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To Krugman, the increasing "ideological blindness" of German politicians can only be explained by their belief "that hard times must be the necessary punishment for earlier excesses." That the hard times and excesses do not concern the same people is overlooked by Krugman. For more than thirty years, the world economy was only kept going by (state and private) contracted debts. An ever smaller part of the worldwide labor force is enough to produce for everyone. The struggle over competitiveness can only lead to a further downward spiral.
No Way out of the Debt Crisis
By Claus Peter Ortlieb
[This article published in Konkret 11/12 is translated abridged from the German on the Internet, http://www.exit-online.org/druck.php?tabelle=autoren&posnr=511.]
The austerity dictate prescribed for the euro-zone will only intensify the crisis that should be combated. This is increasingly clear. National economies under the thumb of the “troika” (the International Monetary Fund, the European Central Bank and the European Commission) are carrying out the austerity conditions to the collapse of domestic demand. The triggered or intensified recession makes unemployment rise which necessitates greater social spending while the gross domestic product (GDP) and tax revenues simultaneously decline. As a result, the indicators of state indebtedness, the debt state and the new indebtedness as a percentage of the declining GDP, worsen. The “troika” causes this. On account of its criteria, the troika cannot do anything but tighten the thumbscrew and intensify the austerity conditions which forces down domestic demand again.
This spiral of savings, recession, greater savings and even sharper recession is known from the 1930s in Germany under the slogan “Bruning emergency order” and in the USW where the government of President Hoover followed a similar course. The depression event at that time can be observed now in Southern European crisis countries: an unemployment rate around 25 percent while youth unemployment is at 50 percent. There is one distinction. While governments ruined their own national economies in the 1930s, this job is done in the euro-zone by the German government with the consequences that only the German economy still grows a little while the euro-zone as a whole shrivels economically.
As everyone knows, Keynesianism arose in the 1930s as a reaction to the worldwide economic crisis and the crisis-intensifying economic policy at that time. Its advocates led by Nobel Prize winner Paul Krugman are bewildered about the austerity policy propagated by German politics (cf. the article by Justin Monday in Konkret 8/12). To Krugman, the increasing “ideological blindness” of German politicians can only be explained by their belief “that hard times must be the necessary punishment for earlier excesses.” That the hard times and excesses do not concern the same people is overlooked by Krugman. Economic programs are promoted as an alternative to the austerity policy. “Today governments must spend more money and not less until the private sector can again support the upswing.” Outside Europe, such an economic policy is now actually followed by the US government, the Federal Reserve and China.
The crisis is not as simple as Krugman describes. Keynesianism economic policy assumes that the private sector sill be able to support the upswing some time or other as the famous bottomless barrel. But this presupposition has not been fulfilled for a long while. For more than thirty years, the world economy has only been kept going through (state and private) contracting debts. Keynesianism already broke down in the 1970s when the economic programs now demanded again only led to double-digit inflation rates and were not able to trigger a self-sustaining capital accumulation.
As everybody knows, Keynesianism, was replaced by neoliberalism that contrary to its own monetarist doctrine pursued everything other than a policy of a stable money supply. Rather the state indebtedness was speeded up (as through the excessive armament Keynesianism of US President Reagan) and the deregulation of the financial sector expanding the possibilities for money creation out of credit. Inflation disappeared by shifting massive sums of money from mass consumption and the real economy into the financial sector, more exactly from consumer goods to the stock- and real estate markets (asset inflation), a very desirable effect.
For example, the Dow Jones Index rose by a factor of 7 adjusted for inflation from 1982 to 2000. There were similar phenomena on the real estate markets where price increases on houses bought on credit were used to finance the consumption of their owners until the bubbles finally burst.
Examined in the light, the emphasis on “finance-driven capitalism” that for a long while was called “a new regulatory model” only meant the real economy was financed and kept going by debts. One model for this is the deficit cycle…
“Finance-driven capitalism,” must stutter or come to a complete standstill as soon as creditors suspect their debtors cannot repay their debts. This happened again and again for 30 years on the local plane and first assumed worldwide dimensions with the crash of 2008 on account of the length of the credit chains. To rescue the financial system from complete collapse, states had to assume the costs as seemingly infallible debtors. State economic programs of $3 trillion were put on the table in 2009 alone. A depression as in the thirties was thereby prevented. However a self-sustaining real accumulation was not initiated any more than in the previous decades.
The answer given by the neoliberal revolution to the crisis of the 1970s consisted in “the most gigantic credit-financed economic program ever,” as the conservative sociologist Meinhard Miegel admitted. Whoever as a true conservative now demands an end to the “excesses” ignores or conceals that these “excesses” keep the world economy going for more than thirty years. Conversely whoever calls for more state economic programs does not want to know that the effects of the crisis can only be mitigated but not overcome. Only state indebtedness increases until nothing happens any more.
The supposed alternative of austerity policy on one side or economic programs on the other is in reality a dilemma situation, a choice between the plague and cholera, between saving to ruin and state bankruptcy. Examined more closely, it is a choice that implies a sickness for others because the state depends on successful capital exploitation for which it has to create the presuppositions.
Global capitalism cannot solve the over-accumulation crisis since the 1970s because an ever-smaller part of the worldwide labor force is enough to produce for everyone with the rise of microelectronics and its application in production. That would be the “end of the work society.” Thus the disappearance of labor from the production process is not a disaster. Most of us can imagine something better than lifelong drudgery. A problem first arises from this development since capitalism is based on exploitation of labor, generating profits in a serious capitalist way only through the use of human labor power. Profits are now the meaning and goal of all capitalist economies.
No economic policy comes near this core of the crisis. Since abolishing capitalism does not seem a realistic perspective, only the option remains to money-subjects to steer clear of the negative consequences of the crisis and shift them to others. The German policy of the last ten years shows what this means in a situation where fewer and fewer people are still exploitable for capital and the population of whole regions is superfluous.
The success story with which the allegedly lost “international competitiveness” was regained begins with the low-wage sector developed in the course of Agenda 2010 and the related pressure on wages even on the higher floors. In the EU, Germany is the only country where real wages fell between 2000 and 2008. Wage-dumping was practiced and the high productivity growth was not passed on to the wage-earning population…
The “German success model” is not abandoned. Instead the whole EU should now follow this model. This is crazy according to the criteria of the false system logic because the model is based on an asymmetry, namely the balance of trade deficits of the Southern European crisis countries as the backside of the German balance of trade surplus. All this only makes sense as the goal of making the euro-zone “internationally competitive” which certainly means bringing them to a corresponding level regarding living and working-conditions. Greece shows what this means.
If the successful ones are followed, the further crisis course is marked out. Since success in the location competition means the few who can export their products must keep down their costs, especially costs for luxuries like caring for the sick, elderly and other boarders who do not contribute to economic success. The struggle over competitiveness can only lead to a further downward spiral that has long been underway.
That the temporary winners of this competition can hardly celebrate their victory is not really comforting. Who will buy their products on the islands of capitalist prosperity that are becoming ever fewer and smaller?
Tomasz Konicz, “The Crisis Explained,” 2012
Ernst Lohoff and Norbert Trenkle, “The Economic and Financial Crisis,” 2012, from “The Great Devaluation”
Rosa Luxemburg foundation, “The World Crisis and Beyond,” 182pp, 2009