Free trade and unrestricted capital flow: How billionaires get rich and destroy the rest of us

Paul Krugman makes a point in this post about Cyprus that I’d like use to make a broader and more important point. His point is that Cyprus is already off the euro and has created its own currency, the Cyprus Euro, which at the moment is pegged to the other euro at 1:1. Why is a euro in a Cyprus bank different from other euros? Because you can’t move it freely, so it has less real value. (Read here to see why he thinks that; also here.)

My point, though, is a little different. My point is about unrestricted free trade and capital flow in general and why understanding both is crucial to understanding:

▪ The neoliberal free-trade project, and
▪ Wealth inequality in America

But don’t let your eyes glaze over; this is not hard to understand. It just has a few odd terms in it. Please stick with me.

There’s a straight line between “free-trade” — a prime tenet of both right-wing Milton Friedman thinking and left-wing Bill Clinton–Robert Rubin neoliberalism — and wealth inequality in America. In fact, if the billionaires didn’t have the one (a global free-trade regime) they couldn’t have the other (your money in their pocket). And the whole global “all your money are belong to us”  process has only three moving parts. Read on to see them. Once you “get it,” you’ll get it for a long time.

What does “free trade” mean?

In its simplest terms, “free trade” means one thing only — the ability of people with capital to move that capital freely, anywhere in the world, seeking the highest profit. It’s been said of Bush II, for example, that “when Bush talks of ‘freedom’, he doesn’t mean human freedom, he means freedom to move money.” (Sorry, can’t find a link.)

At its heart, free trade doesn’t mean the ability to trade freely per se; that’s just a byproduct. It means the ability to invest freely without governmental constraint. Free trade is why factories in China have American investors and partners — because you can’t bring down manufacturing wages in Michigan and Alabama if you can’t set up slave factories somewhere else and get your government to make that capital move cost-free, or even tax-incentivized, out of your supposed home country and into a place ripe for predation.

Can you see why both right-wing kings (Koch Bros, Walmart-heir dukes and earls, Reagan I, Bush I and II) and left-wing honchos (Bill Clinton, Robert Rubin, Barack Obama) make “free trade” the cornerstone of each of their economic policies? It’s the song of the rich, and they all sing it.

I’ve shown this video before, but it bears repeating. When you think about “free trade,” you probably think of the Walmart heirs (or Apple owners) wallowing in wealth from the world’s slave factories. But it’s a joint project by all of our owners (sorry, major left- and right-wing campaign contributors and job creators).

This is Barack Obama making his case for campaign funding to Robert (Hi “Bob”) Rubin and others in 2006:

Brand-New Senator Barack Obama, 2006
The opening of Robert Rubin’s Hamilton Project Thinktank

At 1:20: “The forces of globalization have changed the rules of the game,” and at 5:52: “Most of us are strong free-traders.” (His “yes-but” to Rubin in that second segment is an appeal to actually do the worthless retraining for non-existent jobs that Clinton earlier supported but never did. See? Pushback. Independence.)

Three things to note:

1. The “forces of globalization” he refers to are not acts of god, whether Yahweh, Juno or Joxer. They were created by the Clinton- and Rubin-crafted CAFTA and NAFTA treaties. If a god did it, that god also caused a certain blue dress to need a dry-cleaning it never got.

2. If Obama doesn’t say what he just said in that room, he doesn’t get a Rubinite dime for his next political campaign. Period. This is his application speech.

3. Never forget that if Oklahoma knuckle-dragger Sam Walton were in that room, or not-America-first Steve Jobs, Obama would say those same words. “Most of us are strong free-traders.” It’s the tie that binds the left and the right. Bind yourself to Obama economically, and you’re tied to the Waltons. Period.

Bonus points for noting that the push to roll back social insurance is part of the NeoLiberal agenda, for example at 1:30 and elsewhere. It’s why we have the Obama Grand Betrayal, the Catfood Snack That Won’t Go Away (do click; there’s a kitty inside).

