Austerity and social unrest… August 14, 2012
Posted by WorldbyStorm in Economy, European Politics.trackback
There’s a good leader from the Observer Business section from a week or two back to be found here. As it notes ‘five years ago was bad; today it’s worse. How long will we feel the pain of the credit crunch?’ and that is for the UK, so let’s pause only to consider our own plight before moving on.
Actually we don’t have to, the Observer does it for us, noting that:
“After five years, we are in a worse place than when we started,” wrote Jamil Baz, chief investment strategist at hedge fund GLG, in an eye-catching analysis last month. He observed that total debt – meaning government, household, financial and corporate debt – is higher than in 2007 in 11 economies under the microscope. They are Canada, Germany, Greece, France, Ireland, Italy, Japan, Spain, Portugal, the UK and the US.
And it quotes Baz making five predictions as follows, cheerful guy that he is:
First, “all the perceived unpleasantness of the past few years is merely a warm-up act for the greater crisis to come”, because the need to get debt levels down remains. Second, history says debt cannot be reduced by more than 10 percentage points a year without causing social unrest, which suggests a minimum of 15 to 20 years to achieve healthy conditions for growth.
Third, the economic impact of cutting debt will be massive because a multiplier effect occurs when spending is reduced. Fourth, share prices may still be too high because corporate profits will be hit. Fifth, there is no magic bullet. Interest rates are already on the floor and even back-door inflation would not help because bond yields would soar and, in any case, many government liabilities are inflation-linked.
Now think about that for a moment – not the austerity without end bit because that we know, but the 10 percentage points a year reduction of debt limit ratio to social unrest, because it’s a most interesting assertion. It would be useful to find some evidence for same, though it is obvious that there are limits to debt reduction in a democratic polity (and there’s an interesting, some would say appalling, example of Romania during the 1980s debt reduction policies exacerbated an already far from optimal situation). But then consider the austerity without end bit and wonder at whether advanced capitalist democratic polities can survive that across decades. That’s not an experiment I’d want to subject any citizenry too, whatever my political position.
In a way that’s one of the genuine oddities of the contemporary period, that however egregious the measures, however much they impact negatively upon populations, the baleful consequence of them seems to be hardly an issue for those proposing and implementing them – bar the usual ineffective and rhetorical handwringing.
The Observer concludes:
The ECB, under Mario Draghi’s leadership, is regarded as more activist than in the old days, but the central conundrum of how to achieve growth while imposing austerity remains unsolved.
It sure does, not least because there’s a growing consensus amongst economists and others that it is simply impossible. Indeed as an aside it’s curious that the leader writer – given what they’ve referenced previously – seems to think that the question is even slightly open on the issue.
All in all just about as gloomy as could be imagined.
Even if today the ECB were to start buying bonds in unlimited quantities from peripherals the situation would be unchanged as then the debt yield element would be constrained but Euroipe would be left with record unemployment (euro era) and economies that were significantly underperforming. Hard to see a situation where this can improve over the next 5 years. Even if Spain booms how many new jobs can it create and worse of all what happents to the long term unemployed? Are they to be cast on the heap. Can it recoup the 4 millions jobs lost in the crisis. To reach its peak it had to bubble to the point at one point up to half of all jobs in EZ were being created there.
At the risk of sounding like the misery porn types who write Zerohedge I do think its going to get significantly worse – simply because even if austerity died tomorrow it would take years of strong growth to utilise the spare capacity and thats going to have a social and political effect.
I think i’ve seen reference before to that 10% reduciton YonY and the social unrest but cant recall where
http://www.cnbc.com/id/47262708/ECB_Behold_the_Wonders_You_Have_Wrought
Jesus, that’s depressing what you say. But I think you’re right. Cutting away isn’t simply a matter of the cut and that’s it, but the ramifications subsequently (and interesting that guys thoughts about the multiplier too come to think of it).
Very much as my own thinking (check the blog) that we are just at the beginning (but no time scale for an end) of this crisis. In fact there is a possibility, however remote that this could be the final crisis of capitalism!?. What Baz is actually admiting (either by not knowing he is doing so, or too immersed in capitalist ideology to comprehend it) is that capitalism will no longer provide the ‘western world’ with the level of standards of living that they have previously enjoyed.
