Category Archives: Global Issues

The Coup of The Banks

January 20th 1981 marked the beginning of an era; an era of neo-liberalism. Market fundamentalism is an extreme comparable only to communist command economies yet it was happily implemented by the Reagan administration justified by increasing efficiency and consumer benefits. Taxes and regulations were cut together with the Economic Recovery Tax Act which was implemented in order to recover the recession which his ideological compatriot Paul Volcker agreed with and even increased interest rates to double digits. Yet like market fundamentalism’s communist counterpart the reality is inefficiency through the increase in the periodicity of economic downturn, which was realized in 1989 when restrictions to S&Ls were re-imposed through the FIRREA.

The Economic Recovery Tax Act is in fact quiet interesting and contradictory. It cut the marginal tax rate from 70% to 28% and reduced the capital gains tax to 20%. Yet social security was going bankrupt, so Reagan eventually would increase taxes on the working poor and middle class, he would race payroll tax. This was the beginning of the class warfare of the financial capitalist class on the poor.

Classical economic policies spread across the world and institutions such as the IMF and the WTO were setup to ensure the spread of the teachings of “The Wealth of Nations”. These organizations are centered around the Washington Doctrine and impose them with ideological dogma like the communist’s insistence on collectivization at any cost. Yet capital market liberalization has been an act of suicide as we have seen first in South East Asia and Russia in the late 1990s but also for its own exporters as we have seen with the recent crisis in which southern Europe has been plunged in fiscal crisis which is now threatening the north. Capital market liberalization allows short term and speculative capital investments to occur which are harmful to the stability of the economy as it causes excessive inflation.

But what allowed this policy-making to occur? It was a coup, perhaps even a revolution of the financial sector or more specifically the banks. The Fortune predicted two months before the presidential election that Wall Streets campaign donations would surpass 170 million dollars which is the highest in history. Essentially the banks are buying politicians as they did with Reagan in 1980 in order to implement supply-sided economics and capital market liberalization so that more money could be concentrated in their own hands.

Yet the spontaneous coup was not only limited to the political arena but also in the media which convinced and still convinces that trickle down policies are legitimate. If you watch BBC or CNN news network the commercial breaks are filled with various commercial banks and investment banks and their cheesy advertisements, but the banks are not depended on CNN or BBC they make enough money, CNN and BBC are depended on the banks for a chunky amount of their revenue comes from advertisement. This way the BBC and CNN are forced to bring on Reaganites and economist from the Chicago school to criticize rational political economy and praise Reagan trickle down policies. And so this market fundemantalist dogma has persuaded the public just like communist propaganda.

Perhaps this is a social revolution- a change the social relations by the alteration of the forces of production-according the dialectical materialism. Maybe its a transitional stage into a new mode of economy or super structure where the means of production are owned by another class, a class of lenders and investors; the banks. This however is perhaps a silly thesis because it first of all makes little sense in marxist terms in which the theory is derived from.

On a more serious notion we must look at the effects of the coup and the effects of neo-liberalism which are unfortunate, in fact the results of market fundementalism are much more detremental than post-Stalinist policies in the U.S.S.R. In fact before the market liberalization imposed on Russia by the IMF it was a Second World country, now it is undoubtedly a Third. Similarly the IMF imposed policies in favor of the banks dictated by the Washington Doctrine in Asia in the 90s and Europe in 2008 when entire financial systems collapsed-yet magazines like The Economist still call for capital market liberalization.

The development is alarming; it is centralizing the political spectrum and limiting our democracy through false claims of prosperity. The banks are essentially taking over government by controlling politics and the media and are making Europe and the US-like Noam Chomsky says-”commit suicide”.

Drug Legalization! Yes Please!

Marijuana

Marijuana (Photo credit: warrantedarrest)

English: Number of arrests in the USA, by drug...

After reading many articles on drug legalization over the past few days and after talking to friends about it, I felt that it was appropriate to express my own view on drug legalization and the war on drugs. To me it’s not understandable that we have declared war on something that cannot be defeated, and instead of exploiting the trade in our favor we are plunging other states into underdevelopment when the drug trade can give them so much potential.  I think there are two  main implications which must be taken into consideration when discussing drug legalization; the economic effects and most importantly the effect on health. All of which clearly points in favor of legalization.