Finally, listen again to his opening praise of “Bob” Rubin and the others in the first 30 seconds or so. When Obama says that the men he’s praising have “put us on a pathway of prosperity,” what he means is that they’ve put themselves on a path to prosperity. This is wealth inequality in action, wealth inequality on the hoof. Those slave-wage jobs in China (or Indonesia or the Philippines) replace the unionized, high-paying wages you don’t have and will never get back; the men in that room, including Obama, are the reason; and “free trade” is both the cover story and the tool (more on that duality below).

Never forget — “Free trade” is a bipartisan, hands-across-the-aisle screwage of American incomes and wealth. It’s the necessary cornerstone of both left-wing and right-wing economic policy. Period.

The three tools of wealth extraction

Free trade is a primary tool of wealth extraction. What are the others?

Recall that corporations aren’t actors per se, they are machines by which wealth is vacuumed from workers and consumers into the hands and pockets of the corps’ true owners, the CEO and capital class. As we’ve said before:

(1) Corporations are not people, and they don’t have ideas or will. They are empty vessels. If you took a neutron bomb to the home office of and let it rip, the building, filled to the brim with inventory and IP, would be empty of humans and a dead thing. You could wait for weeks for the offices to act; they wouldn’t.

(2) This is especially true today, since the corporation now serves a different function than it was designed for. At first, a corporation served to make its stockholders moderately wealthy — or at least wealthier.

Modern corporations serve one function only — to make the CEO class obscenely rich.

The looting of global wealth into the hands of the capital and CEO class is a simple two-step process: Corps use free trade to loot the world. CEOs then loot the corps and live higher and better than the kings and presidents they control.

Yes, “kings and presidents they control.” The only thing needed to make the looting worldwide is government protection. If the capital class doesn’t control government, they can’t institute … global free trade regimes. And there you have it. So what are the three tools needed by the capital-controlling class?

■ CEO capture of corporations
■ Wealth capture of government
■ A global free-trade regime

And that’s all it takes. With those three tools in your pocket, you can loot and own the world, literally.

Hmm, we have all three now. “Mission accomplished,” as they say in private jet circles.

Free trade keeps the rest of the world in crisis

And now we come back to Krugman. A direct consequence of a world in which capital flow is completely unrestricted is constant economic crisis. The Professor explains that well in the context of the Cyprus problem (my emphasis and some reparagraphing):

Whatever the final outcome in the Cyprus crisis … one thing seems certain: for the time being, and probably for years to come, the island nation will have to maintain fairly draconian controls on the movement of capital in and out of the country. …

That’s quite a remarkable development. It will mark the end of an era for Cyprus, which has in effect spent the past decade advertising itself as a place where wealthy individuals who want to avoid taxes and scrutiny can safely park their money, no questions asked. But it may also mark at least the beginning of the end for something much bigger: the era when unrestricted movement of capital was taken as a desirable norm around the world. …

Then he compares the era of capital control to the era of capital freedom:

It wasn’t always thus. In the first couple of decades after World War II, limits on cross-border money flows were widely considered good policy; they were more or less universal in poorer nations, and present in a majority of richer countries too. Britain, for example, limited overseas investments by its residents until 1979; other advanced countries maintained restrictions into the 1980s. Even the United States briefly limited capital outflows during the 1960s.

But like all good things, that changed:

Over time, however, these restrictions fell out of fashion. To some extent this reflected the fact that capital controls have potential costs: they impose extra burdens of paperwork, they make business operations more difficult, and conventional economic analysis says that they should have a negative impact on growth (although this effect is hard to find in the numbers). But it also reflected the rise of free-market ideology, the assumption that if financial markets want to move money across borders, there must be a good reason, and bureaucrats shouldn’t stand in their way.

What marks the difference between those two eras, the era of capital control and our current free-trade era? Near-constant economic crisis:

[U]unrestricted movement of capital is looking more and more like a failed experiment. It’s hard to imagine now, but for more than three decades after World War II financial crises of the kind we’ve lately become so familiar with hardly ever happened.

