The blood on the criminals’ hands is thick and won’t wash away

On Monday (July 8, 2013), the IMF released its “preliminary findings” of the – Article IV Consultation with the Euro Area. The nomenclature and turn of phrase alone are symptomatic of the organisation’s incapacity to come to terms of the problem it is addressing and its own role in creating and perpetuating the problem. On the one hand, they clearly acknowledge that “the economic recovery remains elusive, unemployment is rising, and uncertainty is high”. But on the other hand, they urge more of the same and claim the policies that have created this mess represent “progress”. The Euro area can do two things to improve the situation of citizens who live within it. First, abandon the voluntary fiscal rules which have not theoretical justification and allow nations to expand deficits to address the massive output gaps. If need be, fund the deficits via the ECB. Second, once the crisis is over, create a process whereby the monetary union voluntarily dissolves itself in an orderly manner. That is the only sure way of minimising the on-going damage. Oh, and third, withdraw all funding from the IMF and enter multilateral negotiations to create a new agency that helps poor nations defend themselves against speculative attacks on their currencies. And, while I am at it, fourth, reach an international accord to outlaw any speculative transaction that does not advance the real economy. That will keep them all busy and get the millions of people that the IMF and the Euro elites have deliberately made jobless busy again too.

Madame Lagarde has been trying to wash her hands endlessly over the last few years as growth has crumbled. But the blood sticks – thick and immovable.

Remember this interview October 10, 2010 when she was the French Finance Minister where she claimed that fiscal austerity is necessary for growth because the private sector will not spend until deficits are tamed. Only watch it if you want to be ill.

Among her statements, this one is classic Ricardian Equivalence:

In terms of growth versus austerity its the policy that we have adopted in pretty much all European countries that we need to address both issues. If we do not reduce the public deficit, it is not going to be conducive to growth. Why is that? Because people worry about the public deficit. If they worry about it, they begin to save. If they save too much, they don’t consume. If they don’t consume, unemployment goes up and production goes down.

That interview was one of many she gave urging the Euro elites and the IMF to go hard on Greece to ensure the government pursues a massive austerity program.

This is the classic belief that a fiscal contraction expansion is possible because consumers and investors will realise that tax rates will not rise to pay for the higher deficits and so they will stop saving for the future expected tax rises and start to spend. All of this is going to happen, so the story goes, even though unemployment skyrockets, pensions and wages are cut and sales collapse.

Firms are going to happily invest in new capacity, so the story goes, even though the existing capacity is more than enough to meet current demand and sales are falling fast, because they hate high deficits.

Such impacts have never been witnessed. The empirical veracity of these Ricardian notions is zero. Over and over again, mainstream economists have wheeled this idea out as a so-called “theoretical justification” for cutting government net spending and the relevant economies have gone further backwards.

The blood is thick and won’t wash away.

Since becoming the IMF boss, Madame Lagarde has toned down some of the austerity narrative and has more recently been talking about a need to emphasise growth and jobs.

In presenting the “2013 Article IV Consultation with the Euro Area Concluding Statement of IMF Mission”, the Madame said:

Over the past year, substantial actions at both the national and euro-wide levels have been taken to combat the crisis … But despite this progress, the economic recovery remains elusive, unemployment is rising, and uncertainty is high. Additional policy measures are required to fully restore confidence, revive growth, and create jobs.

Note the nomenclature that is entering the public debate – the use of the word “despite” and “progress”. Remember that Guardian article the other day, which I covered in this blog – Ireland still located in the Irish Sea despite multibillion-euro austerity drive.

So – Austerity is progress and despite it the Eurozone is still collapsing! What a mystery the Madame is posing for the world to consider.

That is the sort of line that we are now getting.

But – a leopard cannot change its spots. The IMF recruited Lagarde because she is one of them – a neo-liberal. She also has very little understanding of economics despite her luxuriously paid positions in the past and present.

They know full well that austerity is killing growth. Their revised modelling – that is the modelling that you do when you admit that the first modelling that was used to justify the austerity (as part of the Troika imposed death sentence on Greece) was wrong – tells them that.

