“I saw the Emperor – this world-spirit – riding out of the city on reconnaissance. It is indeed a wonderful sensation to see such an individual, who, concentrated here at a single point, astride a horse, reaches out over the world and masters it.” -G.W.F.Hegel, Oct. 13, 1806, Jena
On Friday and Saturday, March 17-18, 2017 finance ministers and central bankers from the G20 (an international forum for the world’s 20 largest economies) met in the lovely German spa town of Baden Baden. They were there to discuss their extra-democratic rule of the neoliberal world order, as they are wont to do from time to time. And while a spa town like Baden Baden sounds like a very fun place, everyone attending ended up having a bad time. Everyone, that is, except U.S. Treasury Secretary Steve Mnuchin. More about that in a moment.
Of all the people who had a bad time, I suspect that no one had as bad a time as German finance minister, Dr. Wolfgang Schäuble. As we’ll soon see, focusing on the bad time had by Dr. Schäuble is particularly instructive. But first let’s briefly summarize what happened.
Breaking the Rules in Baden Baden
For years it has been par for the course at G20 meetings to express unanimous commitment to global neoliberal economic policy by writing joint statements that affirm free trade and reject protectionism. For example, last year the G20 issued a joint statement that stated quite unequivocally, “We will resist all forms of protectionism.”
But not this time. U.S. Treasury Secretary Steve Mnuchin was having none of it. Channelling his boss, President Donald “America First” Trump, Mnuchin complained that the United States has been treated unfairly bigly on trade for far too long. He rejected multiple attempts on the part of the Germans (Dr. Schäuble, et. al) to include language in the G20’s joint statement warning against the perils of protectionism and reasserting the G20’s commitment to “rules based” free trade following previously established international standards. Instead Mnuchin insisted upon, and the other members reluctantly agreed to, the tepid, watered down statement, “We are working to strengthen the contribution of trade to our economies.”
Oh, and by-the-by, Mnuchin also partnered up with the Saudis to water down references to climate change agreements established during the 2015 Paris accords. Global warming, remember, is a “hoax” in Trump’s America. Here is the full G20 communique from Baden Baden if you care to read it.
In stark juxtaposition to supporters of the established “rules based” neoliberal economic order (let’s call them “the G19”), Mnuchin remarked in a news conference, “we want to reexamine certain agreements. . . . To the extent that agreements are old agreements and need to be renegotiated, we will consider that as well.”
We want to reexamine certain agreements. . . . To the extent that agreements are old agreements and need to be renegotiated, we will consider that as well.” -US Treasury Secretary Steve Mnuchin
In perhaps the understatement of the conference, German Bundesbank president Jens Weidmann declared, “This is not a good outcome of the meeting.” It made Dr. Schäuble extremely upset. Careful not to name names, but not so careful as to mask his frustration, Dr. Schäuble remarked, “Maybe one or the other important member state needs to get a sense of how international cooperation works.”
Dr. Schäuble, you see, is something of an economic Leibnizian. The rules based free trade arrangements that had carefully been established over the previous 30-some years of neoliberal economic policy function, for Dr. Schäuble, like a kind of pre-established harmony. Donald Trump, via his proxy Steve Mnuchin, had just declared an intention to upset that pre-established harmony.
But before we shed too many tears for poor Dr. Schäuble we must bear in mind that this neoliberal pre-established harmony is far from harmonious. It’s also a far cry from the best of all possible economic worlds. Indeed, its disastrous failings and shortcomings are the primary reason why Donald Trump is the current President of the United States.
Elections Cannot Change Anything…
Viewed as a morality play, Dr. Schäuble’s very bad two days promised to be very satisfying–particularly if you are Greek. As we’ll see in a moment, Dr. Schäuble kind of had it coming. Unfortunately, however, Dr. Schäuble’s bad two days also prove to be a rather terrifying for the entire world, and sadly this terror deprives us from the full satisfaction that a good old-fashioned comeuppance typically offers. And when I say it deprives “us,” I exclude that overlapping Venn diagram made up of poorly informed nativists, neo-nationalists, xenophobes, racists, and far right-wingers. The morality play works in the conventionally satisfying way for that ilk.
