Is Capitalism Without a Socialist Backbone Impossible?

[psionl0]

Free market would not include trade imbalances or government practices draining profits or intellectual property away from the business owners.

In theory trade imbalances should not happen. If they did then the exchange rate should alter to restore the balance.

However, the international trade in financial derivative dwarfs that of goods and services and messes up the exchange rate. This is driven by global corporations and not governments. Governments merely bow down to the corporate giants.

 

[ChrisBFRPKY]

You have got to be kidding me.

I heartily suggest you disentangle yourself from any and all prior notions and start over.

And just below that quoted sentence:

"Otherwise you simply have state run business using Capitalism both within a closed system and the Global market reaping the benefits of both without the risks typically associated with Capitalism alone.

China knows how to win. The US should take lessons."

 

[ChrisBFRPKY]

In theory trade imbalances should not happen. If they did then the exchange rate should alter to restore the balance.

However, the international trade in financial derivative dwarfs that of goods and services and messes up the exchange rate. This is driven by global corporations and not governments. Governments merely bow down to the corporate giants.

Yes, now imagine you have a closed system and control your own currency. You can increase or decrease the value of your currency depending on the type of trade deal you participate in. China imagines that pretty well.

In some cases it's the corporations that do the bowing, otherwise they're not allowed to do any business.

 

[Roger Ramjets]

There were a few factories closed here in KY due to NAFTA as well. Not all were required to relocate production facilities to Mexico, though many did. I lost a rather cushy job at one of them, SKF-USA, when they moved production to India.

And now we know what your real problem with NAFTA is.

I realize India may not be considered NAFTA related to most, yet it was. Parts produced there were shipped into the US thru a shell company in Mexico and passed thru freely untaxed and without tariff. Presto, benefitted from NAFTA as well as many others that were not supposed to. A bit of paperwork here and there is all it took to set up a middleman in Mexico.

In a true free market economy there would no tariffs ever. I applaud India for finding a way around one.

As far as State owned businesses I haven't argued NAFTA would qualify to stand on its own as a textbook definition of Socialism, I do argue that it was a Socialist policy with a touch of Globalism thrown into the mix.

How so? And what's your beef with Globalism?

 

[lomiller]

Yes, now imagine you have a closed system and control your own currency. You can increase or decrease the value of your currency depending on the type of trade deal you participate in. China imagines that pretty well.

Controlling your own currency means you can control the amount of currency in circulation. No country can directly control the value people place on your currency, nor can countries create the sort of selective valuation that depends on the "type of trade deal"

Balance of payments is inherently zero sum. When you look at ALL payments, not just payments for trade goods, the total will be approximately zero for all nations including China and the US.

When an importer in the US buys goods from China the first thing they do is buy Chinese currency, because that is what the Chinese producer will get paid in. Exchanging USD for Chinese RMB, means the supply of USD on international currency markets goes up while the supply of Yuan goes down. Per the law of supply and demand this would mean the value of the USD would drop while the value of the Yuan goes up. The reason the US runs a trade deficit every year without the USD dropping in value that there are also people in China who sell Yuan and buy USD in order to invest that money in the US.


It's no exaggeration to describe the current US-China trade relationship as follows: China sends the US consumer goods and invests in US capital markets and in return the US accepts those consumer goods and reaps the benefits of the investment in US capital markets. Overall it's a very sweet deal for the US, even if there are individual winners and losers.

 

[Startz]

Controlling your own currency means you can control the amount of currency in circulation. No country can directly control the value people place on your currency, nor can countries create the sort of selective valuation that depends on the "type of trade deal"

To a surprising extent countries certainly can control the value of their currency. The world was on a fixed exchange rate system for decades. Many countries still fix their exchange rates. Of course the ability to do this isn't unlimited.

It's no exaggeration to describe the current US-China trade relationship as follows: China sends the US consumer goods and invests in US capital markets and in return the US accepts those consumer goods and reaps the benefits of the investment in US capital markets. Overall it's a very sweet deal for the US, even if there are individual winners and losers.

Except that the Chinese end up owning a lot of American companies, real estate, etc. Not necessarily bad, but not obviously a good deal for the U.S. either.

 

[lomiller]

To a surprising extent countries certainly can control the value of their currency. The world was on a fixed exchange rate system for decades. Many countries still fix their exchange rates. Of course the ability to do this isn't unlimited.

They don't do it through direct control, in effect they need to play with the currency supply which tends to create all sorts of other economic problems.

Except that the Chinese end up owning a lot of American companies, real estate, etc.

When a company does well most of the benefits flow to the people who own\run the business. The bondholders who financed it only get a couple percentage points on their investment. "China will buy up all our businesses" is only a concern for contras that have trouble taking investment $ and turning them into successful companies. The US has no issues on this front.