So how do they massage that and still command centre stage?

Simple, ignore the reality.

The Article IV Statement claims the problem is the “financial fragmentation across national borders” (banks won’t lend) and there are even “deeper structural reforms throughout the euro area remain instrumental to raise growth and create jobs”.

They also claim that “continued demand support in the near term” is required but when you read what they mean by that you get:

… more monetary easing will likely be necessary to support demand … [and] … The recent extension for some countries to meet deficit targets will moderate the downdraft from fiscal consolidation on growth but more flexibility may be needed. Current targets could still prove ambitious if growth disappoints.

And “fiscal adjustment in euro area countries should be carefully paced to avoid an excessive drag on growth”.

If there weren’t millions of people unemployed, suicide rates rising and a whole generation of youth being disadvantaged for the rest of the lives, we would think this was some sardonic comedy and laugh our heads off at the sheer audacity. It must be a send-up would be the first response.

But we have seen the blood on her hands and the rest of them. Its thick and won’t wash away. Its real. This is no laughing matter.

The IMF propose “four priority areas” that should be the basis of renewed policy action.

They are:

1. “Restoring the health of banks’ balance sheets” – they claim that credit growth is being constrained by banks unable to determine the quality of their held assets.

There is no doubt that many zombie banks are present in Europe and a major process of restructuring (nationalisation included) will be required. But even if the banks were sound, there would be a low rate of credit growth in the Eurozone.

Why will firms invest when nations are going backwards at rates of 5 or 6 per cent a year? When the overall monetary union has contracted for the last three quarters? When millions of people are unemployed and not spending much?

Bank lending in Europe is not up against a binding capital constraint at present. Rather there is a dearth of credit-worthy customers who are willing to entrench themselves further in debt while their economies continue to go backwards as a result of their governments deliberately undermining any prospect for growth.

2. “Completing the banking union” – there is no doubt a “centralized authority with power to trigger resolution and make decisions on burden sharing” is required in the monetary union. But that will not generate growth or jobs.

What is required to do that is a centralised fiscal authority capable of addressing asymmetric aggregate demand shocks with appropriate deficit responses. The IMF say nothing about that. What is actually needed for growth is not going to be possible given the politics of the zone. At present the ECB could play this role but that would be undesirable given it is not an elected and accountable authority.

3. “Taking further steps to support demand in the near term” – As above.

Two major points. First, the continued faith in monetary policy to stimulate a massive shortfall in aggregate demand flies in the face of the evident and theory. The low interest rates are not sufficient to induce people to borrow and spend when unemployment is rising and growth collapsing.

All the other balance sheet tricks that the ECB has pulled have not been growth supporting. They have just staved off a financial collapse, which is a different thing.

Second, we keep reading about “growth friendly fiscal consolidation”. There is no such thing. This is back to the Ricardian point made at the outset. They still believe (or want us to believe) this nonsense.

Spending equals income which generates employment growth. If one sector cuts spending and the other sector doesn’t fill the gap then growth falls and income and employment is lost.

In Europe at present, the private sector will not fill the spending gap created by austerity. But, moreover, even if it did, it would still leave a massive shortfall in overall spending. Some nations need to double their deficits (at least) as a percent of GDP right now.

Slowing the pace of fiscal austerity just slows the death that the spending cuts inflicts. Until that reality enters the debate, the zone will wallow in its recessionary-state.

4. “Pushing ahead on structural reforms” – the old faithful. Privatise, cut welfare, cut employment protections, cut wages, increase work intensity, etc.

The IMF claim they want to “remove barriers to protected professions, promote cross-border competition, and, ultimately, raise productivity and incomes”.

Even if this was achieved, we are talking about a second-order of smallness in gains when compared to the massive gains that would be forthcoming if the spending gaps were closed with fiscal stimulus.

All the credible literature tells us that the so-called microeconomic inefficiencies (and there is strong debate about their delineation and existence) costs that are dwarfed (many times over) by the macroeconomic inefficiencies of mass unemployment and persistent output gaps.

