Economic Populism and Cryptocurrency

The globalist international body that represents the world’s central banks, the Bank for International Settlements (BIS), based in Basel, Switzerland, has claimed that globalization has been made a “scapegoat” for rising inequality, as it launched a defense of closer cross-border ties and integration in yet another annual report that is read mostly by bankers.

You didn’t get a copy and read every sentence?

Well, it may have been tucked away on the very back page of your local newspaper. More likely, it didn’t even make that cut. But it most certainly was read at the U.S. Federal Reserve Bank and all its equivalents in capitals around the world.

Here’s the gist: the bankers are worried, very worried about two things.

Globalization no longer sets the standard for the political and economic order. Cosmopolitan and globalist values are not ascendant. Indeed, national sovereignty has been growing stronger. The election of Joe Biden and subsequent reaction has only made populism stronger and more militant. Emmanuel Macron is in trouble in France and Italy is poised to go right.

Transnational, multilateral, and supranational organizations and their networks, experts, and regulators are everywhere on the defensive. Economic populism is here to stay. We seem to be at an inflection point and the tide has decidedly turned. The Great World Economic Forum Reset is failing.

Yes, globalization itself is now on the ebb even if it draws a last gasp for air under Joe Biden and his Davos allies. Economic and political populism is surging—picture a rushing incoming tide—and central bankers are afraid.

The other concern is the surge in cryptocurrencies worldwide. These are outside the control of the powerful central banks and it scares them out of their wits to know individuals, companies, and other entities (not all criminal, either) have adopted blockchain as the technology of preference.

A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation. The takeaway here is “out of government control,” and ergo, grassroots-populist by definition. This trend can eventually put the central banks out of business and lay bare their monetary controls.

Modern-era populism itself dates from the 19th-century pushback against the gold standard and the popular suffering inflicted by deflation. Today’s economic populism is avidly anti-establishment, anti-elitist, and opposes all forms of globalization and globalist governance. It is politically neutral in many respects, since many of today’s populists support both the gold standard and cryptocurrency as antidotes to the all-powerful banking cartel of our own time.

In fact, economic history and economic theory both provide strong reasons to suggest that the advanced stages of globalization are necessary preconditions for such a backlash—which has both right- and left-wing variants, and manifests everywhere from the 2016 Trump election and Brexit to current European politics and throughout Latin America, and even in India.

Whether along ethno-cultural cleavages or along income-class lines, these forms of populism are predictable and logical phenomena. It should surprise no one then that the pendulum has swung so far in these directions, nor that opportunists at today’s DNC encourage rifts to reap whirlwinds of political advantage, acting irresponsibly as a political class against the peace and prosperity of the people they seek to govern.

Conservative Economic Populism

In fact, there are two sides to conservative economic populism: demand and supply. Economic anxiety generates a base for populism but does not determine its narrative—that storyline is left to various populist politicians and movements, which are generally on the rise today, worldwide. The elitist DNC politburo has successfully (so far) exploited a natural reactionary impulse among capital and weaponized a lockstep political base which remains captive inside the information bubble, inflated by their allies in the mainstream news media.

Meanwhile, it is the economics of trade and financial integration that provide the structural, politically contentious backdrop to globalization. Trade theory, such as the well-known Stolper theorem, shows that there are sharp distributional implications for open trade, i.e., inevitably, there are losers.

Start with the Chinese laobaixing, whose labor is severely underpriced by their paymasters in an effort to keep China’s competitiveness on wages intact despite having industrialized. Every worker whose price is undercut everywhere in the world by that status quo should also be tallied in the column of folks exploited by globalization, whether they live in a developed or still developing country.

Those who lose are generally the least skilled workers, though there is ample evidence that lower-tier white-collar work like accounting, will also end up “offshored” to the lowest bidder. The effect of trade liberalization is to raise the (relative) domestic price of exportables relative to importables. Go to any Walmart, if you want to check out this phenomenon firsthand. Where is everything made? Not in America.

There is an inherent form of redistribution at work here—the flip side of the benefits of trade. Overall, as globalization advances, trade agreements themselves become more about redistributing blue-collar jobs from high-income countries to low-income countries—and less about expanding the economic pie through production-level increases. These marginalist considerations have packed the bottom line of corporations (think Amazon) and professional managers, but the political fallout is clear: globalization has become more and more contentious, if not unsustainable.

The empirical evidence from NAFTA and the China story bears this out. There have been few overriding efficiency gains from globalization for the U.S. economy. The large trade imbalances and other social side effects that resulted have aggregate negative income and societal liabilities. The overall benefits of trade liberalization with low-income, undeveloped economies are, truthfully, zero to negative—at least for the developed country. Trade was supposed to be based on reciprocity, but it turned out to be a one-way street.

