Sunday, July 8, 2018

Ian Welsh - Why Nations Can’t Resist Austerity

I often wonder why the elites like austerity as it must harm their businesses to. In a recession the government can deficit spend and boost the economy without causing inflation. The new money injected will will give people extra purchasing power and so more shops will open and businesses will expand all employing more people, plus more businesses will start up as well. I would have thought that conservatives would be right up for this, but no, they vote for austerity parties wrecking their businesses.

 Perhaps the elites don't want the government to create its own money because they want the government to borrow it from their private banks instead, which means the government will have to pay it back by raising taxes, but this will further drive the economy into recession. Perhaps the elites fear the government will tax them more as well?

Anyway, enough of my rambling, Ian Welsh has his theory on why the elites like austerity. KV

Free trade, as practiced, is designed to destroy local autonomy by making nations dependent on foreign goods, and by removing decision making from democratically elected bodies and pushing them to transnational tribunals, secret courts and laws which cannot be changed without opting out from treaties, something most countries are reluctant to do, because they need the trade once they are enmeshed.
Keynes believed that most production of basics should be local: you should manufacture most of what your country needs, in your country.  You should also, ideally, be able to feed your own population.
If you can’t make what you need or what your people (and more importantly, elites) really want, then you’re screwed.  In the modern world you need hydrocarbons, you need food, and you need the machinery which turns hydrocarbons into the industrialized lifestyle.
Your prosperous citizens probably want food your country doesn’t produce: summer vegetables in winter, possibly meat you can’t provide in large enough quantities, and so on.  They want electronic goods like smartphones that due to patents are quite expensive, and which you probably can’t make domestically.
Your elites want a vacation in Paris, a home in London, a German car, a French mistress, a New York Apartment, and a variety of luxuries that their own country doesn’t make.
If you want or need these things; if you do not have a taste for what your country can produce, in terms of basics and luxuries; if you do not ensure your country can feed itself, generate electricity and make cars or other forms of transit, you MUST do what those who control the trade regime want you to, or you will find yourself cut off from all these things.
Distributed production of necessities (which includes basic lifestyle goods and luxuries and machine goods) is anti-democratic and anti-national control in a world where the primary decision making units which are amenable to pressure from the commons, whether democratic or not, is exerted almost entirely on national and local units.
If you want to not do austerity when the Troika demands it, you must be in a position to tell the Troika to go stuff itself. If you have made yourself vulnerable, by losing your ability to feed yourself; by not developing local industry or exporting it; by your citizens acquiring a a perceived or real need for foreign goods; or by your local elites wanting to be “transnational elites” who want foreign luxuries and who feel as at home in Paris, New York and London as in their own country, then you cannot refuse to do what those who control the trade and international monetary regime tell you to do.
This is always the devil’s bargain offered in international regimes: “you can get all the stuff we have if only you open up”.  It’s true, and for many countries it works for a while.  The less you had, the shorter period it works for (countries who only have to be convinced to give up their ability to feed themselves by switching to cash crops and forcing subsistence farmers get a few years), but once you’ve given away your autonomy, the deal will, at some point, always turn bad.  Those with the whip hand, will always eventually drive you down unless you have as much power over them as they have over you.
And knowing that your elites are no longer yours, but theirs, they will always find someone to do it for them, because your elites will be eager to sell you out for the flat in New York, the vacations in the south of France, the German automobile, the French mistress, the Swiss boarding school for their children, and for the fine luxury goods their own country cannot make.
If you get yourself into this position, you must overthrow your elites, and you must figure out how to become independent again.  You must make deals with other blocs: the Russians and the Chinese, for the transition period, and figure out how to move your production of what matters back to local, and if you no longer can, how to feed yourself. You must inculcate in your elites and peoples a desire for what you make locally – local lovers, the food of your nation, the luxuries you can produce.

11 comments:

Matt Franko said...

This is the "mind reader" tell for cognitive dissonance that Welsh is suffering under....

Konrad said...

“I often wonder why the elites like austerity, as it must harm their businesses too.”

Let’s remember that the sensation of “wealth” is not a product of how much money I have, but of how much more money I have than you have. A million dollars only makes me feel rich if everyone around me has nothing.

Therefore, even if austerity causes my business to make less money, my sensation of wealth increases if austerity widens the gap between me and everyone below me on the ladder of wealth and power.

Moreover, austerity only harms lower-level businesses. Austerity is not applied to big bankers and military contractors, or to Big Oil, or Big Pharma. These are making more profit than ever.

“In a recession the government can deficit spend and boost the economy without causing inflation. The new money injected will give people extra purchasing power and so more shops will open and businesses will expand all employing more people, plus more businesses will start up as well. I would have thought that conservatives would be right up for this, but no, they vote for austerity parties, wrecking their businesses.”

It isn’t only rich people and conservatives who play the austerity game. Most people play the game at all levels on the ladder of wealth and power. Among the middle and lower classes, most people will accept less if they think it will cause people below them to suffer more than ever. Again, the sensation of wealth and security is not based on how much I have, but on how much more I have than people below me have on the ladder of wealth and power.

For example, if I collect £1,000 per month in government benefits, and black people on average collect £600 per month, then I will accept a £200 cut in benefits (down to £800 per month) if I think it will cause black people to suffer a £400 cut in benefits (down to £200 per month). In this way a cut in my wealth actually makes me feel “wealthier.”

In short, most people do not feel like “winners” unless they are surrounded by losers. Most people do not feel they have “succeeded” unless people around them have failed. This is why most people at all levels play the austerity game. (Most people; not all.)

