This essay is my submission in July 2003 to NEW LEFT REVIEW, prepared espe ially !

or them in omment on their prior publi ation o! t"o essays in "hi h my lon# time !riends $io%anni &rri#hi ommnents on 'ob 'renner(s boo) T*E '+''LE E,-N-./ 0NLR(s Verso 20021 and his related &rti le in NLR itsel!, and 'ob 'renner(s reply to $io%anni2 I no" ma)e my third %oi e omment a%ailable here, sin e despite both authors( repeated en oura#ement to NLR to publish my ontribution to their debate, NLR had by &pril 2003 still not a epted or e%en re4e ted my o"n essay2 -+R ,RI5I5 IN T*E W-RL6 ,RI5I5 by &ndre $under Fran) This essay adds a third %oi e to the debate in these NLR pa#es on the ontemporary "orld e onomy bet"een 'ob 'renner and $io%anni &rri#hi2 The three o! us ha%e been #ood personal !riends !or de ades, and as su h ha%e been pursuin# this debate on many other o asions in other %enues2 *o"e%er, $io%anni(s riti7ue o! 'ob(s re ent "ritin#s and 'ob(s "ritin#s themsel%es in NLR, other 4ournals and his Verso boo) on the '+''LE E,-N-./ are an irresistible ma#net !or me to re8enter these troubled "aters2 For the sa)e o! the ar#ument and heuristi reasons, I "ill lar#ely a ept and !ollo" $io%anni(s rendition o! 'ob(s ar#ument 9 thou#h I "ill !ollo" it more hronolo#i ally and less topi ally than 'ob does 9 and I "ill add my o"n obser%ations on both2 *o"e%er, I intend to adhere to the histori al re ord more than either o! them2 To do so, I "ill be obli#ed to re!er the reader to my o"n plenti!ul "ritin#s o%er the years, !or they a ompany and re!le t that re ord more systemati ally and I submit more a urately !rom the :;<0s to the present2 To !oreshado" and summari=e my on lusions, on the ma4or issues under debate, 'ob #ets the better o! the ar#ument both on e%iden e and by analysis2 *o"e%er, in some respe ts 9 espe ially 'ob(s tenden y to ollapse the >("orld(( into >(the West? 8 $io%anni does the better 4ob2 &nd on some o asions alas, my itation o! the histori al re ord "ill sho" that both o! them missed the mar)2 Im8modestly and at the ris) o! puttin# the reader o!! immediately, I annot a#ree "ith $io%anni "hen he "rites 0p2231 that he @ annot thin) o! a better startin# point !rom "hi h to unra%el the ompleAities o! B a systemati analysis o! #lobal turbulen e "hi h ontrasts sharply "ith the pre%ailin# immedia y and super!i iality o! eAistin# a ounts2? I an thin) o! a better one, be ause I it "rote it mysel!C and I hope that by the end o! my remar)s here the reader "ill a#ree that this laim is not in %ain2 To be#in "ith, there is my t"o %olume D00 pa#e analysis o! the ,RI5I5E IN T*E W-RL6 E,-N-./ and IN T*E T*IR6 W-RL6, "ritten in :;DF8DG and published in :;G0HG: 0 ited belo" as ,RI5I512 There "ere many se7uels in the mid8:;G0s, be#innin# "ith T*E E+R-IE&N ,*&LLEN$E 0:;G31, "hi h predi ted that "orld the e onomi risis "ould lead to a I&N8E+R-IE&N ENTENTE in "hi h Eastern Europe "ould be dependent on Western Europe 0,*&LLEN$E12 In :;G<, I published I5 T*E RE&$&N RE,-VE/ RE&L -R T*E ,&L. 'EF-RE & 5T-R.J, "hi h eAplained "hy both the underlyin# trends and the %ery mista)en Rea#anomi and That herist e onomi poli ies themsel%es "ere leadin# to the neAt re ession, "hi h arri%ed in :;G; 0RE&$&N12 5e%eral other arti les too) o!! !rom that basi one, to analy=e T*E IERIL5 -F E,-N-.I, R&.'-I5.E T*E NEKT RE,E55I-N T*RE&TEN5 6EFL&TI-N &N6 6EIRE55I-N 0R&.'- and &.ERI,&N R-+LETTE IN T*E $LI-'-N-.I, ,&5IN- 0R-+LETTE1 both done !or +RIE in :;GD and :;GG, RETR-5IE,T &N6 IR-5IE,T IN T*E W-RL6

E,-N-.I, ,RI5I5 0IR-5IE,T12 -thers !o used on espe ially on Third World 6ebt and on the troubles o! the >(so ialist(( ountries in the "orld e onomi risis, to "hi h I pointed already in :;D2 and published L-N$ LIVE TR&N5I6E-L-$I,&L ENTERIRI5E in :;D<2 In that sense, the #lobal pur%ie" that $io%anni !inds la )in# in 'ob "as o!!ered in my "ritin#s, in "hi h the East and the 5outh "ere inte#ral parts o! the #lobal and Western risis e onomy2 I thin) it is pertinent and I hope not improper to mention in this re#ard that 'ob )indly had me as house #uest on t"o o asions durin# this period in the :;G0s in "hi h I le!t my lon# manus ripts on the risis "ith him2 *e probably ne%er read them, be ause at the time his main !o us "as else"here2 *e "as still doin# history and en#a#ed in the no" !amous 'renner 6ebate on the histori al de%elopment o! apitalism2 E7ually pertinent ho"e%er is that in this debate he too) and presumably still ta)es a European or e%en primarily 'ritish lass stru ture perspe ti%e a#ainst those "ho li)e I made a more "orld systemi analysis2 In !a t, 'ob had started this debate already a de ade earlier appropriately in NLR No2 AA, :;yy, "ith an arti le that "as as per its title a se%ere riti7ue o! 5"ee=y, Wallerstein and 0inJappropriately1 FR&NLM Ierhaps onsisten y is the hob#oblin o! little minds as the sayin# #oes in that I ha%e onsistently made a "orld systemi analysis not 4ust a!ter it "as other"ise populari=ed in the :;D0s, but sin e :;<3 and published the "ord in :;<F2 &nd I still do so, althou#h >my "orld( has eApanded !rom a European entered one to a non8 entri #lobal one as in my W-RL6 5/5TE. 0:;;31 and Re-RIENT 0:;;G1 boo)s 9 and in this present dis ussion2 6ear 'ob, on the other hand , has dis o%ered the "orld only !our, three, and t"o de ades laterC so that his present analysis under dis ussion here is the polar opposite ontradi tion o! the position he maintained in the :;D0s and :;G0s, and there!ore his mind must be the bi##est2 *e mi#ht ans"er, that no his mind is not all T*&T bi#, be ause there is no ontradi tionC sin e then he "as tal)in# about then, and no" he is tal)in# about no" 8 and that in the meantime the "orld has han#ed and so should his analysis2 .y ans"er "ould be that that is a red herrin# stra" man ans"erC be ause the "hole point is to re o#ni=e 9 "hi h .arA did notM and 'ob still does notMM 8 that the !undamental #lobal stru ture has N-T han#ed2 &nd on that point $io%anni and I a#ree in part and in other part a#ree to disa#ree, "hile as $io%anni omplains belo", e%en 'ob(s no" eApanded >("orld(( in this dis ussion is still limited to a !e" industriali=ed ountries2 &nd I obser%e the !urther irony that in our dis ussion 'ob no" lea%es lass analysis to $io%anni2 EAaminin# 'ob(s publi ations on the present time, or e%en only his boo) T*E '--. &N6 T*E '+''LE, in detail as $io%anni already did "ould inordinately len#then this essay2 5o I ha%e hosen t"o short ut ompromises insteadE First to omment %ery brie!ly on the hapters in the boo) as summari=ed by 'ob himsel! in his @Introdu tion?0pp F !!12 5e ond, to a ept $io%anni(s summary on NLR pa#e G o! the most essential points o! 'ob(s ar#ument, and to eAamine in #reater detail their resultin# dis ussion in NLR2 In short, I a#ree "ith 'ob most o! the "ay as !ar as he #oes in his '+''LE boo) more than I do "ith $io%anni2 'ut I a#ree "ith $io%anni that 'ob(s %irtual ollapse o! the @World E onomy,? as per his sub8title, into the North &tlanti re#ions plus Japan is una eptable2 I may brie!ly re%ie" these hapters in omparison "ith my o"n "ritin#s on the same topi s2 .y ,RI5I5 ,hapter 2 sho"s that on the e%iden e and its analysis, 'ob(s des ription o! the lon# do"nturn in his ,hapter : is 7uite a eptable, and