Since 1980, however, the roster has been impressive: Mexico, Brazil, Argentina and Chile in 1982. Sweden and Finland in 1991. Mexico again in 1995. Thailand, Malaysia, Indonesia and Korea in 1998. Argentina again in 2002. And, of course, the more recent run of disasters: Iceland, Ireland, Greece, Portugal, Spain, Italy, Cyprus.

Notice the date of change? “Since 1980, however…” Him again. This is not just a coincidence. The Reagan era didn’t just initiate national looting, but international looting as well. Krugman ties these crises, here and elsewhere, to large and unrestricted inflows of capital, followed by large and unrestricted outflows that create economic bubbles, then leave them thoroughly deflated:

[T]he best predictor of crisis is large inflows of foreign money: in all but a couple of the cases I just mentioned, the foundation for crisis was laid by a rush of foreign investors into a country, followed by a sudden rush out.

The rest of the piece shows that this idea doesn’t originate just with The Professor; it’s widely held by many not paid by Money to represent it in the court of public opinion.

Newt’s SuperPAC launches another video going after Romney titled “Blood Money”There’s an opportunity in Spain, let’s say, to take advantage of cheap labor and prices. Money flows in, builds huge capacity, then flows out as soon as it finds better opportunity elsewhere. What’s left behind? The Spanish in a crashed economy, and in a world in which the holders of their debt (German bankers et al) are using the EU (remember, capture of government) to make sure that creditors are made whole at the expense of whole populations.

Kind of like how Walmart comes into a town, builds a huge store, drives all the other retailers out of business, then leaves as soon as the low-wage-earners in that town can’t keep the store more profitable than other stores in the state.

What’s left? The wreck of an economy. Where’s the money? In the pockets of the Walton family, ‘natch. Win-win for someone (but not for you).

Your “economic crisis” is just their “cost of doing business”

Keep in mind, the purpose of unrestricted “free trade” is to advantage the holders of capital over everyone else on the planet. Great wealth insulates these men and women from crises, so even global economic crisis is just the externalized price (that we pay) for their wealth extraction enterprise — just like a burdened health care system is the externalized price (that we pay) for wealth extraction by billionaire owners of tobacco companies from the constant stream of lung cancer patients.

What’s “a world in constant crisis” to them? Just the cost of doing business. Nothing personal. It’s just business.

Is free trade an ideology or a tool?

One last point. Framing free trade as an ideology may be technically correct in a few cases — there are true believers in almost anything (I believe in kittehs) — but if “free trade” weren’t a money machine for the wealthy, you’d never hear of it. Crickets, as the kids say.

Put simply, the reason you heard Barack Obama tout “strong free trade” with Robert Rubin in the room, is that bankers like Robert Rubin grow obscenely wealthy by financing billionaire store-owner Billy-Bob Walton’s slave factories in Asia.

And non-millionaire Barack Obama wants millionaire Bill Clinton’s post-presidential money — $80 million and counting. (Click the link for a stunning connection between public policy — in this case, the repeal of Glass-Steagal — and a post-presidential payday.)

Obama may not say he wants “Clinton money.” He might even know it, in that self-blind sense of “know.” But I’ve met lots of drunks who’ve explained themselves so long, they really do “know” they’re just “prone to be ill in the morning.” Right. Occam’s Switchblade, Upton Sinclair edition:

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

“I’m doing it for the kids,” Obama edition.

Bottom line

The bottom line is simple: A “free trade” system is a regime in which capital always wins, everywhere. It’s the tool by which global wealth is extracted. It’s supported by both parties. The Democratic Party version is called NeoLiberalism. “NeoLiberal” means not-FDR-liberal in the same way that Tony Blair’s “New Labour” means not-Clement Attlee-Labour. Because, framing counts on CNN, and it’s always opposite day there.

