he would be “a most unhappy man”, who had
“unwittingly ruined” the country. In World War I, only 21 percent of
the cost were funded through taxation, the rest through Fed-backed
borrowing and money creation out of thin air – banks, to quote Thomas
Jefferson, are more dangerous than standing armies. Without the use of
the central banks’ money press, none of the big military conflicts of
the 20th century would have been possible.
Therefore, I totally agree with your point of view concerning the
danger of nationalism in general. Nationalism is an enemy of personal
liberty and a philosophy of hate – but trade restrictions are one more
nationalist answer, only coming from the other corner. The correlation
between war and central banking is also a point you totally
underestimate. I hope the American will change their views on the Fed
in the reappraising of the financial crisis and the Iraq war.