<quote> Q: What's your understanding of the ongoing crisis in global capitalism?
Chomsky: We should begin by recognizing that for a good part of the population of the world, and probably the vast majority, it's been a crisis for a long time. It's now called one because it's starting to affect the interests of rich and powerful people. Up until then it was just starving people.
What has happened, point number one is: Nobody really understands. The Bank for International Settlements--the central bank of central bankers, it's sometimes called, the most conservative, respectable institution in the universe--produces an annual report. The last one stated: We have to approach these questions with humility, because nobody has a clue as to what's going on. In fact, every international economist who is semi-honest tells you, "We don't really understand what's going on. But we have some ideas." So anything that's said, certainly anything that I say, you want to add many grains of salt to, because nobody really understands.
However, some things are moderately clear and there's a fair consensus. Through the Bretton Woods era, that's roughly the Second World War up to the early 1970s, exchange rates were pretty close to fixed, and capital was more or less controlled. So there wasn't extreme capital flow. That was changed in the early 1970s by decision. Capital flow was liberalized.
The international economic system is patched together with scotch tape. There was a study by the IMF. It has about 180 members. From 1980 to 1995, it found that something like a quarter of the members had serious banking crises, sometimes several, and two-thirds had one or another financial crisis. That's a lot. There's debate about this, but it seems that since the liberalization of financial markets, they have been extremely volatile, unpredictable, irrational, lots of crises. Nobody knows when they're going to blow up.
You can say, "Well, we can handle it." Maybe. One of the leading international economists, Paul Krugman, has an article in Foreign Affairs called something like "Depression-Era Economics," in which he basically says, "We don't understand what's happening. It's like the Depression. Maybe it'll be somehow patched together, but nobody can say. And nobody knows what to do."
There's one possibility that he rules out, and that is capital controls. He rules it out on theoretical grounds. He says capital controls lead to inefficient use of resources, and we can't have that. That's certainly true in a certain abstract model of the economy, the neoclassical model. Whether that model has anything to do with the real world is another question. The evidence doesn't seem to support it. Also one has to ask the question, "What is meant by 'efficient use of resources'?" That sounds like a nice, technical notion, but it's not. When you unpack it, it's a highly ideological notion. So you can efficiently use resources if it increases gross national product. But increasing gross national product may harm everybody. That's efficient by some ideological measure, but not by other measures.
Let me just give you one example to illustrate. The Department of Transportation did a study one or two years ago. It tried to estimate the effect of the decline of spending on maintaining highways. There's been a considerable decline since the Reagan era, so a certain amount of money has been saved by not repairing highways. They tried to estimate the cost. I forget the exact number, but the cost was considerably higher than the savings. However, the cost is cost to individuals. If your car hits a pothole, it's a cost to you. To the economy, it's a gain. That improves the efficiency of the economy. Because if your car hits a pothole, you go to the garage and you pay a guy to fix it, or maybe you buy a new car--something more produced. It makes the economy more efficient in two ways. You've cut down the size of government, and everybody knows that government drags down the economy, so you've improved it that way. And you've increased profits and employment and production. Of course, for you as a person, there was a loss. But for the economy, there was a gain by the highly ideological way efficiency is measured. This is a tiny case. It extends across the board. So when one hears words like "efficiency" used, reach for your gray cells. Ask, "What exactly does that mean?" </endquote>