But again, I’m getting ahead of myself. A bit of background is necessary to fully appreciate just how very bad Dr. Schäuble’s very bad two days were.
In my last essay on the topic of neoliberalism entitled Neoliberal Capitalism Wants to Destroy Democracy I addressed the Greek debt crisis and the brutal, nation-crushing austerity measures that the European Troika (the European Commission, the European Central Bank, and the International Monetary Fund) imposed on Greece as a ‘remedy’–and in lieu of simply forgiving the debt and making investors (banks) take a ‘haircut’ (loss) for an investment gamble that didn’t pay off.
In exchange for more loans to keep Greece solvent, the European Troika demanded even deeper austerity measures. That is, they demanded severe cuts in government spending, which would further contract the Greek economy and dash any hopes Greece might have had of actually paying its way out of debt. Let’s be clear: this debt will never be paid off. It’s far too massive. The Troika also demand that Greece sell off the country for parts. That is to say, they demanded the privatization of massive amounts of publicly owned assets.
In 2015, in an attempt to renegotiate terms to provide Greece with some semblance of a future, professor of economics turned temporary Greek finance minister, Yanis Varoufakis, spoke with the Eurogroup, the finance ministers of the 19 nations that use the euro currency, including German finance minister Dr. Wolfgang Schäuble. Indeed, Varoufakis had been elected finance minister in special elections that brought the left-leaning Syriza party to power for expressly this purpose, which Varoufakis explained to members of the Eurogroup. As Varoufakis explained in a New Yorker article, a visibly angry Dr. Schäuble responded to Varoufakis’s renegotiation pleas by saying, “When there’s a program that everybody has agreed to, that’s it. Elections cannot change anything, because, then, every time there’s an election everything will change.”
When there’s a program that everybody has agreed to, that’s it. Elections cannot change anything, because, then, every time there’s an election everything will change.” -Dr. Wolfgang Schäuble
The rules are the rules, Dr. Schäuble insisted. So despite the Greek elections, despite pleas for renegotiation, despite a “Grexit” referendum whereby a Greek majority actually voted to exit the EU, the “program that everybody has agreed to” continued. Even more brutal austerity measures were imposed.
Given such brutal and humiliating austerity measures, any Greek person with the means, education, and saleable talents to escape the country for improved prospects elsewhere in the EU has since left–robbing Greece of the national talent it would need to have any hope of digging its way out of debt. Greece is totally screwed with no economic hope of salvation.
Elections Cannot Change Anything…Until They Do
Flash forward to June 23, 2016: in a national referendum, the United Kingdom voted to exit the European Union (i.e., Brexit happened). No big deal, right? The Greeks did the same thing (Grexit) and nothing happened. The government simply ignored the will of the people expressed in an actual democratic referendum vote and soldiered on as the EU’s Prometheus, having its liver eaten by vultures every night only to see it grow back in the morning. But the difference with Brexit is that this time an election did change things. On March 29th, 2017 Prime Minister Theresa May actually pulled the trigger on Article 50, setting in motion the UK’s divorce from the EU.
Flash forward again, this time to November 8, 2016: running on a nativist, protectionist, neo-nationalist platform, billionaire reality television star Donald J. Trump was elected President of the United States. Again, an election changed things. And this time it was even worse for people like Dr. Schäuble. Mr. Trump and his proxies began complaining about how free trade agreements were unfair to the United States and had robbed it of its manufacturing jobs. These multilateral global trade agreements were very bad deals, and Mr. Trump, who is very good at making deals, would need to wipe the slate clean and negotiate new, better deals. The TPP (Trans-Pacific Partnership) was the first thing to die. Mr. Trump plans to kill NAFTA (North American Free Trade Agreement) next.
