Friday 1 January 2010

Reality Check

Saving Capitalism from itself: The global economy was rescued not by the actions of private individuals and corporations, but by the collective wealth of the planet's peoples.

SO, THAT WAS 2009? A peculiar year – both here in New Zealand and around the world. A year in which the economic and social theories which have governed our lives for the past quarter-century continued to hold sway, even though their fundamental premises were daily contradicted by reality.

A year of denial, then, for local and global elites. And, because elite opinion – undivided and unchallenged – is transferred to us by an increasingly under-resourced news media, a year in which the ordinary person’s grasp of what is actually happening "out there" has become correspondingly tenuous.

For the world’s neoliberals 2009 has also been a very confusing year. Why? Because politicians in the world’s leading financial and industrial powers – the United States, China, Japan, Germany, France and Britain – only succeeded in rescuing the capitalist system by adopting precisely those economic strategies which neoliberalism has consistently denounced: massive state intervention; printing money; and running-up colossal deficits.

It was precisely the failure of 1930s politicians to adopt such remedies that plunged the world into the Great Depression. Neoliberals, however, have long argued that it was President Franklin Roosevelt’s economic interventions and his administration’s deficit-spending that turned a momentary market "correction" into a world-wide slump.

Reviewing the events of 2007-2009, however, it’s crystal clear that only the timely and virtually unlimited underwriting of the international financial system by the world’s most powerful nation-states prevented its utter collapse; and only the unstinting expenditure of trillions of Dollars, Yuan, Euros and Yen has averted another Great Depression.

In other words: we have been saved not by the actions of private individuals and corporations, but by the collective wealth of the planet’s peoples; and that, when it comes to making intelligent economic decisions, the performance of the world’s politicians and bureaucrats has proved to be far superior to that of its business leaders.

These brute facts should be transforming the way the world is run – but they’re not. In spite of the crisis of the past two years being almost entirely attributable to the greed and recklessness of capitalism’s "best and brightest", the message promulgated by the world’s elites is unequivocal: this is the best of all possible worlds; no change is necessary; business as usual.

It’s the unceasing reiteration of these extraordinarily dangerous – because utterly false – reassurances that explains the unprecedented popularity of John Key’s Government.

It can’t last, of course.

The world’s leading nation states must rebuild their revenues, and quickly, or their own financial situation will become as untenable as Lehman Brothers’.

In the past (to underwrite the extraordinary expenditures required during World War II, for example) this was accomplished by imposing higher taxes on the nation’s wealthiest individuals and corporations and by encouraging ordinary citizens to save more.

In the current climate, however, such a solution is unlikely. After all, it was the roll-back and ultimate elimination of precisely these kinds of social-democratic interventions that neoliberalism was devised to accomplish.

The alternative approach involves governments restoring their financial stability by imposing swingeing cuts in public spending, reducing the wages of public employees, and making the whole population pay higher taxes.

This is exactly the solution which the leading credit-rating agencies (yes, the very same agencies whose triple-A rating of manifestly deficient credit instruments fuelled the global financial crisis) are asking the world’s politicians to impose upon their peoples. It’s the "solution" America’s ruling elites expect President Barack Obama to impose on the American people, and it’s almost certainly what Mr Key and Finance Minister, Bill English, have planned for New Zealanders in 2010.

Worse still, it looks increasingly likely that the National-led Government will be prevailed upon to slash the top marginal income-tax rate from 38 to 30 percent – even as it raises the rate of GST from 12.5 to 15 percent. This will, of course, confer a huge windfall upon the country’s wealthiest citizens, while lowering still further the already declining incomes of its poorest.

The result will be another, much sharper, economic contraction: higher unemployment; rising poverty; and decreasing social cohesion. And, even though they’ve just persuaded the Government to intervene decisively on behalf the wealthy, the neoliberals will insist that the poor be left to fend for themselves.

Amazingly, as 2009 draws to its close, most New Zealanders are anticipating none of this.

"Happy New Year!" we cry.

It won’t be.