And Barack Obama, Bringer and Betrayer of Hope and Change, is the lead NeoLiberal warrior, the point of the spear until 2016, at which point he’ll pass the torch to another testosterone-branded neoliberal, retire into the sunset of global acclaim, create his Foundation for NeoLiberal Love and Global Kittens, and collect his checks. (Or not.)

My suggestion, given the above — don’t help him. You have enough on your conscience, if you’re at all like the rest of us. Unless, of course, you like your economic crises served always on tap. In which case, do sign up.


To follow or send links: @Gaius_Publius

Gaius Publius is a professional writer living on the West Coast of the United States.

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24 Responses to “Free trade and unrestricted capital flow: How billionaires get rich and destroy the rest of us”

  1. Harley Meyer says:

    A point of reference and clarifications:
    One: You are confusing Capitalism with Imperialism. Understand the fine line between the two.
    Two: In your “Three things to note: #1”
    Not true – the seeds of globalization were restrained after WWII. President Eisenhower knew that global trade would effect the balance of payments in away that would cause problems to Bretton Woods’ pegging the US Dollar to Gold (the Gold Standard). President Kennedy had the Treasury Department trade in the gold market to keep gold prices stable. President Nixon let the dam break and opened the door to globalization when he did three things: (1) Took the US off the Gold Standard – result: US dollar declined. (2) Established the Overseas Private Investment Corporation (OPIC) – result: Provides loans and risk insurance for US firms to build factories overseas. (3) Tied the US Dollar to OPEC – result: When the US Dollar declines oil prices go up with a near 1 to 1 correlation and vice versa. (Compare the two price charts to see what I mean). The straw in the camels back was the years of stagflation when interest rates went through the roof to stop the US Dollar from declining. This caused interest around the world to go through the roof. High global interest rates, high global fuel costs and fierce business competition from Japan and South Korea in the manufacturing sector created an untenable business climate in the US (and around the world). So US firms go overseas to import those goods back into the US making huge profits.
    Employment shifted from manufacturing to construction and the real economy was exchanged for borrowed money to fuel the economy. The growth in computer technology improved productivity to the extent it kept the US economy afloat under the Clinton Administration. The profits on imports and the top 1% are growing as people buy more imported goods. The FED became the last lender of resort and banks now lend to more risker customers. Housing markets claps. The rest is history – Imperialism has turned on Capitalism.

  2. Kim_Kaufman says:

    Well, the Big O did sorta wonder about what to do with “the losers.” He still had a little bit of humanity left back then, perhaps. I’ve said for a number of years now, all the Big O really wants to do is get elected for a second term so he can get out of office and be a smug rich guy like Clinton. What this stuff causes is “hot money” — where these people have SO MUCH money they just can’t find enough places to put it and wind up with reckless “investing,” i.e., creating bubbles. My understanding is that the crash of 2008 was not because of the foreclosure crisis — that could have been handled — but because of all the derivative side bets which still amounts to trillions of toxicity out there still waiting to crash. Great piece of writing, thanks.

  3. cole3244 says:

    dam, agreement is no fun is it, bring on a rw wacko please.

  4. Ford Prefect says:

    In terms of “nailing it,” this is one of the best posts I’ve seen from you, although there’s nothing “left-wing” about Clintonoid Neo-Liberalism. It’s also good you use quotes around “free trade,” since no such thing has ever really existed.

    Any devotee of Capitalism recognizes that laissez faire markets are dominated by powerful concerns. They corner markets for their own benefit, making corruption a necessary part of doing business. This is why some, like Keynes, felt the need to “save capitalism from itself.”

    That said, good on you for pointing out this isn’t about trade at all, but unrestricted capital flows and the crises that go along with all that. One could say crises are just “a cost of doing business,” but since we get to pay the bill every time the system melts down, that’s fairly silly at this point.

