World Policy Journal is proud to share our revived weekly podcast, World Policy On Air, featuring former Newsweek On Air host David Alpern and Eurasia Group President Ian Bremmer's latest commentary on global "Winners & Losers." Click here to subscribe on iTunes!
Polarizing Political Economy seeks to comprehend capitalism's chaos and explain how forces like private power and strategy shape our world. Author James H. Nolt is a senior fellow with World Policy Institute and teaches international relations at New York University.
Modern conservatives often emphasize protecting individual liberty against government intrusion, yet they overlook the threat of private power. James H. Nolt details the importance of a functioning checks and balances system to prevent private interests from influencing a powerful legislative branch.
Power in Capitalism
Textbook economics and political science view the state as the only holder of true power in society. James H. Nolt argues instead that the private sector is a source of power in capitalist systems, even if business people don't always flaunt their influence.
Donald Trump has stated his preference for bilateral commercial talks over multilateral treaties such as the TPP, NAFTA, or even the European Union. James H. Nolt explains why the complexities of international trade could make the president's "America first" strategy unworkable.
Principles of Political Economy, Part Two
The fragmentation of the social sciences has left disciplines such as political science and economics with gaps of understanding. As a continuation of last week's blog post, James H. Nolt delves deeper into what makes his form of political economy better able to understand certain social phenomena.
Principles of Political Economy
Classical economists often ignore certain variables and leave their assumptions unquestioned. For Polarizing Political Economy's 100th blog post, James. H Nolt discusses what distinguishes his views from those found in most economics textbooks.
Affordable Health Care
Health-care costs in the U.S. are almost double those in most other developed countries. James H. Nolt argues that the Republican free-market approach to health insurance won't reduce costs, however, because it fails to reduce the monopoly power of pharmaceutical and medical device companies.
Another Korean War?
One of the most pressing foreign policy challenges the U.S. now faces is North Korea's increasingly belligerent behavior. James H. Nolt warns how Trump could use a war with North Korea to increase executive power and as springboard to implement his economic nationalist policies.
The Political Economy of Political Labels
Political parties often use labels and slogans to elicit visceral responses and mislead their followers. Looking at the history of liberalism and conservatism in the U.S., James H. Nolt examines how the role of private power in driving policy often contradicts political rhetoric.
Since World War II, the U.S. has been involved in multiple extended conflicts without an exit strategy. James H. Nolt discusses the role domestic politics have played in initiating these ill-defined wars.
The Unlikely Prospect of War with China
Trump's statements about his policy objectives have made the future of U.S.-Chinese relations uncertain. James H. Nolt argues that although war between the two countries is highly unlikely, one possible scenario would see Trump instigating conflict as a means to consolidate executive power.
The Polarizing Effect of Trump’s Trade Policies
There is tension between vulnerable domestic industries, which favor economic nationalist policies, and internationalists, who seek to reinforce their monopoly power in global markets. James H. Nolt anticipates that Donald Trump's protectionist trade policies will hurt not only foreign countries and companies, but also American corporations and consumers.
Corruption in the Age of Derivatives
One of the first presidents in decades to not release their tax returns, Donald Trump has prevented the public from knowing of his possible conflicts of interest. James H. Nolt explains how easily Trump and his associates can exploit his influential position to make large profits using financial derivatives.
Rule of Law
The U.S. and U.K. played important parts in founding the liberal international order, but have recently begun turning away from an increasing globalized world. James H. Nolt argues both countries' economic nationalist policies are eroding the rule of law and alienating business internationalists.
Books for Learning Political Economy
James H. Nolt offers his must-read list for students interested in learning more about political economy. Read on to discover books that effectively detail the ways private business power is exercised.
Trump and Trade Bilateralism
Donald Trump's proposed policies suggest he may subvert the precedent of multilateralism in the global economic order. James H. Nolt discusses the president-elect's latitude to negotiate with trade partners individually and punish companies and countries that compete against domestic producers.
Trump: Business Nationalist or Internationalist?
There are two issues that divide Trump campaign rhetoric from mainstream Republicans and their internationalist business constituents: the value of the dollar and trade protectionism. James H. Nolt writes that Trump will have to carefully navigate these issues if he is to succeed in the White House.
