Ten years later,
the only things neoliberal measures have to show for are a fragile financial
system and a budding new speculative bubble; and the consecrated GDP growth
remains anemic, based on low wages and on the Chinese performance. Keynesians also
are not a shiny alternative.
The political
classes execute the orders for the continuing meekness of the plebs, feeding
nationalisms, xenophobia and, soon, assumed fascisms; benefiting from the
absence of an up-to-date leftist thinking.
In the US, Trump
proposed changing the Defense budget from $582,000 M to $636,000 M but the
Senate found it too little and increased it to $696,000 M, with the only rejections
coming from Bernie Sanders and four Democrats. Where will the next wars be?
The planet
becomes a dangerous place to live. Where is the alternative?
Summary
1 - Who keeps the financial system afloat?
2 - A stalled and politically unopposed system
4 - What does the economist scholastic say?
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1 - Who keeps
the financial system afloat?
In August 2007,
it became clear that subprime mortgages, with initially low interest
rates – launched as a means of
overcoming the crisis arising from the dotcom sinking in 2001 and the
September 11 attacks of the same year – were creating a housing bubble which busted
when a large number of insolvent families emerged at its base. As these credits
had been securitized, i.e. embedded in successive issues of securities, their
holders had two options: to sell them at a loss or to keep them in portfolio,
at the risk of a higher loss.
Thus, the
recession was not anchored by a drop in demand. At the time, public spending
was increasing in most economies, and even the subprime beneficiaries
saw their wages grow and trigger temptations of greater consumption. But, still
in 2006, in the United States, there was a fall in profits as a result of an
excessive accumulation of capital – there was not enough bread for so many
chorizos, as they say in Spain; and in a context of low profitability,
investment is unattractive, leaving behind negative impacts on the so-called
"real economy", demand, employment, and incomes. This immediately
affected a large group of poor workers, who had been instilled with the idea
that their real estate, in appreciation, would allow them to guarantee greater
indebtedness... new car, house repairs, travel... The financial crisis which,
in the meantime, had started, contracted credit, stopped investment projects,
generated unemployment, and only then did this huge mass of people, ruined,
drastically reduced their consumption.
As the financial
system is a single, border-free love affair, contagion of European banks was
immediate, and European real estate bubbles also collapsed, with the cessation
of payments to banks. Those, with the accumulation of credits granted without
repayment, still in August 2007, appealed to the good ECB which, thinking that
it was a simple liquidity crisis that had flooded the so-called market, made €203,700 M available
to banks; compared to the current monthly €30,000 M of Draghi’s dropper it is
an enormity. In the US, meanwhile, the Fed absorbed $600,000 M in securities,
in November of 2008, $750,000 in March of the following year, as well as
issuing $300,000 M of treasury bonds, in addition to placing money in the
market at rates close to 0% in October of 2008, followed by other actions. The
Bank of England, for its part, initiated similar interventions in 2009 with
£165,000 M, followed the next year by an additional £175,000 M, besides further
actions.
Despite such a
worthy effort, the real estate under construction ceased to have bank
financing, the builders went bankrupt, increasing the mischief in the banks and
firing en masse. Among the millions of unemployed and low-paid workers, there
were many cases of inability to pay housing allowances (and consumer credit),
resulting in evictions and large increases in public spending and social
security as unemployment and other social support benefits; in addition to the
destructive psychological effects and self-esteem of those affected.
In Europe, the
gloomy avatars in Brussels or Frankfurt demanded... support for the unfortunate
bankers [1] and a squeeze in social spending, as well as massive
privatizations to combat the... public deficits resulting therefrom; on
the one hand, nothing in this menu raises any doubts to a neoliberal and, on
the other hand, the same being clearly antisocial, this demonstrates to satiety
whom do they serve and what is the purpose of the political classes.
|
Also, in
order to fill in the accounts’ imbalances, States have increased resorting to public
debt issuing, which the financial capital has quickly subscribed since the
states do not go bankrupt and those bonds serve as a guarantee for the banks'
financing with the ECB, in the case of the euro zone. On the other hand, the rating
agencies, with their superior knowledge, are stingy with recommendations
for public bonds, which favor the demand for high interest rates, as befits a
financial system in difficulties; although this is not in the best interest of
States... in difficulty.