  5. lynchie says:

    Agree. The hatred that is encouraged by the church, governments, within families is our destruction. Most times the direction of that hatred is fostered by fear. The current furor about DOMA and the right for the gay/lesbian community to have the same rights as the heterosexual community is just that a hatred/fear of the unknown. If we all took the time to find out more about what we hate/fear we would find there is good and bad in everybody. So judge them on their interaction with you. If you don’t know any gay people how will their getting the same rights have an effect on you–answer is simple not at all. So leave them along. The church wants only heterosexuals because they can reproduce and make more little catholics or religion of your choice We have a government who is spending money and effort on something that is so simple but it is to divert us from the real issues; banks looting the treasury, unemployment, children going to bed hungry, homeless, poor with out healthcare, etc., etc.

  6. cole3244 says:

    i’m just like you old, i’m also white but very left of center, i wish i could be around to see the extinction of the old white bigots that make up part of the fascist gop’s base, that would be worth seeing even though it would portend my own demise but it would be worth the wait.
    all nations will be better off when pure races are no more and everyone is a mongrel so to speak, mongrel is meant as a compliment not a pejorative.

  7. lynchie says:

    No I am an old fart I won’t see it. However the first thing they will fight amongst themselves before they recognize who the real criminals are. Look how the GOP get 47% to vote for their failed programs. Old white america has voted against their best interests for years so to get them to change is next to impossible. Bill Maher had a segment where an interviewer went out and asked folks at the CPAC to tell where they wanted cuts made. Not a single one could give a suggestion but none wanted Medicare, SS, Defense, etc., etc., cut. They are listening to Fox and the Cantors, Ryans and Romney’s tell them we have to cut.

  8. cole3244 says:

    i agree to an extent, but when people are pushed to the limit and there is no hope of anything getting better especially for ones young the 1% might be surprised the lengths the great unwashed (1% description) will resort to in the effort to survive, again the czars were wrong and they had more control and a less mobile society, i won’t see it but you might, time will tell.

  9. lynchie says:

    I agree in part but how many are prepared to sacrifice their lives in this wonderful age of “me”. The 1% are the epitome of selfishness and they can buy lots of guns and ammo and hire lots of armed guards to use them. We can’t even force our Congress to do something on jobs, poverty and lack of heath care and Congress and the rich sure as hell are not going to offer anything that might make the lives of people falling into those 3 brackets better.

  10. cole3244 says:

    thats what the czars thought.

  11. lynchie says:


  12. lynchie says:

    That is on the list but they are not quite sucking all the money out of the government yet.

  13. lynchie says:

    You see they don’t care if society remains stable. They own the police, armed forces, all of Congress and the chances of a revolution lasting more than a blink is nil. That is why the prefer to live in gated communities with security. If the economy collapses they still have all the money and we will be forced to fight amongst ourselves for scraps.

  14. lynchie says:

    He also said “they have a club and you ain’t in it.

  15. Tim says:

    Nice piece. Here’s how to do the unholy trinity of:

    ■ CEO capture of corporations

    ■ Wealth capture of government

    ■ A global free-trade regime

    On CEO capture of corporations:

    Do what is done in East Asia, make large publically held corporations provide tenure to a majority of their employees. This is reasonable to demand – corporations get an enormous concession from society, limited liability, which gives them immense bargaining power – so it is not too much to demand in exchange for that concession that the corporation provide tenure to it’s employees. In East Asia this has demonstrated the desired effect of altering bargaining power in favor of the employees over the executives – because it’s easier to fire one executive than it is to fire 1 tenured employee, to say nothing of 10,000. As it turns out, Employees are a better proxy for investors than CEOs, because CEOs want to get rich quick NOW often at the expense of the Corporations future, which they plan not to be around for (average CEO tenure is less than 4 years). Employees are interested in long term growth because they need the company to be thriving 30 years from now and for funding their retirement. Investors are interested in long term growth because stock markets value HIGHLY market share. In essence Employees and Investors are natural allies that should be getting together to squeeze out the domination of CEOs. In Japan the unions are company unions – company unions never were effective in the US because the union lacked bargaining power – company unions work in Japan because they are butressed by Tenure. I would add to this organization scheme union presence on board of directors and a separate worker presence on board of directors. Finally I would have the company union structured in confederation with a central union organization that handles lobbying activities in a manner that the U.S. Chamber of Commerce does for CEOs.