Donald Trump promised to bring manufacturing jobs back to America, but the strength of the dollar could undermine those plans. James H. Nolt explains the current trends in exchange rates and why Trump's economic policies, if implemented, could ignite a "race to the bottom" as countries devalue their currencies.
Trump’s Pivot to Russia Against China
In the weeks since the U.S. presidential election, Donald Trump has indicated that his foreign policy will involve closer ties with Russia and more pressure on China. James H. Nolt explains what this realignment would mean for U.S. business interests.
Prices & Crises
Deflation can cause devastating systemic crises when debts are excessive. James H. Nolt looks back at cases of global debt deflation in the 19th and 20th centuries and discusses possible solutions to this problem.
Profiting from the 2008 Crisis
While economic crises have undeniable negative impacts, they also create opportunities for profit. James H. Nolt points to the 2008 crash as an example of strategic private power exploiting an economic downturn.
Profiting from Debt Crises
Stock market reactions to Donald Trump's election are worth paying attention to, as business interests are often better informed about future government policy than the media. James H. Nolt discusses how private actors will profit from a potential debt crisis triggered by Trump's proposed policies.
Trump: Debt or Taxes?
If he follows through on his “fair trade” campaign promises, Donald Trump will likely cut taxes by increasing tariffs or amassing debt through government borrowing. James H. Nolt explains how these protectionist policies could cause a recession rather than job growth and make the taxpaying public and the government worse off.
Trump's Trade Wars
The protectionist policies of President-elect Donald Trump espoused on the campaign trail are at odds with the free trade positions of many Republican politicians. James H. Nolt argues that if he follows through with his promises, Trump risks further dividing his party and spurring a global economic crisis.
Inefficient Market Hypothesis
Textbook economics often fail to acknowledge the role of private power in markets. James H. Nolt breaks down the Efficient Market Hypothesis, and other financial strategies like "pump and dump" of derivatives to demonstrate how investors manipulate the market.
Initial Public Offerings
The claims of textbook economics about the fairness, efficiency, and stability of markets depend on trade occuring at equilibrium prices. James H. Nolt explains how underwriters of initial public offerings contribute to centralizing wealth by setting prices through negotiated deals.
Leadership Beyond Political Labels
The bipartisan Keynesian consensus from the 1940s through the 1970s emphasized the government's role in managing private interests. James H. Nolt explores the subsequent shift toward market fundamentalism and the failure of political leadership to adequately regulate private power.
The Rectification of Names
Precise and defined language is necessary for consumers and investors alike to make informed decisions. James H. Nolt discusses how the models and terms of mainstream economics are based on assumptions that lack empirical evidence.
Why am I Such a Contrarian?
Textbook economics doesn't take into account heterodox perspectives, and most rival schools of thought leave out concepts key to understanding today's markets. James H. Nolt explains his contrarian views on credit lending and the role of private power in the economy.
Easy Credit & Bad Debt
Credit markets often don't follow textbook principles of supply and demand. James H. Nolt describes the complexities of modern lending and how high concentrations of financial power allow the world's largest banks to influence credit conditions.
I Told You So: China Debt Reprise
A recent report from the Bank of International Settlements warns of the dangers of China's looming credit crisis. James H. Nolt explores the implications of falling prices and rising debt for the global economy.
Weapons of Math Destruction
When faulty statistical models are poorly understood, they can create pernicious feedback loops as people adapt their behavior to them. James H. Nolt applies this concept to the role of cheating in China's education system.
Reporting on topics like political polling or the value of a university education draws upon statistical studies to make seemingly well-defended arguments. James H. Nolt argues that statistical analysis in economics and other social sciences is too often based on faulty conceptual foundations, rendering the conclusions meaningless.
Balance Sheet Recessions
Economist Richard C. Koo coined the term “balance sheet recession” to refer to the unusual problem Japan has faced since the 1990s—high net private savings despite near zero interest rates. Building on Koo’s research, James H. Nolt presents solutions to this economic puzzle.
