The Euro crisis, the move to austerity measures and budget deficit reduction, the disregard for policies to stimulate growth can all be traced back to the actions of one single group: the one percent.
That famous one percent from the 1% vs. 99% formula the Occupy Wall Street movement has brought up to the front of the scene.The focus on social inequality was no doubt Occupy Wall Street's major contribution to the debate on how to solve the Great Recession that started in 2008 and is still not over in spite of some recent improvements in the US. Plus the situation in Greece is rapidly deteriorating: it looks like default by March 20, probable exit from the Euro and then all bets are open: will the Euro collapse? I don't think so, but the situation is dire. Labor reform is at the centre of the debate, and it's not a question of job creation but of belt-tightening: fewer jobs, cuts in salaries. Ask the Greek what they think!
Massive unemployment is still with us on both sides of the Atlantic. I know, Americans have just received some good news about their unemployment rate but the truth is that nobody expects America to reach full-employment before...2019! And unemployment is worse among the young, reaching peaks of 50% in places like Spain, Greece or Southern Italy and it's pretty bad in several American States too. Perhaps the most surprising is that unemployment also affects the college-educated...our modern society produces technical marvels but cannot solve the problem of unemployment.
Unemployment is unquestionably the NUMBER ONE problem of our times, yet it's been kicked under the carpet, obfuscated by a misplaced concern for fixing budget deficits - a concern that is turning into an obsession.
We are told all day long by the media that budget deficits are the real problem. A parallel is drawn between state budget and our own as private citizens: if we are able to keep our income in balance with our personal expenditures, as any responsible individual should, the State should be called on to do the same.
It sounds reasonable and virtuous.
Actually, it's idiotic.
A state budget cannot be compared to an individual's budget. It's like comparing a pyramid with a sand castle, a mountain with a mole. One is collective and institutional - it represents the budget of a community (millions of persons) and expenditure planning over time (up to 20 years) - while the other isn't. It's individual and short-term. Each of us balance our budget (or try to do it) on a monthly basis and we don't go beyond our family responsibilities.
Looking at a state budget over the long run - say 20 years - it is obvious that you should balance it over that time period and not try to do it year by year. The Bible talks of cycles of seven years of good and bad times. Business cycles can be shorter or longer, but withing 20 years, you can expect to go through at least a couple of major cycles. That's at least a couple of opportunities to straighten your state budget if it got out of balance.
What do I mean? Simple, the 20 year period gives you a chance - you as a government - to do something constructive about a recession. When business stops investing and retrenches on employment, thus causing a downward spiral in consumption, it's time for you, the government to step in. You spend money on infrastructure, even digging useless holes as Keynes once famously suggested : it's better than doing nothing, because you'll maintain jobs and consumption level in spite of and in the face of the retreat in private business activities.
If you do nothing (as Republicans and British conservatives of the Osborne ilk would have it), business confidence won't be restored: as consumption winds down, businesses see their markets vanish. They are not crazy, they are certainly not going to start hiring in times of disappearing markets!
When times get better, when business is investing and hiring, profits and tax revenues are rising. That's when you start balancing your budget. You should never do it - much less think of it - in times of recession.
Yet, even though our Great Recession isn't over and indeed threatens a "double dip" in Europe, austerity measures, fiscal discipline and the virtue of balanced budgets continue to be blithely promoted by politicians who don't understand anything about economics, starting with Angela Merkel and Sarkozy and outside of the Euro-zone, Cameron in the UK and the Republicans (especially the Tea Party) in the US.
All these austerity policies completely disregard the knowledge accumulated by the science of economics over time. What is most disturbing is the rejection of Keynes historically-proved solution to combat depression. Somebody has to make the economic machine turn over: if the private sector won't, the public sector must kick in. It took the massive expenditures of World War II on military production to lift the US out of the Great Depression.
What war will be needed to lift Europe out of the Great Recession?