The two losses cannot be compared. And further, microeconomic reform is more effective when resources can transfer more easily across borders and across sectors/occupations etc. That doesn’t happen during a major recession. Recessions slow down resource transfers except those which move from employment to unemployment and/or out of the labour force altogether.

The literature also indicates that privatisation results in massive job losses typically. And, it is obvious that cutting into wages and protections such as the health system etc undermine current spending and future productivity. There is a strong evidence base for those conclusions.

We read in the Guardian overnight – Eurozone throws Greece a €3bn lifeline – that the Troika has demanded further cuts in Greece which will include:

… a painful programme of public sector job losses mainly affecting education.

Some 6,500 teachers or education ministry staff are either to be fired or put on a “reserve” and sacked at the end of next year if no alternative work has been found. This makes up more than half of the 12,500 public sector jobs on the line, which also include 3,500 police posts. Police officers anxious for their jobs staged protests in Athens at the weekend.

Then their Article IV Statement raves on about stimulating productivity. Decimating a public education system and creating demand conditions where more than 60 per cent of 15-24 year olds who want to work are forced into joblessness is not the path to future productivity growth. Exactly the opposite.


The leopard (IMF) might massage its message a bit more these days but the intent and action is basically the same as it has been for years. They are the front-line neo-liberal commanders who believe in reducing the public sector and refuse to conduct cost-benefit analysis to demonstrate how massive the income losses are that follow from their policies.

And their documents are so full of techno-babble that the personal dimension of their crimes is brushed out of existence.

And don’t for one minute think that deliberately putting millions of people out of work and destroying peoples’ life savings and denying the youth a future is anything but a crime against humanity.

For a sad article from the New York Times (July 8, 2013) on the damage done to Spanish workers from the austerity you might read – Spaniards Fight to Get Savings Back. Shameful … and … criminal.

That is enough for today!

(c) Copyright 2013 Bill Mitchell. All Rights Reserved.

This Post Has 18 Comments

  1. Bill,

    Thanks for highlighting the latest drivel to emanate from the IMF.

    However I’ve got doubts about your claim that Euro problems can be solved simply by “abandoning the voluntary fiscal rules which have no theoretical justification and allow nations to expand deficits to address the massive output gaps.”

    If every country expanded its deficit by the same amount, the result would be excess inflation in the core, and Germany would not wear that. But even if it did, inflation might be equally bad in the periphery, in which case the divergence in competitiveness is not solved.

    It might sound daft to say that there’d be inflation in the periphery given the large amount of excess capacity there, but the historical fact is that Southern Europe is inflation prone. And that point is supported by the fact that the severe deflation being imposed on the periphery IS SUPPOSED to cause prices there to fall, or rise less fast than in the core, but it just isn’t having that effect according to the figures you drew attention to a few weeks ago here:

    So I suspect the only way out of the Euro mess is to abandon the Euro.

  2. The IMF talks a better game than it used to: but it does not change what it does. Form over substance, always. Anyone who imagines they are changing their spots is listening, not looking. The language used is shared by the ECB and it is actively designed to hide what they actually intend, so far as I can see.

    I do not have a background in economics and my grasp of the issues is poor: but some things do not need a technical analysis; a focus on the language used will do

  3. As an ordinary worker and consumer (and now a superannuant) I can never once recall myself in 40 years worrying about the public deficit and deciding to save more as a result. Here are the reasons;

    1. When I was young and naive about economics I didn’t even know or care what a govt. deficit was.
    2. As a young single worker, I spent my money on motor bikes, beer and having a good time and never cared about savings or government deficits.
    3. As an older, sensible, married worker trying to pay a mortgage and raise kids I had to spend all my income each and every year on the mortgage and the kids. Saving was an annual cycle at best. You saved for an annual holiday and Christmas. Oh OK, I mighta saved for a few years for a car but that was it. None of these decisions were ever affected by my knowledge (or lack therof) of the government deficit cycle.
    4. As a superannuant, I do what my good wife tells me and we still spend all our money on pretty much an annual cycle. No decisions based on “saving for future high taxes to pay off the govt. deficit”. Indeed, such suspicions (of future high taxes) would further prompt the thinking “spend it now before they tax it away!”.

