Tuesday, September 6, 2011

Rant corner

This is the bit where we can say what we like.

Here is a recent one of my own.

It is possible to suggest a fairly simple explanation for what is happening, although the solution suggested by such an explanation would be far reaching. Anyway, putting my economic historian hat on and as an avid analyser of capitalism over the last 40 years here goes.

1. Value of any sustainable good or service depends on someone ‘adding value’ through labour.

2. Investment in nearly all advanced economies has moved away from this form of production as the rate of profit has declined in these areas of activity relative to profitable in areas like finance. I can suggest an explanation as to why this is so, but just stay with the argument for the moment. Put simply if you can turn money into money and make a profit why bother with the messy business of employing people and investing in equipment.

3. The financialisation of the international economy has grown out of all proportion over the last 50 years. In the stock market valuation of US companies the ratio of financial corporation profits to non-financial corporations’ profits had risen from about 6% in the early 1950s to the early 1960s to around 26% in 2001. Global financial assets were equal to 316% of annual world output in 2005 as against only 109% in 1980.

4. Money to money profitability is very risky however, it is basically a poisonous game of an ever faster ‘pass the parcel’ with the loser who ends up with all the useless investment going bankrupt and having to be bailed out by the state when the crisis hits. The winner meanwhile runs off with massive profits.

5. As the role of financialistion grows in the economy the bigger the risk to the whole economy and this is what happened in 2008. Essentially around $10 trillion in global wealth went up in smoke. A sum greater than the whole output of the EU economy in a single year.

6. Essentially that is a ‘deflationary’ effect. $10 trillion in effective demand is removed from the international economy at may yet translate into actual price falls.

7. Initially governments have printed money ‘qualitative easing’ and borrowed to try to plug the hole left in total world demand. The hope was stimulate a Keynesian economic multiplier effect whereby government spending leads to jobs and wages, which leads to demand and more jobs and wage etc.

8. This was starting to happen but the financial markets already spooked by the higher risk they experienced in 2008 have become wary of government borrowing to fill the demand hole. Hence they stop lending to governments unless at very high rates.

9. So how else do we fill the $10 trillion hole? Well, argue the capitalists, by bringing supply and state spending into line with the decreased money and capacity that is left and at the same time increase the rate of profit to encourage investment. And how is that to be done if not through the multiplier? Making the working class pay in every way possible in terms of jobs, social benefits, pensions, selling state assets as in Ireland, Greece, Portugal, Spain, Italy, UK and the now the US, to again raise the rate of profit on other forms of investment and in the very painful long run, start investment going again. However it will only happen if the goods can be sold for money and that will only happen if effective demand starts to increase again for goods and services. But if the state is not purchasing and real wages of have fallen that can't happen. Ipso facto: back to point 2.above.

10. Capitalism will survive if the working class is now prepared to permanently pay the cost but at an unequal and lower level, hence the fightbacks across the world: they are all about who will pay the cost of the bankers crisis. A crisis they created by chasing money to money profitability. It is their way of life against ours.

11. Answers? Well if we are not to accept the cuts and Keynesian economics are not working we need to consider what the economy should really be about and moving large sections of economic activity, finance and investment out of being used just to increase the rate of profit and orientate it through a democratically controlled planning process into the adding of value for the social and public good: in old fashioned terms production for need and not for profit. Back to point 1.

There we are, now just add yours... 

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