All this use of
the States as a vehicle to transfer resources from the population to the
financial system and to capital, in general, is part of a well-woven plot that
we have recently discussed [2], in
which the right-wing parties with a government vocation, as well as the
left-wing parties that humbly ask for debt restructurings, as they
were in a typical business relationship, are involved; refusing, therefore, to
call into question the whole logic of capital and the permanent puncture,
usually exercised upon the peoples, for their capture through the state’s
apparatuses.
According to the
neo-liberals, the state is guilty of absorbing the resources that investors
lack in order to stimulate the demand relaunch, which is nothing more than
propaganda to justify the social spending compression policies and the concentration
of capital and income in and by the richest.
Debt problems
are not unique to the so-called developed countries. In Africa, for example, according to The Jubilee Debt Campaign, there
were by the end of 2017 28 countries at risk of default and 11 with low risk, as
compared with 15 and 24, respectively, in 2013; and there are cases where debt is paid through surreptitious procedures, such as rising
export prices, taking advantage of China's strong demand for raw materials.
2 - A stalled
and politically unopposed system
Legends: 1 –Financial markets
before the crisis 2 - Financial markets after the crisis 3 - Financial markets
after the states and central banks interventions
The joys and
sorrows of financial markets can be more formally presented as in the following
chart, where we see the increase in the number and wealth of billionaires...
since being a millionaire has become a situation... too common and irrelevant.
Source:
Michael Roberts Blog
The so-called
investors are essentially engaged in the reproduction and accumulation of
unproductive capital, and it is because of this and the current situation that
they produce goods or services, hiring wage earners and buying equipment, or
engaging in speculation, as is evident in the following chart.
Although infamous, it is curious that banks act on a global level when they
derive benefits from it, and when the crisis arises and assets vanish in
uncollectible and worthless debt, they demand the nationalization of the damage
and transfer it to the population, in terms of austerity, unemployment, cuts in
social responsibilities, privatizations (energy, airports, postal services, for
instance, in Portugal), redemptions (assumption of bank losses),
nationalization, formal or covert (BPN, BES, for instance, in Portugal) [3]; and
these transfers have the high sponsorship of institutions such as the IMF, the
ECB, the European Commission and the cosmetic national parliaments. A
philosophy of theft, privatization of benefits, socialization of losses...
In the euro zone,
bad credit is more than 2.5 times higher than in 2007; and the countries with
the most dangerous indices are, at the end of 2016, Greece (45.9% of total
credit), Cyprus (45%), Portugal (19.5%) and Italy (15.3%) [4], values
which are substantially higher than the countries of the Western and Northern
Europe. In an economic zone that is intended to be integrated and with homogeneous
policies, solidarity manifests itself in the distribution of losses... amongst
the poorest.
The table below
summarizes elements of an illusory exit from the crisis that began in 2008,
which, in turn, amplified the fall in 2001 of the technological bubble that
many considered the beginning of eternal bliss, the end of History, after the implosion
of the Soviet “Evil Empire”. An Internet site was then considered
sufficient for the inclusion in a new economy with high Nasdaq growth [5]; in the
end, this delirium died in its childhood. Today we no longer speak of a new
economy but of hordes of start-ups, which overwhelmingly drown in the
bars of the Lisbon night, during the Websummit era and the parochial
government euphoria; with some having dinner in the... Pantheon, dreaming of
turning start-ups into unicorns [6].
Evolution of GDP capitation (2008 prices)
|
|||||
2008
|
2016
|
Var. annual average (%)
|
|||
Germany (€)
|
31719
|
34982
|
1.29
|
||
Spain (€)
|
24275
|
22291
|
-1.02
|
||
France (€)
|
31028
|
31010
|
-0.01
|
||
Great Britain (£)
|
25435
|
25129
|
-0.15
|
||
Netherlands (€)
|
38879
|
36742
|
-0.69
|
||
Italy (€)
|
27551
|
25213
|
-1.06
|
||
Portugal (€)
|
16942
|
16550
|
-0.29
|
||
Switzerland (Fr S)
|
78180
|
80341
|
0.35
|
||
USA ($)
|
48330
|
51646
|
0.86
|
||
Japan (Yen)
|
4066662
|
4180205
|
0.35
|
||
Primary source: OECD
|
|||||
On the subject
of technological delusion, the Portuguese parish rejoiced with Amazon’s – which
is the largest company in the world with its CEO, Bezos, being the richest
human – installation in Oporto. But
what does Amazon do? It receives orders over the Internet – a bit of everything
– and seeks suppliers, subsequently forwarding the products to the ordering
party; with paid in advance purchases, of course. Thus, Amazon is simultaneously
a financial company and a global retailer of goods that it does not produce and
that it delivers to the customer's door – a large supermarket with no stores.
