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Covid-19: An orchard of magic money trees March 24, 2020

Posted by Citizen of Nowhere in Uncategorized.
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Covid-19 is a major humanitarian crisis, and it’s natural that we want to focus on that. But there is too little attention paid to what it’s doing to the capitalist world system. I’d like focus on some aspects of the political economy of plague-times that might spark discussion here.

Now the pandemic is shaping our lives, what in  political economy was impossible, indeed unthinkable, is suddenly routine. Before the crisis there was no magic money tree from which a state could finance investment.  Self-imposed sovereign debt limits for countries, even those with control of their own money supplies, was a law of nature. When workers needed more, or sustainable development needed debt or money to be printed to finance investment, it was a heresy to believe this could happen through decree of government.

But suddenly, it turns out, all this is possible. At all levels, both the national and global financial level, money is being printed and huge sums of sovereign debt are being mobilised. The constitutional “debt brake” in Germany is set aside, and the fiscal compact in the EU is no longer relevant.

What’s different now?

Simple – capital has its hand out and is in crisis. Crisis is perhaps too mild a word, what we have is a panic of mind-boggling complexity and novelty, where accepted wisdom about how ‘markets’ should work are being retired daily, and problems never imagined are cropping up as often.

As Adam Tooze writes, this is the moment when the fact that the economy is always a political economy, never independent of politics, has became crystal clear. Politics can make, break and reshape seemingly immutable macro-economic certainties. “Leave it to the market” is a nonsense when the market is running around like a headless chicken.

During the last crisis of 2008-2011 capitalism, as we know and continued to suffer it, was saved. Or at least preserved in a zombie form that could be mistaken for life, through a mixture of massive dollar liquidity from the Fed (Federal Reserve Bank of America) and unlimited QE that covered up the bankruptcy of many banks and latterly corporations. However, the QE-Tree isn’t bearing fruit this time, and the liquidity grease seems to be not performing as expected this time around. Why? Because the basics of the crisis are different.

This crisis is different economically. Demand for everything that can be bought is crashing, apart from essential use-values (health, food, housing etc.). What Graeber calls “bullshit jobs” have been proven to be optional if not dispensable. All kinds of financial pyramids which assume at worst slight downturns of growth shedding masonry into the abyss. This isn’t just a crisis of over-leveraged banks and bullshit debt trading, but it goes to the heart of the capitalist mode of reproduction. It can only survive the next few months on life support and a ventilator.

And the political basics have also changed. Last time around, Obama was in power, and was willing to do anything to preserve capitalism as it was (even though he had finance capital by the throat, had he been able to imagine curtailing its power). China also had reasonably good relationships with the US at the time and was willing to jump in and massively reflate its economy, and make up for the stagnation in the rest of the capitalist world system.

Not so this time around. Trump refuses to cooperate with China, seeing all political economy as at best a zero-sum nationalist game. China sees no reason to help the US, and is waiting for it to get savaged by its ideological and structural inability to deal with the Covid-19 pandemic, while China builds up soft power throughout the globe.

Hold onto your hats, this is going to get extremely bumpy.

Comments»

1. Paddy Healy - March 24, 2020

Corona Virus and Economic Slump Update by Michael Roberts, Marxist Economist
THE EMERGING MARKET SLUMP
Lockdown!
According to AFP estimates, some 1.7 billion people across the world are now living under some form of lockdown as a result of the coronavirus. That’s almost a quarter of the world population. The world economy has seen nothing like this.

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WorldbyStorm - March 25, 2020

“Before the crisis there was no magic money tree from which a state could finance investment. Self-imposed sovereign debt limits for countries, even those with control of their own money supplies, was a law of nature. When workers needed more, or sustainable development needed debt or money to be printed to finance investment, it was a heresy to believe this could happen through decree of government.”

Absolutely. Bolsanaro still holds to that view, but one suspects he is about to learn that that’s not a tenable position in this context.

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2. CL - March 25, 2020

” An emergency stimulus package to bailout the U.S. economy amid the coronavirus pandemic will total $6 trillion — a quarter of the entire country’s GDP, the White House said Tuesday.”
https://nypost.com/2020/03/24/coronavirus-stimulus-package-to-exceed-6t-larry-kudlow-says/

The dilemma for policy makers is that to suppress virus transmission the economy has to be depressed. The economy cannot revive with a large proportion of the workforce staying home.
The ’emergency stimulus’ will help keep businesses and workers alive until lockdown restrictions are lifted- which cannot be done safely while the virus infection rate is increasing.
Trump wants to end the lockdown by Easter or next week, or…in any case weeks rather than months fearing that a prolonged economic depression will damage his re-election prospects.
Such an early end to the lockdown requires almost universal testing so that those without the virus or those who have developed immunity can be identified and allowed to safely resume economic activity. But such widespread testing is not available.

