The Failure of Neoliberal Economic Policies
Imagine over 2,000 people gathered in a sports stadium to watch some economists give a few lectures. That is what economist Michael Hudson recently experienced in Rimini, Italy, where he was invited, along with several of his colleagues from the University of Missouri in Kansas City, to discuss Modern Monetary Theory.
From the first link:
The basic thrust of our argument is that just as commercial banks create credit electronically on their computer keyboards (creating a bank account credit for borrowers in exchange for their signing an IOU at interest), governments can create money. There is no need to borrow from banks, as computer keyboards provide nearly free credit creation to finance spending.
The difference, of course, is that governments spend money (at least in principle) to promote long-term growth and employment, to invest in public infrastructure, research and development, provide health care and other basic economic functions. Banks have a more short-term time frame. They lend credit against collateral in place. Some 80% of bank loans are mortgages against real estate. Other loans are made to finance leveraged buyouts and corporate takeovers. But most new fixed capital investment by corporations is financed out of retained earnings.
Unfortunately, the flow of earnings is now being diverted increasingly to the financial sector – not only to pay interest and penalties to banks, but for stock buybacks intended to support stock prices and hence the value of stock options that managers of today’s financialized companies give themselves. As for the stock market – which textbook diagrams still depict as raising money for new capital investment – it has been turned into a vehicle to buy out companies on credit (e.g., with high interest junk bonds) and replace equity with debt. Inasmuch as interest payments are tax-deductible, as if they were a necessary cost of doing business, corporate income-tax payments are lowered. And what the tax collector relinquishes is available to be paid out to the bankers and bondholders who get rich by loading the economy down with debt.
Welcome to the post-industrial economy, financialized style. Industrial capitalism has passed into a series of stages of finance capitalism, from the Bubble Economy to the Negative Equity stage, foreclosure time, debt deflation, austerity – and what looks like debt peonage in Europe, above all for the PIIGS: Portugal, Ireland, Italy, Greece and Spain.
The impressive turnout to hear Professor Hudson and the other economists indicates an increasing desperation among Europeans to seek out alternatives to the neoliberal austerity measures that are being put forward as the ONLY solution to the economic crisis Europe is facing. Greece is the starkest example of how forced austerity is aimed to protect the financial sector, and is not intended to be a solution for the people, people who are being told they must suffer even more austerity for a global financial crisis they had no active role in perpetrating.
So what does Michael Hudson think should happen?
So what then is the key? It is to have a central bank that does what central banks were founded to do: monetize government budget deficits so as to spend money into the economy, in a way best intended to promote economic growth and full employment.
This was the MMT message that the five of us were invited to explain to the audience in Rimini. Some attendees came up and explained that they had come all the way from Spain, others from France and cities across Italy. And although we did many press, radio and TV interviews, we were told that the major media were directed to ignore us as not politically correct.
Such is the censorial spirit of neoliberal monetary austerity. Its motto is TINA: There Is No Alternative, and it wants to keep matters this way. As long as it can suppress discussion of how many better alternatives there are, the hope is that the public will remain acquiescent as their living standards shrink and wealth is sucked up to the top of the economic pyramid to the 1%.
But there won’t be any substantial political will to do anything that doesn’t prioritize the global financial elite over the masses, because, for them, business is doing just fine. With the DOW hitting the magical 13,000 mark for the first time since 2008, and corporate profits strong, why do anything differently?
To counter the comfort those at the top of the pyramid seem to be feeling, there’s a piece in Mother Jones, by Mac McClelland, that is a MUST read, titled I Was a Warehouse Wage Slave. It’s a dismal first-hand account of the awful working conditions in the bowels of a rapidly expanding warehouse industry that major online retailers like Amazon exploit for massive profit. Part of how this is being accomplished is through third party logistic companies, called 3PLs for short. Here is snip from the article:
The computers screening us for suitability to pack boxes or paste labels belong to a temporary-staffing agency. The stuff we order from big online retailers lives in large warehouses, owned and operated either by the retailers themselves or by third-party logistics contractors, a.k.a. 3PLs. These companies often fulfill orders for more than one retailer out of a single warehouse. America’s largest 3PL, Exel, has 86 million square feet of warehouse in North America; it’s a subsidiary of Deutsche Post DHL, which is cute because Deutsche Post is the German post office, which was privatized in the 1990s and bought DHL in 2002, becoming one of the world’s biggest corporate employers. The $31 billion “value-added warehousing and distribution” sector of 3PLs is just a fraction of what large 3PLs’ parent companies pull in. UPS’s logistics division, for example, pulls in more than a half a billion, but it feeds billions of dollars of business to UPS Inc.
The gains made by organized labor during the last century are increasingly eroding during this economic crisis, and the result is wealth being vacuumed up at an alarming rate.
It doesn’t have to be this way.
But this is the way it’s going to be, here and abroad, until something happens to reverse it. I don’t know what set of circumstances need to happen to make those at the top realize their own personal well-being will be compromised if a more equitable distribution of resources isn’t achieved, but I doubt it will be non-violent.
People who are working right now probably feel pretty lucky just to have a job, despite low wages and exploitive working conditions, and if they get too uppity and complain, it’s very easy to remind them how many people are waiting behind them, eager to be exploited by a 3PL that offers no benefits or job security whatsoever. In our hollowed out domestic economy, these massive warehouses are sometimes the only game in town for townships struggling to survive in America’s post-manufacturing landscape.
For those of you who shop online, I would urge you to read the whole article. It’s important to understand that companies like Amazon have built their lucrative business model on the exploitive business practices (and plausible deniability) of 3PLs.
And for anyone living in this world, it is going to be very important to understand that the continued imposition of neoliberal fiscal policies is absolutely not sustainable, and will ultimately lead to more global strife, wars, and dislocation as people shift from the idea of earning a living, to simply surviving.