Dynamic Private Strategy
Investors can wield strategic power in order to manipulate private markets through various tactics. Looking at the example of financier Bill Browder's investments in Russia after the collapse of communism, James H. Nolt explains how this type of influence can shape economies.
Strategic Private Power
Most economic theories tend to conceive of markets as unregulated spaces free from external influences, even though this claim bears little resemblance to financial reality. James H. Nolt explains how strategic assessments of risk by powerful private actors can influence the direction of markets in the short and long run.
Interest from Where?
What did 18th century French physiocrats and Islamic scholars know that an economist today does not, and how would it help explain the 2008 financial crisis? James H. Nolt unearths a historical distinction in the use of capital key to understanding the interest paid on loans.
Economists and the Powerful
Who is correct, the Keynesian or the free market fundamentalist? Both are wrong, argues James H. Nolt, who returns this week to his analysis of the true mechanism at work beneath the surface squabbles of the two camps: private power.
The South China Sea Ruling
The Permanent Court of Arbitration in the Hague dealt a blow to China's territorial claims in the South China Sea on Tuesday, a decision swiftly rejected by Chinese President Xi Jinping. In his analysis of this latest development in the ongoing dispute, James H. Nolt shows how a corporatist account of private interests may help shed light where realists and liberals have failed.
Looming Worldwide Credit Crunch
Piecing together seemingly disparate phenomena such as Brexit, Donald Trump's rise, China's debt problems, and the curtailment of credit by bearish financiers, James H. Nolt argues that all signs point toward one thing: an imminent financial crisis.
Macrofoundations of Microeconomics
Critics of John Maynard Keynes often point to the "microfoundations" of macroeconomics, putting their faith in the free market to provide an equilibrium wage. Debunking such textbook economics, James H. Nolt shows that capitalists often act in their own strategic interests against economic logic and at the worker's cost.
The Value of Money
What gives money its value? Some think that without a gold standard, inflation becomes an intractable problem. James H. Nolt argues that this wrongly assumes the value of money depends on the value of gold itself, and that private interests have historically played a much larger role.
As Good as Gold
The demise of the Bretton Woods monetary system signaled the start of the floating exchange rate system, though some still argue for a return to currencies pegged to gold. Hitting back at "gold bugs," James H. Nolt shows that debt, financial crises, bankruptcies, and wars were just as prevalent under the gold standard as they are today.
This is Not Fascism
Some political commentators have called Donald Trump a fascist, referring in part to the disgust with politics as usual that characterizes his presidential campaign. James H. Nolt argues that even elements of Trump's rhetoric that may echo fascism will be impossible to implement if he wins the general election.
Follow the Money
One way to uncover a politician's true intentions is to follow the money—big donors support candidates they are assured will serve their business interests. James H. Nolt uses this method to analyze the U.S. presidential contenders and explains why the candidates’ public faces can be deceiving.
Economics' Big Lie
Economics textbooks teach models of "perfect markets," but real economies are greatly impacted by private power. James H. Nolt argues that prevailing theory supports the notion that the most efficient way to organize society is to allow unbridled power to those with the most means to pay.
Realism, Liberalism, and Corporatism
International relations theory presents a number of lenses through which to view global economic issues. James H. Nolt describes the implications of these approaches to policymaking for multilateral trade treaties and addressing deflationary pressures.
Debt and Deflation
Introductory economics textbooks teach that producers will reduce output when prices fall, often ignoring the impact of debt or credit. James H. Nolt explains why countries and companies are flooding the market despite low oil and commodity prices.
Capitalist wealth is both self-expanding and self-limiting due to credit expansion and contraction. James H. Nolt explains that those competing interests helped create the modern American political parties.
Why Banks Fail
Governments and taxpayers remain concerned about the moral hazard created when banks are too big to fail. James H. Nolt explains that problems of bank insolvency and illiquidity often arise when bullish financiers cannot maintain their high interest rates.
What is Capital?
The definition of capital presented in economic textbooks fails to address the complexities of capital as it exists in actual production. James H. Nolt provides a more accurate definition, detailing how credit expansion has affected the productivity of capital.