 

[Startz]

To a surprising extent countries certainly can control the value of their currency. The world was on a fixed exchange rate system for decades. Many countries still fix their exchange rates. Of course the ability to do this isn't unlimited.

They don't do it through direct control, in effect they need to play with the currency supply which tends to create all sorts of other economic problems.

True. Nonetheless many countries do either fix or "dirty float" their exchange rates.

Except that the Chinese end up owning a lot of American companies, real estate, etc. Not necessarily bad, but not obviously a good deal for the U.S. either.

When a company does well most of the benefits flow to the people who own\run the business. The bondholders who financed it only get a couple percentage points on their investment. "China will buy up all our businesses" is only a concern for contras that have trouble taking investment $ and turning them into successful companies. The US has no issues on this front.

The Chinese own a significant fraction of the U.S. public debt. There have been concerns that they could use this position for strategic purposes, although I think those concerns are overblown. The real point is that when we run a balance of trade deficit we are effectively borrowing from abroad (the point you made originally). It's worth remembering that we might have to pay it all back one day.

 

[Hlafordlaes]

... The real point is that when we run a balance of trade deficit we are effectively borrowing from abroad (the point you made originally). It's worth remembering that we might have to pay it all back one day.

It would help if the US did not use the SWIFT banking system to apply American policy unilaterally. This in itself is creating fans of a different reserve currency or basket thereof and of abandoning the dollar, as it is seen as acting in bad faith. Should such a change come to pass, try paying off huge debt with devalued money: the Weimar Republic and hyper-inflation come to mind. We all know what happened next. Quite predictable MAGA USA would follow suit, lockstep, this time with nukes.

When the US did finally run a small surplus near the end of Clinton's term, the other part of Keynesian economic policy counterbalancing stimulus spending in a recesssion, guess who went out and spent the whole bundle, and then some. There's talking points, and there's facts on the ground, and the latter seems to be entirely receding from the political mindset of late.

TL;DR: Yes to higher corporate tax rates, sanctioning offshore banking nations, and making earned/unearned income pay the same rates, or somebody's children will come looking for them in a decade or so, and not to visit.

 

[lomiller]

True. Nonetheless many countries do either fix or "dirty float" their exchange rates.

Again, they don't do this directly, it's done indirectly though manipulating the money supply, something that has significant long term negative economic consequences for the country doing it. If a country wants to sell you things below at prices below their real, fair market value it helps your standard of living and lowers their standard of living.

The Chinese own a significant fraction of the U.S. public debt. There have been concerns that they could use this position for strategic purposes, although I think those concerns are overblown.

They don't hold as much government debt as you seem to think. It amounts to ~5% of US debt, and the notion that this is something China could use against the US is absurd. If the US decided to declare this debt null and void there isn't a damn thing China could do about it.

If anything it's a weapon the US can use against China. Using it that way would cause China to stop investing in the US which would indeed harm the US economy, but that just underscores my point that this investment benefits the US rather than China.

 

[lomiller]

Investopedia has a brief article on it here.

https://www.investopedia.com/articles/investing/080615/china-owns-us-debt-how-much.asp

The main takeaway should be that the net effect of China buying US securities is that it decreases the buying power of Chinese consumers and increases the buying power of US consumers.

 

[HoverBoarder]

That seems like an oxymoronic statement.

If you understand the lethal consequences of Socialism, there's not much to discuss. The only logical reason for such a discussion is that someone is seeking political spin to make Socialism appear as a friendly alternative to Capitalism, which by your own understanding above, is not.

Capitalism with minimal Government regulation and a social safety net is as close as we need to be to Socialism in the US. A push much further and we'll simply recreate Venezuela. We already have a Venezuela model, no need to create a new one anywhere else.

Arguments which cherry pick limited specific social programs from Socialism are a favorite among some political parties to promote a full Socialist agenda.
However, usually these same folks fail to mention or consider in a discussion of conversion to full Socialism, that along with the good Socialism stuff, comes the very very bad.

Using that type of thinking, one could argue that since we all awake after sleep, put on our pants, socks and shoes, dress and ready for the day just like serial killers do, why then it should be perfectly fine for us to duplicate all the other activity that serial killers do during the day as well.

Yeah, not so much.

That's the type of ones sided thinking that is the exact focus of the thread. There are serious consequences if there is either too little or too much Socialism.

If you pick 0%, than the economy would not function. Either there would be a revolution or a lot of people would die before the society would be reformed to get a functional level of Socialism in it. If there is too much Socialism, than innovation and efficient would suffer and the likelihood of repressive totalitarian governments goes up.

Focusing just on one side of the issue completely ignores the important areas where Socialism is required for the basic function of an economy and society.

 

[Lplus]

That's the type of ones sided thinking that is the exact focus of the thread. There are serious consequences if there is either too little or too much Socialism.