$io%anni(s riti7ues are mu h less so2 'ob(s hapter 2 on the @turnaround? o! the +5 e onomy on the basis o! its manu!a turin# se tor is not a eptable, sin e the Rea#an re o%ery in the :;G0s and e%en more so the ,linton boom o! the :;;0s "as based not on industrial produ tion and e%en less on produ ti%ity, despite all e!!orts at onst8 uttin# throu#h rationali=ation o! in%estment a ompanied by redu tion o! the osts and in ome o! labor2 &s my RE&$&N sho"s to the ontrary, the @re o%ery? and boom "ere based !irst on military Leynesian demand and supply8side !is al poli y ombined "ith monetary poli y2 Indeed, my %ery title posed the 7uestion @Is the Rea#an Re o%ery Real or a ,alm 'e!ore a 5tormJ @ and ans"ered the 7uestion, based on a multitude o! data espe ially !rom the +5 ,on#ress bi8partisan E onomi ,ommittee, "ith an une7ui%o al N- real re o%ery2 The arti le elaborated on the ontinued de line in the real e onomy and that most si#ni!i antly the +5 e onomy han#ed in :;GFHG< !rom bein# the "orld(s bi##est reditor to be omin# its bi##est debtor 9 due to the e%er #ro"in# in!lo" o! apital !rom abroad2 .ore a eptable is 'ob(s ar#ument in his hapter 3 about ompetiti%e han#es amon# the "orld(s lar#est industrial e onomies2 Re#ardin# 'ob(s ,hapter 3 and the si#ni!i an e o! "hat he alls the >Re%erse Ila=a & ord,? my analysis belo" sho"s my a#reement "ith $io%anni that the post :;D; han#es "ere mu h more important, eA ept that I sho" that they be#an already earlier and "ere not 7uite as $io%anni puts them2 'ob(s hapter F eAa##erates a re o%ery o! pro!itability in +5 industry, but his emphasis there and in ,hapter < on the +5 dollar is mu h loser to the mar)2 The dollar remains the )ey also to the e%ents 'ob re%ie"s in his hapters D and G and underlies the massi%e in!lo" o! apital into the +52 *o"e%er, 'ob de%otes inade7uate attention, or #i%es insu!!i ient importan e to the sour es and reasons !or this in!lo" , e%en i! not bi8 laterally8 !rom Russia and Eastern Europe and o! ourse !rom East &sia a!ter its !inan ial risis be#innin# in :;;D2 In the !inal hapters that e%aluate stren#ths and "ea)nesses and assess !uture prospe ts, I !ind 'ob to be still o%erly optimisti , as ar#ued in my teAt belo" and espe ially in my I&IER TI$ER 9 FIER/ 6R&$-N 0200312 I turn no" to $io%anni(s summary and dis ussion o! 'ob(s ar#ument in NLR, and I eAamine both o! them in some detail in omparison "ith my o"n "ritin#s on the same issues in the :;D0s, :;G0s and more re ently2 $io%anni summari=es 'ob(s ar#ument as !ollo"sE :2 The sta#nation o! the :;D0s and :;G0s "as deri%ed !rom the pre%ious eApansion o! the :;F0s and :;<0s2 22 The persisten e o! that sta#nation is attributed to business and #o%ernmental responses to the 0underlyin#J1 de line in the rate o! pro!it2 32 The re%i%al o! the +5 e onomy sin e :;;3 "as not deri%ed !rom any prior resolution o! underlyin# problems, and instead may e%en ha%e a##ra%ated them into a ne" bubble2 'y and lar#e and on the e%iden e I a#ree both "ith $io%anni(s summary and "ith 'ob(s thesis that he summari=es, but "ith some reser%ations2 I a#ree "ith the !irst thesis, !or as ,RI5I5 demonstrated in ,hapter :, it "as the post8"ar boom that arried "ithin it the seeds o! the subse7uent bust2 The se ond thesis is also a eptable, eA ept that it puts the art be!ore the horse2 It "as not so mu h that poli y en#endered sta#nation, as that the sta#nation "hi h #re" out o! the pre%ious boom en#endered pro8 instead o! ounter8 y li al poli ies that a##ra%ated the risis, as it usually does 0In that re#ard .ilton Friedman is re#rettably orre t12 That thesis "as demonstrated in #reat detail in

a D0 pa#e ,hapter a 3 o! ,RI5I5 on @The Ioliti al E onomi Response to ,risis in the West2? For the re ord, I should note some matters pertainin# to the F08<0 year lon# Londratie!! y les o! 20830 year lon# @&? phases o! eApansion and @'? phases o! ontra tion or risis2 &lthou#h ,hapter 2 o! ,RI5I5 and parti ularly pp 20 !! is ast "ithin a !rame"or) o! Londratie!! y les, the teAt ma)es 7uite lear that its analysis rests on the data and on the analyti ate#ories detailed belo" and does N-T re7uire either a eptan e or re4e tion o! the eAisten e or the analysis o! L y les2 & no" pertinent histori al !ootnote is that it "as $io%anni himsel! "ho introdu ed me to these L y les in a lon# arti le in Italian and throu#h our also lon# dis ussion thereo! in :;D22 *o"e%er, he has lon# sin e #i%en up on them, "hile I ontinued to pursue them in my histori al resear h, until the e%iden e on%erted me into an a#nosti 2 'e!ore "e #et to the politi al e onomy o! y le poli y, "e must eAamine the underlyin# e onomi trends themsel%es2 ,RI5I5 de%oted pp 2G8<F to an eAposition and analysis o! the de%elopment o! the risis until the mid :;D0s, under sub8titles on @Relati%e Irodu ti%ity 6i!!erentiation in the West,? "hi h analy=ed the ompetiti%e de line o! the +nited 5tatesC @The 6e line in the Rate o! Iro!it?, "hi h do umented it year by year !or the ma4or Western e onomiesC the @,y li al Re essions sin e :;<D?, @,redit ,reation to Irolon# the 'oom,? @,ompetiti%e 6e%aluation? as a resurre tion o! the :;30s 'e##ar8.y8Nei#hbor poli ies, in!lation, sta#!lation, unemployment, et 2 & later essay, IR-5IE,T, summari=ed the ar#ument o! ,RI5I5 until :;DG and eAtended it throu#h the mid8 :;G0sE

The present "orld e onomi risis be#an "ith the de line in the rate o! pro!it in the mid8l;<0s and the European re ession in :;<D2 The +nited 5tates es aped this re ession throu#h the in!lationary !inan in# o! the Vietnam "ar, but the "orld"ide re ession that !ollo"ed in :;<;8:;D0 and the se%ere and #enerali=ed one !rom mid8:;D3 throu#h mid8:;DF "ra )ed the +nited 5tates as "ell2 These re essions, espe ially the last, le!t #ro"in# rates o! unutili=ed produ ti%e apa ity, parti ularly in industry2 None o! the su eedin# y li al re o%eries restored utili=ation rates to the hi#hs pre edin# ea h re ession2 In short, both the y li al hi#hs and lo"s o! apa ity utili=ation sho"ed a mar)ed do"n"ard trend, "hi h ontinued throu#h the subse7uent :;D;8:;G2 re ession and :;G38:;G< re o%ery2 The ombination o! idle resour es and lo" rates o! pro!it meant that the rate o! in%estment de lined substantially in :;D3 and did not re o%er until :;DG, and then only !or a year2 With the re ession that be#an in :;D;, the rate o! in%estment de lined a#ain2 In ea h o! the re essions o! :;<D,:;<;8:;D0,:;D38:;DF, unemployment rose more and in the subse7uent re o%eries !ailed to re o%er to the le%el o! the pre%ious one2 Furthermore, the nature o! in%estment han#ed !rom in%estment in produ ti%e apa ity to eApand output, "hi h it had been in the lon# post"ar eApansion, to rationali=in# in%estment to produ e the same )ind o! output or the same amount at a lo"er ost, parti ularly labour ost2

$io%anni t"i e 0 pp2 :3 and 3;1 hides 'ob !or o%er8relian e on apa ity utili=ation in his ar#ument but on insu!!i ient e%iden e2 ,RI5I5 brou#ht ample e%iden e on o%er apa ity and related matters in tables and #raphs as "ell as their dis ussion in the teAtE -n manu!a turin# apa ity utili=ation 0Table 28:01 !rom -E,6 sour es, de line in rates o! pro!it 0Table 2821, de line in #ro"th o! !iAed in%estment 0 $raph 2831 , di!!eren es bet"een ne" and rationali=in# in%estment 0 0Table 28::1, unemployment 0Tables 28< to 28G1, de line in industrial produ tion belo" pre8re ession trends 0$raph 2821, de line in real #ro"th o! $NI by semester 0Table 2831, de line and di!!erential #ro"th o! labor produ ti%ity 0 Table 28: and $raph 28:1, timin# and len#th o! re essions 0Table 28F1, et 2 &ll o! these "ere !or ea h o! the se%en ma4or industrial ountries, and their relations "ere dis ussed in the teAt 0pp2 2G8GF12 The upshot "as that re essions "ere indeed more !re7uent, lon#er, and deeper, and that all o! these indi es "orsened in ea h re ession2 .oreo%er and si#ni!i antly, in no y li al re o%ery did these indi es re8attain their pre%ious pre8re ession hi#hs2 Thus, $io%anni may be ri#ht "hen he notes no lear trend in apa ity utili=ation but a a lot o! !lu tuation2 'ut so "hatJ The point is that apa ity8utili=ation is a ,/,LI,&L re!le tion o! supply and demand side imbalan es, and alon# "ith the rate o! pro!it the determinant o! in%estment2 &nd it is su!!i ient to note that re essions in output and in%estment be ame more !re7uent, lon#er, and deeper durin# this period to sho" that 'ob is ri#ht and $io%anni is "ron# about the in reasin# pla e and role o! eA ess apa ity durin# this period2 The third thesis about the re%i%al durin# the last de ade not bein# based on !undamentals is also true, but the situation is onsiderably "orse than e%en 'ob ma)es out, as "e "ill obser%e "hen "e arri%e there in our hronolo#i al a ount2 'ut by "ay o! pre8%ie" let me 4ust say here that there has been no re o%ery at all in the real e onomy o! the +5, Western Europe or Japan2 The end8 entury >(belle epo he? in the +5 "ere no more than a brilliant !inan ial re!le tion in the o! the ,lintones7ue +5 o! the dread!ul depression in Russia, Eastern Europe, and mu h o! Latin &meri a and 5outheast &sia2 From "hose apital !li#ht the the bene!i iary2 $io%anni early on also 4umps ba ) in time to ompare the present "ith a entury a#o, but I pre!er to reser%e my omments on that to the end o! this essay andHor to my boo) in pro#ress on Re-RIENT T*E NINETEENT* ,ENT+R/2 5u!!i e it here to say that the in!lation o! the :;D0s "as not as #reat as $io%anni su##ests on p22G, and the :;G0s and espe ially the :;;0s, !ar !rom >( ontainin# in!lation,? has been a period o! ma4or 6EFL&TI-N "hen measured in rele%ant "orld urren y 6-LL&R pri es, probably #reater e%en than that !ollo"in# :GD32 'ut more on that belo"2 *o"e%er this passa#e relates to "hat both authors ha%e to say about in!lation, sta#!lation and their relation to ommodity pri es o! ra" materials and o! oil in parti ular2 &nd that is disappointin# indeed, apart !rom bein# empiri ally and analyti ally "ron#2 It is true that ommodity pri es eAperien ed a brie! sharp spurt at the be#innin# o! the :;D0s2 'ut a!ter that, they "ent on a lon# absolute and relati%e de line to the disad%anta#e o! ommodities eAporters in the Third, 5e ond and First industriali=ed "orld2 &nd the entire ar#ument about oil pri es and oil sho )s as "e "ill obser%e belo" has been nothin# but a red herrin# desi#ned to on!use the publi and 4usti!y anti8 popular e onomi and so ial poli ies2