“Perhaps the elites don't want the government to create its own money because they want the government to borrow it from their private banks instead, which means the government will have to pay it back by raising taxes, but this will further drive the economy into recession. Perhaps the elites fear the government will tax them more as well?”

Euro-zone nations with trade deficits must borrow all their money from bankers, who create their loan money out of thin air. This keeps those nations in a permanent recession, with a permanently growing debt load.

Since those nations can never repay any of that debt in money, they repay it in public assets, which they surrender to the bankers. Harbors, airports, highways, utility companies, and everything else are privatized, so that the new private owners can charge tolls and rents forever.

In the case of monetarily sovereign nations like the US and UK, austerity at the national level is 100% gratuitous and unnecessary. Its purpose is to force average people to seek loans from private bankers, and from loan sharking operations like “payday loan” companies.

Tom Hickey said...

Let’s remember that the sensation of “wealth” is not a product of how much money I have, but of how much more money I have than you have. A million dollars only makes me feel rich if everyone around me has nothing

In the heyday of Texas oil, a "unit" was 100 million $, and the people that used the term were the oil barons in comparing each others' wealth, as in, "How many units does he have." All relative.

Konrad said...

“Keynes believed that most production of basics should be local: you should manufacture most of what your country needs, in your country. You should also, ideally, be able to feed your own population.” ~ Ian Welsh

Yes. Without some degree of self-sufficiency, nations will always have economic problems, unless their currencies are widely accepted outside their borders. The US and UK have the least self-sufficiency in the world, yet they survive (for now) because their currencies are widely accepted. This allows the US and UK to buy imports. However the greed of US and UK business leaders causes them to send jobs overseas, thereby impoverishing workers at home. This will cause the US and UK to eventually collapse. It is inevitable.

If you want to know the truth about any nation’s economy, check the status of its balance of trade. (That is, check the nation’s “current account”).

Here, for example, is Russia’s:
https://tradingeconomics.com/russia/current-account.

If the nation has a trade deficit, and if its currency is not widely accepted outside the nation’s borders, then the nation will have severe poverty, inequality, and foreign debt, all of which get worse every day. Its government will impose austerity that gets worse every day, whether or not its politicians are neoliberals.

For example, Nicaragua is boiling with riots. Since Nicaragua’s government is not allied with the U.S. Empire, many people assume that Nicaragua is boiling with riots because the Empire has arranged for yet another “color revolution.” Not so. Nicaragua is boiling with riots because of poverty, austerity, and government corruption. The poverty and austerity are unavoidable because Nicaragua has a huge trade deficit, and also because Nicaragua’s currency is not accepted outside Nicaragua’s borders.

Therefore Nicaragua’s government has had to take IMF loans, in order to keep buying imports such as food. The IMF always demands that debtor nations adopt neoliberalism (i.e. austerity and mass privatization).

Nicaragua could have avoided all this if it had developed some degree of self-sufficiency.

Many countries have the same problem. Brazil and Argentina have large trade deficits, and their currencies are not accepted outside their borders. Therefore, to reduce the public’s demand for imports, the politicians in Brazil and Argentina have had to impose austerity. They would have had to do this even if the politicians had not been neoliberals (which they currently are).

Konrad said...

@ Tom Hickey: Regarding those Texas oil “units,” this is an example of how rich people regard money. Rich people know they can never be hungry or homeless, or unable to afford health care, or unable to enjoy luxuries.

For rich people, money is not about material security.

Money is about “keeping score.”

Ryan Harris said...

Eventually thet units collapsed as oil became worth less out of the ground than in. And the banks took all the units and sold it for pennies on the dollar and we called it the "s&l crisis" when the power was transferred to Wall Street.

It was bought up by retirement, govt pensions, and trust funds.

No one wants to do the hard risky work, so we use peer pressure to push people into productive endeavors which we benefit from but pretend that we look down on. Like oil.

Like the penguins that need to eat but wait until some unlucky bugger walks close to the edge of the ice and they push him in to the sea to find out if a leopard seal or whale is waiting. Then they all jump in and eat when coast is clear.

We all play a similar games all the time in society where we want to make sure no one is free riding.

In the 80s people blamed the poor for welfare and middle class for extracting rent through unions.

Now we blame the rich for rent extraction through debt. There is always someone on the take and austerity is how the rich squeeze the working man.

In a couple years, inflation will squeeze the rich and old, just as the students demand a debt jubilee and next gen society will be incensed at millennial greed.

It about power in the end, the wealth is just a symptom and austerity the tool in this battle of the war.

Tom Hickey said...

And the easy to extract sweet crude ran out.

Ryan Harris said...
This comment has been removed by the author.
Tom Hickey said...

Right. Mining and mineral value extraction from land, less expenses, is part of land rent.

Ralph Musgrave said...

"I often wonder why the elites like austerity".

The simplest explanations are often the best: I suspect it's just that the elites do not understand Keynes's simple point that the cure for a recession is to have the state print money and spend it (and/or cut taxes). After all, there are plenty of idiots at our top university economics departments who do not understand that point (e.g. Kenneth Rogoff and Carmen Reinhart). So how can the average business executive be expected to understand it?

Tom Hickey said...

I suspect that the reason that austerity appears to be good policy in contraction is owing to three major factors:

1. the false analogy of government s big household or firm (conflating of the currency issuer and users)

2. fallacy of composition (failure to recognize that the whole is more than the sum of the parts in other than very simple systems)

3. moral rectitude that views fiscal discipline as morally virtuous and fiscal profligacy as morally degenerate.

Enough people make these mistakes to influence policy decisions.