The first thing it means is that Bush is not going to give up, because he cannot give up. Raiding Social Security is the business plan for Bush.com now, and that means that he is going to keep hammering until he gets it. He will promise anything and everything - recently the trial balloon of promising that the General Fund would make up any losses in a private account was floated. Sure, as if lawmakers in 2075 are going to feel bound by that promise.
The second thing it means is that while he is trying to get his hand in grandma's cookie jar, he is going to have to come up with temporary ways of juicing up the budget. That means, in all likelihood, a war. Where and how is the subject of a later piece for truthout - though I can say it is not where most people think.
The third thing it means is that the progressive movement is going to have to fight fire with fire. We are going to have to hammer on a crisis, so that the public mind does not accept that there is a crisis with social security at all. Remember there is no crisis with social security.
The crisis is in the budget, and with how we are spending money, Fixing this is the real question for progressives to be creating policy around. The reality we are going to be working against is the slow death of the second age of globalization - Niall Ferguson has a historical outline here, and I intend to add a more economic approach to the same material later on. The reality is that on the downslope of a globalized era, there is not enough scarcity to go around, and there is a race to control it. That race ends with the collapse of the global trading system, and generally, a long period of war - the last two were the World Wars, and the Napoleanic Wars.
They key point is that the same play book is being taken out to get Social Security - George Bush CEO has 51% of the votes, and that is all you need for absolute power in a corporation. The problem is, if you don't like what a CEO is doing, you can sell, or short, the stock. You can't to that with a country.
As promised the economic version of why the first era of globalization collapsed:
Richard Wagner's Der Ring des Nibelugen is an apocolyptic work, one that was intended has his description of how the world system tha the lived under was doomed to come to a violent close - even though he hoped that a new and better world would come after it. Begun in 1848 with "Seigfrieds Todt", it was expanded into a tetrology of operas, and required the creation of a whole new style of performance and staging. The next time you sit in a stadium seating cinema - realize that it was he who envisioned an all encompassing art work that joined all of the other arts, and remade seating styles to accomodate lines of sight from every point in a theatre. And if there is orchestral music, it is quite probably descended from his style as well.
But Wagner the political theorist is clouded in history by Wagner the raving anti-semetic bigot. But before he was an anti-semite, he was anti-capitalist and a self-described communist. He saw that the aristocratic system was attempting to create a new version of itself, one unburdened by the compromises of that system, and that it would then send that new man forward.
Where, according to Wagner, he would promptly get stabbed in the back.
The source of the problems in Wagner's faerie tale? The Rhinegold - the great treasure that was twice stolen and then forged by slave labor into magic items. And so it was in history, the great conflaguration, one which many feared, even if none clothed in quite the garb that Wagner did, finally came. The fear of the end was embedded in European society, because they knew that their prosperity was from their conquests, and it was unstable. The deep fear of "decadence" in that time was a fear of losing the will to power, that will that was required to hold almost a third of the world's landmass in colonial thrall.
And a central pillar of this empire of trade and conquest was the gold standard.
Contrary to what gold bugs will tell you when they talk of 6000 years of gold, gold has not been the major monetary metal and basis for circulating medium: that is silver. However, gold has been the basic unit of account at various times, and has been an important store of value and means of paying for military operations. Through much of European history, the conflict between "money as circulating medium" and "money as store of value" has expressed itself in the attempts to balance circulating silver with storable gold.
From the 1500's through the 1800's circulating silver was king - driven by the discovery of silver in Europe - the mines of "Thaler" would give us the word "dollar" - and the looting of silver from the new world. It would receive a further boost with the trade with China - which was also a silver based monetary system. However, silver is not only more common than gold, its discovery often comes in floods. Silver is a very good circulating medium, but a very unstable store of value.
The Napoleanic Wars were the result of a long inflationary period (see David Hackett Fischer's indespensible The Great Wave) caused, not only by increased quantity of silver - but by the dramtic increase in the size of the state apparatus. Taxes went up to pay for larger and larger armies and government functions - and the result is that real wages fell.
The post-Napoleanic period saw then, the gradual movement away from inflationary silver to deflationary gold. According to classical economic theory, quantity of money creates inflation, and gold allows the central monetary authorities to strictly control the amount of money. There were repeated attempts to set up "bimetallic" standards using some ratio of silver to gold. However, since these were rigid, and one never knew when the next big silver strike would hit, each one collapsed.
The turning point in the world economy was the imperialization of Africa - African gold mines supplied enough gold to support a money supply large enough to valuate the European economy. The new Germany kingdom - an expanded Prussia, introduced a gold coin. The tension between the German gold standard and the British gold standard was intense and required constant interest rate adjustments to keep in place. Again, contrary to popular misconceptions, the gold standard is not a passive monetary system based on "set it and forget it", but required interventions, bailouts and constant monitoring, as well as government policies to maintain the gold stock of a given country.