Italy's prime minister Monti stands out as an exception among European politicians when he keeps harping that we need to focus on reviving economic growth. He's too good an economist not to know that austerity discourages consumption, hence business investment, thus bringing the whole economic machine to a grinding halt...
So how come so much nonsense is spread around in the media about the recession and means to get out of it?
First, this kind of "media noise" - fed by the systematic downgrading of sovereign debt by the American credit rating agencies - provides speculators, i.e the 1%, with the perfect opportunity to make loads of money. The rating agencies are not entirely innocent: they are private and cater to the interests of their primary clients, big banks, hedge funds and other speculators.
The 1% bets against the Euro and walks away with millions in profit.
Anyone who's got cash these days would be foolish to invest in the real economy beset by unemployment and weak consumption. So whatever extra funds are sloshing about - and there are a lot thanks to the US Federal Reserve policy of "quantitative easing" (read: printing dollars) - they all go into playing exquisitely 1% games on Wall Street, betting against sovereign debts. The game's been lucrative and it has been going on for quite some time now: the first one that got hit was Dubai, remember? That was almost three years ago.
At this point in time not a single one percenter is interested in the real economy. What business can give you similar returns to Wall Street? None! The financial world has overshadowed Main Street, and the 99% is sitting out in the cold.
Second point, no financial speculator has ever made money out of solving the unemployment problem. That's a boring, difficult problem. A real life problem for Main Street. But if the 1% says the government can't help by spending money on job creation because budget deficits are sinful and hurtful for future generations, well...It only means that recessions will be longer and deeper than they were in the past.
All we've learned from our Great Depression experience has been forgotten!
Yet unemployment is here, it hurts and it continues to hurt. Everywhere, on both sides of the Atlantic pond. A this point in the debate, no one knows quite what to do with it. There's a general feeling it has something to do with technological advances and globalization.
Recently the New York Times posted a fantastic graphic video, "the iPhone economy", showing how Apple has grown to be as big as GM but has only created one tenth of the number of jobs - and most of them in Asia...The job multiplier is very high in manufacturing and very low in services: auto jobs add 5 times as many jobs to the overall economy, while the multiplier for, say, hospital jobs is around 1.7! Take a look at the video, it lasts just 4 minutes and vividly explains why our economic problems are so hard to solve.
As it says, "we've become a nation in which people have fewer chances to climb into the middle class". Fewer chances? Actually, for the young, the chances are nearly none! The middle class is evaporating, everyone is into the 99%! Why? Because jobs in manufacturing have disappeared, that's why! You're either a skilled engineer or techie hired by Apple at high salaries, or forget it...
What is needed fast is a good discussion about how to solve unemployment and not a pointless discussion about deficit reduction.
Solutions? I've blogged about them several times (click here, here and here), obviously preaching to a desert.
People prefer to talk about budget deficits: that's a simple problem, right? The left column must equal the right column. If you try to say that this balancing act doesn't need to be continuous, that it can be done on and off over time, you're accused of selling off the future of your children. Goodness, why? Are you afraid the technocrats in charge of the budget are going to knife you and your children in the back? But the technocrats have children too...
Bottom line, if we, the 99%, were better aware of the ins and outs of the issue, there would be no problem. We wouldn't fall for the 1% self-serving arguments or political discourse aimed at scaring us.
If our politicians learned a little more about technical issues, it wouldn't hurt. Instead, they merely echo the opinions of the 1% - that was especially obvious at the Davos meeting: the WEF is a 1% event if there ever was one!
We might at last have an enlightened democratic government...But I'm afraid I'm daydreaming. We keep electing politicians for all the wrong reasons: because they have a nice smile on TV, they have a warm handshake, they speak well and easily about anything including things they know nothing about. But then, we don't know how well they've been primed. And if they're rich, or supported by rich friends - read the 1% - then it becomes easy: you buy your looks, your speeches, your opinions from the 1%.
Help! Is there an independent politician anywhere?