This essay was originally published in The Timaru Herald, The Taranaki Daily News, The Otago Daily Times and The Greymouth Evening Star of Friday, 1 January 2010.

15 comments:

Anonymous said...

Hi Chris,

Good post. Never has a truer word been spoken. Things are going to get much much uglier in 2010. Night courses, ACC, health services are all shaping up to be only the start of things. The recommendations on the Holidays Act, and the leaking of the benefits that the Harris family recieves, point at strong hints for the future.

The 2010 is going to be the biggest upward redistubution of wealth ever seen in this country.

Millsy

Anonymous said...

Spot on, Chris!

An additional irony is that New Zealand's comparatively easy road to date through recession has owed much to the quantitive easing and other dirigiste interventions of our major export markets , viz. Australia, the USA, UK, China and Japan.

Moreover, as an investment adviser mate of mine in the UK put it recently; the best thing New Zealand's got going for it is that the rest of the world thinks it's more or less the same as Australia , which has fared exceptionally well in the recession, partly thanks to Rudd's neo-Keynesian approach.

Do you think that we are also about to see the Employment Contracts Act dusted down?

Victor

Anonymous said...

If you read the past and present sets of industrial legislation you can see that the ECA is mostly still intact since its imposition. There is some pressure from employers for the present government to remove Labour's one substantial change, union officials right of entry to work sites.

Anonymous said...

I predict a popularity slide for Key, Winston to make a come-back and Rodney to lose his job. Good post, Chris.

Anonymous said...

And the crux of said flux
is this simple redux:

Anglo epoch on wane -
its own greed the sole blame,
as the nips kiss the BRIC
and the Yanks go insane -
bases proliferating
like rabbits fornificating!
and the Chinks in the armour
of materialist hegemony
give the finger to Obama;
court the darkest zimbayemeni,
and re-define the enemy:
it's a yellow-brown wall
of demographic gestault
seething at the gall
of centuries' assault.

And our proud kiwi heritage
of social progression?
Saved historic ignominy
by Hellenistic intercession?

Not under Grinny, and his rats of the scrip:
too little, too selfish, down with the ship.

ak

Anonymous said...

"Our proud kiwi heritage"
Afghanistan and GST
wistfully weepy for Saint Helen?
not me

Anonymous said...

Worse still, it seems increasingly likely that the National-led Government will be prevailed upon to slash the top marginal income-tax rate from 38 to 30 percent - even as it raises the rate of GST from 12.5 to 15 percent. This will, of course, confer a huge windfall upon the country's wealthiest citizens, while lowering still further the already declining incomes of its poorest.

Allowing the overburdened taxpayers of NZ to keep more of their hard-earned money is not only equitable, it's economically preferable to flushing the tax take down the welfare toilet, supporting the lifestyle choices of the indolent and the criminal.

It's well past time for the beneficiarycriminals of the Labour electorate to contribute, to live productive, law-abiding lives. You won't of course, you've had it too good for too long and have become accustomed to the gravy train that is the welfare state; supplementing your taxpayer-provided income with crime and satisfying your appetites by preying upon the decent.

Enough carrot, it's time for the stick.

Anonymous said...

Don't forget Foreshore and Seabed Act. I suspect that the Maori haven't no matter how much Chris attempts to label them as 'traitors'.

Quoth the Raven said...

Before the recession I thought the free market was psychotic, but afterwards I think quite the opposite and I now support it. It is quite incorrect to say we have a free market system now, what we have now is state capitalism. The effect of the state's interference in the market and the relationship between state and corporate power was laid bare by the massive bailouts that socialised their losses putting the burden on taxpayers. Those financial institutions should have been left to fail. The free market is the antidote to corporate plutocracy.

It was precisely the failure of 1930s politicians to adopt such remedies that plunged the world into the Great Depression. Neoliberals, however, have long argued that it was President Franklin Roosevelt’s economic interventions and his administration’s deficit-spending that turned a momentary market "correction" into a world-wide slump.