$io%anni then laun hes into a dis ourse on "hi h "e ha%e had an in essant ar#ument o! lon# standin#, sin e his days in the @$rams i $roup? in Italy in the late :;<0s2 Not only did he support labour po"er in Italy in :;<;, "hi h "as !ineC but he also attributed trans!ormati%e apa ities to it that it ne%er had, and as I already then insisted to him , are not li)ely e%er to ha%e2 &t least, the past three de ades ha%e totally dis on!irmed $io%anni(s labourist dreams and theses, not only in Italy but e%ery"here else as "ell2 'ut at least he is onsistent, !or in our :;G2 o8authored boo) on the $lobal ,risis he still sub8titles a se tion >( The 6e%elopment o! Labor(s Wor)pla e 'ar#ainin# Io"er(( and in the :;;0 one on 5o ial .o%ements, it is @the Rema)in# o! the World Labor .o%ement2? 'ut o! ourse its #reatest >(rema)in#? has been its pro#ressi%e de line in number and po"er in the old industrial entersC and "here its number in reased else"here, its po"er did not2 5o I !ind it stran#e that $io%anni no" a%ails himsel! o! this same old ar#ument o! his, e%en i! a bit toned do"n, to dispute 'ob "ho on this s ore is also orre t2 Therein, $io%anni ta)es a step in the dire tion o! but still does not #o as !ar as the sorely missed Ernest .andel, "ho thou#ht and in NLR "rote that labor militan y "as brinin# us to around the orner !rom the re%olution2 Ernest and I #a%e a ourse on the risis to#ether in :;D; at 'oston +ni%ersity2 We a#reed on e%erythin# 9 that then nobody else a#reed on 8 eA ept t"o thin#s2 -ne "as this matter o! labor militan y and its prospe ts !or re%olution2 The other "as on "hether the >(so ialist(( ountries "ere in or out o! the "orld e onomy2 &las, history has sho"n him "ron# on both ounts, but o! that also more later2 In any ase, as 'ob ar#ues and my ,RI5I5 already sho"ed, the de line in the rate o! pro!it must be attributed not so mu h to in reased bar#ainin# po"er o! labor durin# the :;<0s as to super8a umulation o! apital, o%er8produ tion, and redu ed apa ity utili=ation, "hi h depressed pro!its and there!ore also in%estment and thereby a#ain pro!its2 There!ore, it is hard to see "hy $io%anni a#ain unsheathes this rusty old s"ord o! labor po"er to use a#ainst 'ob, "ho on this s ore "ins hands do"n2 $io%anni says that 'ob(s ar#ument !or the absolute predominan e o! inter8 apitalist ompetition o%er labour8 apital stru##les? misses the point2 Ierhaps it does, but not be ause o! the @si#ni!i ant disrupti%e po"er? o! labour8 apitalist relations 0 pp 3:83G12 The point is that both miss the essential point about the real me hanisms o! the distribution o! bene!its, as I "ill note belo"2 .y eApli atory passa#e ited abo%e "ent on to as) @ho" does this ompare "ith popular eAplanations !or the risisJ? &nd my ans"er "asE .ost ommentaries blamed the risis on han#es in the pri e o! oilE on the In rease a!ter :;D3, and sin e :;G2, on the de line2 The se7uen e o! e%ents belies this notion2 The :;D38:;DF re ession be#an in the +nited 5tates in the se ond 7uarter o! :;D3, that is .ay8June, but the !irst oil sho ) did not ome until - tober :;D3, about !i%e months later2 The same #oes !or in!lation2 The rate o! in!lation had in reased dramati ally be#innin# in :;D2 and de lined !rom :;D3 on, a!ter the !irst oil sho )2 The :;D;8:;G2 re ession be#an around June :;D;, but the se ond oil sho ) did not ome until the end o! :;D;, and brou#ht a redu tion rather than an in rease in the rate o! in!lation2 Ed"ard 6ennison has estimated that no more than :F per ent o! the de line in +5 #ro"th rates o! $NI an be attributed to hi#her oil pri es2 Estimates are e%en lo"er !or the industrial ountries ta)en to#ether B2 Vie"ed in histori al perspe ti%e, the risis is a lon# stru tural risis o! o%erprodu tion2 'e#innin# in :;<D, "ith the de line or the rate o! pro!it and the in rease in the !re7uen y and depth o! re essions, the

present risis is li)ely to ontinue !or another de ade or more 0IR-5IE,T :;GDE<12 Re#ardin# the !irst >( oil sho ),(( this e%iden e and analysis "as to be !ound already in the analysis o! @The -il ,risis? on pp <F8<G o! ,RI5I52 The se ond one o urred a!ter I !inished "ritin# that teAt2 In both ases I noted, "hi h 'ob and $io%anni !ail to do, that the rise in the pri e o! oil "as not "hat it seemed to be2 For in both ases, the in rease in the dollar pri e o! oil !ollo"ed a sharp de line in the %alue o! the dollar and thereby in the real pri e o! oil, "hi h primarily "as only restored to its pre%ious le%el2, and then only raised mu h less in real than in dollar terms2 .oreo%er a!ter that , the real %alue o! oil a#ain de lined, leadin# to the se ond oil pri e hi)e in :;D;2 That means as "ell a#ain that ontrary to the mytholo#y, the han#e in the pri e o! oil "as the ,-N5EN+EN,E and N-T the ause o! the han#es in the e onomy and e onomi poli y2 It is there!ore more than disappointin# that my !riends seem to ha%e !allen !or mu h o! this same popular and popuLI5T line about oil pri es, in ontradi tion both to the e%iden e and to any sensible analysis thereo!2 .oreo%er, as the :;DG teAt o! ,RI5I5 had predi ted the neAt re ession that be#an in :;D; and lasted throu#h :;G2, the :;G<8:GD teAts on RE&$&N-.I,5, R&.'-I5., and IR-IE,T5 also predi ted the neAt re ession that "as to !ollo" in :;G; and lasted to :;;22 What(s more, both teAts also predi ted "hat politi al e onomi poli ies "ould be pursued, ho" they "ould help #enerate the neAt re ession, and "hy relian e on them already durin# the inter%enin# y li al re o%eries "ould eAhaust their a%ailability as anti8 y li al measures "hen they "ould be really needed in the re essions to !ollo"2 &s my :;G<8:;GG titles 7uoted abo%e su##est, I insisted that the neAt re ession that "ould be#in in :;G; threatened depression and de!lation beyond those e%en o! the :;30s2 &nd so it has ome, althou#h both o! my !riends seem not to re o#ni=e the real depth o! the risis "e ha%e been in2 'ut that is #ettin# ahead o! the story2 Let us return to $io%anni and his rendition o! 'ob, in ludin# no" "hat they ha%e to say about e onomi poli y and in parti ular its o8ordination amon# the ma4or apitalist ountries2 $io%anni "rites 0p <21 that @the monetarist ounter8re%olution o! :;D;8G2 "as a !ar more de isi%e turnin# point? than the Ila=a & ord o! :;GF or the re%erse Ila=a & ord o! :;;F @to "hi h 'renner seems to attribute e7ual or e%en #reater importan e,? or !or that matter the prior Lou%re &#reement 2 /es and No2 First o! all, none o! these a#reements had the importan e that has been attributed to them sin e then, in ludin# by our !riends2 &s I noted In RE&$&N 0:;G<E;D31, @The $roup o! Fi%e a#reement at the Ila=a *otel in Ne" /or) on 5eptember 22, :;GF did ser%e to depress the %alue o! the dollar, but "hile it "as #oin# do"n already any"ay2? In !a t, the turn8around in eA han#e rates be#an in February :;GF alreadyC and no >(a#reement(( that ounters mar)et trends has e%er had more po"er than the mar)et2 The ,entral ban)s simply do not ha%e enou#h resour es to bu ) the mar)et2 @.ore si#ni!i antly, the !i%e parti ipatin# industrial ountries "ere unable to a#ree to o8ordinate their domesti monetary and !is al poli ies, "ithout "hi h their a#reement on eA han#e rates had little !oundation2? The same "as true o! the Lou%re &#reement a de ade be!ore and the >re%erse8Ila=a &#reement? a de ade later2 -n the other hand, $io%anni is ri#ht in #i%in# mu h more "ei#ht to the monetary e%ents a!ter :;D;2 The e%ents "ere re orded in my "ritin#s on the debt risis o! the :;G0s2 The dollar had been !allin# pre ipitously2 The Federal Reser%e ,hairman Iaul Vol)er, re ently appointed by Jimmy ,arter 9 si#ni!i antly N-T by Rea#an as I "ill demonstrate