If you pick 0%, than the economy would not function. Either there would be a revolution or a lot of people would die before the society would be reformed to get a functional level of Socialism in it. If there is too much Socialism, than innovation and efficient would suffer and the likelihood of repressive totalitarian governments goes up.

Focusing just on one side of the issue completely ignores the important areas where Socialism is required for the basic function of an economy and society.

You're talking about welfare not Socialism.

 

[Hlafordlaes]

So rather like the political left use the word Nazi for anything to the right of their views?

Don't know and can't speak for "the Left". I call totalitarians who prefer either a a great leader or some form of state capitalism fascists and often, for shorthand, Nazis, when they exhibit tribalism and go after "others" based on demographics. Lots of totalitarians around, key words are "absolute truth". Pence and Trump are both totalitarians, though neither is developed enough intellectually to carry much ideology beyond "Not us, get 'em!", "us" meaning anyone "who agrees I am or should be boss".

The reason totalitarian ideas are violent is because most people believe some version of "the truth shall set you free" and go about freeing others with their "perfect truth" whilst, sadly, totally enslaved, having abandoned reason and actually being trapped in endless rationalization of hogwash. IOW, a Republican today.

• Communist: "Historical inevitability of the triumph of the proletariat," plus "Let's just help that along nicely with some bullets."
• Christian Fascist: "God's law is above all others." Plus: "I'm His representative, so bend over, here's a little something for you."
• Nazi/Tribalist: "We are the master race, so we should rule, and will!"
• Islam: "Allah is the only God, and Muhammad is his prophet." Plus: "I'm His representative, so give me your neck, or surrender now."
• Nationalist: "The USA is the greatest nation on Earth, just 'cuz, period." Plus: "I'm invading because you ****** with Exxon/United Fruit/my donors or because I need to win an election."

All dreary, all brain-dead.

 

[Francesca R]

This would be a bit easier if people spent less time insisting certain things are "not socialism" because socialist is presumably a dirty word and we can't embrace that.

More to the point, an obvious false demarcation is made when one rattles off a list of things they think a state should do via compulsion which are absolutely fine because they're "not socialism", only to halt at the end of their preferred list and declare that any further state encroachment into society's affairs is obviously off-limits because for some weird reason everything from there on suddenly is socialist.

If socialism was placed on the banned words list then folks would have to use another descriptor and maybe have to be a bit more articulate about why one thing is justified and another is not

 

[Francesca R]

Protectionism is typically a far left, anti-capitalist policy idea and bad policy idea at that.

Rather a lot of it happening on the right as well.

 

[Francesca R]

The Chinese own a significant fraction of the U.S. public debt. There have been concerns that they could use this position for strategic purposes, although I think those concerns are overblown. The real point is that when we run a balance of trade deficit we are effectively borrowing from abroad (the point you made originally). It's worth remembering that we might have to pay it all back one day.

Unless it is contemplating default, the US Treasury most definitely will have to pay back all the money it has borrowed today, irrespective of whether it is to the Chinese or the pension fund of California's teachers or if it is to me. Hopefully it will remember.

Of course, until the debt matures it assuredly does not have to pay (principal) back to anyone. If China (for example) wants the money it has put into USTs back, Uncle Sam doesn't give it to them they have to find someone else who will. That might spike the yield for a bit and/or tank the dollar a bit but probably not for very long or very much.

Foreigners holding your public debt in your currency are not any more dangerous than domestic ones due to being foreign. Foreigners lending to you in their currency, conversely, are a different ball game. But the US is not borrowing in yuan (I don't think).

Running a current account / trade deficit also does not mechanically lead to foreigners holding your government debt. It can be private debt or equity or real estate or, well anything durable. A lot of durable assets never have to be "paid back". You just have to put up with someone overseas owning them. It's called a capital account surplus.

 

[lomiller]

Rather a lot of it happening on the right as well.

Certainly a lot more of it on the right in the last couple years but opposition to free trade has always been around in the fringe parties, both left and right.

Since WWII the predominate pattern in western countries was that left leaning parties opposed free trade in order to protect unionized jobs, while right leaning parties generally supported it. This is why it was weird to see someone claim that supporting free trade is "proof Bill Clinton was a Socialist".

 

[Francesca R]

Nothing wrong with free markets. Free market would not include trade imbalances [ . . . ]

Of course they would. Every single free market transaction on earth is a "trade imbalance" in the sense that one party gets stuff and the other one gets money.

"No markets ever" would be the thing that avoids trade imbalances.

 

[lomiller]

Foreigners holding your public debt in your currency are not any more dangerous than domestic ones due to being foreign.

That depends on the countries involved. Historically A small south American country defaulting on it's debt or monetizing it's debt at the expense of US investors would face the risk of debilitating economic sanctions, a CIA backed coups d'etat or even outright military intervention.

Even intermediate economic powers are mostly immune to this though, certainly the US has nothing to fear.