Question: If one person, one vote defines electoral democracy, what does one dollar, one vote define?Answer: Central bank policy.
Ever since Aristotle outlined his famous typology, government by one (tyranny/monarchy), government by a few (oligarchy/aristocracy), government by many (democracy), critics have expressed fears that government by many would result in mob rule. Instead, it is rule by numbers of dollars at play that should worry us today. When big lenders get their way with central banks, because of large outstanding loans to each other, the world falls under a form of mob rule.
The credit crisis that will not go away will be the centre of attention, when G7 Finance ministers and central bankers meet in Japan, February 9. The U.S. has led efforts to save investors, and prop up the shaky financial system with two major cuts to short-term lending rates. But the economic problems emanating from the U.S., and causing disruption around the world go deeper than interest rate cuts can reach.
The U.S. has problems with its economic structure that are related to trouble with the American imperial project. President Bush has just presented a $3 trillion budget. Chalmers Johnson, author of the important Blowback trilogy on U.S. foreign policy, estimates that the U.S. now spends $1.1 trillion a year on the military, that would be one-third of its national budget. These expenditures sustain a military industrial complex at home, some 800 military bases around the world, and are used to fight the wars in Iraq and Afghanistan.
As Johnson reminds us, the real cost of the U.S. military expenditures is what has been foregone in deciding to fund a war machine. Instead of schools, and hospitals, education and healthcare, Americans have military goods they cannot consume. In diverting huge resources from basic needs, the U.S. cheats its own citizens out of the proceeds of national production.
Oil may be the prize in the Iraq war, but it is also the source of much of the U.S. international economic problems. The U.S. was built on cheap oil, domestic and imported. From $3 a barrel range for the first thirty years after World War II, oil surged to $36 in the late seventies, and then fell back. While American consumers paid as little as $11 a barrel only ten years ago, oil has recently gone through the $100 a barrel barrier, before falling back slightly.
The cost of importing ever more costly oil as domestic supplies dwindle has been a major factor in reversing the favourable U.S. balance of international payments. Rather than blaming Japan, China, or Canada for running trade surpluses with the U.S., as Michael T. Klare points out it is more accurate to single out the American appetite for oil (imports total $400 billion) as the main contributing cause to the ballooning American international payments deficits.
While the financial sector demands cheaper and cheaper credit, and pushes the U.S. central bank to print more money, it is not clear that the current crisis is amenable to a short-term fix. Rising oil prices have reduced real income for consumers, leaving less money for other spending. The U.S. sub-prime mortgage mess means anywhere up to two million families may lose their houses.
Nobel prize economist, Joseph Stiglitz has made the obvious point that de-regulation of the financial sector has failed. Re-regulation is what is needed.
Despite massive lending gone bad, and horrendous loss provisions leading to U.S. banks accepting capital injections from Asian and Middle East sovereign wealth funds, the bonus season on Wall Street is going ahead as planned. Reductions in special executive compensations are expected to be a modest five per cent.
The financial sector needs to be brought under democratic control, and made accountable to judicial action. Self-regulation has led to dollar mob rule.
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