belo" 8 one !ine day le!t the 'el#rade I.F O World 'an) meetin#s be!ore they ended, and !le" ba ) to Washin#ton2 5omethin# in 'el#rad had persuaded him the neAt day to turn +5 and "orld monetary poli y up8side do"n2 *e had been )eepin# the interest pri e o! dollars lo" and lettin# the amount o! dollars !ind its o"n hi#h le%el 9 but also permittin# a apital out!lo" !rom the +5 to pla es "here the interest rate "as hi#her2 5o !rom one day to the neAt "ith a stro)e o! a pen, Vol)er de ided to put his hand on the spi#ot to ontrol the supply o! dollars, and to let their interest pri e !ind its o"n le%el 9 at 20 per entM & tually, it "as still the mar)et that determined the supply o! dollarsC but Vol)er(s measures "ere su ess!ul in raisin# the pri e o! the dollar a#ain so as to attra t money ba ) into the +nited 5tates2 The ost "as simply to ban)rupt the rest o! the "orld, "hi h had been borro"in# heap dollars at an e!!e ti%ely =ero or ne#ati%e real rate o! interest2 'ut sin e the !ine print in the loan a#reements tied the rate o! interest on these debts to the mar)et rate o! interest, Eastern Europe, &!ri a and parti ularly Latin &meri a suddenly !ound themsel%es "ith simply unpayable rates o! interest !rom :0 to 20 per ent2 To ser%e stri tly &meri an interests, Vol)er had sin#le handedly reated the 6ebt ,risis "orld "ide2 *istori al amnesia has mis8read the resultin# re ord as "ell, datin# the be#innin# o! the risis to .eAi o in &u#ust :;G22 In !a t @the debt risis B eAploded into the "orld(s !inan ial pa#es in :;G: "ith Ioland(s inability to ser%i e its P 2D billion o! debts, !ollo"ed by &r#entina "ith P 30 billion durin# the Fal)lands War in .ay :;G2 , by .eAi o "ith P G08GF billion in &u#ust :;G2, and 'ra=il also "ith P G0QGF billion in - tober8No%ember :;G2? 0IR-5IE,T5 E G12 5ettin# this re ord strai#ht is o! politi al e onomi importan e, sin e the !irst e%ent "as in a >(so ialist? ountry, that many re#arded outside the apitalist "orld e onomy, and as $io%anni notes, 'ob does not onsider at all2 It "as the I.F imposed @stru tural ad4ustment? that laun hed Le h Walensa(s 5olidarno = mo%ement in :;G:, "hi h in turn prompted the military oup o! $eneral Jarusels)i on 6e ember :3, :;G:2 The subse7uent ourse o! the 6ebt ,risis, "hi h is still ali%e and )i )in#, has been analy=ed ad nauseum, in ludin# in ountless arti les o! my o"n2 &mon# them I noted not only that the ,ommunist Iarty, military ,ommunist, and military re#imes in Eastern Europe, Latin &meri a, the Ihilippines 0Ferdinand .ar os1, and else"here pursue the sel!8same poli ies2 'ut "hen the military re#imes in Latin &meri a "ere repla ed by demo rati ally ele ted ones, and 5olidarno= president Walesa be ame president o! Ioland, they all ontinued also to pursue the sel!8same restri ti%e poli ies, only more so, to ontinue ser%i in# their debts to the +5 and $erman reditors2 'y then, the debtors had already paid o!! their debts many times o%er 0*un#ary 3 times be!ore that ontributed materially to the @Re%olution o! :;G;?, "hile dupli atin# the dollar amount still o"in#1 , be ause ea h debtor had to roll o%er its debts by borro"in# at still hi#her rates o! interest !rom Ieter to pay Iaul2 In the ourse o! a ouple o! de ades the total amount o! this debt has #ro"n !rom about +5 P D00 billion to P 38F,000 billion2 .oreo%er, the debt be ame a leash that imposed on ea h state a de#ree o! dependen e 04ust as some alle#ed that dependen e had been nothin# but an illusion1 many times and !orms #reater than it had been !rom simple dire t in%estment2 The !inan=iali=ation o! the "orld e onomy that 'ob and $io%anni also note #round the @se ond so ialist? and @Third? "orlds 9 but mu h o! the industrial one as "ell up as simple hips in a "orld8"ide ,asino E onomy and 5o iety, that destroyed the middle

lasses and pauperi=ed the lo"er ones2 That is perhaps T*E ase o! e onomi poli y really ha%in# had "ide8spread and deep8#oin# e!!e ts2 For li)e most other obser%ers, and o! ourse poli y ma)ers themsel%es, both 'ob and $io%anni attribute !ar more importan e and e!!e ti%eness to e onomi poli y, mostly in the industrial apitalist ountries, than in !a t it has had or an ha%e2 That is "here my N- abo%e omes in, re#ardin# "hen "hi h poli y han#es "ere more important2 .ostly, none o! them "ereC or inso!ar as they had e!!e ts, it "as those o! ma)in# poli ies that the ir umstan es 9 N-T the poli y ma)ers themsel%es 8 re7uired2 T"o important ases in point appear in the mis8readin# o! the histori al re ord by both 'ob and $io%anni2 They re!er to "hat has ome to be )no"n as Rea#anomi s and Tha herism, "hi h $io%anni dis usses on pp2 :F, 33, 3< and else"here2 *e hides 'ob !or payin# insu!!i ient attention to the #lobal politi al onteAt in #eneral and to the de line o! &meri an he#emony in parti ular2 Ierhaps, but my riti7ue instead is their insu!!i ient re#ard !or the #lobal e onomi imperati%es as dire t reasons !or the poli ies that "ere adopted and !or the %ery de line o! the +52 True, $io%anni does mention in passin# that the monetary ounterre%olution "as initiated in the losin# year o! the ,arter administration2 'ut that is not enou#h2 To set the re ord strai#ht, I am obli#ed on e a#ain to re!er to ,RI5I5, "hi h re orded it in ,hapter 3 on @Ioliti al E onomi Response to ,risis in the West?E In 'ritain, a!ter the mammoth oal stri)e o! :;D3, the ,onser%ati%e *eath $o%ernment "as repla ed by Labour "ith *arold Wilson as Irime .inister2 'ut the :;D38DF re ession !or ed him out as "ell, to be repla ed by James ,alla#han as representati%e o! the Labour Ri#ht2 *o"e%er, 6ennis *ealy stayed on as ,han ellor o! the EA he7uer2 Then The Labour le!t "as in reasin#ly put out to pasture2 'y the end o! :;D<, Rslo"ly and pain!ully, the ,abinet 0"as1 #ettin# round to dis ussin# the terms this ountry 0"ould1 ha%e to a ept in order to se ure the loan !rom the International .onetary Fund, a lar#e sli e o! "hi h 0"as1 needed immediately to repay the entral ban) redits dra"n sin e last summerR SFT 2; No%ember :;D<T2 Iain!ully perhaps, but not so slo"ly, sin e t"o "ee)s later R'ritain 5lashe0d1 5pendin# by U22F 'illion in E!!ort to Win I.F Loan,R as the &meri an International *erald Tribune S:< 6e ember :;D<T announ ed in an ei#ht8 olumn banner, !ront8pa#e headline2 & !e" days laterE I.F 'oard .eets to &ppro%e P32; 'illion Loan !or 'ritain2 ,learan e 0is1 a Formality2 222The 0board1 members ha%e already dis ussed in!ormally an a#reement "or)ed out bet"een the I.F sta!! and 'ritain2 222&s a ondition !or re ei%in# the loan8the lar#est e%er made to a sin#le ountry8 'ritain a#reed to redu e publi eApenditures by U22F billion SP32F billionT durin# the neAt t"o years and to limit the #ro"th o! domesti redit2 &lthou#h !inan ial mar)ets initially appeared to re#ard the onditions as too lenient2 22+5 Treasury 5e retary William 5imon said that the +nited 5tates, "hi h has the lar#est blo ) o! %otes in the I.F, "ould support the loan SI*T 3 January :;DDT2 5oon Ja ) Jones and other labor leaders a#reed to a !lat U< limit to "a#e in reases, the RsameR !or e%eryone2 In !a t, it had been the +5 Treasury, "ith William 5imon at its head 0later to !ound se%eral ri#ht "in# thin) tan)s to hurn out ri#ht "in# ideolo#y mas)ed as >(e onomi

s ien e1 , that had insisted on imposin# dra onian measures on 'ritain as a ondition !or #ettin# the I.F loan !or "hi h the re ession had put it in dire need2 *al! a year later, the International *erald Tribune sa" 'ritain, the mother ountry o! John .aynard Leynes and Leynesianism, Rabandonin# Leynesian poli y2 U:2; 'illion 6e!lationary Ilan 5et 'y 'ritain !or NeAt /earRE 'ritainVs Labour $o%ernment today abandoned 30 years o! Leynesian poli y and announ ed a sti!! U:2; billion SP323 billionT de!lationary pa )a#e at a time o! hi#h and risin# unemployment2 ,han ellor o! the EA he7uer 6ennis *ealey told the *ouse o! ,ommons neAt year he "ill slash U: billion !rom a "ide list o! LaborVs !a%orite pro#rams2 They ran#e !rom 4ob subsidies throu#h s hool lun hes to publi housin#2 This, ho"e%er, had been eApe ted2 5o .ar#aret Tha her only ontinued the e onomi poli ies that ame to arry her name, but "hi h had already been initiated by Labour some time earlier2 & histori al !ootnote is that in his then bi8"ee)ly olumn in NEW5WEEL 06e 2 <, :;D<1 .ilton Friedman entitled one @From Jimmy to James? E @Let me ur#e .r2 ,arter to listen instead to "hat his ounterpart in 'ritain, Irime .inister ,alla#han, said to the Labour Iarty ,on!eren e on 5ept2 2, ? that is that it is no lon#er possible to spend ones "ay out o! re ession2 @That must surely ran) as one o! the most remar)able and oura#eous statements e%er made by a leader o! a demo rati #o%ernment2 Read it a#ain2 5a%or it2? -! ourse, Friedman ur#ed ,arter not only to read ,alla#han but to !ollo" his eAample2 ,arter did so, not be ause Friedman told him toC but be ause e onomi eAi#en ies !or ed him to, and not in his last year as 'ob says, but in his se ond year2 &lready be!ore his ele tion, F-RT+NE had published an e onomi pro#ram !or him, "hi h said that There is e%ery reason to belie%e that @an unremittin# "ar on in!lation should be our ma4or national priority2R The populist Jimmy ,arter, ho"e%er, promised to ma)e unemployment his e onomi number one, and to ombat it !irst and !oremost "ith an eApansi%e E PF0 taA ut !or e%erybody2 $i%in# the de%il his due, the Ne" /or) Times SF , 5eptember :;D<T2"roteE R,arter 5hi!ts *is Emphasis on +252 5pendin#2 5tresses In!lation ,urbs, 'alan ed 'ud#etR B2 Fortune also obser%ed in an editorial entitled RWhere ,arter 5tands on 'usiness IssuesR that Rthere is no real mystery about ,arterVs appeal to onser%ati%es2 -n many so ial issues2 22he is a onser%ati%e2 222E%en thou#h he alls himsel! a Vpopulist,V he doesnVt loo) li)e a threat to the established order2R -n e ele ted, the populist Jimmy ,arter still ontinued to in%ei#h a#ainst unemployment, promisin# to redu e it to <2< per ent in a yearC 4ust in ase, ho"e%er, he pre!erred to Rerr on the side o! onser%atism,R and appointed reliable e onomi onser%ati%esB2 V-n !is al matters, ,arter is %ery, %ery onser%ati%e,V says *amilton Jordan, the IresidentVs top politi al lieutenantR SI*T G &pril :;DDT2 -ne "ee) a!ter that re%ealin# statement, Jimmy ,arter pro%ed itE *e rene#ed on his Rmost popular ele toral promiseR SFR :< &pril :;DDT, and )illed the PF0 taA rebate sayin# that this stimulus to the e onomy "as RunneededR SI*T :F &pril :;DDT2 &s early as January, Rthe &FL8,I- last ni#ht re4e ted Iresident8ele t Jimmy ,arterVs e onomi stimulus pa ) a#e assailin# it as a VretreatV !rom the #oals he set in his ampai#n, in a publi brea) "ith the man they supported !or the White *ouseR