Valuing Nature and Real Estate
The availability of credit directly impacts valuation and thus prices of assets such as real estate. This week, James H. Nolt continues his discussion of credit and value, explaining how their relationship leads to fluctuations in the housing market.
Investment is a strategic process, dependent on the interactions of bulls and bears, as well as their impact on interest rates. This week James H. Nolt details the conditions that determine the value of capital.
Consumers are interested in the value of goods and services since they believe it directly affects the price they pay. However, James H. Nolt explains that the link between value and price is complicated by consumer desire, scarcity of inputs, and, occasionally, monopolistic control of markets.
Boom Bust Boom
Psychological explanations of human behavior contribute to a well-rounded understanding of economic instability. However, James H. Nolt explains that polarization in the political economy, not any human foible, is the primary cause of credit booms and busts.
China's Effect on the American Election
China's economic stagnation and failure to implement reforms to address the crisis is influencing the U.S. presidential election. James H. Nolt discusses how Bernie Sanders' and Donald Trump's positions on China's economic policies help both candidates appeal to American workers.
The China Dilemma
China's increasing debt and self-limiting pattern of growth is contributing heavily to the current "third leg" of the global economic crisis. James H. Nolt argues that China needs to transition from its current export and investment-led economy to a consumer-led economy to prevent this crisis from deepening.
A Day in the Life of the Current Economic Crisis
Warnings of impending financial crises are found in every publication reporting on economic activity. James H. Nolt breaks down several of this week's headlines and explains the causes of these potential economic woes.
The Third Leg of the World Financial Crisis
Global repercussions are likely if deflating commodity, oil, and real estate prices continue to pose serious problems for debt repayment. In part one in his three-part series, James H. Nolt warns of the dangers of debt and falling prices.
Social Wealth and Natural Scarcity
Economics can be divided into two components: production-consumption and debt-asset. James H. Nolt dives into the interconnectedness of these components and explains the convergence of Main Street and Wall Street.
Consumer Surplus and Related Absurdities
Understanding the concept of consumer surplus is elementary economics. However, James H. Nolt argues that despite its common role in estimating levels of consumer happiness, the measure cannot accurately be used for such a purpose.
The Impending Student Loan Debacle
The impending student loan debacle is an echo of the subprime mortgage crisis of 2008 with similarly broad implications for the economy. James H. Nolt argues it also helps explain the division between the Republican and Democratic Party establishments and their insurgent candidates, reflecting voter anger against another potential Wall Street bailout.
Is China a Currency Manipulator?
China has been accused countless times of being a “currency manipulator.” Tracing the history of Chinese management of the yuan, James H. Nolt discredits the logic behind this rhetoric and reveals a surprising political truth about its origin.
The Big Short
Several docudramas have been made about the 2008 global financial crisis, but none quite like Adam McKay’s 2015 box office hit, "The Big Short," which turns complex financial problems into entertainment. James H. Nolt expands upon the film's illustration of financial insiders manipulating the collapsing housing bubble for their own profit.
Private Power and Price Stability
Expanding on his argument that all prices are political, James H. Nolt contends that price stability is founded not on free markets but on agreements between private entities.
Cost and Competitive Power
Supply or Cost?
Continuing his critique of how microeconomics is taught in schools, James H. Nolt dissects the mechanics of the cost curve, arguing that production costs are far more influential in determining the price of goods than consumer demand is.
Demand from Where?
In college-level microeconomics courses, the demand curve is presented as the bedrock of the subject. Yet as James H. Nolt explains, a consumer-centric concept of demand is "farcical" if it ignores the influence of private power.
All Prices Are Political
Economics claims that many prices are determined by "free market" relations of supply and demand, but James H. Nolt argues that this is a myth. All prices are political, that is, influenced by the strategic action of various private powers.
The Ideological Bedrock of Economics
Continuing his critique of economics as an academic subject, James H. Nolt expands on the not-so subtle ways neoclassical economists inflate the importance of the free market and ignore the influence of private power.
What's Wrong with Economics?