PS. In case you're wondering, yes, I did that caricature of 1% basking in the sun while the 99% sit under the rain...
That famous one percent from the 1% vs. 99% formula the Occupy Wall Street movement has brought up to the front of the scene.The focus on social inequality was no doubt Occupy Wall Street's major contribution to the debate on how to solve the Great Recession that started in 2008 and is still not over in spite of some recent improvements in the US. Plus the situation in Greece is rapidly deteriorating: it looks like default by March 20, probable exit from the Euro and then all bets are open: will the Euro collapse? I don't think so, but the situation is dire. Labor reform is at the centre of the debate, and it's not a question of job creation but of belt-tightening: fewer jobs, cuts in salaries. Ask the Greek what they think!
Massive unemployment is still with us on both sides of the Atlantic. I know, Americans have just received some good news about their unemployment rate but the truth is that nobody expects America to reach full-employment before...2019! And unemployment is worse among the young, reaching peaks of 50% in places like Spain, Greece or Southern Italy and it's pretty bad in several American States too. Perhaps the most surprising is that unemployment also affects the college-educated...our modern society produces technical marvels but cannot solve the problem of unemployment.
Unemployment is unquestionably the NUMBER ONE problem of our times, yet it's been kicked under the carpet, obfuscated by a misplaced concern for fixing budget deficits - a concern that is turning into an obsession.
We are told all day long by the media that budget deficits are the real problem. A parallel is drawn between state budget and our own as private citizens: if we are able to keep our income in balance with our personal expenditures, as any responsible individual should, the State should be called on to do the same.
It sounds reasonable and virtuous.
Actually, it's idiotic.
A state budget cannot be compared to an individual's budget. It's like comparing a pyramid with a sand castle, a mountain with a mole. One is collective and institutional - it represents the budget of a community (millions of persons) and expenditure planning over time (up to 20 years) - while the other isn't. It's individual and short-term. Each of us balance our budget (or try to do it) on a monthly basis and we don't go beyond our family responsibilities.
Looking at a state budget over the long run - say 20 years - it is obvious that you should balance it over that time period and not try to do it year by year. The Bible talks of cycles of seven years of good and bad times. Business cycles can be shorter or longer, but withing 20 years, you can expect to go through at least a couple of major cycles. That's at least a couple of opportunities to straighten your state budget if it got out of balance.
What do I mean? Simple, the 20 year period gives you a chance - you as a government - to do something constructive about a recession. When business stops investing and retrenches on employment, thus causing a downward spiral in consumption, it's time for you, the government to step in. You spend money on infrastructure, even digging useless holes as Keynes once famously suggested : it's better than doing nothing, because you'll maintain jobs and consumption level in spite of and in the face of the retreat in private business activities.
If you do nothing (as Republicans and British conservatives of the Osborne ilk would have it), business confidence won't be restored: as consumption winds down, businesses see their markets vanish. They are not crazy, they are certainly not going to start hiring in times of disappearing markets!
When times get better, when business is investing and hiring, profits and tax revenues are rising. That's when you start balancing your budget. You should never do it - much less think of it - in times of recession.
Yet, even though our Great Recession isn't over and indeed threatens a "double dip" in Europe, austerity measures, fiscal discipline and the virtue of balanced budgets continue to be blithely promoted by politicians who don't understand anything about economics, starting with Angela Merkel and Sarkozy and outside of the Euro-zone, Cameron in the UK and the Republicans (especially the Tea Party) in the US.
All these austerity policies completely disregard the knowledge accumulated by the science of economics over time. What is most disturbing is the rejection of Keynes historically-proved solution to combat depression. Somebody has to make the economic machine turn over: if the private sector won't, the public sector must kick in. It took the massive expenditures of World War II on military production to lift the US out of the Great Depression.
What war will be needed to lift Europe out of the Great Recession?
Italy's prime minister Monti stands out as an exception among European politicians when he keeps harping that we need to focus on reviving economic growth. He's too good an economist not to know that austerity discourages consumption, hence business investment, thus bringing the whole economic machine to a grinding halt...