SI*T :2 January :;DDT2 B 'y .ar h :;DG, "ith o!!i ial unemployment @do"n? to <2< per ent, Treasury 5e retary 'lumenthal "as allin# in!lation, not unemployment, the No2 : problem 0I*T 20 .ar h :;DG1 ,R5I5 pp :2F8:2<2 ,RI5I5 pp :2F8:2<12 &#ain, "hat ame to be )no"n as Rea#anomi s "as initiated already three yeas earlier by the 6emo rati Iarty populist Jimmy ,arter2 &s already obser%ed, it "as also ,arter "ho appointed Iaul Vol)er to the Fed, !rom "here he "ould mana#e monetarist poli y "orld "ide2 ,RI5I5 also re%ie"ed ho" e%ery so ial demo rati #o%ernment in the West !ollo"ed suit "ith restri ti%e e onomi poli ies ounter to those they had been ele ted !or in "hat I termed >"el!are !are"ell2? &nd not 4ust the #o%ernments, but the politi al parties and labor unions as "ell, in ludin# "hat ame to be )no"n as the Euro ommunists2 &nd not only in the West, but also in the 5outh and in the East2 For e%ery"here in the :;G0s, demo rati , military, and ,ommunist #o%ernments pursued the sel!8same @stabili=ation? poli ies, as the I.F alled them2 E%ery"here eA ept the +nited 5tates that is2 For ho"e%er mu h Rea#an promised to #et the #o%ernment o!! our ba )s, he and .rs Tha her a tually in reased the share o! #o%ernment spendin# in national in ome2 It ame to be alled >(military Leynesianism2? 'ut that also had been initiated by Iresident ,arter in the +5, and !or mu h more pedestrian real "orld e onomi reasons than the >(nadir o! +5 he#emony? in the @"orld8politi al onteAt? that $io%anni 0pp 3:83<1 e%o)es2 $io%anni(s ar#ument about the "orld8politi al onteAt an be turned around "ith e7ual, or I thin) #reater, 4usti!i ation2 The ne" re ession be#an in June :;D;2 5o did the threat o! Teddy Lennedy as a serious alternati%e andidate !or the neAt 6emo rati nomination2 For both reasons, ,arter turned ri#ht, militarist and deliberately be#an the @5e ond ,old War, ? "hi h had abated "ith the NiAon8're=hne% dWtente2 ,arter initiated 3 ma4or ne" ampai#ns in this re#ard2 :1 Iushin# all N&T- ountries to in rease their de!ense spendin# by 3 per ent 0 orre ted !or in!lation1 a yearC 21 the >t"o tra ) poli y? o! ne#otiatin# "ith the 5o%iets !rom still #reater stren#th by installin# lon# ran#e Iershin# and #round ho##in# radar de!yin# ruise missiles in $ermany, 31 playin# the @,hina ard?, and 31 rea tin# "ith uneApe ted #reat !or e a#ainst the in%asion o! &!#hanistan2 It has o!ten been alle#ed that it "as that e%ent that started the se ond old "ar2 'ut ,arter started that already in the summer o! :;D;, "hile the in%asion did not ra)e pla e until 6e ember2 I ha%e al"ays ar#ued that the 5o%iet in%asion "as a de!ensi%e mo%e a!ter ha%in# already lost so mu h to the +5 that they thou#ht they had little else to lose2 They "ere "ron# about that, as it turned out2 'ut it has also turned out in ,arter(s 5e urity ad%isor 're=hins)y(s re ent inter%ie" that it "as he "ho ur#ed ,arter to send military aid to the &!#hanis, also be#innin# in June siA month be!ore the 5o%iet in%asion, and deliberately so to pro%o)e that in%asion and reate a preteAt !or !urther +5 inter%ention2 ea#an(s @5tar Wars? ampai#n "as also deliberately laun hed to dri%e the 5o%iet +nion into ban)rupt y and "as only the lo#i al and de !a to eAtension o! the ,arter poli y2 &nd it su eeded, eA ept that it ban)rupted the +5 as "ell2 The di!!eren e "as that no one ame to bail out the Russians, "hile Japan and Europe %oluntarily, and Latin &meri an debt !inan e in%oluntarily, pumped hundreds o! billions o! dollars into the +5, "hi h permitted it to o%er its @T"in 6e!i its? in the bud#et !or Ienta#on spendin# and the 'alan e o! Trade be ause the dollar rose2 'ut ho"e%er mu h 5tar Wars may ha%e had politi al ob4e ti%es a#ainst @the E%il Empire,? military Leynesianism also had lear ut #ood old e onomi ones as Leyenesian pump primin# de!i it spendin#2 That )ept

a!loat not only the &meri an e onomy durin# the :;G0s, but the European and Japanese ones as "ell 9 at the ost o! ourse o! sin)in# Eastern Europe and mu h o! the Third World into the @Lost 6e ade2? In short a#ain as I already ar#ued in a hal! do=en arti les in the late :;G0s, the +5 "as a tin# not so mu h out o! politi al "ea)ness as $io%anni laims but out o! e onomi problems, "hi h it mana#ed to o%er ome at the ost o! most others, althou#h in ludin# as "ell the poor in the +5 !rom "hom in ome "as trans!erred to the ri h by Rea#anomi !is al poli y2 There are three more #eneral and !undamental issues that ome up a#ain and a#ain that I "ould li)e to deal "ith one by one2 -ne re!ers to riti7ues that $io%anni dire ts at 'ob2 The others are riti7ues that I dire t at both o! them2 There is #eneral a#reement that the apitalist pro ess has re eded or pro eeded into !inan iali=ation as the rate o! pro!it in the real mer handi=e e onomy de lined2 $io%anni raises the 7uestion o! "hi h o! these is the art and "hi h is the horse, and he hides 'ob !or attributin# the ausal me hanism to the real mer handi=e e onomy, "hen $io%anni thin)s that it "as the !inan ial se tor itsel!2 This omes up a#ain and a#ain2 Ea h time my %ote #oes to 'ob, !or i! pro!its in the real e onomy had not de lined, there "ould ha%e been no #ood reason to retreat or ad%an e into the !inan ial se tor in the sear h !or ontinued pro!its2 &s he re%ie"s 'ob(s "or), $io%anni entitles some o! his o"n sub8se tions "ith @Finan eE the last re!u#e,? @*e#emony and !inan iali=ation,? and @!inan=iali=ation and the monetarist onterre%olution2? The dispute is about "hether !a tors that are not stri tly e onomi , e2#2 he#emony, underlie the !inan=iali=ation that in turn be omes a re!u#e2 .y %ote here lies "ith 'ob, be ause I read the e%iden e as that the de line o! &meri an ompetiti%eness in the real e onomy pushed it into !inan iali=ation as a re!u#e in "hi h the +5 had an absolute and omparati%e ad%anta#e in ma)in# the dollar into the "orld urren y, 4ust as 'ritain "as able to so on%ert the LH pound sterlin# a!ter its ompetiti%eness as >(the "or)shop o! the "orld? had lon# sin e eased2 Indeed, and neither o! our authors #i%e this the "ei#ht it bas and deser%es, the pla e and use o! the dollar as the "orld urren y has been the ma4or, nay the only, basis o! +5 e onomi and really also politi al predominan e in the "orld durin# the :;;0s, indeed sin e :;G<, "hen it be ame the "orld(s #reatest debtor 9 but in it o"n dollar urren yM -n the other hand , the +5 e onomi re%i%al, also o! produ ti%ity, that 'ob si#nals !or the mid :;;0s is really spurious2 The only se tors in "hi h there "as any re%i%al o! produ ti%ity "as in ele troni s and omputers, et 2, and the dot2 om s andal and rash o! the end o! the entury and de ade are e%iden e o! ho" little real basis this alle#ed in rease in produ ti%ity e%er had2 The prosperity in the +5 durin# the :;;0s "as based entirely on li%in# o!! the !at o! the land else"here in the "orld2 That brin#s us to the t"o ma4or issues on "hi h I ha%e to demur !rom both o! our authors2 -n the more te hni al le%el, it is that they ontinue the standard e onomi mis8 analysis in re!eren e to in!lation2 Re all that in the mid8:;G0s already James Tobin and I "arned that the omin# dan#er is not in!lation but 6E8!lation2 &nd so it has been2 To re!er to in!lation be ause pri es in Russia rose in terms o! rubles, or in Latin &meri a in terms o! pesos is to !all %i tim to a serious opti al illusion2 The %ery !a t that rubles, pesos, bhat and other urren ies "ere de%alued many times o%er a#ainst the dollar or e%en a#ainst the Euro means that the pri es and "a#es o! #oods and ser%i es denominated in those urren ies ha%e su!!ered a ma4or 6e!lation a#ainst the dollar, "hi h is the only urren y measure that really ounts2 &nd so mu h so is that the ase