Imagine many thousands of people directing
incoming orders and many more in the arduous task of logistics, which includes
the reception of large quantities and varieties of orders at ports and
airports, the fare for warehouses, grouping and ungrouping practices, truck
loading and driving until the retail network is reached and ending in the
direct delivery to the buyer. For those who work in logistics, in addition to
the pressure to fight against time, in order to avoid penalties, it is a
painful job (14 hours a day), very poorly paid (€ 1200 gross per month in
Germany in 2013) and which can’t be held for more than a few years, given its
strenuous character that can reach deliveries in 130 locations per day [7]. When
it comes to technology companies, the media and the political class
always present the image of creative and well-paid work for highly qualified
staff; but they do not say that these jobs are always a small minority. Why do
governments talk so much about magnificent investments that they will create
many "jobs", while hiding the real qualifications and low wages that
the vast majority of those precariously employed will receive?
Resuming the line
of thought about the non-stepping out of the crisis, it can be seen that the neoliberal
measures neither are able to raise the real level of the fetish GDP, nor do
they reduce inequalities or increase security and tranquility in vast areas of
the planet; on the contrary, by creating unpaid labor obligations (overwork hours,
traineeships, work grants for subsidies), a return to the medieval corvées is
becoming commonplace. Against the neoliberal model, the Keynesian school’s
competition is week clinging to the already dead and gone time of
the 30 glorious years.
As a whole,
neoliberalism tries to apply technical measures to "markets" so that they
function and GDP grows, in the sense that the human mole remains passive,
imbibed and drunk on consumption and debt. This convenient conservatism is well
expressed in the slogan for Davos-2018, "Creating a shared future in a
fractured world". The custodians of this sharing (the rich, of course)
like this fractured world, whose fractures and inequalities (they, the
capitalists) reproduce every minute. To sweeten (eternizing) fractures, Davos
proposed a qualitative easing suggested as a way of standing apart from
the gray central bankers’ practice of quantitative easing; a proposal for
a "greener, fairer, more respectful of diversity and especially gender
parity" world, a politically correct discourse that should delight the
cream of the political class and the business world, in attendance at Davos.
On the other
hand, global trade is far from joyful and already raises protectionist measures
with the Trump administration, without more expeditious ways of avoiding China's
forthcoming world leadership - revealed at the Davos 2017 session where Xi
Jiping was the star – by assuming itself as the engine of the global economy
and the great climate champion.
It remains to be
seen whether China will avoid its own real estate bubble and the high levels of
debt held, singled out as a gray rhinoceros which no one should
approach; and
whether the Fed and the ECB will be able to withstand the next financial system
crisis since, according to Kenneth Rogoff, central banks “do not even have an A plan to deal
with it”.
Source:
Michael Roberts Blog
At the political
level, market democracies are routines that do not even excite the voters, as
shown by the political classes’ teeth grinding in face of the high abstention levels;
this model of adulterated representation generates products such as the Trumps,
Orbáns, Kaczinskys or the aseptic Macron... Nationalism reappears following the
failure of the integration policies, turns into xenophobia in the face of the
arrival of millions of migrants running from misery and war, and will tend to
be assumed as fascism in the near future. Worse, and contrarily to recent past
times, there are no leftists with an up-to-date understanding of reality, nor
project or mobilizing capability, siding with the referral of the neoliberalism
victims to the routine vote, for a false choice between right-most or
less-right formations.
3 - The dominant
neoliberal logic
The neoliberals see the crisis dragging on as a result of the central
bank's delay in lowering the interest rate and applying the quantitative
easing (QE) that has been making a celebrity out of Draghi.
It will not be exactly so for two reasons. One, given the continuity of the bank’s lending
program that ECB has been executing for more than three years, always
implicitly letting it be known that it will not be eternal; and second, because
the ECB, still in 2007, flooded the banks with a money injection, as we
mentioned in point 1 of this text. This monetary financing, which has been
promoting very low and even negative interest rates [8], should
theoretically favor investment – which has not happened. Even if in the EU in
2016 there are 25% less banks and 14%
less in assets as compared to 2008, it cannot be
said that the concession of credit goes through a great euphoria.
