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There is currently no alternative to national debt
by Alternative Economic Policy study group
Thursday Mar 18th, 2021 11:12 AM
A private economy left to its own devices is completely incapable of immanently combating the crisis. This is especially true for increased, future-oriented investments for ecological modernization that serve climate protection. Even the vaccine against Covid-19, which will apparently be available shortly, would not exist without billions in government funding (subsidies).
"There is currently no alternative to national debt"
Documentation of the statement on the annual report 2020/21 of the German Council of Economic Experts (SVR) of the working group Alternative Economic Policy.
[This annual report of the Alternative Economic Policy working group published on 11/26/2020 is translated from the German on the Internet, »Zur Staatsverschuldung gibt es derzeit keine Alternative« - OXI Blog.]

The Corona pandemic has caused human misery and many deaths worldwide. For an appropriate therapy of the social and economic distortions, the Covid 19 crisis must be classified in economic terms. The frequently invoked image of an exogenous shock that has hit the economy masks the fact that the unchecked advance of capitalist globalization into previously isolated natural areas has increased the risks of pandemics. The indispensable lockdowns now used to protect health have caused production to collapse worldwide. There is a loss of prosperity and, if the crisis lasts longer, there is even a threat of impoverishment.

The prevailing economy ignores distributive justice in income and wealth. Appreciation and remuneration for socially necessary work are by no means adequate. After all, it makes a difference whether one performs indispensable work as hospital staff or in caring for the elderly, or whether one survives the pandemic in a home office. And those who can be classified as low-income and poor even before the crisis will of course be hit particularly hard by the pandemic. As a study just presented by the WSI, which is close to the trade unions, shows, in the lower income group with a monthly net income of no more than 900 euros, almost 48 percent were affected by the crisis, while in the upper group with monthly net incomes of more than 4,500 euros, the figure was just under 27 percent.

And there are always crisis winners in a crisis. Industries whose products are in particularly high demand can increase their sales and raise prices. On the stock exchanges, which were not even temporarily closed by the lockdowns, money can be made from the crisis. The richest man in the world, Amazon owner Jeff Bezos, gained $35 billion. According to Forbes magazine, the wealth of the 600 richest Americans grew by a total of $434 billion between March 18 and May 19, 2020, an increase of nearly 15 percent. At the same time, 39 million U.S. citizens lost their jobs and there were more Corona victims than in any other country in the world.

If countries around the world had not responded with massive Keynesian, credit-financed government spending programs, the economic slump would have been even more severe. In Germany alone, crisis-related financing risks of up to EUR 1.5 trillion in government loans, guarantees and government spending will be incurred for the years 2020 and 2021 alone. This shows once again, and the Alternative Economic Policy Working Group has been writing about this since 1975, that a private economy left to its own devices is completely incapable of immanently combating the crisis. This is especially true for increased, future-oriented investments for ecological modernization that serve climate protection. Even the vaccine against Covid-19, which will apparently be available shortly, would not exist without billions in government funding (subsidies).

There is currently no alternative to government debt. After all, the German Bundesbank and the German Council of Economic Experts (SVR) share this view. Nevertheless, in the medium and long term, the question must be answered as to how the government loans now taken out will be financed and who will foot the bill. With the increasingly strong reference to the debt brake, political pressure is growing to enforce the obligation to repay the debt within a "reasonable period" as laid down in the Basic Law. From the outset, the Alternative Economic Policy Working Group has rejected the debt brakes in the Basic Law and the European fiscal pact as economically counterproductive instruments.

However, all those who now, like the SVR in its just presented annual report, refer to the debt or credit brakes to reduce the massively increasing public debt or government debt ratios, do not want any tax increases. But that leaves only drastic cuts in government spending, i.e. a socially destructive austerity policy. Incidentally, this not only causes the worst distortions in the social sphere, it also increasingly undermines confidence in the democratic system. This favors the entry of the German nationalist and radical right AfD, which abuses the social divide without seriously addressing its dismantling, into the German Bundestag and all state parliaments. Among other things, this was also the consequence of the regime of the debt brake and its even more intensified variant of the "black zero" after the global financial and economic crisis. This led to a reduction in Germany's public debt ratio from 80 to 60 percent of GDP over the past ten years. The result was far too little investment and, as a result, a further deterioration of public infrastructure, education, health care and an unmistakable lack in the provision of necessary public goods and services. The Alternative Economic Policy Working Group strongly warns against such a repetition of economic policy.

In order to distribute the costs and burdens that have now arisen as a result of the Corona crisis in a socially just manner and, in addition, to finally tackle the socio-ecological restructuring that will additionally require at least high triple-digit billion sums, public debt for future investment programs is necessary. This is also economically rational in view of the low interest costs. In this way, surplus savings, especially among the super-rich, can be reduced in favor of financing the tasks of the national economy, which is "predatory over-saving" in the sense of John Maynard Keynes.

In the long term, the now indispensable borrowing of public debt should be reduced to a level that corresponds to the financing of long-term public investment ("golden rule" of public debt). Against the backdrop of the continued need for high government spending, however, this can only be done by raising taxes on the population group that can undoubtedly bear it.

In March of this year, the Alternative Economic Policy Working Group called for the introduction of a wealth tax in a special memorandum. The DIW has just presented concrete calculations on this. According to these, for example, 310 billion euros could be collected from the richest Germans (0.7 percent of the adult population) through a one-time wealth tax. The Alternative Economic Policy Working Group sees this wealth levy as an urgently needed act of solidarity by the super-rich to finance the burdens of the crisis. After all, the rich are usually among the winners of the crisis.

A wealth tax is to be distinguished from this one-off wealth levy. This tax, which has been suspended in Germany since 1997, urgently needs to be reactivated. This, too, has long been demanded by the Alternative Economic Policy Working Group, along with sharply increased inheritance taxes. But all this will still not be enough to finance the high socio-ecological expenditures that will be necessary in the future. For reasons of fairness alone, there is no way around a comprehensive socio-ecological restructuring of the entire tax system. However, this requires not only higher taxes on very high incomes and assets and a relentless fight against tax criminals, but also a climate- and environment-oriented economic growth that is freed from the logic of profits for the few and placed on an economic-democratic basis with a fairly distributed value creation for all.
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