that the entire Russian e onomy runs on P :00 dollar bills, and that anyone "ho has dollars an and did buy up the real #oods and ser%i es in the entire e onomy o! the East and 5outh o! the "orld at bar#ain basement pri es in +5 dollars2 .oreo%er, they ha%e also su!!ered the usual burdens o! de!lation !or debtors2 &nd it has been the monopoly o! printin# +5P dollar bills or treasury erti!i ates that has been reser%ed to &meri ans that has put them into the pri%ile#ed position o! buyin# up the rest o! the "orld !or nothin# other than the printin# osts o! the paper that is a epted all around the "orld2 5imilarly, the "orld "ide de!lation has bene!ited the !e" "ho ha%e been reditors2 To repeat a#ain, the "orld has su!!ered !rom enormous de!lation, probably #reater than at the end o! the :;th entury or durin# the :;30s, and the +5 has bene!ited enormously !rom this penury o! e%erybody else2 &ll tal) o! in!lation andHor produ ti%ity is a ompletely mis8pla ed onse7uen e o! optial illusion and mis8pla ed on reteness2 & related apparent disa#reement re!ers to >(depression2(( $io%anni hides 'ob on p2 23 !or ne%er tellin# us "hat a >(depression(( "ould loo) li)e2 'ut the same #oes !or $io%anni, or "orse2 *e does not seem to re o#ni=e one "hen it is starin# him in the !a e2 The abo%e mentioned de!lation o! the :;;0s has been lassi ally related to depression2 Ierhaps 'ob does not see that be ause, as $io%anni notes, 'ob(s >("orld e onomy? is limited almost entirely to the industriali=ed West2 'ut $io%annni, "ho sets himsel! up as the spo)es person !or the @Rest,? should then re o#ni=e that most o! that has been in a depression !ar deeper than that o! the :;30s2 Then as no", ,hina(s e onomi #ro"th "as a ma4or eA eptionC and $ermany and Japan es aped their depressions throu#h military Leynesian pump primin# and re8armament2, as did 5o%iet Russia2 In the :;;0s ho"e%er, Eastern Europe and the 'al)ans su!!ered si#ni!i antly #reater depression than they did in the :;30s , as did Latin &meri a and &!ri a as "ell2 The horrendous di!!eren e has been in Russia and in ,entral &sia and to a lesser de#ree in Japan and the &rab ountries on e the pri e o! oil de lined2 In Russia and ,entral &sia depression has destroyed an entire so iety and set it more than a #eneration ba )"ards2 The same happened in &r#entina2 In Japan, many &rab ountries, and some Latin &meri an ones li)e .eAi o, and se%eral ountries in 5outheast &sia, and espe ially Indonesia, re ession read depression has trans!ormed the so ial stru ture, destroyin# mu h o! the middle lass and ondemnin# the lo"er lass to ab4e t po%erty2 The bene!i iary o! all this misery has been ,lintones7ue "el!are in the +nited 5tates2 The me hanisms ha%e been many and multi!old2 6epression led to de!lation in Russia, and o%er8produ tion led to !inan ial risis in 5outheast &siaC and both #enerated massi%e apital !li#ht to the +nited 5tates 9 both into Treasury erti!i ates and into Wall 5treet2 In the !irst they set up the !irst balan ed bud#et in memoryC and in the se ond an enormous bull mar)et2 That in turn attra ted people into the sto ) mar)et the li)es o! "hi h had ne%er be!ore played in it be!ore and "ho turned the mar)et into a %eritable "orld or at least Western asino2 Its pri eHearnin#s and e%en dot om pri eHloss ratio rea hed un"arranted and unheard hei#hts2 The bubble in the bull and housin# mar)ets made o! millions o! people !eel ri h and able to a!!ord a spendin# spree by "hi h onsumers supported the e onomy2 &nd then ame the rash, "hi h "as less rapid and there!ore less %isible than pre%ious ones o! - tober :;2; and :;GDC but it "as deeper and lon#er !irst in Japan and then in the +52 I !ind it surprisin# that 'ob seems to ha%e substantially a epted this rosy ar#ument !or an &meri an and "orld e onomi re%i%al a!ter :;;32 Ierhaps he is aided by the eApe tation o! a lon# sin e o%er8due L

"a%e re%i%al a!ter nearly three de ades o! ' phase risis sin e :;<D2 E%en so, that seems more li)e #raspin# at stra"s than at #roundin# his analysis on solid e%iden e2 .ore #rist !or 'ob(s or rather $io%anni(s mill is that e%en so !orei#ners ha%e ontinued to pour their #ood money a!ter bad into the +52 The debtors ha%e ontinued to ser%i e their debts under threat !rom bein# ut o!! !rom apital mar)ets alto#ether2 -IE, and other sellers o! oil ha%e ontinued to hold the re eipts o! their sales in +5 !unds in +5 mar)ets2 The Russians ontinue to hold their money in +5 dollars, thou#h not ne essarily in the +5&2 The Europeans and Japanese ontinue to in%est in +5 treasury erti!i ates, sto )s and bonds in Wall 5treet or ,hi a#oC and their entral ban)s ontinue to hold reser%es in dollars in the +52 -ne rationale !or doin# so is that the more they pull the plu# on the dollar, the more it !alls and the more the %alue o! their pre%ious dollar in%estments de lines2 Nonetheless the se%ere ban)in# risis in Japan and any sudden run on Japanese ban)s an obli#e Japanese and other holders o! Japanese se urities to o%er them "ith !unds !rom the only sour e still a%ailable to them, that is the !unds they ha%e par)ed in the +52 There had been spe ulation that European entral ban)s that held reser%es in dollars in the +5 "ould trans!er them into Euros on e their o"n urren y be ame a #on# on ern2 'ut that has not happened yet, at least not in the !orm o! a ma4or pull out o! the 6ollar2 *o"e%er it still an, !or simple arithmeti reasons as the Euro %alue o! their dollar reser%es has already de lined by o%er 20 per ent or also !or #eo politi al e onomi reasons as the Europeans are intent on buildin# the Euro up as a %iable alternati%e "orld urren y to the +5 6ollar2 For a "hile, the Japanese /en had similar pretensions, but no" the ,hinese Remin Ribau 0yuan1 loo)s better pla ed to assume that mantle2 The other ma4or disa#reement amon# us is that both 'ob and $io%anni on%entionally attribute the distribution o! bene!its and osts in the "orld e onomy to produ ti%e apa ity and pro esses and !a tor pri es2 /et in the nineteenth entury 'ritain did not deri%e its bene!its in the "orld e onomy !rom its produ ti%e apa ity, and in the late t"entieth entury the bene!its a ruin# to the +nited 5tates ha%e not been deri%ed !rom its hi#her produ ti%ity, "hi h it does not ha%e2 In both ases, 'ritain then and the +nited 5tates no" deri%ed their bene!its instead !rom their pri%ile#ed positions in the "orld e onomy2 $io%anni re o#ni=es that this pri%ile#e is deri%ed in part !rom !irst 'ritain(s and no" the +5 !inan ial ad%anta#es2 'ut this ad%anta#e is e%en #reater than $io%anni allo"s, be ause o! the abo%e mentioned pri%ile#e o! printin# the "orld urren y2 *o"e%er, the ad%anta#es are also deri%ed !rom the pri%ile#ed position o! them +nited 5tates in the "orld e onomy in other respe ts as "ell2 Therein also, the +5 is re onstru tin# and reassumin# a position o! eA eptional pri%ile#e today that is analo#ous to that o! 'ritain a entury a#o2 'ut that also means that $io%anni is mista)en "hen on p2 F3 he re!ers to +5 su ess in promotin# the reuni!i ation o! the #lobal mar)et at the end o! the 5e ond World War2 -n the ontrary, the brea)do"n he notes on p2 32, !ollo"in# *obsba"m, durin# the :;20s and :;30s, "as primarily o! the multilateral system o! trade and payments imbalan es "hi h also permitted the lar#e s ale trans!er o! apital in%estments, re#ardin# "hi h he !ootnotes me on p2 3<2 'ut perhaps it is be ause $io%anni does not #i%e this multilateral system its due that he does not note that it did not be#in to be really re onstru ted until the %ery end o! the t"entieth entury and not be!ore2 It is $io%anni(s !ailure to appre iate, and 'ob(s total ne#le t o! the importan e o! this multilateralism that underlies not 4ust this error o! both but also their mista)en !o us on produ tion and produ ti%ity as the alle#ed sour es o! osts and bene!its in the "orld e onomy2 -n at least a hal! a do=en o asions on pa#es 30, 33, 3F, F2, and else"here, $io%anni attributes #ains to produ ti%ity or !inds these #ains to be ineApli able !or la ) o! produ ti%ity, "hen the sour e and eAplanation is to be sou#ht in the pla e or L-,&TI-N , L-,&TI-N, L-,&TI-N o! an e onomy or a se tor in the multilaterality o! the "orld e onomy2 &nd it is only the also only re ent resurre tion o! this multilateralism, no" importantly "ith Europe and East &sia, ombined "ith the pri%ile#e on%eyed by ha%in# a monopoly on the issuan e o! the "orld urren y that only lately has permitted the +nited 5tates to re8assume the position o! pri%ile#ed onsumption today analo#ous to that o! 'ritain a entury a#o2 'ut the +nited 5tates en4oys additional bene!its that 'ritain did not ha%e2 While 'ritain "as the "orld(s #reatest lender and had to deny itsel! domesti use o! the apital it sent abroad, the +nited 5tates has be ome the ma#net o!