In high school Advanced Placement programs, economics is almost always presented as a science, ignoring messy real-world data and historical examples. James H. Nolt argues that teaching economic concepts in a vacuum does a disservice both to students and the field as a whole.
Conflict in the South China Sea
In order to enforce freedom of navigation for all ships and aircraft in the South China Sea, the U.S. Navy instituted the first of what are expected to be repeated voyages of warships accompanied by naval aircraft through the disputed waters. James H. Nolt hypothesizes on the possible economic and geopolitical consequences of China's forthcoming response.
How Private Debt Fuels Inequality
Rampant inequality is one of the outstanding features of almost every economy affected by the 2008 global financial crisis. James H. Nolt expands on his analysis from his last column, noting the influence of private lending on the scale of inequality and outlining the most efficient long-term solutions to the problem.
Inequality vs. Debt: Which is Worse?
At Tuesday night’s Democratic debate, presidential nominee Sen. Bernie Sanders made frequent mention of inequality, and how the ‘one percent’ acquired the vast majority of new income gained since the 2008 financial crisis. James H. Nolt explains how data analysis validates this view of income disparity, and why debt bubbles, public and private, can often amplify its troubling affects.
The Danger of Zero Yields
Earlier this week, an auction for three-month security bills from the U.S. Treasury found demand to be so high that yields were driven to zero for the first time ever. James H. Nolt explains the gravity of what this means for the global economy and how it could precipitate possible crises in asset markets.
Reading Data Strategically
We trust the data to tell us the truth, but what if the data tells multiple truths? James H. Nolt explains how strategic analysis can help us understand the present and more accurately predict the future.
Deflation and the Third Globalization
“Globalization” is a popular term used to describe contemporary political and economic trends, but it is not a new phenomenon. James H. Nolt details the complex history of globalization, asserting that its current phase is not an age of moderation but rather one of countervailing extremes.
The Dual Nature of Bonds
What "Mr. Robot" Says About Enron and Derivatives
Economist James H. Nolt explores the murky world of high-level corporate fraud in his latest column. Drawing parallels between the notorious Enron scandal and USA Network's "Mr. Robot," he explains how corrupt executives can make off with millions by betting against their own companies.
Correction of What?
Global stock markets seem to have stabilized in the last week since China's economic health came into question. Economist James H. Nolt explains how the common reference to this volatility in the media as a simple "market correction" may downplay the extent of the problem of over-valued assets worldwide.
Capital Glut, Job Famine
Former Fed Chairs are characterizing the current world economic situation as a 'savings glut'-- or rather, too much saving and not enough spending. James H. Nolt argues what is actually taking place is a 'capital glut,' reflecting larger trends in the allocation of global credit rather than the withholding of individual assets.
Engine of the World Economy
Investors and economists are in constant search of the world’s next “engines,” or economic drivers of bullish sentiment within the global market. Using the concepts of investment, credit, and capital, James H. Nolt explains why China may not be up to that exalted role.
China: Boom and Crash
Though heavily reliant on exports and real investment, the Chinese economy has seen exceptional growth in the last three decades. Yet both of these vehicles of expansion are now slowing. James H. Nolt argues China may be unable to avoid the consequences of a major asset crash.
Exaggerating the China Threat
Media outlets have painted China’s recent economic success as a source of alarm for global superpowers like the United States. Reporting from Taiwan, James H. Nolt explains why the rise of China poses no immediate threat to these powers, emphasizing that its military and financial triumphs have been greatly exaggerated.
Who Helped Greece Cheat?
Behind Greece's debt crisis lies a long and troubled history of a corrupt bond market. In his latest blog post, James H. Nolt exposes the efforts of many Greek bankers and government officials to profit from Greece's recent default on its IMF bill.
Following Greece’s debt default, many were quick to blame the country’s “bad behavior,” while largely ignoring the responsibility of creditors who lent irresponsibility. In his latest blog post, James H. Nolt examines the real cause of the crisis, particularly the role that bears and bulls might have played in its creation.
Private Credit and Inflation
In the latest installment of his blog, James H. Nolt dispels the myth that inflation is caused by "too much money chasing too few goods,” instead attributing the event to credit supply. For this reason, he argues, profit and vulnerability of extreme bull and bear positions have the ability to drives economies to the precipice of crisis.