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Citizen of Nowhere - March 25, 2020

“Such an early end to the lockdown requires almost universal testing so that those without the virus or those who have developed immunity can be identified and allowed to safely resume economic activity. But such widespread testing is not available.”

Correct about the need for universal testing. However it could be available it a state is willing to step in and direct research and production instead of leaving it up to the profit-motive of big and not-so-big pharma.

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CL - March 26, 2020

The CDC in the U.S. is the relevant public federal agency.
Alas in this crisis it did not perform too well.
“health authorities were left with a diagnostic tool developed by the U.S. Centers for Disease Control and Prevention that ran into weeks of problems, hobbling efforts to track and control the virus at a time when it might have been contained.”
https://www.bloomberg.com/news/articles/2020-03-17/coronavirus-testing-shortage-u-s-called-private-sector-too-late

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EWI - March 26, 2020

” An emergency stimulus package to bailout the U.S. economy amid the coronavirus pandemic will total $6 trillion — a quarter of the entire country’s GDP, the White House said Tuesday.”

Not bailing out industries deriving from reckless over-exploitation of hydrocarbons (and which need to cease in any case) would chop into that figure significantly. No bailouts for airlines, coal mines, frackers and oil companies.

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3. makedoanmend - March 25, 2020

If I may be so bold, an excellent summary.

We might also ponder on the entirely superficial economy imposed on Western democracies via “Austerity”. Austerity was nothing more than the hugest shift (theft?) of assets and earning power from working people of all classes to the rentiers/bankers of the West and beyond. A pandemic on the back of the greedily conceived autsterity economy should be the biggest blow to capitalism ever witnessed.

But:

1. Capitalists view every crisis as a profit making opportunity. What will they do with this crisis? Can they turn it to their advantage? Given the inevitable contraction in capital, will capitalists simply seek to shift more wealth from the middle classes to themselves. Might we see poverty rivallng that of previous centuries making a come back?

2. Austerity was nothing more than the hugest shift (theft) of assets and earning power from working people of all classes to the rentiers/bankers of the West and beyond. A pandemic on the back of the greedily conceived autsterity economy should be the biggest blow to capitalism ever witnessed.

But:

1. Capitalists view every crisis as a profit making opportunity. What will they do with this crisis? Can they turn it to their advantage? Given the inevitable contraction in capital, will capitalists simply seek to shift more wealth from the middle classes to themselves. Might we see poverty rivaling that of previous centuries making a come back?

2. As David Hardey is wont to point out, we are so immersed in a capitalist swamp that its immediate destruction would inevitably lead to huge loss of life.

3. What happens if a third shock hits the capitalist system in the near future?

4. Given that capital-centric governments dominate the political landscape, can we really expect a real change in economic direction? Or has the rise of the total-capitalist-politican dominance come at the worst possible moment? They’re not exactly a visionary crew. PR they got down pat. Policy wise, they are hopeless.

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4. Daire O'Criodain - March 25, 2020

It comes to something when a ludaraman like “Graeber” can be cited by his surname alone as a presumed authority on global finance. Its a bit like citing Uri Geller as a guide on how to deal with the virus.

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WorldbyStorm - March 25, 2020

But that’s not what Citizen of Nowhere was doing – citing Graeber as an authority on global finance. Rather CoN was referencing Graeber on the much more constrained ground of G’s point about ‘bullshit jobs’ or to put it another way jobs that are arguably superfluous to requirements in a functional economy and demonstrably so in the present crisis. One can quibble over that one way or another – for example lapsing into self referentialism my job isn’t life or death but I think it offers some value and there’s an argument that work in jobs offers shape etc to lives that even in a world of four or three day weeks is no harm.

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Citizen of Nowhere - March 25, 2020

Exactly: thanks WBS.

Graeber has many faults, but the concept of bullshit or makework jobs is useful if we are ever to progress to the blessed state of working only on what’s useful and necessary instead of serving the needless complexity of capitalism.

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WorldbyStorm - March 25, 2020

Apologies, I should have let you field that!

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