Let me start with the effects on cost. So far this year 34 billion dollars have been spent on the war on drugs in the United States according to drugsense.com, moreover it is estimated that the total money spent on drug crackdown since the declaration of the war on drugs by the Nixon administration accounts for one trillion dollars, which is data published by the New Internationalist magazine. These costs include the arrest and detainment of people who were accused for 1,400,000 drug offenses this year; every 19 seconds someone is arrested for drug law offenses (drugsense.com). These costs also go to police training funds in Central and Latin America which either, in the case of Mexico, ends up in the pockets of bureaucrats, or used to bolster the machine of terror and repression instead of drug crackdown. One trillion dollars is enough money to socialize healthcare in the US or provide free college education in order to find remedies to more solvable issues such as student bankruptcy and house disclosures, or even investing it in rehabilitation programs and drug education in order to restrict the abuse of drugs. It is definitely worth relocating the funding of the war on drugs to more pragmatic issues such as education and healthcare.

In addition to the positive fiscal domestic effects of legalization of drugs, thereby ending the war on drugs is the economic development of areas which are hit hard by the criminalization of drugs most like in Columbia. The problem with the criminalization of drugs is that the middle men between the poppy plant farmer and the consumer are the ones that gain the largest share of profits for the transaction sales. This is because the farmers cannot sell their produce directly to the market and cannot set the market price, while the consumer of the drug is also paying higher than the actual market price due to the illegality of the drug and the costs of smuggling the drug. Therefore the mafia and drug gangs are free to exploit both the consumer and the producer of drugs. Legalizing drugs would mean the end to the middleman and therefore the farmer will be able to sell his produce directly to the market, thereby increasing efficiency and market welfare as price reduces to its natural equilibrium, and increases profitability for both the consumer and producer.  Also the fact that the crackdown on drug farmers will be stopped, means that there will be an increase in productivity, and the ability to allocate more resources to the production of drugs meaning market expansion and economic growth and an increased income for farmers in Columbia or Bolivia or any other producer of drugs in Central and Latin America.

In addition to the increased economic efficiency in the underdeveloped regions, States can also tax the industry in order to improve underfunded services such as healthcare and education. It is estimated that the total value of the drug market is between 320-400 billion dollars, thus legalizing the market would eliminate current deficiencies and expand the value of the market. With the current market value, if the drug trade was taxed by 10% it would lead to at least an increase in revenue by 25 billion dollars considering that the demand for drugs is relatively inelastic and the market size reduction due to the tax would not have a significant effect on sales.

What is more important than the economics behind drug legalization is the health improvement. With the legalization of drugs also comes the ability to regulate the content of drugs. At the moment drug dealers may mix the cocaine with rat poison in order to make it heavier to sell for a higher price, in essence the drugs consumed can contain anything as there are no law enforcement agencies determining what goes in the drugs. Also through drug legalization limits on buying heavy drugs like cocaine and heroin can be established by reserving sales rights to state pharmaceutics companies which can track individual’s consumption, even though that would keep the illegal trade alive, it would still reduce the consumption from illegal trade as it will be more expensive. Decriminalization of drug use has had positive effects in the country where it has been instituted, Portugal. Since 2001 (when decriminalization was instituted) the number of addicts on hard drugs went down from 100,000 to 40,000.

The legalization of drugs has a huge potential of increasing economic development in underdeveloped regions heavily dependent on the drug trade, while also decreasing health and security costs in the North America and Europe. It is almost disgusting how drug legalization was not ever mentioned in the US election by the two mainstream parties while it is very likely that it can improve the situation for the key issues; legalization can give the rise to a new industry in America thus creating new jobs, and it is also a source of tax revenue for increasing income to solve the rising debt. When asking classmates and friends all agreed that drugs should be legalized to some extent, although I believe in full legalization of all drugs, drug legalization of at least marijuana seems universally accepted. Then why isn’t it becoming a political issue for the mainstream parties in both the EU and North America?