    So in summary the notion that, the wages half (very roughly) of the national income makes decisions based on speculation about what future taxes might be, is just an aburd notion. And the “rich half” or rather the really rich 1%, who own half of everything, make decisions to avoid tax yesterday, now, and in the future. They pay bugger all tax so I don’t see why they would be worried about future taxes.

    I remember a year when I was a govt clerk and I read a story that PBL (Packer’s company) paid no tax that year. I was quite proud of myself. My jocular boast was “I paid more tax than Kerry Packer this year!”

  4. Indeed Ikonoclast: there is no evidence that these people have ever met anyone whose living comes from wages – it is easy to see where David Icke gets the idea they are lizards 😀

  5. “If every country expanded its deficit by the same amount, the result would be excess inflation in the core, and Germany would not wear that. ”

    They are not going to expand their deficit by the same amount. They are going to expand their deficit by the amount that excess saving in the rest of the currency zone is draining circulation in their area. That is offset precisely by the excess of saving.

    Excess saving is essentially voluntary taxation. The Germans, et al are voluntarily taxing themselves too much, but nothing is recycling that excess voluntary taxation to the periphery.

    Given a restoration of demand there will be a restoration of output to service that demand – as long as the demand restoration is targeted effectively (ie at the poor and at needs).

    Now you may need to do it slowly – much as you need to warm up a frozen patient slowly – to make sure you don’t overcook things and to allow things to rebalance.

    And yes it would be much easier with a smaller unit.

    But suggesting that it can’t be done is the same as saying that it can’t be done in any currency area because the ‘rich’ bit might object. Plus switching any required reduction in standard of living to those that can afford it is a valid policy choice – even if you expect that never to have to happen.

  6. In 1963 I had read a book by the famous economist Sir W Arthur Lewis The Principles of Economic Planning which he had written circa 1950. The book contained a very short appendix – six pages – entitled ‘On Economic Union’. (After the war, economic union to counter the effects of the USA’s deflationary export surplus was widely canvassed in Europe.) I was impressed by his comments on the politics of union. A few of quotes:

    Therefore economic union involves at least an agreement between all the countries concerned to pursue the same policy with respect to money, prices, wages, investment and employment; and since it is difficult to carry out such an agreement, the logical end of economic union is to have a single government responsible for such matters.

    It would be virtually impossible to carry on an economic union in Western Europe without having a political union with a central government responsible for economic policy. This is not a strange conclusion when we remember the problems presented by local authorities within a unitary state, or by state
    governments within a federation. If local authorities were free to pursue conflicting monetary policies a country would soon be in a mess. We recognise as an elementary principle of political economy, that if there is to be free movement of men, money and goods inside a country, whether unitary or federal, then there must be severe limits on the economic powers of subordinate authorities… An economic union, in fact, will not long work smoothly unless it becomes a political federation, with the more important economic functions of government transferred from the state to the federal authority.

    Now it is a precondition for this further stage that countries should agree broadly to pursue similar economic policies. A union between laisser-faire peoples is easy to achieve, because each of the peoples knows that the federal authority will pursue the same sort of economic policy that its own national government would have pursued. But a people that favours planning cannot live in the same federation with a people that favours laisser-faire.

    I take the view that the economics of the ‘Common Market’ has always been a means to a political end: a United States of Europe.

    The Basta! An End to Austerity report [see below] contains a good description of the consequences of adopting neo-liberal policies, but fails to recognise the intrinsic weakness of adopting a single currency without a full political union. But full union seems an unlikely outcome, even in the long run. And the federalists will not see the break-up of Euroland without a fight. Ameliorative measures have been proposed; see for example the Greek economist Yanis Varoufakis’s contribution in this seminar, in which he advocates what he calls ‘surplus recycling mechanisms’:

    It seems to me – thanks to the MMT developers – that few things are more important to a nation than having its own sovereign currency. (Scots Nats please note ). See also the late Wynne Godley’s article in the LRB, Oct 1992. It contains these words:

    It needs to be emphasised at the start that the establishment of a single currency in the EC would indeed bring to an end the sovereignty of its component nations and their power to take independent action on major issues. As Mr Tim Congdon has argued very cogently, the power to issue its own money, to make drafts on its own central bank, is the main thing which defines national independence. If a country gives up or loses this power, it acquires the status of a local authority or colony. Local authorities and regions obviously cannot devalue. But they also lose the power to finance deficits through money creation [my underlining] while other methods of raising finance are subject to central regulation. Nor can they change interest rates. As local authorities possess none of the instruments of macro-economic policy, their political choice is confined to relatively minor matters of emphasis – a bit more education here, a bit less infrastructure there. I think that when Jacques Delors lays new emphasis on the principle of ‘subsidiarity’, he is really only telling us we will be allowed to make decisions about a arger number of relatively unimportant matters than we might previously have supposed. Perhaps he will let us have curly cucumbers after all. Big deal!

    The much maligned Gordon Brown blocked attempts to take the UK into the Euro with his ‘5 tests’. I expect that those who were so keen on joining stay rather shtoom these days.

    Basta! An End to Austerity “is a new book that presents a positive vision of how Europe can arrest its decline and restore hope through genuine changes in economic governance and much greater democratic control. Co-authored by S&D Group president Hannes Swoboda and independent journalist and former Guardian European business editor David Gow, the book takes a detailed look at how the Left’s alternatives can be achieved.”

    e-book downloadable here:

  7. The IMF’s ability to compartmentalize to schizoid levels is almost unbelievable. They have just reported that while growth in the UK isn’t what they had hoped it would be, in 2014 it will improve. Meanwhile manufacturing isn’t improving. Osborne has already mentioned that this shows that his program is working, and he goes so far as to contend that the system is is beginning to recover – though no mention of green shoots. This is after they came over to tell him to slow down his austerity measures, after which of course he increases them in the spending review. This is worthy of psychological investigation in order to see what particular pathology is operational at any given time.

  8. Neil,

    Strikes me the problem with your idea is that the Germans have already loaned big chunks of their savings to Greece, etc, and Germans now think they might as well lend money to a drunk. They’d be throwing good money after bad.

    A fiscal union would help solve the problem – i.e. grants or gifts by more competitive countries to less competitive ones. That’s the equivalent of assistance given by the South East of England to the North East. But there are limits to how big those grants can get before core country taxpayers begin complaining.

    Like I suggested above, if periphery competitiveness was improving at a reasonable rate relative to the core, my advice would be to stick with the austerity for a couple more years, and that might do the trick. But that competitiveness improvement doesn’t seem to be coming. So I don’t see a solution other than break-up of the EZ. Meanwhile the Euro elite continues to exude happy talk and play their violins while the Titanic sinks.

  9. @Larry: there is nothing schizoid or complicated about it. No matter what happens the IMF is always right. This is true whatever they say and no matter how much it is at odds with what they said before or even to someone else at the same time. So far as I can see they are intent on making sure they continue to get their wages, and that is all

  10. Thank you Bill,

    To the point as always.

    I think that politically there is no way that the 21 countries that are members of the EMU would ever agree to a set up of a souvereign curreny. Furthermore, there are no institutions in place that would allow a coordinated money and fiscal policy. Aditionally, even if they would that would not be of much help to the so called European periphery. The Euro and the European Union was a huge neoliberal experiment that failed miserably.

    There is no political party in Germany that shares my view. Only Mr. Lafontaine, a former finance minister and leading member of the Social democrats raised the issue and argued that it is an act of solidarity, that countries introduce their own currencies again. He was depicted as an old man that wanted to be in the spot light again.

    What is going on in many European countries is truly outrageous. However, the majority of the people want to stick with the Euro and nearly everybody is convinced that deficits are truly evil.
    In Germany all the political parties, besides “Die Linke” have decided that a balanced budget is of utmost inportance. We have it now in our Constitution.