    On Wealth capture of government:

    I think that candidate campaign spending caps &/or public campaign financing would eliminate the ability of wealth to capture government.

    Here it wasn’t just Citizens United that is so shocking, but rather the decision by the Supreme Court in Arizona Free Enterprise Club (AFEC). Arizona had introduced floating point campaign financing mechanism. If candidate Jimmy Stewart elects to take campaign financing and his opponent Jebby Bushy does not, and then gather’s 200% more money than Jimmy Stewart gets from the public, then the public contribution to Jimmy Stewart would then float up to about 90% of what Jebby Bushy was getting. You can see real quickly the Arizona floating point mechanism basically nutralized the effect of Citizens United, or make it extremely expensive for Big Money to buy an election. The problem was there was over 100 years of precedent supporting public campaign financing. Still justice Roberts argued, using contorted logic, that the floating point mechanism was somehow unconstitutional. Kagan in the dissenting opinion severely undresses Roberts, I mean bitch slaps him in logic and ridicule, in total humiliation – but it doesn’t matter, as it’s a dissenting opinion. However, if you only ever read one Supreme Court opinion, read Kagan’s dissent in Arizona Free Enterprise Club – its the best and most entertaining read I’ve ever gotten from a Supreme Court decision.

    As for A global free-trade regime:
    Eliminate the capture of Government by Big Money and you have solved this problem.

  16. BeccaM says:

    Bottom line: The system of ‘free-trade’ capitalism, as it currently stands is rigged entirely in favor of the Plutocratic Bastard Class, who are working tirelessly to reverse all of the progressive populist gains won after the demise of the Robber Baron era.

    Or as the late, great George Carlin said many times, “They’re coming for your money. And they won’t be satisfied until they have all of it.”

  17. BeccaM says:

    Unless they pull a Cyprus on us and start confiscating our savings and retirement funds…

  18. cole3244 says:

    it seems like common sense and economics to me, if there is too much money at the top end of the economic ladder how can any society remain stable since there are only so many individuals in that economic class and therefore not enough of them to drive an economy, by their sheer wealth that wealthy class keeps the majority in numbers from having enough wealth to drive the economy and any economy is driven by the majority class by population not pure individual wealth, any society that has no balance in wealth from the top to the bottom is doomed to failure economically and or revolution by the masses.

  19. karmanot says:

    Well done Gaius….simple, brilliant and to the point. Some of us have been screaming these schemes for years to no avail—-particularly Paul Craig Roberts—-former Reagan treasury official.

  20. Indigo says:

    All in all, we’re floundering in a post-capitalist, mercantile economy. Or do I mean piracy?

  21. Mike Meyer says:

    EXCISE the leeches and the economy will soon be less anemic. Take away BANKER WELFARE!

  22. Phil Perspective says:

    Kind of like how Walmart comes into a town, builds a huge store, drives all the other retailers out of business, then leaves as soon as the low-wage-earners in that town can’t keep the store more profitable than other stores in the state.

    Or when the proles get all uppity and start demanding better wages and union representation!

  23. Phil Perspective says:

    This is Barack Obama making his case for campaign funding to Robert (Hi “Bob”) Rubin and others in 2006: ..

    Don’t forget two other things. Who funded,and funds, the Hamilton Project? Why, Pete Peterson!! The same guy who is spending a billion dollars to try and destroy Social Security. Also, PBO was the only elected to attend that opening. Kinda strange since a lot of other Democrats sing the same tune.

  24. Bill_Perdue says:

    Some of the same stuff, with an accent:

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