The final system of the gold standard had banks using monetary policy to keep their country's currency closely pegged to gold. Gold performed the deflationary function that David Hume and Adam Smith predicted in a stable monetary environment: since the amount of gold was, essentially, fixed - and going down in proportion to the population, people were constantly driven to do more with smaller and smaller amounts of whatever was valued in gold.
The gold standard did what it was supposed to do: econcourage capital development, end inflation, and increase trade. It however had three effects which were ultimately destablizing: imperialism, centralization, and capitalization of war. The three would collide and produce the conflaguration long feared in European society.
The first effect is fairly obvious from a map. Since Europe does not have very much gold within its borders, and because the gold standard was driven by converting raw materials, with a low gold price, into finished goods, with a high gold price - there was an inexorable drive to put as much of the territory of the planet, particularly those areas that could produce raw materials, under the control of the central gold economies - Europe, plus, later, the United States and Japan. The scramble for Africa and the conquest of India were largely driven by the bottomless need to have a cheap hinterland.
The second problem was the internal face of imperialism: the gold standard reawoke a problem that Europeans had not seen in so long that they had forgotten it was a problem: the city problem. The city problem is, in essence, this: when wages for commodities, particularly food, are low, people flood into cities looking for work. Cities exploded in population during the 19th century, and for a time there was a rapid development of what we would now recognize as the modern city - utilities and public transportation, rail hubs and civil administration all flowered. While established before the gold standard, they were given a powerful impetues by the massive expansion of population during the period. The ugliness of the industrialized urban area, with its smokestacks and squalor, is the natural result of this.
This centralization placed continual, and growing, pressure on both the laboring class - which had always been at the bottom of the social and economic zone of stability - and on the farming class. However, because they had conflicting economic goals - the laborers wanted socialization, while the farmers wanted inflationary policies - there was no political revolution - even though there were constantly rising tensions, revolts, terrorist attacks, misery, famine and radicalization.
These two pieces together led to what was the final blow to the classical gold standard of the 1871-1910 period: the capitalization of war.
A battleship is a weight around the neck of any gold standard government, and yet to control trade, key ports and the means of war, an absolute necessity. The rapid introduction of capital into war can be seen by comparing the last pre-gold standard wars: the wars of German liberation and the American civil war - to wars of the late 19th century - and then to the first war of battleships: the Russo-Japanese War.
The American civil war was horrendously expensive, but it could be largely paid for in a decentralized manner on land, because there was no equipment that was used that was not affordable by localities. Other than a few heavy artillery pieces, everything that was carried into battle was accessible to ordinary people for ordinary reasons. The naval war was far less expensive, but introduced the ironclad - a vessel that was not a cousin to any commercial application, a thing only a government would want to buy.
Over the next 40 years an arms race on the seas began - with successive generations of ship being produced, each one leapfrogging the past: iron clad wood gave way to iron, iron to steel. The ironclad to the cruiser and the destroyer, the cruiser and the destroyer to the "dreadnought" or "battleship". The battleship was joined by another terror weapon, one designed to attack and destroy shipping: the submarine, or, as the German's called it the "U-boot" or "U-boat" in English.
The cost of battleships in a gold standard economy is staggering: even the means of constructing them was beyond most great powers. Japan had to purchase hers from England, Turkey entered the first world war when given two battleships by Imperial Germany. What added to the huge cost was the rapid pace of change: the battleships that fought in 1906-1907 were completely obsolete by 1914.
The capitalization of war put more pressure on budgets precisely as the ability to solve economic problems by increased expansion ran out - the American frontier, Africa and Asia were all occupied around 1890. And as soon as that happened, the imperialized version of the gold standard was doomed.
This links in with the cultural aspect of the period mentioned above in Wagner: the entire system is not merely economic or formal, it is, as Richard Wagner put into his opera - a culture of control, a culture of struggle over the past and control of the work of the past. It is also fundamentally dishonest - making, and then breaking, successive promises, until there are no public promises left.
Thus the first age of globalization died - though the world that came after it would struggle to maintain both its cultural aspect and the gold standard for another 20 years. It died because the squalid underbelly of its problems collided with the very reasons for its success. Afterall, the ability to produce a battleship is an example of how far technology had come in the previous century, the ability to run one an example of how far social organization had come. The need to use one an example of how bound to an obsolete political system Europe was.
As an afterscript, in the wake of World War I, even conservative governments - the Republicans in the US, the Tories in England, Imperial Japan - all negotiated arms control agreements - all focusing on the number of "capital ships". Too late the conservative powers realized that the battleship was an albatross around the neck of the gold based economic system.
Lessons for the present? That for another time.
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