apital in!lo" !rom around the "orld, as "ell as the onsumer so iety o! #oods produ ed else"here in the "orld, and parti ularly in ,hina, "hi h it an produ er "ith paper dollars2 .oreo%er, a!ter sellin# the manu!a tures that ,hina produ es by its o"n labor "ith its o"n ra" materials !or paper dollars, ,hina turns around and sends these dollars ba ) to the +nited 5tates in the !orm o! treasury erti!i ates2 In other "ords, ,hina is #i%in# itsel! a"ay t"i e o%er to the double bene!it o! the +52 &ll this has amon# others the !ollo"in# onse7uen esE Tthe +5 an eAport in!lation that "ould other"ise be #enerated by this hi#h supply o! urren y at home2 The lo" rate o! in!lation in the +5 in the :;;0s "as there!ore no mira ulous result o! domesti VVappropriateVV Fed monetary poli y2 The eA ess +5 dollars are simply eAported and thereby sterili=ed on the +5 mar)et2 .oreo%er, the +5 has been able to o%er its t"in its balan e o! trade and bud#et de!i its "ith heap money made at home and heap #oods imported !rom abroad2 The +5 trade de!i it is no" approAimately 300 billion dollars a year and still #ro"in#2 -! that, :00 billion are o%ered by Japanese in%estment o! their o"n sa%in#s in the +5, "hi h they may ha%e to repatriate to mana#e their o"n ban)in# risis2 &nother P :00 billion omes !rom Europe in the !orm o! %arious )inds o! in%estment, in ludin# dire t real in%estment, "hi h ould dry up as the European re ession ontinues2 & third :00 billion is supplied by ,hina, "hi h !irst sells the +5 its heap manu!a tures !or dollars and then a umulates those dollars as !orei#n eA han#e reser%es 9 thus in e!!e t #i%in# a"ay its poor produ ers( #oods to ri h &meri ans2 ,hina does this to )eep its eAports !lo"in# and its industries #oin#, but i! it de ided to de%ote these #oods to eApandin# its o"n internal mar)et more, its people "ould #ain in in ome and "ealth, and the +nited 5tates "ould be out o! lu )2 The remainin# P :00 billion o! de!i it are o%ered by other apital !lo"s, in ludin# debt ser%i e !rom the poor Latin &meri ans and &!ri ans "ho ha%e paid o!! the prin ipal o! their debts already se%eral times o%er and yet )eep in reasin# the total amount o"ed by rollin# it o%er at hi#her rates o! interest2 6e laration o! hapter :: or ; type insol%en y is ho"e%er !inally at hin# on2 Thus, de!lation H de%aluation else"here in the "orld has li)e a ma#net attra ted spe ulati%e !inan ial apital !rom the rest o! the "orld 8 both &meri an o"ned and !orei#n o"ned 9 into +5 Treasury erti!i ates 0 stoppin# up the +5 bud#et de!i it1 and into Wall 5treet2 That is "hat !ed and supported its :;;0s bull mar)et, "hi h in turn has in reased, supported and spread "ider a spe ulati%e and illusory in rease in "ealth !or &meri an and other sto ) holders and throu#h this also illusory VV"ealth e!!e tVV has supported hi#her onsumption and in%estment2 The subse7uent and present bear mar)et de line in sto ) pri es nonetheless is a still a pro!it boon !or enterprises "ho issued and sold their sto )s at bull mar)et hi#h and risin# sto ) pri es and are no" buyin# ba ) their -WN sto )s at "hat !or them are bar#ain basement lo" pri es, "hi h represent an enormous pro!it !or them at the eApense o! small sto ) holders "ho are no" sellin# these sto )s at lo" and de linin# pri es2 The +5 VVprosperityVV no" rests on the )ni!e ed#e not only o! an unstable enormous domesti orporate and onsumer 0 redit ard, mort#a#e and other1 debt2 .oreo%er, the +5 is also %astly o%er8indebted to !orei#n o"ners o! +5 Treasury erti!i ates, Wall 5treet sto ) and other assets, "hi h an be alled in by !orei#n entral ban)s "ho ha%e been )eepin# reser%es in +5 dollars and other !orei#n o"ners o! +5 debt2 Indeed, it is the %ery +5 poli y that has ontributed so mu h to destabili=ation else"here in the "orld 0e2#2 throu#h the destabili=ation o! 5outheast &sia that undermined the Japanese e onomy and !inan ial system e%en more than it "ould

other"ise ha%e been1 that no" threatens and no" soon ma)es mu h more li)ely that espe ially Japanese and European holders o! +5 debt must ash it in to shore up their o"n e%er more unstable instable e onomi and !inan ial systems2 &nother ma4or onse7uen e is that the +5 8 and "orldM 8 e onomy is no" in a bind !rom "hi h it most probably an N-T eAtri ate itsel! by resortin# to Leynesian pump primin# and mu h less to !ull s ale ma ro8e onomi poli y and support o! the +5 and WesternHJapanese e onomy, as the ,arter and Rea#an administrations did2 This position o! the +nited 5tates in the "orld thus rests primarily on the +5 dollar and on the Ienta#on2 .oreo%er, ea h o! these rest on the otherE The dollar pays !or Ienta#on eApenses, parti ularly in the more than :00 +5 military bases around the "orldC and the Ienta#on help maintain on!iden e in the dollar2 'ut these t"o sour es o! +5 stren#th 9 or he#emony as $io%anni "ould all it 9 in turn are also its t"o ma4or & hilles heels o! %ulnerability2 The dollar is literally a Iaper Ti#er in that it is printed on paper "hose %alue is based only on on!iden e in the same2 That on!iden e an de line or be "ithdra"n alto#ether almost !rom one day to the neAt and ause the dollar to lose hal! or more o! its %alue2 &part !rom uttin# &meri an onsumption and in%estment as "ell as dollar8denominated "ealth, any de line in the %alue o! the dollar "ould also ompromise +5 ability to maintain and deploy its military apparatus2 ,on%ersely, any military disaster "ould "ea)en on!iden e in and thereby the %alue o! the dollar2 .oreo%er, to settle its no" enormous and e%er #ro"in# !orei#n debt, the +5 may hose also to resort to IN8!lationary redu tion o! the burden o! that debt and its also e%er #ro"in# !orei#n debt ser%i e to itsel!2 'ut e%en the latter ould 8 in ontrast to the abo%e summari=ed pre%ious period8 N-T a%oid #eneratin# a !urther 5+IER trade balan e parti ularly i! mar)et demand !alls !urther and pressure in reases abroad to eAport to the +5 demandHer o! last resort2 'ut this time, there "ill be N- apital in!lo"s !rom abroad to res ue the +5 e onomy2 -n the ontrary, the no" do"n"ard pressure to de%alue the +5 dollar a#ainst other urren ies "ould spar) a apital !li#ht !rom the +5, both !rom +5 $o%ernment bonds and !rom Wall 5treet "here si#ni!i ant sto ) pri e de lines #enerate !urther pri e de lines and de!lation in "orld terms e%en i! the +5 attempts domesti in!lation2 Indeed the dollar has already !allen !rom :2:F to 02GF Euro2 The pri e o! oil poses another threat to the dollar2 & ma4or reason !or the +5 "as a#ainst Ira7 "as to restore the pri in# o! Ira7i oil !rom Euros ba ) to dollars, and to pre%ent other &rab oil to be pri ed in Euros instead o! or in addition to the +5 6ollar2 'ut the threat o! s"it hin# the pri in# o! oil !rom 6ollars to Euros remains, and any su h s"it h "ould not only de rease the "orld demand !or 6ollars and in rease it !or Euros, but it "ould also en oura#e )eepin# reser%es in Euros instead o! in 6ollars2 'oth or either e%ents "ould dri%e the 6ollar sharply do"n"ard and si#ni!i antly redu e +5 ability to #et a !ree ride on the "orld e onomy by simply printin# 6ollars2 Russia and ,hina ould ome to !ind it in their politi al as "ell as e onomi interests to promote su h a s"it h, be#innin# "ith their o"n lar#e s ale sales and pur hases o! oil2

