is now moving around the world, about $1 trillion or so of which
moves every day.
This huge amount of mostly speculative capital creates
pressures for deflationary policies, because what speculative capital
wants is low growth and low inflation. It’s driving much of the world
into a low-growth, low-wage equilibrium.
This is a tremendous attack against government efforts to
stimulate the economy. Even in the richer societies, it’s very
difficult; in the poorer societies, it’s hopeless. What happened with
Clinton’s trivial stimulus package was a good indication. It amounted
to nothing—$19 billion, but it was shot down instantly.
In the fall of 1993, the Financial Times trumpeted, “the public
sector is in retreat everywhere.” Is that true?
It’s largely true, but major parts of the public sector are alive and
well—in particular those parts that cater to the interests of the
wealthy and the powerful. They’re declining somewhat, but they’re
still very lively, and they’re not going to disappear.
These developments have been going on for about twenty years
now. They had to do with major changes in the international
economy that became more or less crystallized by the early 1970s.
For one thing, US economic hegemony over the world had pretty
much ended by then, and Europe and Japan had reemerged as major
economic and political powers. The costs of the Vietnam War were
very significant for the US economy, and extremely beneficial for
its rivals. That tended to shift the world balance.
In any event, by the early 1970s, the US felt that it could no
longer sustain its traditional role as—essentially—international
banker. (This role was codified in the Bretton Woods agreements at
the end of the Second World War, in which currencies were
regulated relative to one another, and in which the de facto
international currency, the US dollar, was fixed to gold.)
Nixon dismantled the Bretton Woods system around 1970. That
led to tremendous growth in unregulated financial capital. That
growth was rapidly accelerated by the short-term rise in the price
of commodities like oil, which led to a huge flow of petrodollars into
the international system. Furthermore, the telecommunications
revolution made it extremely easy to transfer capital—or, rather,