    I an personally very concerned that the policies of EMU leadership will lead to the next financial tsunami, who nobody can be interested in. How can stabilize the current situation and how do you think could the process of winding up the Euro could look like? Do you think that suggestions like that of Hankel, having national currencies alongside the Euro?

  11. Ikonoclast and Fiona – Thanks for your eminently sensible and down to Earth comments.

    Brian Lilley – Australia is a federation which works,more or less.This is because it has a common language,a common history and a common culture stemming from the British colonization.Or invasion as our Aborigines prefer to call it.

    Yet there have been and still are points of friction and occasionally some wild talk about secession,mainly in West Australia.
    So what hope is there for political union in Europe with a multitude of languages and cultures and a history of deadly conflict? And,even if possible,is political union desireable? There is strength in diversity not in some monolithic central bureaucracy.And the latter is what is standing in the way of sensible solutions to the problems of the EU and particularly the EMU

  12. Speaking of being down to earth. It’s strange, but it is actually very easy to tell when the elites are telling big lies. The thing is, when the elites are telling lies their stories always violate very simple empirical and logical principles. Here are a few examples.

    Lie 1: The economy can grow exponentially and endlessly.

    Refutation: The earth is finite. A finite object cannot contain within it or on its surface something growing endlessly (ie approaching infinity).

    Lie 2: Anthropogenic Global Warming is not happening.

    Refutation: (a) Man is burning fossil fuels: C + O2 = CO2.
    (b) Most of this CO2 goes into the atmosphere initially.
    (c) The graph of CO2 Monthly mean atmospheric carbon dioxide at Mauna Loa Observatory, Hawaii from 1958 to the present demonstrates a rise in atmospheric CO2 from under 320 ppm (1958) to near 400 ppm currently.
    (d) CO2 demonstrates the property of absorbing outgoing “long-wave” radiation from the Earth’s surface thus trapping and preventing some solar energy from being re-emitted to space.

    Lie 3: (An old one now.) Saddam Hussein has WMD and it is up to him to prove to us that he doesn’t have them. (Alexander Downer, Minister for Foreign Affairs, essentially said this at the time.)

    Refutation: It was known from previous inspections and constant pressure (trade embargoes, no-fly zones etc.) that this was untrue. It has also been proven since that the “evidence” for the case was fabricated. However, an important logical principle of the onus of proof in cases of guilt vs. innocence was also violated in Downer’s absurd statement. Guilt is specific whereas innocence is general. Guilt is a specific act of violation of a specific law or code. If the accuser can prove beyond all reasonable doubt that the act has occured then guilt is established. However, innocence cannot be proved (by the accused) because innocence is general. Any proof of specific innocence at a particular time and place does not establish general, complete or overall innocence.

    To re-use the old cliche, a man cannot prove that he is innocent of beating his wife. He can prove he was not beating her when in other company and not in the company of his wife or not beating her if she was present too in the company and not being beaten (the first an alibi, the second corroborated by witnesses) but he cannot prove he does not beat her in their private, unobserved moments. Thus the onus of proof must be on the accusers. “Innocent until proven guilty” is not really a moral principle. It is essentially a logical principle following from the proscription of certain acts and then the need to prove that a proscribed act occurred. It is a basic logical principle because of the impossibility of proving the converse i.e. proving general and total innocence.

    A number of the economic lies of neoliberalism follow this same pattern. They can be refuted logically and empirically as Bill Mitchell demonstrates over and over. Once you see each refutation (have it demonstrated to you) it is clear that the logical principles are essentially straightforward. What is not so easy of course is marshalling all the evidence which is a complex and exacting business and which Bill Mitchell does so well.

  13. My above comment was a bit digressive. I ought to bring my discussion back to economics.

    The two obvious basic lies of neoliberal and bourgeois economics are these.

    Lie 1. Unemployment can’t be corrected by the state.

    Refutation: This statement assumes that a modern, effective, democratic state cannot organise any mass action or mass outcome desired by the majority of the polity. If this were true such states would never have been capable of waging total war in times of crisis. e.g. WW2. Such organisation required near total mobilisation, conscription of men, requisitioning of materials, rationing and at least partial suspension of various market operations in favour of state mandated actions.