It gets worse. Mr. Trump, who is currently in the process of radically slashing and burning the agencies and administrative staff of the Executive Branch, actually invented a wholly new Executive agency called the National Trade Council. He appointed as director of this new council an economist of questionable methods (according to other respected economists) named Peter Navarro, who is the author of such books as:
- Death by China: Confronting the Dragon – A Global Call to Action
- Crouching Tiger: What China’s Militarism Means for the World
- The Coming China Wars: Where They Will Be Fought and How They Can Be Won
It should be fairly clear why POLITICO suggests, obviously in full awareness of the existence and behavior of both Steve “Darth Vader” Bannon and Stephen “Little Hitler” Miller, that Peter Navarro may be the most dangerous man in the world. In this political climate that’s a bold claim.
Mr. Navarro, speaking as President Trump’s National Trade Council director, insists that the “biased rules” of the World Trade Organization (WTO) constitute a “grossly unfair subsidy to foreigners exporting to the US and a backdoor tariff on American exports to the world that kills American jobs and drives American factories offshore.” He also asserts that the Euro functions as an “implicit Deutsche Mark”, and its low valuation gives Germany an unfair trade advantage. Finally, he also insists that Germany and China are currency manipulators whose trade surpluses with the United States threaten its security and prosperity.
Whoa! So much for free trade agreements. And hey, incidentally, if Navarro gets his way it sounds like the United States is going to war with China!
The Euro functions as an “implicit Deutsche Mark”, and its low valuation gives Germany an unfair trade advantage.” -Peter Navarro
So now you see why Dr. Schäuble had such a very bad two days. At the first post-Trump election meeting of the G20 he’d hung his hopes on the potential reasonableness and mediating influence of Steve Mnuchin. Mnuchin, after all, had made his bones at Goldman Sachs, just like a number of neoliberalism-embracing US Treasury Secretaries before him (Robert Rubin, Hank Paulson, Larry Summers). But alas, it was not to be.
How could this be happening? Dr. Schäuble had been very clear: “When there’s a program that everybody has agreed to, that’s it. Elections cannot change anything, because, then, every time there’s an election everything will change.”
The End of the End of History
Regarding all of this current business about neoliberalism, free trade, and elections, a bit of historical context is helpful.
In the summer of 1989 Irving Kristol’s neoconservative international affairs magazine The National Interest published an essay by a relatively unknown deputy Director in the Reagan Administration’s State Department named Francis Fukuyama. The essay bore the provocative title The End of History? This was just prior to the fall of the Berlin Wall, the collapse of the Soviet Union, and ultimately the end of the Cold War, and Fukuyama seized this moment in history to claim a permanent ideological victory for Western liberal democracy against its grand ideological foes, communism and fascism. The essay was a smash hit, and Fukuyama quickly became the intellectual darling of the acolytes of the Reagan revolution.
In 1992 Fukuyama parlayed the popularity of his essay into an eponymously named book: The End of History and the Last Man. The title is an allusion to the dialectical philosophy of history formulated by the German Idealist philosopher G.W.F. Hegel, and then famously “turned on its head” by the historical materialism of Karl Marx. History here is understood to be a dialectical progression where each successive epochal moment in history emerges as a solution to the inherent conflicts and contradictions of the previous moments, until eventually history progresses to its purest form: its essential freedom. At this point History reaches its ‘end’.
In the Marxian version the internal material contradictions of the capitalist moment in history would eventually be transcended (Aufheben) by global communism. For Marx History ends in a communist utopia free from conflict, struggle, and want.
Arguing with Hegel against Marx, Fukuyama asserted that the collapse of Soviet communism occasions an ideological (rather than material a la Marx) end to History. “What we may be witnessing in not just the end of the Cold War, or the passing of a particular period of post-war history,” Fukuyama wrote in 1989, “but the end of history as such: that is, the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government.”
To Fukuyama’s mind, Ronald Reagan’s grand accomplishment had refuted Marx’s claim that material contradictions in capitalism, in the form of class antagonisms, would eventually spell its undoing. “[T]he class issue has actually been successfully resolved in the West,” Fukuyama asserted with confidence in 1989. “As [Russian born French Hegelian philosopher] Kojève (among others) noted, the egalitarianism of modern America represents the essential achievement of the classless society envisioned by Marx.”
