It is the externalities that should give us pause, not the alleged power of government or money centers: I mean particularly the unsolved problems of wealth allocation (as opposed to creation) and the environmental impact of production.

Reed, don't you think the power of governments and of money centers has something to do with the the unsolved problems of wealth allocation and the environmental impact of production?

Wealth is not allocated by the mysterious God of wealth allocation. It is allocated by human beings. People who already have power and wealth use that power and wealth to steer more power and wealth their own way. As inequality grows, the ability to expolit that inequality to produce more inequality grows along with it. It's not some sort of puzzling side effect - it's something that human agents do intentionally.

Similarly, the problems of negative environmental externalities are traceable to the fact that some individuals and small groups are permitted to possess vast amounts of "private" capital and are permitted to dispose of that private capital for their own private benefits.

To the extent that Americans have had some minimal success in arresting some of the severe environmental harms that are generated by production, it is because their minimal and rudimentary democratic institutions give them the power to regulate the private property transactions of individuals and corporations in certain ways - which is another way of saying that the property in question is not entirely "private" after all, since its nominal possessors do not have full sovereign control over its disposition. But these impingements on the economic sovereignty of property possessors is quite limited, even in "democratic" America - and much more limited elsewhere. The possessors of property do everything in their power to prevent the limitation of their economic sovereignty by those who are affected by the exercise of that sovereignty.

Ultimately, these problems you mention all have to do with the fact that the methods by which production decisions are made in our capitalist society are not democratic, but are instead authoritarian and hierarchical. The very fact that we habitually regard all sorts of harms as "externalities" is part of the problem. The very idea that most of the goods and evils that flow to, or away from, human beings as a result of a transaction are considered "external" to that transaction is at the root of our socially irrational system. Suppose two people make a "transaction" and that transaction impacts the lives of 10,000 people. In other words, two people take certain actions that result in the flow of goods and evils among 10,000 people. One way of looking at this situation is to say that there are only two parties to the transaction and 10,000 people who are affected by the transaction but are "external to it. Another way of looking at the situation is that there are actually 10,000 people that are parties to the transaction, but that an outrageously exclusive tyranny of two have been granted the power to make the key decisions without consulting the other 9,998 parties to the transaction.

Why are so many so-called "Democrats" in modern America enamored of the strictly hierarchical, thoroughly undemocratic form of decsion-making that governs the corporate and financial structures of our capitalist economic system? Why does their conception of the proper scope of democratic decision-making extend only to the limited sphere of that which, by convention and tradition, is classified as the work of "government", while the majority of the decisions that effectively govern the course of the lives of human beings are shielded from the participatory involvement of all of the affected human beings?

"It is the externalities that should give us pause, not the alleged power of government or money centers: I mean particularly the unsolved problems of wealth allocation (as opposed to creation) and the environmental impact of production."

Thanks for elevating the conversation by explaining to us that the correct Davos term of art for our minor concerns about human rights and the long range political and environmental impact of globalization is "externalities", I guess after we finish our momentary pause over these externalities we should all just run along and watch American Idol, since that's the level of discourse we can understand.

Thanks also for clarifying the fact that the real problem with worrying about the dark underbelly of globalization is that it is seriously tacky. I mean, it just isn't *done*. Excuse me while I freshen up my drink, can I get you anything from the bar?

Parody aside, do you have any policy recommendations to address these externalities? After taking all forms of regulation off the table, what policy tools do you see lying around?

As for the power of governments, it really is a *lack* of power which troubles me. Specifically, the fact that we are unable to enforce trade agreements against our bankers (eg the PBoC) so even if we wanted to pressure the Chinese to mitigate environmental degradation or curb human rights abuses, we'd be out of luck. (China is only one example, but a useful proxy for the larger question.)

Mr. Hundt says

It is the externalities that should give us pause, not the alleged power of government or money centers: I mean particularly the unsolved problems of wealth allocation (as opposed to creation) and the environmental impact of production. 

Thanks, Emma Zahn, Dan K, STS, and Troutsky.  Fine observations, one and all.  I just want to draw attention to the interesting used of the word "alleged" in Mr. Hundt's column.  "Alleged" power of government?  "Alleged" power of money centers?  What's alleged about it? 

If the argument is that governments and money centers are powerless in the face of the irresistible kismet of market forces, I can't decide whether to be unconvinced by the argument or appalled by it.  I guess we have to meet our destinies like lemmings. 

Or, on second thought, I guess I can be both unconvinced and appalled by the argument.  That will make the rest of my Saturday less scary.

aMike

“Externalities” and distorted wealth allocation are not external to efficient markets, they are symptoms of corrupt markets.

Externalities are the costs of doing business that companies find a way of pushing off their own balance sheet and on to the taxpayer. These are costs that precede and follow the actual transactions but if you are going to insist on the integrity and purity of the market they are not external to it.

The obvious example is pollution which requires an accounting of the costs of health effects and the degradation of resources that may last for years. Companies depend on these delays to avoid the costs but an ever-growing body of environmental research allows government to confront industries with probable costs before they make capitol investments. Industries respond that they cannot afford to do business if they have to bear these costs. But putting the costs within the transactions where they belong, and there are many market based techniques for doing that, give industries incentives to invest in environmentally sustainable technologies.