The Myth of the Money Supply
Most economics courses teach that central banks are able to regulate money supply. In the latest installment, James H. Nolt takes a closer look at these agents, demonstrating how the private struggle between bears & bulls can influence inflation, unemployment, and other macroeconomic variables.
The Real Insiders
Access to inside information is a powerful tool in the banking system’s strategic arsenal, one that provides its majors players with considerable influence over developments in domestic and global markets. In his most recent post, James H. Nolt explores the implications of this access, highlighting the Panic of 1907 as a historical instance of insider access gone astray.
Liquidity and the Broker's Book
Financial information is not evenly distributed amongst investors. Using the concepts of liquidity and price level, James H. Nolt elaborates on why banks turn bearish and large brokers have the upper hand.
Sport, Politics, and Market Power
What do the arrests of FIFA officials, New Jersey Governor Chris Christie’s refusal to disclose his finances, and the $5 billion fine levied against Wall Street by the Department of Justice last week all have in common? Economist James H. Nolt detours into recent headlines to illustrate how politics and market power blur the lines between fact and fiction.
While lowering the value of debt sounds like an ideal financial trend, James H. Nolt argues that debt deflation plays a significant role in the development of financial crises, including the infamous Great Depression.
Less than Nothing
Recently, various European government bonds began trading at negative nominal yields--the financial equivalent of paying people to borrow money. Economist James H. Nolt assesses the implications of this so-called "new normal" that many economic schools of thought have taught to be a nonsensical impossibility.
The Great Crash
When credit is flowing and prices are on the rise, bullish investors capitalize on the market’s good fortune, as the bears wait for everyone’s luck to dry up. James H. Nolt argues that understanding how these two opposing forces within the market operate can help explain some of the most devastating financial crises in history.
From Business Strategy to Business Cycle
Thus far, James H. Nolt has helped us make sense of complex financial instruments like bills, bonds, and derivatives. For today’s post, Nolt explains how these instruments can be used to implement business strategies, as well as the ways these strategies can interact to create a business cycle.
The enormous expansion of derivatives trading in recent decades has made almost every form of asset worldwide subject to such leveraged betting. James H. Nolt explains this economic mechanism and the risks involved in deploying derivatives.
Big Bearish Banks
For centuries, bonds have played a critical role in the political economy. James H. Nolt explains the origins of bonds, the monetary leverage they can produce, and how governments often delegate the distribution of bonds to the private sector, creating a bearish bias in some of the largest banks.
Bills for Bulls
Many think of a bill more as a restaurant tab or a federal note rather than as an instrument of credit. James H. Nolt examines the economic function of the bill as a weapon of financial warfare dating back to medieval times.
While many economists decry the evils of massive public debt, few worry about the dangers of even larger private debts. In his latest blog, James H. Nolt examines the effects of both kinds of debt, as well as how anyone can create money through a system of credit.
Profiting From Loss
Contrary to political sloganeering and media bias, there is no economic state that is good or bad for everyone. In his latest blog, James H. Nolt describes the necessity for a balance of power between bulls and bears and how someone always makes a profit from the suffering of others.
Boom and Bust
Conventional capitalistic wisdom dictates that growth is natural, and that economic crises are caused by extraordinary circumstances. In his latest blog, James H. Nolt argues that "unpredictable" booms and busts are actually predictable parts of the economic cycle.
Think Like a Capitalist
Capitalism is innately a two party system of creditors and debtors, more commonly known as bulls and bears. In his latest column for the Polarizing Political Economy blog, James H. Nolt dissects how this system of conflicting interests leads to inevitable booms and busts in the market.
Political Economy Made Easy
Most approaches to economics ignore the dynamic and often opposing forces at work, instead idealizing the economy as a realm of stability and freedom. James H. Nolt, in his inaugural post for World Policy, explains political economy in a refreshingly practical way, incorporating private power and strategy into the discussion.
Logo created by Susan Banks
The Millennium Project:
A global collective intelligence system analyzing the future of the world—and you can participate!