Recent empirical evidence implicates trade competition as the key factor in the decline of labor shares for individual industries in the United States since the 1980s. Talk to any middle-class family or visit any town or factory in the affected areas and you can gain firsthand knowledge, up close and personal.

Have those left behind, the forgotten men and women—in Trumpian terms—been compensated from the clear distributional effects of globalization? Not really, unless you count access to cheap plastic toys above providing a livelihood for your family. Now we’re stuck importing price inflation from the lack of shipping capacity to import goods whose prices are going up because we’re also importing our oil instead of playing the defector against OPEC’s price fixing cartel—all thanks to China Joe, who puts every last cent of costs on America’s credit card in favor of Riyadh, Moscow, and Beijing.

The benefits of international trade as originally argued by Adam Smith and those who subsequently sought to canonize his thought can cause us to ignore historical differences. A displaced worker in our modern technological age (unlike a day-laborer or farmer in the 18th century) already has a home mortgage, car payments, tuition for his children, and lots of overhead. Merely switching careers or retraining is not so simple for many people—labor is not as “fungible” as it was when it represented mainly physical activity divided into segments of time. Truthfully, it is more than difficult, especially for middle-aged workers who have worked one job and in one place as the American social contract once promised.

The share of U.S. imports in GDP went from less than seven percent in 1975 to over 18 percent in recent years, but the imbalance has provided little Trade Adjustment Assistance.

Why? Because it is very costly—and most promises made by politicians on all sides of the spectrum are simply not carried out.

Economists know that trade causes job displacement and income losses for some groups. The notion of “fair trade” is routinely derided by these same economists but is necessary as we see in the legal form of anti-dumping and countervailing duties measures. These are dubbed “trade remedies” for a reason. And what about what could be dubbed, “social dumping”—where one country dumps its unemployed elsewhere or subsidizes inefficient production forever, regardless of the cost? Keeping the most efficient producer offline is not just uneconomic, it is personally tragic. 

And what about operational mobility and the so-called benefits of financial globalization? The distinction between short-term “hot money” and financial crises and long-term capital flows, such as foreign direct investment, is significant. One is disruptive, the other enhancing. One is imprudent and the other is patient. So why is it that the timing of financial globalization and the occurrence of banking crises coincide almost perfectly? Buy the dip to defend your favorite country against the bankers, even if your country is actually the internet.

Recurrent boom and bust cycles are very familiar to less developed countries but now appear to have spread to the EU and the United States, as well. Indeed, financial globalization, like trade, has exerted a downward pressure on the labor share of income. Wait until crypto starts doing this to the banks—all kinds of protections will be wielded in defense of the banks.

Those with lower skills or qualifications are the least able to shift or move across borders and thus are worst hurt by this risk shifting. But soon the situation will be similar for accountants, architects, engineers, software developers, and most every other white-collar worker—and the blockchain will facilitate their move away from the traditional compensation mechanisms toward a decentralized, self-governed new order. No more getting sold out by a greasy politician.

It also becomes harder to tax global mobile capital. That’s because it moves to the lowest rate tax haven and uses transfer pricing to disguise profits. Taxes on labor and consumption are much easier to collect and they have gone increasingly up and up, if only because there’s nowhere else to grab the cash from. The emancipated crypto-based economy will bring this footloose lifestyle to all.

The United States and Europe have been ravaged by financial crises, decades without a raise in pay (except for the Trump years, gains rapidly being inflated away) or the standard of living for the masses and by the effects of austerity—while the few got richer. Globalization gutted the existing social contract and ushered in a stigma of unfairness—in what is called “a rigged system.”

The playing field was hardly level. The winners took all and Goldman Sachs bankers always seemed to come out on top, whether they were selling distressed mortgage debt or shorting it (or even both simultaneously). Now the “Apes” of the meme stock movement have them in a short squeeze to end all squeezes. Naked short sellers—the bane of Elon Musk, a Trump-like figure in his own right—have finally met their match in the simplicity of the investor who just likes the stock, buys to hold and shops at the companies he invests in.

In the end, the economics of globalization and of globalist agencies are not politically sustainable forever. Economic integration (whether regional as in the EU or globally as in COP26) has definite and unacceptable costs that the people cannot and will not bear forever. That is why I was quoted ad infinitum saying, “Davos Man is dead.”

Economic populism is therefore the necessary antidote and reality check to excessive globalization and its globalist values and institutions. Central bankers be wary—just because you’re in charge of the pretend horn of plenty right now doesn’t mean you will be forever.

About Theodore Roosevelt Malloch

Theodore Roosevelt Malloch, scholar-diplomat-strategist, is CEO of the thought leadership firm The Roosevelt Group. He is the author of 18 books, including The Plot to Destroy Trump and, with Felipe J. Cuello, Trump's World: GEO DEUS. He appears regularly in the media, as a keynote speaker, and on television around the world. 

Photo: iStock/Getty Images

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