The ECB has been waiting for inflation to rise as evidence of the
"warming" of the economy, to then end the quantitative easing;
which seems to be a caricature of Article 127 (1) (on monetary policy) of the
Treaty of Lisbon which states that "The primary objective of the European
System of Central Banks, hereinafter referred to as the" ESCB", is to
maintain price stability"; that is, to counter inflation.
On the other
hand, the last mentioned source indicates that the assets of the investment
funds grew 160% in the period 2008/16, in a reaffirmation that the metier
of those funds is the real estate and stock speculation; no business involving
the production of goods or services can achieve, for eight straight years,
recovery rates of 20% per year. At the sound of the first signs of an upcoming
bubble blast they will be liable to sell their bonds with the minimum losses
and then prepare to purchase the "fat chicken for little money", the
squandered assets. In Portugal, the troika forced the sale of the State’s
enterprises and stakes; in the case of the nationalized BPN, the same was sold
for € 40 M, after the state has concentrated the losses
and waste in a vehicle or bad bank called Parvalorem. In this case, what
was sold was not a chicken, fat or lean but ... the feathers.
The function of
the regulators, particularly the ECB, is not to prevent the next bubble from
bursting but to maximize the delay of the bursting moment. It is with this
concern that the "market" and central banks yearn for a self-sustaining
economic activity, for businesses and families to get into debt, thus feeding
the cascades of securities, embedded in each other, through securitization
mechanisms. However, growth... does not happen, as has been shown above; if
China, the great animator of the world economy, with its GDP growing 6.9% last
year, catches a cold, where will the pneumonia manifest itself? Trump cautiously
opted to increase armament internal orders, as we mention in the epigraph, a move
which is anything but reassuring.
In the debt
chapter, neoliberals say that governments should reduce it so that there is no lack
of credit for the investing activity; and, complementarily, push for the
reduction of public spending in the health, wages, education, and pensions
areas (the word austerity, meanwhile, has left the scene). The multinationals
and the financial system naturally prefer that tax money be used for public
investment in infrastructure in support of regional development so that entrepreneurship
can be seen in the form of a capitalism that misers its own capital but is
thirsty for subsidies, incentives, exemptions, guarantees, pardons, and prescribed debts to
the State and Social Security. And, even in
meeting public needs, they are sufficiently inventive to foster public-private
partnerships, where public services are awarded to private individuals
(motorways and health services, education, services or transportation), paid to
"investors" with high profitability, ensured through tax money
transfers; stolen by the political class, collective holder of the pot’s key. What
would become of the Lusoponte, Brisa, CUF, Luz-Saúde and the Catholic church if the flow
of public funds addressed to them were to be ended? These partnerships are
risk-free partnerships between businesses and governments, with politicians on
both sides of the table and dirty money moving underneath it.
All this happens
while wisely taking advantage of the absence of an European left capable of
generating contestation; and, additionally, with the cordial presence of the
unions’ bureaucrats in social agreement with the scent of corporatism, a kind
of trinity, with a father who governs, a mother who manages the house and a
challenging, but obedient, son.
They conceal, of
course, that in the public debt increase the banks’ redemption or the
absorption of its ill-fated credit had a decisive weight. As it is known, in
Portugal, in the BPN, BES, Banif, and the state-owned CGD cases, according to
the Bank of Portugal, the Portuguese banking
system lost € 50,000 M (about 27% of the GDP in 2016!); and much of
that loss was transferred to the state, deducted from the income of the tax paying
population. As it is also known, Ireland submitted, in order to be intervened
by the troika, a deficit of... 32% resulting from the absorption of the Anglo
Irish Bank losses; and the Spanish state has restructured its banking system
(as we referred to in 1), compromising the income and lives of millions of
unemployed and with hundreds of thousands of people stripped of their homes.