A number of factors have caused that,( I will come back to the others) but the one that has influenced greatly has been the fall of the USSR, and the consequential spread of democracy worldwide (the Arab Spring is the latest manifestation of this). For decades since 1945 the majority populace of the ‘western world’ have enjoyed living standards that were subsidised by cheap , labour, raw materials and goods sourced in second and third world countries that were either under the influence of the USSR or the USA, and suffered at the hands of which ever undemocratic regime that either super-power kept in power, because it served not only their ‘national interests’ but also the interests of capital.( Hardt and Negri touched on this in 2001 in Capital, Wallerstein has been on about it for years in World Systems Theory). Put simply the ‘global pie’ of wealth has to be shared out more equally, and the 1% are not going to forfeit their share, so it is the peoples of the western world that will have to take a decline in their share of the pie.
(Time constrains me from elaborating further, but I would think the good folks here have got the gist of where I am coming from, and I shall return to elaborate)
However I will end by posing a question that may enliven the debate! Where did Marx say the ‘revolution’ would begin???
What do you mean by the “last crisis of capitalism”? I don’t think it will fall over on its own. People may well get a lot poorer, services collapse etc, but unless it is pushed I don’t see capitalism just falling over. There needs to be the political movement(s) to replace capitalism with something better (socialism!) and sadly they look very weak.
I don’t think we should underestimate capitalism’s power to survive.
Of course it won’t fall over on its own, but is it unrealistic to believe that we could have a ‘collapse of capitalism’ in the same fashion as we had a ‘collapse of communism’ ? Will it be that we have a lot more people getting poorer, and not just the ones that are aleady poor getting poorer? Capitalism will collapse when the people who keep it afloat (ordinary people) no longer can see the benefits that it brings. As example: people who realise that the money they invest in pensions is actually making their life up until pension age a misery!
Perhaps the ‘socialists’ are weak because they seek along with others to ‘cure and save capitalism’ rather than offer to dismantle it ?
Yes I agree we are at the beginning of a lengthy era of low growth , mass unemployment, especially youth Unemployment and pension and wealth destruction . Just like with the Titanic ship disaster there are very few lifeboats relative to the numbers on board and are mostly reserved for the rich . Capitalism as a system seemed to have cracked all the problems when it generated rising living standards after the
second world war .All that really happened in my view that allowed Capitalism to look so good was the discovery of the giant Superelephant oil field in Saudi Arabia called Ghawar . That cheap energy funded and fueled
the enormous rise in living standards plus provided the Energy to replace people in the food harvesting chain freeing up people to work on creating products and consuming them . As long as oil remained cheap people had plenty of disposable cash to keep
spending and growing the Economy . Now as those giant wells peak, oil will continue to rise as all the new wells involve more extraction cost keeping the rise in prices fairly permanent over the long term . As countries and banks have allowed all this cheap debt to flow from the future through to the living standards and Economies of today it is going to get harder to pare all this debt back with Austerity which is depressing wages, growth, and credit to drive future growth . More importantly Governments are no longer getting the Taxes to keep services going and maintain standards of living as Austerity drives their Economies – which in many cases don’t actually make that much – further into the ground . This will keep up until Governments print cash to save the system and the Banks, by making savers pay by diluting the Whiskey so to speak . When people cop on to this over the next few years thats where the sparks will start flying in most peculiar ways . The main points of interest is what consequences this will create for the EU and there by now individual puppet
Governments . It is not inconceivable as Electorates run out of Mainstream Political Parties to vote for that more Revolutionary Entities come to the fore . Some may involve Military Attempts to overthrow the so called legitimate Governments by Terrorism etc. in an attempt to displace the Rulers and get countries back on track . None of this will be good for “Jobs and Growth” as security concerns mount requiring more Taxes to pay the rising Police Bills . Somehow I don’t think it will last years the Austerity , sooner or later
the trouble will be triggered. We are definitely living in interesting times , hold onto your seats ! Yours Sincerely Peter Pipesmoker .