What we may be witnessing in not just the end of the Cold War, or the passing of a particular period of post-war history, but the end of history as such: that is, the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government.” -Francis Fukuyama
As for liberalism’s other great ideological opponent, fascism, Fukuyama asserted that it had long since been thoroughly vanquished by the outcome of the Second World War. It is instructive (as well as humorous in a macabre way) to quote Fukuyama at length on this point:
“In the past century, there have been two major challenges to liberalism, those of fascism and of communism. The former saw the political weakness, materialism, anomie, and lack of community of the West as fundamental contradictions in liberal societies that could only be resolved by a strong state that forged a new “people” on the basis of national excessiveness. Fascism was destroyed as a living ideology by World War II. This was a defeat, of course, on a very material level, but it amounted to a defeat of the idea as well.”
The problem with Francis Fukuyama’s End of History thesis, to state it mildly, is that it’s disastrously wrong. In 2017 Western style liberal democracy seems anything but ossified into a universal state of historical permanence. The ‘classless society’ Fukuyama claimed was represented by American egalitarianism is so obviously a fiction as to be laughable. As The Guardian’s Martin Jacques aptly puts it, “by far the most disastrous feature of the neoliberal period has been the huge growth in inequality.” And quite disturbingly, with the Brexit vote in the UK and the rise of Viktor Orbán in Hungary, Recep Tayyip Erdoğan in Turkey, and Donald Trump in the United States, the idea of the strong state forging a new “people” on the basis of national excessiveness is suddenly quite popular again. What we are witnessing–to stay within Fukuyama’s idiom–is the End of the End of History. History, it would appear, is back with a vengeance–or what is far more plausible, it never actually left.
The First Grand Gesture of the 21st Century Revisited
The Brookings Institution’s Robert Kagan already predicted The End of the End of History back in 2008 when he very astutely noted that China, Vladimir Putin, and a growing “club of autocrats” were arising as challenge to the “axis of democracy,” The irresistible globalization of Western liberalism obviously never achieved the hegemonic force of inevitability that Fukuyama claimed. When the Soviet Union collapsed it wasn’t overrun by free market capitalism and liberal democracy. Rather, it was replaced first by oligarchic privatization, and then by the autocracy of Vladimir Putin who, in turn, has been actively fueling the kind of “national excessiveness” that Fukuyama assumed had been vanquished in 1945.
In the meantime, starting with Jimmy Carter, Margaret Thatcher, and Francis Fukuyama’s boss, Ronald Reagan, the leaders of Western liberal democracies had already begun to erode Western liberal democracy from the inside by pivoting away from New Deal economic policies, which aimed at full employment as an economic goal, to Neoliberalism, which aimed at controlling inflation no matter what the political cost. To facilitate this pivot, these same leaders began externalizing economic controls outside of the purview of democratic steering mechanisms (independent central banks, the WTO, the IMF) so that, to quote Dr. Schäuble, elections cannot change anything.
Finally, and to bring things full circle, despite the collapse of the Soviet Union Western style liberal democracy didn’t exactly take in the People’s Republic of China–but neoliberal economic policy certain did. As I noted in my last essay on neoliberalism, in the early 1980s, before Fukuyama declared the End of History, Britain had already negotiated the return of Hong Kong to the People’s Republic of China on the condition that China maintain a one country, two systems model. Mainland China would function under a centralized economic model and Hong Kong would function as a semi-autonomous capitalist-democracy for a period of 25 years. The assumption of Cold War era Western ideologues like Francis Fukuyama was that liberal economics would colonize the Communist state, and Western style liberal democracy would soon follow. But this hasn’t happened.
Quite to the contrary, according to Hunter College’s Peter Kwong, in 1980 Deng Xiaoping hosted the father of neoliberal monetarism, Milton Friedman in Beijing. To the assembled Communist Party leaders, Friedman predicted that his good friend Ronald Reagan would win the pending presidential election, and that he and Great Britain’s Margaret Thatcher would “lead the rest of the world into the promised land of growth and prosperity” by implementing his economic doctrines. He encouraged China to follow suit. Starting with the abolition of the people’s communes, China began its foray into neoliberal economics, which continue to this day. Then in the summer of 1989–the summer Francis Fukuyama declared the End of History–the very same Deng Xiaoping violently crushed democratic protests in Tiananmen Square.