&ll o! this su##ests that "hat 'ob alls @The 'ubble E onomy? is !ar more bubbly than e%en he and all the more so than $io%anni is "ont to admit2 $io%anni says that he on urs "ith 'ob(s assessment that the +5 e onomi re%i%al o! the se ond hal! o! the :;;0s did not onstitute a de!initi%e trans enden e o! the lon# do"nturn2 I "ould say that posin# this assessment in su h more or less terms is itsel! on!usin# and misleadin#2 For at least as !ar as the +5 e onomy is on erned, there has been no more or less trans enden e at all, but rather nothin# more than a ontinued e onomi and e%en !inan ial "ea)enin#2 The entire +5 e onomi "el!are o! the :;;0s has been the result o! attra tin# apital, #oods, and ser%i es 9 in ludin# the brain drain 8 !rom and at the ost o! the rest o! the "orld2 It is true that 'ritain mana#ed to li%e an entire nineteenth entury o!! o! su h a drain !rom the rest o! the "orldC but there is no #uarantee that the +nited 5tates an no" mana#e a repeat per!orman e2 +nder the sub8title @Iossible -ut omes? 0p2 <D1 $io%anni si#nals t"o main disa#reements or at last di!!eren es in emphasis bet"een 'ob and himsel!2 -ne is that $io%anni re#ards 'ob(s risis o! pro!itability to be really an out#ro"th o! a broader risis o! he#emony and that !inan iali=ation has a li!e o! its o"n beyond o%er8 apa ity2 'ut on both ounts the e%iden e "ould seem to be stron#er on 'ob(s side2 For its "as the de line in pro!its in #eneral and the di!!eren es in pro!itability that underlies he#emony itsel! 9 "itness in the !irst pla e the ,old War bet"een the +5 and the +nion and in the se ond pla e the %ery +5 e!!orts that $io%anni himsel! si#nals to re oup throu#h !inan ial means its loss o! he#emony in the :;D0s2 &nd it "as o%er8 apa ity that led to spe ulati%e !inan=iali=ation instead o! hi#her produ ti%ity as a "ay out o! the pro!its risis in the West and 5outh, and then a#ain o%er8 apa ity in the #lobal e onomy as a "hole and in the 5o%iet 'lo and East &sia in parti ular that led to the !inan ial rises in those t"o areas2 That is, on these s ores, 'ob seems to tread on !irmer #round than $io%anni2 -n the other hand2 $io%anni is ri#htly riti al o! 'ob(s Western tinted #lasses or e%en blinders that lea%e most o! the remainder o! the "orld outside o! his pur%ie"2 Less so in this essay that mostly sur%eys the playin# !ield as mapped out by 'ob, and more so in $io%anni(s o"n re ent resear h "ith .ar) 5elden , Ta)eshi *amashita and others the prin ipal player on that !ield is ,hina2 There $io%anni and I a#ain seem to be arri%in# at similar on lusions %ia mostly separate path"ays2 'ut in my Re-RIENT 0:;;G1 , mine eAtend !arther ba ) in time and !urther a!ield than their East &sian 5ystemC and they protrude !arther into the !uture than theirs as "ell2 &sia and espe ially ,hina "as e onomi ally po"er!ul in the "orld until relati%ely re ently, and ne" s holarship no" dates the de line as really be#innin# only in the se ond hal! o! the nineteenth entury22 ,ontrary to the Western mytholo#y o! the past entury, &sian dominan e in the "orld has so !ar been interrupted by an only relati%ely short period2 5o it is 7uite possible that it may soon be so a#ain2 ,hinese and other &sian e onomi su ess in the past "as not based on Western "aysC and mu h re ent &sian e onomi su ess "as not based on the Western model2 There!ore, there is also no #ood reason "hy &sians need or should opy any Western or other model2 &sian relian e on other "ays is a stren#th and not a "ea)ness2 The !a t that the risis sin e :;;D %isibly spread !rom the !inan ial se tor to the produ ti%e one does not mean that the latter is !undamentally "ea)2 Nor did the risis a!!e t ,hina, "hi h has maintained annual #ro"th rates o! G to :0 per ent2 Indeed, the present risis o! o%erprodu tion and eA ess apa ity is e%iden e o! the underlyin# stren#th o! the produ ti%e se tor2 For it "as eA ess apa ity and produ ti%ity leadin# to o%er8produ tion !or the "orld mar)et that initiated the !inan ial risis to be#in "ith "hen &sian

!orei#n eA han#e earnin#s on ommer ial a ount "ere no lon#er able to !inan e its ser%i e o! the spe ulati%e short run debt2 5i#ni!i antly, this is the !irst time in o%er a entury that a "orld re ession started not in the West and then mo%ed east"ard, but that instead it started in the East and then mo%ed around the "orld !rom there2 &nd that "as pre isely be ause &sian and parti ularly Japanese, Lorean and then ,hinese produ ti%e and eAport apa ity had #ro"n so .+,*2 The re ession in the produ ti%e se tor "as short, espe ially in Lorea2, and so !ar absent in ,hina2 The sho )8"a%es !rom the !inan ial se tor to the produ ti%e, onsumer and politi al ones "ere %isibly 8 and to all but the totally blind, intentionally 8 eAa erbated by the e onomi sho ) poli ies imposed on &sian #o%ernments by the I.F as usual !ollo"in# the di tates o! the +252 Treasury, "hi h systemati ally represents &meri an !inan ial interests at the eApense o! popular ones else"here around the "orld2 The !ormer World 'an) Vi e8Iresident, member o! the +5 Iresident(s ,oun il o! E onomi ad%isers and no" Nobel Iri=e laureate in e onomi s, Joseph 5ti#lit= 020021, has #i%en us an insider(s %ie" o! these intentional e%ents in his $L-'&LIX&TI-N &N6 IT5 6I5,-NTENT52 That also permitted Western interests to ta)e ad%anta#e o! de lines in produ ti%e and !inan ial stren#th in Lorea and else"here to buy up assets at bar#ain8basement !ire8sale pri es2 E%en so the underlyin# stren#th o! the Lorean e onomy "as su h that the !orei#ners "ere e%en then unable to alter the !inan ial, produ ti%e, o"nership and state stru ture si#ni!i antly to their !a%or2 The Lorean produ ti%e and !inan ial ma hine soon re o%ered a#ain to !or#e ahead, but no" "ith a ostly lesson "ell learned2 The lesson must ha%e been learned else"here as "ell by omparin# ho" relati%ely uns athed ,hina and .alaysia 0and as already mentioned !or di!!erent reasons Lorea1 emer#ed !rom the !inan ial risis2 They maintained ontrols o%er apital eAports, ompared to those ountries that su umbed to the I.F and its lethal medi ine by permittin# a spe ulati%e apital out!lo", "hi h destroyed their produ ti%e apparatus and multiplied unemployment into an unbearable e onomi , so ial, and politi al problem, espe ially in Indonesia2 That underlyin# politi al e onomi stren#th also puts East &sia, and espe ially ,hina, Japan and Lorea in a mu h more !a%orable position than the rest o! the Third World and e%en Russia and Eastern Europe to resist Western bla )mail as it is no" eAer ised by the +252 Treasury 6epartment throu#h the International .onetary Fund, the World 'an), the World Trade -r#ani=ation, Wall 5treet and other instruments2 The %ery a t and ost o! East &sian on essions to this Western pressure durin# the past re ession ma)es it politi ally more li)ely, sin e it is e onomi ally possible, that East &sia "ill ta)e measures, in ludin# espe ially a ne" !inan ial blo and ban)in# institutions, that an pre%ent a re urren e o! the present situation in the !uture by es apin# !rom the stran#le8hold o! Western ontrolled apital mar)ets2 5ti#lit= obser%es su h e!!orts already in his re ent pri%ate dis ussions "ith &sian o!!i ials as reported in his boo)2 Inso!ar as +5 prosperity and dominan e are so importantly based on the dollar and the dollar is under threat, an alternati%e !inan ial enter related to ne" produ ti%e apa ity and e%en ne" te hnolo#y an posse serious ompetition to the +52 5o the three ma4or "orld e onomi re#ions i! not blo )s already !oreseen by Lester Thuro" 9 and in identally also by mysel! 9 in the mid8:;G0s may still be ome reality in the !oreseeable !uture2 -nly the East &sian one may not be led by Japan and the European one may in lude Russia, i! the short term ta ti al politi al allian e bet"een the +5 and Russia annot "ithstand the test o! time2 & related politi al e onomi stru##le is the ompetition bet"een the +nited 5tates and ,hina to displa e Japan, Lorea and 5outheast &sia in the mar)et by ta)in# ad%anta#e o! their re ent ban)rupt ies2 &meri an apital is buyin# up some East &sian produ ti%e !a ilities at bar#ain basement pri es, "hile

,hina is "aitin# !or them either to be s7uee=ed out o! the ompetiti%e mar)et alto#ether, and i! not to en#a#e in 4oint operations2 Indeed it had been the de%aluation o! the ,hinese urren y be!ore :;;D that redu ed the "orld mar)et share o! other &sian e onomies and helped #enerate the !inan ial risis itsel!2 There is also e%iden e that ,hina is tryin# to re onstru t the East &sian trade and tribute system at "hose enter it "as in the ei#hteenth entury and that the Western olonial po"ers dismantled in the nineteenth entury2

It is note"orthy that the e onomi ally most dynami re#ions o! East &sia today are also still or a#ain eAa tly the same o be!ore :G00 and "hi h sur%i%ed into the nineteenth entury2

:2 In the 5outh, Lin#nan entered on the *on# Lon# 8 $uan#=hou orridor, 22 Fu4ian, still entered on &moyHKiamen a !o usin# on the Tai"an straits and all o! 5outheast &sia in the 5outh ,hina 5eaC and bet"een them, 32 the /an#t=e V entered on 5han#hai and trade "ith Japan that is already ta)in# the lead a"ay a#ain !rom the southern and northern 32 'ut already then there "as also a !ourth e onomi re#ion around the North ,hina 5ea, the 7uadran#ular trade relati amon# .an huria and else"here in Northeast ,hina, 5iberiaHRussian Far East, 0northernJ1 Japan, and Lorea, but also .on#olia22 &lthou#h the !irst three abo%e8named re#ions are already a#ain under#oin# tremendous e onomi #ro"th 0 politi al po"erJ1 in the absolute sense, the !ourth one around Lorea seems to en4oy the #reatest relati%e boom, and "it o! Lorean apital as "ell2 It is helpin# to de%elop resour es in the Russian Far East and as !ar "est as ,entral &sian Lha=ha)stan2 The ,hinese population on the Russian side o! the &mur Ri%er has been estimated already to eA eed F people as a pool o! heap labor2 Irobable politi al han#e in the 6RNL may "ell add a ne" sour e o! heap labor !or #ro"in# pool o! labor in the Northeast &sian Re#ion and !or its Far East Russian also heap base o! ample metallur#i !orestry, a#ri ultural and e%en petroleum resour es2 Lorean and Japanese apital ould ma)e that a %ery attra ti%e re# #ro"th pole in itsel! and a hi#hly ompetiti%e re#ion on the "orld mar)et2