    The empirically proven capacity of democratic states with mixed economies to mobilise in this way proves that a mobilisation of resources to remove unemployment (a much lesser task than mobilising for total war) could be effected by state mandated actions. Such actions would of course carry various costs and confer various benefits but in principle they could be very easily done from the economic, financial and resource perspectives. Such actions would further involve some redistribution of wealth (in the direction of more equity) and NOW we see why such actions are opposed by the elites; not because they are impossible but because they are undesired and unwanted by the elites.

    Lie 2. Current organisation of ownership (specifically of capital) is the only way to effectively and efficiently run our economy.

    Refutation: As a first point, this lie presumes that our economy is effectively and efficiently run. It is not. The existence of significant capacity under-utilisation (unemployment and idle plant and assets) proves that our economy is not effectively and efficiently run. Lack of planning and action for dealing with limits to growth, the needs for long-run sustainability and environmental problems (including climate change) also demonstrate that our economy cannot possibly be effective and efficient in the future whilst these problems remain unaddressed.

    The existence of effective worker collective enterprises, in the US, Spain and elsewhere proves that management and ownership can be worker functions and that separate classes of managers and owners are not required. The Alverado Bakeries in the US are worker collectives, owned and managed by workers. The experience of such collectives (the proven empirical outcomes) is that they are efficient, effective, viable businesses and that the workers earn two to three times the incomes of workers in capitalist owned bakeries. This gives you some idea of the proportion of worker output (once output is sold) that is channeled to capitalist owners. In summary, every worker in the land (USA or Australia) could earn about twice as much (at a minimum) if capitalist owners were removed.

    A little considered fact is that every wholly family owned and run business is actually a collective. When people claim small (family) business is the backbone of the economy (whether this is actually true or not) they are in fact claiming that collectives are the backbone of our economy. It’s an interesting thought and rather ironical.

  14. “Because people worry about the public deficit.”

    Ikonoclast did an effective job of breaking down how common people probably respond to the deficit. This lie is so ridiculous in hindsight, it’s remarkable that more political observers aren’t stating the obvious.

    Here in the US, I know for certain there are people who worry about the deficit, but I think that only happens because they have dire news about the deficit relentlessly jammed down their throats by the popular media. Media may even have the greatest responsibility for perpetuating this lie. Even then, I don’t think ordinary people make personal financial decisions based on the deficit. Where’s the precedent for raising taxes in response to the deficit? Even the GOP party doesn’t want that. When has that tax increase taken place in the past 20 years? The Omnibus Budget Reconciliation Act of 1993 is the last example I can find that purportedly was enacted to reduce the deficit. (And since I’m younger than 50, I don’t recall much about events before that.)

    On the other hand people *do* worry about unemployment, and I feel certain based on what family, friends and coworkers tell me, that some purchasing decisions are deferred based on concerns about long-term employment. Unemployment here does get some press, but not the same press as the federal deficit. One would get the impression listening to political commentators that unemployment is somehow a secondary concern, or even caused by the deficit, even in the absence of evidence to show cause and effect.

    Another factor that sways public opinion is the emergence of “grass roots” lobbying organizations that try to warn us about the dire consequences of continued deficit spending with names like “Bankrupting America” or “Taxpayers for Common Sense”. Oddly, I haven’t seen many (any?) similar lobbyists for unemployment. I’ve been unable so far to determine precisely who is behind these campaigns or whom they represent. One might think that Wall St. investors are among the most powerful or influential in American politics, yet the evidence is strong that Wall St. loves stimulus whether in monetary or fiscal policy.

    So where does the neo-liberal movement really come from?

  15. Jeff asks an interesting question and goes a good way to suggesting the answer. The question is this. Who is behind these (austerity) campaigns or whom do they represent?