It maybe instructive to look at the recession in the US in 1920/21 and compare that to the great depression. As to the government stimulus' this is an interesting article from someone who has started to move away from their support for it: A look back at the debate on the role of monetary and fiscal stimulus in depression.

Anonymous said...

Anon,

The F and S Act was nessesary to preserve the birthright of New Zealanders to enjoy a day at the beach. Without it, every inch of the coast in this country would have fallen under control of the Maori elite, and you, your children and your grandchildren would never be able enjoy our pristine coastline again.

Small sacrfiises need to be made for the greater good. Iwi barons need to think about the fact that non Maori New Zealanders have a right to enjoy the beaches as well.

Millsy

Anonymous said...

It's so unfair to tax me!
I've worked for all I've got,
Unlike the unwashed bludgers,
Who vote for the other lot.

If they'd only give me back my loot,
I'd put it to good use,
On an over-mortgaged home
That's almost weather-proof!

And any dosh to spare I'd keep
Where I can get my hands on,
Invested with a real cool dude
Who looks like Eric Watson.

Instead they use my money
To pay for roads and schools
Police, hospitals and benefits.
What a bunch of fools!

But maybe not much longer.
Tax cuts are coming soon
And I'm as likely to benefit
As holiday on the moon.

Victor

Anonymous said...

So Raven, I take it you will be posting in support of American style health care and low wages now?

Millsy

Don Franks said...

"The F and S Act was nessesary to preserve the birthright of New Zealanders to enjoy a day at the beach. Without it, every inch of the coast in this country would have fallen under control of the Maori elite,"

Every inch my tits.

I don't know how many inches of Kiwi coastline are privately owned by pakeha millionaires, but it would be a fair few and that ownership predates and continues happily under said act.

When it comes to beaches, any private property is theft.

peterquixote said...

Chris says:

"Worse still, it looks increasingly likely that the National-led Government will be prevailed upon to slash the top marginal income-tax rate from 38 to 30 percent – even as it raises the rate of GST from 12.5 to 15 percent. This will, of course, confer a huge windfall upon the country’s wealthiest citizens, while lowering still further the already declining incomes of its poorest"

We do need to lower the top rate to 30% soon as
yesterday, we need to be competitive:

but not increase GST ,
I agree this is an insidious tax which affects the poorest most:
also dude you forgot to say
Capital gains tax on revenue property on its way now ..

Anonymous said...

TIME Magazine selected Ben Shalom Bernanke as its 2009 Person Of The Year.
He now enjoys this honour along with Roosevelt, Chiang Kai-Shek, Hitler, Stalin, Kruschchev, Carter, Putin, to name more of the infamous. I almost forgot, Obama was the recipient in 2008.
This award, not based on merit, goes to whom “for better or for worse, ...has done the most to influence the events of the year."
The “mild-mannered” chairman has dramatically expanded the powers of the Federal Reserve, and if that wasn’t bad enough, “hurled unprecedented amounts of money into the banking system in unprecedented ways, while starting to lay the groundwork for the Fed’s eventual return to normality.”
The quiet ones can be the most dangerous. The above admits that his actions are not by any means normal, and TIME will for now only allow him “the benefit of the doubt.”
He is called “the least understood force shaping the American – and global – economy.” It makes one wonder why anyone would name him Person of the Year. This TIME article does not bode well for Bernanke.
“His creative leadership helped ensure that 2009 was a period of weak recovery rather than catastrophic depression, and he still wields power over money, jobs, savings and the future of the U.S. The decisions he made, and those he has yet to make, will shape the path of America’s prosperity, the direction of its politics and its relationship to the world.”
TIME persists with the shameful mainstream economics illiteracy and says Professor Bernanke was a leading scholar of the Great Depression. “He knew how the passive Fed of the 1930s helped create the calamity – through its own stubborn refusal to expand the money supply and its tragic lack of imagination and experimentation.”
In actuality the calamity was caused by government regulation unbalancing the banking system.
http://www.solopassion.com/node/7264