No longer necessary as a Cold War propaganda tool, the ideological ruse that capitalism spreads democracy has been exposed for what it is: a ruse. No one understands this more clearly than the Chinese. It’s in this respect, as I explained in my previous essay on neoliberalism, that the first grand gesture of the 21st century came in the form of the return of Hong Kong to China with its capitalism intact: in the 21st Century capitalism will have no further need for democracy.
The first grand gesture of the 21st century came in the form of the return of Hong Kong to China with its capitalism in tact: in the 21st Century capitalism will have no further need for democracy.”
The Disingenuous Dr. Schäuble
And on that note, let’s get back to poor, poor Dr. Schäuble and the G20 session in Baden Baden. Dr. Schäuble’s sober economic rationalism is just a bit disingenuous. And here I draw heavily from the now rather famous book Austerity: The History of a Dangerous Idea, by Brown University’s Mark Blyth.
Dr. Schäuble would have you believe that the European Union, and in particular its most prosperous and wealthy member nation, Germany, is responsibly and begrudgingly cleaning up the messy sovereign debt crisis that came to a head during the financial crisis of 2008 using the only real tool at its disposal: austerity. The only eurozone member state running a surplus when the recession hit was Germany. All the other eurozone states were running deficits. Consequently, when the financial crisis hit, the sober, industrious, fiscally responsible Germans managed to weather the storm, while lazy, licentious, spendthrift member states, mostly Southern Europeans (the PIIGS actually: Portugal, Italy, Ireland, Greece, and Spain) who were already living beyond their means, ended up deeply in debt. Now to get their houses back in order they must suffer the bitter medicine of austerity. Harsh? Yes. But what else can be done?
The only problem with this story is that it’s bullshit. The so called sovereign debt crisis of profligate European states is a sham. With the exception of Greece, European states were not profligate in any significant sense. Rather, eurozone states were the victims of what Mark Blyth describes as the “greatest bait and switch in human history.” Private debt from the highly leveraged US banking sector (thanks to mortgage-backed securities and the collapse of the housing bubble) was bought up by European banks, loading them with highly leveraged private debt as well. This private banking debt was then simply “rechristened” as sovereign debt. That is to say, private debt was placed on the public books of eurozone member states, and the resulting debt burden was blamed on member states’ “out-of-control spending”.
Despite talk about recovery, the European banking system never recovered from the financial crisis. When the ECB (European Central Bank) gives Greece a loan to keep it from default (not a bailout, but a loan that must somehow be repaid), that payment goes straight to the banks that hold the debt. This is what austerity is really about: it’s all about bailing out the banks.
The story gets worse. If American banks during the financial crisis were too big to fail, Blyth explains that the European banking sector was “too big to bail”. At stake is the euro currency itself. The euro, according to Blyth, is “a financial doomsday machine the Europeans built for themselves.” When the eurozone was established, member states gave up their own central banks for the ECB, which, unlike the Federal Reserve in the United States, is attached to no state. This makes the euro function something like a gold standard for the member states. The Germans, who make really high quality stuff that people want to buy (e.g., Porsches, Audis, and BMWs) dominates the European economy and generates huge trade surpluses. The other eurozone member states cannot compete, so to peg themselves to the Germans they’re already facing serious deficits.
The euro, a financial doomsday machine the Europeans built for themselves.”–Mark Blyth
There’s a problem though. The EU has strict inflation-fighting monetary rules (rules!) against member states running deficits. Consequently, indebted member states cannot spend their way out of debt (i.e., old school Keynesian stimulus spending). And since the ECB is independent of the member states, and member states have no central bank of their own, the cannot “print money” to get get out of debt (i.e., through currency inflation). So the only option available is for indebted member states to contract their economies against Germany until they can live within their means (i.e., austerity).