    Jeff suggests that Wall St loves stimulus or ought to if it understood its own best interests. This is true in a partial sense. Wall St loves stimulus of some forms but not of other forms. Indeed, different sectional interests within Wall St love different forms of stimulus (if they understand their own best interests). We have to unpack why this is so. “Wall St” of course is not an homogenous group. Two of the clearest major divisions are financial capitalists and industrial (manufacturing) capitalists. Financial capitalists and industrial capitalists have rather different interests. And it is the heavy financialisation of our late stage capitalist economy which is pushing this variance of interests to the fore.

    In particular, the interests of financial capital have come to dominate the US economy and how it is managed. Financial capitalists love and favour low taxes (a form of targeted stimulus for the rich after all). Financial capitalists also love austerity for the poor, low wages for workers and QE (Quantitative Easing which is a form of channeling stimulus into the banks, financial system and the increasing of share and asset prices). Financial capitalists are not interested in real production (real work, real goods and real services) except perhaps in a secondary way. They are primarily interested in accumulating financial (paper) assets and then protecting the system which guarantees and maintains the value of that paper wealth.

    Financial wealth can be accumulated fastest when financial capital and operations become “parasitic” or “catabolic”. They parasitise on and break down the real economy and this is the mechanism used by financial interests for concentrating (not creating) wealth. Indeed, the total wealth of the whole economy is reduced but an enormous proportion of the remainder is concentrated in very few hands. Clearly, such a system is unstable and unsustainable long term. However, the various financial interests depending on their levels of economic sophistication either don’t know or don’t care about long term sustainability and stability. The most sophisticated even know that they are generating a collapse (which will endure for some considerable period) and plan precisely for that end game part of the cycle.

    Austerity policies now are end-game policies designed to lock in the great accumulation of wealth already concentrated into few hands and to prevent it leaking back (via public works and welfare) to the many hands of the workers and the poor. At this stage, collapse in production is not feared by the financial interests so long as their paper wealth is locked in, hedged against inflation and enhanced by stagnation or even deflation. The shortfall in production will be felt by the poor as austerity, indigence, dearth or material shortages but there will be sufficient remaining real production and sufficient real goods left in store and accumulation from the last up-cycle to meet the onging needs and greeds of the rich. A depression means nothing to them and a delationary depression further enhances their wealth both in relative and absolute terms.

    The interests of industrial capitalists are somewhat different. They are hurt by the above processes and if they understand their own best interests they do want good levels of employment, wages and plant utilisation. As Bill Mitchell says wages spent always equal someone else’s income. Well paid workers can buy the industrial capitalist’s production so he wants other industrial capitalists’ workers and even his own (it turns out) to be well paid so they can buy his products.

    So more than anything, I think, it turns out that the financialisation of the economy and the interests of the financiers are what is really behind the current neoliberal policy cycle (now about 40 years in duration and still counting). In its final stages (about 2008 till now and still counting), it is a parasitic or catabolic (breaking down) stage in the unstable economic cycle of unregulated or poorly regulated capitalism. A high concentration of wealth in a few hands can be achieved despite partial catabolism (a breaking down) and thus a partial reduction of the total wealth of the entire system.

  16. “Strikes me the problem with your idea is that the Germans have already loaned big chunks of their savings to Greece, etc, and Germans now think they might as well lend money to a drunk. They’d be throwing good money after bad.”

    The problem is that if they don’t, then the existing savings are automatically destroyed by the reverse feedback loop as the existing ‘loans’ go bad over time. Insufficient spending causes the economy to shrink.

    The choice is always that you accommodate the excess savings of the non-government sector, or you eliminate them.

    And you either eliminate them by taxing them out of existence if they occur – which encourages the necessary spending, or they get eliminated in a tsumani of bankruptcy and capital destruction as the economy implodes.

    “hat’s the equivalent of assistance given by the South East of England to the North East. But there are limits to how big those grants can get before core country taxpayers begin complaining.”

    Then you need to do it in a way so that the core taxpayers don’t start complaining. Because it needs to continue to happen indefinitely for as long as the ‘South East’ people want to save to excess.

    Primarily by explaining that if you remove the ‘grant’, then tax on saving has to go up markedly to force the ‘core taxpayers’ to do the replacement spending instead.

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