The less obvious example is infrastructure costs that companies persuade communities to pay in order to attract production facilities. The costs may include everything from streets and utilities to training, law enforcement and the effects of unemployment caused by business cycles and the mobility of capital. Corporations say they pay these costs through taxes. But again by pitting one community against another and one country against another industries are using “tax reform” to push these costs off of their balance sheets and onto the paychecks of their employees and other taxpayers. This is what corporate flacks and libertarians mean when they say “the free market”.

This is all old news within this country. Globalization of trade is driven by the desire of capital pirates to escape regulation and return to the robber baron days of the old west except they dress it up in a flimsy burnoose of feckless trade agreements. They love to traffic in red herrings and strawmen; trade restriction, tariffs, socialism and world government.

An efficient market is a regulated market, regulated to include all costs and to insure vigorous competition. A competitive market rewards innovation and efficiencies and produces an increase in baseline wealth. Corrupt markets are zero sum games of deceit, manipulation and exploitation. The question is how to regulate world trade to produce efficient markets, everything else is a diversion.

Reed writes:

Venezuela seems to me to be a case of harming economic growth and reallocating wealth from one group of "have's" to another, under the guise of equity.

No need to be a big fan of Chavez to see what's wrong with Reed's logic. Venezuela is the world's 5th largest oil producer. But, per capita, it is poorer than Namibia, Gabon, and Fiji!

The country is a giant kleptocracy whose riches are being looted by a tiny, powerful elite.

But Reed warns us against wealth reallocation that might hurt "economic growth." Is he kidding? Don't know what prior economic growth he's referring to but if that's the one that turned an oil-rich country into one of the world's poorest, who needs it?

I know Reed meant this as a throwaway comment. But it's revealing of a state of mind with the dogmatic rigidity of a Jerry Falwell.

The problem I have with people like DeLong and Reed is that that they don't give a shit about the people being crushed by so-called free trade and globalization. Whether its their fellow Americans whom they show as much consideration for as Bush and Cheney does - which is none. Or the Chinese workers who are being screwed by their own bosses and American companies.

Nor do Reed and Delong care that most of the wealth created is kept by a monied elite and not shared with the workers for the most part.

But then why should they care since their pig isn't being gored by "free" trade. They can sit back in their tenured or protected positions and blow smoke out their collective asses about the virtues of "free" trade.

It just too bad that we can't send Reed and Delong to China permamently since they care so little for the U.S. and its people.

Mr. Hundt says

Venezuela seems to me to be a case of harming economic growth and reallocating wealth from one group of "have's" to another, under the guise of equity.

Which other group of "haves" is this?  I suspect Mr. Hundt may be talking about the nationalizing of the communications industry, but if so, we're left guessing.  The 70% majority Chavez won in the last election seems to indicate the majority of his own citizens don't feel harmed, or concerned about declining economic growth.  I don't remember them being particularly upset when President Chavez reallocated some of his nation's oil wealth to the poor of Boston and New York.  Perhaps the purpose was more to tweak the nose of George Bush (a pretty noble purpose, MHO), but I think that the poor probably were happy to get it, regardless of ulterior motive.

aMike

Leave Mr. Hundt alone, please.  Last time he voted for William Hung.

There is a reason why we should not allow the monied elites and free traders to continue to ignore the the externalities. As any student of history will tell you, the reason is the AK-47. The result of any trading regime that does not demand basic labor standards and environmental controls is that sooner or later the elites raking in all the money are going to be marched off to the gallows by former middle class people armed with AK-47s. In the long run doing the right thing by giving everybody a legitimate chance to make a living in a clean environment is the only thing that will insure the new global elites don't end up with ropes around their necks.

We all might think many muslims are fighting in the name of religion, but ultimately the emerging middle eastern revolution has to do with various elites, be they princes or mullahs, shieks or kings, trying to hold on to the wealth by distracting the ever more restless masses with religious eye candy.

The choice truly is ours. Do we want to build a global civilization that will last for thousands of years or do we want to be the victims of global pirates. Remember nearly every pirate on the Spainish main ended up on the end of a rope.

Ron Byers

J. McCutchen

Excellent! In neo-classical jargon, all profit maximizing firms seek to maximize externalization of costs. That's exactly what happens in a permissive (as opposed to free) trade system where highly mobile capital seeks higher returns in less-developed countries. As capital chases absolute advantage in less developed economies, it externalizes costs of production which regulation in more advanced economies forces firms to internalize.

It is axiomatic of course, that the greater the ability of capitalist enterprise to externalize costs, the less efficient the economy will be. In a very real sense then, labor both in high and low cost nations subsidizes the profit maximizing firm by overutilization resources, enviornmental damage, economic dislocations, standards leveling in wages, safety, health care, retirement etc. In simpler terms, you and I subsidize Toyota, MicroSoft, Intel, Boeing, tech support in India, etc to an ever increasing extent as capital chases the lowest cost, most inefficient production. You might as well sew your own buttons on the next made in China garment you buy at WalMart.

J. McCutchen

18% annual GDP growth (05/05)tends to cause serious inflation in an economy that's always been resource rich, one dimensional petroleum production....The poor get poorer and the rich...why they invest in USA, Europe, China etc and vacation in the South of France

J. McCutchen

What evidence do you have that "Chavez stole an election"?

What evidence do you have that Carter's conclusion of electoral fairness was pro forma or unmerited?

What evidence do you have that Chavez "threatening to take down the entire continent"?

What evidence do you have that Chavez intends a sanctuary for "the worst enemies of our people"?

Who are these "worst enemies"?

Where did you discover such a motherlode of meaningless jingoistic talking points?