Now imagine the financial crisis hits and billions of euros of bank debt are placed on the public books of these eurozone member states. It’s a disaster waiting to happen. In fact, it’s enough to make a eurozone member state want to leave the EU to escape a grim existence under growth crushing austerity, which will continue until they pay off all of “their” debt (e.g., in Greece’s case, never). But eurozone member states mustn’t leave the eurozone! They have to stay. Their continued unemployment is essential to propping up the European banking sector, which is three times the size of the US Banking sector. This is why the EU simply could not allow Grexit to happen. It was contagion control. The eurozone could manage if the Greeks left the EU. But if the Greeks leave, then the Italians might follow suit. And if the Italians go, the Spanish might follow. And then the euro would collapse, which it is going to do one day anyway (the financial doomsday machine the Europeans built for themselves).
So why must the PIIGS suffer so under austerity? So that the eurozone can kick the can down the road for a while longer. And this is why Dr. Schäuble and the European Troika have to play the sovereign debt blame game. “Basically,” Mark Blyth writes, “it’s because in a democracy you can hardly come clean about what you are doing and expect to survive. Imagine a major European politician trying to explain why a quarter of Spain has to be unemployed, and why the whole of periphery Europe needs to sit in a permanent recession just to save a currency that has only existed for a decade.”
Why Dr. Schäuble’s Very Bad Two Days Should Scare the Hell Out of Everyone
The Greeks suffered through a series of corrupt governments that irresponsibly ran up a lot of debt. Despite this fact, the Greeks managed to talk their way into the eurozone. And then the Great Recession hit and Dr. Schäuble gave Yanis Varoufakis a stern lecture about rules everyone agreed to and how elections cannot change things. But it didn’t have to be this way.
The German’s could have just bailed out the Greeks while it was still relatively inexpensive (economically and politically) to do so. Again, I quote Mark Blyth talking about Germany: “you get an undervalued exchange rate by having your super-efficient economy buried in all of these less efficient economies so you can sell more BMWs to the Chinese. The quid pro quo for that sometimes is that when the Greeks get into trouble you need to pony up the cash. Don’t kid yourself otherwise.” But they didn’t, and now there’ll be hell to pay.
You get an undervalued exchange rate by having your super-efficient economy buried in all of these less efficient economies so you can sell more BMWs to the Chinese. The quid pro quo for that sometimes is that when the Greeks get into trouble you need to pony up the cash. Don’t kid yourself otherwise.” –Mark Blyth
Recall what Donald Trump’s newly minted National Trade Council Director, Peter Navarro said at the top of this essay–things Germany, for the record, denies. He claimed that the euro functions as an “implicit Deutsche Mark”, and its low valuation gives Germany an unfair trade advantage. That’s not a fabrication. The problem is that rather than being the reliable partners in crime that Europe expects the United States to be, a member of the Trump administration just called out the Germans by speaking the unspeakable–what no eurozone politician dare speak–and at a really volatile moment in history. But this is only the beginning.
Despite all of the rhetoric about Trumpism and anti-globalization, it’s doubtful that Trump’s neo-nationalism will entail a US retreat from global trade. What seems more likely is that Trump will use the United State’s clout as global hegemon to weasel out of multilateral trade agreements like the WTO and NAFTA in exchange for negotiating bilateral trade agreements with individual countries. That doesn’t bode well for the eurozone, and by implication, it doesn’t bode well for the European Union as a democratic political project. Trumps neo-nationalist rejection of multilateral trade agreements will only embolden more Brexit-like behavior in Europe (and there are elections in France and Germany this summer). After all, if the rules-based free trade agreements of the current neoliberal world order can be “renegotiated” as Steve Mnuchin insists they must, then why can’t Dr. Schäuble’s “program everyone has agreed to” also be renegotiated?
So where does this leave us? The euro is a “financial doomsday machine” that will blow up one day, and the Europeans are kicking the can down the road to avoid having to confront it. The Trump Administration is antagonizing and possibly accelerating the crisis by emboldening EU member states to use elections to bail on the European political project. If this happens the eurozone will fail and the European banking sector, which is three times the size of the US banking sector, will become insolvent. This will result in another global financial crisis. I shudder to even think about what that’ll be like. We might all soon get a chance to know what it’s like to be Greek.