Olivier
Blanchard is high ranking IMF officer who in May 2017 was in Portugal to indoctrinate
the Portuguese political and financial elites, on the neoliberal doxa. In his
learned opinion, the break-up of the financial bubble in 2007/8 had nothing
inherent to the capitalist system but "was the result of the financial
imprudence of several unregulated banks" or of "financial
panic" [10]; the
wild attitude of rancid sheep, a misfortune, as such. Eugene Fama, a recent
Nobel laureate in Economy, is more modest: "We do not know what causes
recessions" and "economic theory is not very good when it
comes to explaining the swings in economic activity”. Such assertions
exemplify the petrified thinking of people that are so integrated into the
capitalist system they are not capable of subjecting it to criticism, seeming
to adopt the ahistorical position that capitalism is immutable, has a cosmic
character, inscribed in the stars.
One of the
cardinals of Keynesianism, Krugman, in May 2016 while being in Portugal, after approving other government measures,
considered that "the minimum wage seems to be higher than the country
can afford" and "I think it can be a stopper on the economy"...
The set of those living of a total wage volume of 44% of the global GDP can
certainly accommodate modest increases in the minimum wage. If those unable to
accommodate it are a real social minority - the patronage - it is because they
are not competitive and must change their lives, to follow Krugman’s reasoning,
who certainly defends the rules of the market. Krugman must strive for an
approach towards the workers of Bangladesh or Vietnam, as the wages paid in
Portugal and Greece are already at the Chinese’s level.
As we have
learned from the "nobel" Krugman, being competitive requires the
sacrifice of a population, poor and harassed by years of austerity, and that the
multinationals would be grateful if this leveling would be made at the expense
of the underdogs. The same Krugman, in tune with fellow neoliberal Fama
also points out in his book on the crisis "End this Depression Now"
that there is no need to explain the recession but there is need to adopt
policies to get out of it. Very practical and unscientific and Krugman, without
knowing it, subscribes to a well-known Portuguese saying "all together now
and faith in God"; or, if you’d like, the liberal faith on the invisible
hand...
Keynesian
technocrats do not deepen the analysis of crises and the limitations of
economic policy followed by state or multinational institutions because, as
conservatives, they do not want to confront capitalism in its exhausted reality.
They seek refuge in macroeconomic models with hundreds of variables, in the search
of harmonious growth, with the hypocritical equity reflected in the above
mentioned recent Davos forum (see paragraph 2). Any ideology or religion
carries in its genes the refusal of facts and realities that can question it...
or even the ostracizing or persecuting of the unbelievers. We recall here a
hilarious and disastrous attitude of Portuguese Keynesians, defending that the
Passos government – the diligent troika official and big public debt
subscriber – would do... an auditing of the public
debt.
The early economists, with Adam Smith, Ricardo and Marx at their head, took
political economy as a discipline to analyze the nature of capitalism as an
economic, social, and political system. Later, with Jean-Baptiste Say, the
marginalists, Alfred Marshall and the heavyweights of neoliberalism, economy
abandoned its "political" complement to become a mere calculation,
applied to a reality disjoint from historical time; the stupid attitude of
those who want to adapt reality to their ideological prejudices.
In that context, reactionaries - Keynesian or neoliberal - stopped
analyzing capitalism, its effects on social life, taking the economy as a set
of management techniques [11] as a
set of technical coefficients integrated in econometric calculations. The
poverty of the current economic analysis in the face of the crisis that has
been dragging since 2008 is integrated into the continuity of the neoliberal
approach, and a new formula for the management of capitalism does not arise in
the sense of replacing neoliberal prejudice, as happened in the 1970s when it
overcame the reigning Keynesianism; which, in turn, had been imposed as a
resolution of the crisis of 1929/33, for which liberalism had proved impotent.
This and other texts in:
[1] In Spain, the
government, first Zapatero’s then Rajoy’s, made the population face a banks’
aid invoice of €122,000 M http://fleed.pt/dinheiro/reestruturacao-da-banca-espanhola-ja-custou-122-milhoes-de-euros. In turn, the Oliver - Wyman assessment
“Beyond Restructuring: The New Agenda - European Banking 2017” shows a diagram
of the mergers that led to a large concentration of the banking system in the
Spanish state.
http://www.slideshare.net/durgarrai/nacionaliza-of-banca-piada-ou-mistificao
[8] For zero or negative rates, the acronyms ZIRP -
Zero interest rate policy and NIRP - Negative interest rate policy,
respectively, are used.
http://www.slideshare.net/durgarrai/economicismododo-mental-do-neoliberalismo
[10] This and other situations on this matter can be
found in "The Long Depression" by Michael Roberts
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