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Why the crisis is not over
"Euro-zone overcomes recession" - Why this headline is only half the truth and global economic crisis persists.
Spiegel Online, Germany’s most popular news website, was jubilant: “Euro-zone overcomes recession”.
Reason for this headline was the reported growth of 0,3 percent in the Euro-zone during the second quarter of the year 2013. For those whose ideological outlook dictates that capitalism has always been and will always be, this naturally has to indicate an end to crisis, which is thought only as a kind of work-accident that can be repaired and after which capital-accumulation proceeds undisturbed – business as usual.
However, there are a number of problems with this assesment, some of which had ironically been stated in another article in the business-section of the same Spiegel Online. “Whoever seeks income return must increase his risk”. The most notable reason for this is the presence of an inflation-rate well above the current economic growth figures: 1,6 percent.
In effect this means that all the news of economic growth in the Euro-zone are a scam, as the devaluation of the Euro proceeds at a faster pace, effectively shrinking incomes of the working classes and the corporations alike. High inflation rates are a necessary consequence of the policy of the European central bank, which is effectively handing out money for free to banks – a modern version of printing excess money. The very same policy, meanwhile, drives much of the economic growth in the Eurozone, because if loans are cheap, it reduces the risk for investors who request these loans. This has created a deplorable situation where, to stop the inflation, one would have to curb the economic growth and return to recession.
Furthermore, the growth in the Eurozone is not distributed evenly across its memberstates: Germany and France are largely responsible for the positive figures, other states are still deep in economic recession. A closer look at this situation can reveal looming problems, that may become the source of a renewed recession cycle. Especially Germany has founded its current economy on social policies that have created a continuous trend towards decreasing wages and massive pressure on unemployed stratas of its own population. Much of the Eurozone is a mere market for exports in the eyes of German business and politics. However, such a business model becomes unstable if the rest of the Eurozone remains in recession and the purchasing power of its customers is quickly vanishing into thin air.
Another, very serious aspect to consider is, that much of the positive growth in these comparetively stable European countries is purely speculative. Cheap loans have fired up renewed growth of the financial markets and, especially noticeable in Germany’s largest cities, a massive speculative bubble on the housing market. In other words, it becomes increasingly evident that the establishment does not have any answers to the crisis of the last years and we are currently witnessing an attempt at returning to pre-crisis business models.
It may be prudent to actually analyze the nature of the economic crisis – a term which the dominant neoclassical school of economists has banned altogether from its works – and for this task I want to field the German theorist Robert Kurz, who has spent much of his work analyzing the inner limits of capitalist growth. To make things short, it is wrong to think that speculative growth on an unrestrained financial market is the source of the current economic crisis: to the contrary, a ballooning financial sector is by itself a sign of a capitalist market in crisis.
Kurz has termed the neoliberal policies that have become hegemonic since the 1980s “the continuation of Keynesianism by other means”. To understand this we have to recall that the fordist growth cycle that has started with the end of World War 2 had entered a continued phase of stagnation by that time and the old Keynesian policies of deficit-spending that were supposed to kickstart the economy during periods of crisis were no longer working: the economy was stagnating, but inflation rates were high – a combination that had been unthinkable before.
The reason for this must be searched for in the progress of the capitalist system itself and one of its fundamental inner contradictions: it sets human labor as the source of its value, but at the same time creates massive incentives to remove human labor from the production process. As long as the product innovation (the invention of new goods for humans to consume) consumed larger amounts of labor than were made obsolete by the process innovation (the invention of technologies that replace human labor in the production of these goods) all was well in fordist capitalism. However, the microtechnological revolution of the last decades crossed a fundamental threshold. Ever since, technological progress has made more labor obsolete than are needed in the creation of the goods it introduced to human society.
Inflationary growth on the financial market was the logical consequence of the fact that the real economy was not providing sufficient rates of profit any longer. And while massive inflation rates in the real economy are considered undesirable, they do not disturb anyone on the financial markets. Quite to the contrary, there is a whole financial “industry” built upon the exploitation of these sudden inflationary spikes in the value of shares. What was new and revolutionary wasn’t just the extent of this fictional growth, its massive size dwarfing past escapes of capital into the financial spheres during periods of economic crisis. The real innovation was that this fictional growth trickled back into the real economy and, while causing occasional disturbances, seemed stable enough to carry the entire economic system on its back.
That was, of course, a folly, as we know in hindsight. The massive speculation on future growth had created a snowball system, where the revenues made by speculating on future income were themselves invested in speculations on income even further in the future – until the whole absurdity of this system came crashing down. At this point, the administrators of capitalist normality, the states, their beuraucrats and politicians, had two options, which boil down to either a continued Keynesian deficit-spending policy – as we are currently observing in most states – or an austerity policy similiar to the one Germany is currently forcing upon Greece.
Neither are good options: Keynesianism can’t fix the underlying problems. No matter how much free capital is pumped into the economy, it won’t find profitable investments in the real economy, meaning that we will either face recurring economic bubbles that will leave the world looking worse after each crash than it did after the one before, or it will create a prolonged period of economic stagnation and high inflation rates.
The other option is even worse: it would mean a drastic programme of economic extermination of large stratas of human society which have been rendered useless by the capitalist market, leaving them stranded without any source of income and no means to survive. Imagine austerity-policy Greece on a global scale.
In other words, the crisis is far from over and we have to anticipate a capitalist world in a state of permanent unrest. There are three possible source of a renewed and intensified global recession, namely the European deficit cycle based on the German export economy and the Eurozone as its debtors; the far larger Pacific deficit cycle, with Chinas export economy and the USA as its debtor; and the inflationary bubbles created on the financial market and the housing sector by cheap loans. Imaginable is also a prolonged period of relative stability, but economic stagnation and economic inflation, leading to a “silent recession”. And, of course, there is also the worst option of them all: the austerity regime, that removes all the “excess” population from social participation and cuts costs by ending the redistribution of wealth to people in need – a policy that can only be feasibly implemented by force.
A sound political strategy must adress the real reasons of the crisis, develope alternatives to the capitalist system as a whole, not dwell on Keynesian policies and daydream about a “tamed” capitalism – and it must oppose the austerity regimes by all means as the worst of all these bad. options