So how come so much nonsense is spread around in the media about the recession and means to get out of it?
First, this kind of "media noise" - fed by the systematic downgrading of sovereign debt by the American credit rating agencies - provides speculators, i.e the 1%, with the perfect opportunity to make loads of money. The rating agencies are not entirely innocent: they are private and cater to the interests of their primary clients, big banks, hedge funds and other speculators.
The 1% bets against the Euro and walks away with millions in profit.
Anyone who's got cash these days would be foolish to invest in the real economy beset by unemployment and weak consumption. So whatever extra funds are sloshing about - and there are a lot thanks to the US Federal Reserve policy of "quantitative easing" (read: printing dollars) - they all go into playing exquisitely 1% games on Wall Street, betting against sovereign debts. The game's been lucrative and it has been going on for quite some time now: the first one that got hit was Dubai, remember? That was almost three years ago.
At this point in time not a single one percenter is interested in the real economy. What business can give you similar returns to Wall Street? None! The financial world has overshadowed Main Street, and the 99% is sitting out in the cold.
Second point, no financial speculator has ever made money out of solving the unemployment problem. That's a boring, difficult problem. A real life problem for Main Street. But if the 1% says the government can't help by spending money on job creation because budget deficits are sinful and hurtful for future generations, well...It only means that recessions will be longer and deeper than they were in the past.
All we've learned from our Great Depression experience has been forgotten!
Yet unemployment is here, it hurts and it continues to hurt. Everywhere, on both sides of the Atlantic pond. A this point in the debate, no one knows quite what to do with it. There's a general feeling it has something to do with technological advances and globalization.
Recently the New York Times posted a fantastic graphic video, "the iPhone economy", showing how Apple has grown to be as big as GM but has only created one tenth of the number of jobs - and most of them in Asia...The job multiplier is very high in manufacturing and very low in services: auto jobs add 5 times as many jobs to the overall economy, while the multiplier for, say, hospital jobs is around 1.7! Take a look at the video, it lasts just 4 minutes and vividly explains why our economic problems are so hard to solve.
As it says, "we've become a nation in which people have fewer chances to climb into the middle class". Fewer chances? Actually, for the young, the chances are nearly none! The middle class is evaporating, everyone is into the 99%! Why? Because jobs in manufacturing have disappeared, that's why! You're either a skilled engineer or techie hired by Apple at high salaries, or forget it...
What is needed fast is a good discussion about how to solve unemployment and not a pointless discussion about deficit reduction.
Solutions? I've blogged about them several times (click here, here and here), obviously preaching to a desert.
People prefer to talk about budget deficits: that's a simple problem, right? The left column must equal the right column. If you try to say that this balancing act doesn't need to be continuous, that it can be done on and off over time, you're accused of selling off the future of your children. Goodness, why? Are you afraid the technocrats in charge of the budget are going to knife you and your children in the back? But the technocrats have children too...
Bottom line, if we, the 99%, were better aware of the ins and outs of the issue, there would be no problem. We wouldn't fall for the 1% self-serving arguments or political discourse aimed at scaring us.
If our politicians learned a little more about technical issues, it wouldn't hurt. Instead, they merely echo the opinions of the 1% - that was especially obvious at the Davos meeting: the WEF is a 1% event if there ever was one!
We might at last have an enlightened democratic government...But I'm afraid I'm daydreaming. We keep electing politicians for all the wrong reasons: because they have a nice smile on TV, they have a warm handshake, they speak well and easily about anything including things they know nothing about. But then, we don't know how well they've been primed. And if they're rich, or supported by rich friends - read the 1% - then it becomes easy: you buy your looks, your speeches, your opinions from the 1%.
Help! Is there an independent politician anywhere?
PS. In case you're wondering, yes, I did that caricature of 1% basking in the sun while the 99% sit under the rain...
Comments