by Ramin Mazaheri
“The Euro”, both the monetary system and the book of the same name by Nobel-Prize winning economist Joseph Stiglitz, can appear complicated.
Take heart from Noam Chomsky, who wrote that nothing in the social sciences cannot be understood by the average bus driver in a couple of minutes – this is not calculus or physics, after all.
Give me just three paragraphs to simplify everything:
Stiglitz successfully makes two indisputable academic assertions: The euro has failed in its promise to bring about prosperity and security, and that there is nothing in its organizational structure which allows for the possibility for change.
Take a moment and realize these do not constitute an attack on the euro – these are clear facts, the former of which is clear to anyone. You’ll have to take his academic word for the latter assertion, unless perusing the euro’s structure is your idea of a fun Saturday night.
After covering the entirety of the Eurozone crisis from France, it is impossible to refute my assertions that the Eurozone has failed to bring about prosperity and security for the average Frenchman, and that there is nothing in the mainstream political structure which allows for the possibility for change.
Trust us. The first part is the main part, anyway.
I thought I’d revisit Stiglitz’s book, seeing as how the National Front’s Marine Le Pen may win the presidency in a few months largely thanks to her promise to leave the euro.
It’s vital to realize that it is not just right-wing ignoramuses like me and Le Pen who want out of the Eurozone – a mainstream, Nobel Prize-winning economist has reached the same conclusion. What I am saying here is: You don’t have to agree with us, but you cannot denigrate euro-exiters by calling us stupid or racist like you did Brexiters or Trumpers – at some point you have to openly debate.
“The Euro” is very good and worth reading. If you want know the truth about the Eurozone, read the analysis of someone who has no personal stake in it, like Stiglitz.
But believing that the euro should continue should be referred to as “Islamic market fundamentalism”, not because it has one single thing to do with Islam, but because then it would hit home with the average Westerner just how fanatical “market fundamentalism”, or “neoliberalism” truly is.
Such a term should make the deranged ideological basis of the Eurozone crystal-clear: Neoliberals are not at all constrained by the facts of 25 years of failure in Africa, a lost decade in Latin America, and nearly-lost decade in the Eurozone – Stiglitz makes this point repeatedly throughout the book.
What Stiglitz fails to do is to point out that the simple root of the Eurozone is capitalism and that this is the ideology which must be questioned, not simply its capitalist variant of neoliberalism.
I can easily relay a bunch of his facts, combine them with my on-the-ground experiences and convincingly make the urgent case that the Eurozone is flawed and must be abandoned or replaced.
But this is not that column.
I want this column to be about something else, and I will get right to the heart of the matter:
Stiglitz is about as leftist an economist as the mainstream media is permitted to report on.
That is why my headline calls him a “fake leftist”- I don’t think any economist would call him a “leftist economist”, but for all intents and purposes he is as economically left as the average person can find without caring enough to dig deeper.
Stiglitz is on the left of the right-wing; which makes him a centrist-tending-right. That he is consistently presented as a “progressive” economist is the mistake this column seeks to make right.
And like so many “progressives” who fall short of real leftism, even Stiglitz cannot believe his own eyes or his own words.
Fake progressives always let them off the hook
So many times in “The Euro” Stiglitz delivers a devastating conclusion about capitalism, only to immediately lets it off the hook by claiming bafflement as to how this could possibly happen. This failure is intellectually indefensible, intellectually unsatisfying, regressive and violently damaging. This passage is, unfortunately, typical.
“Austerity has always and everywhere had the contractionary effects observed in Europe: the greater the austerity, the greater the economic contraction. Why the Troika would have thought that this time in Europe it would be different is mystifying.”
It is not mystifying – this is what capitalism does over and over. Just as they sought in Africa and Latin America, neoliberals want to impose labor code rollbacks and deregulate; in Europe they wanted to end the gains Europeans have fought decades to win. It has worked in France – Hollande rammed through the “Macron Law” last year despite mass protests, and he arrested thousands of demonstrators to achieve it.
Time after time Stiglitz presents a devastating indictment which totally attacks the premise that capitalism is concerned with good governance and promoting even basic equality, only to soft-pedal backwards.
“But the eurozone programs have been a success, in the sense that the German and French banks have been repaid….Perhaps the real goals of Germany and the other creditor countries have indeed been achieved.”
For those not following Europe closely, this is exactly what has happened since the European Sovereign Debt Crisis began and why people have lost faith in the Eurozone: the rich countries of France, the Netherlands and Germany have no solidarity with the average Eurozone citizen at all (which is endemic in capitalism), and are ruthlessly waging economic colonization against the poorer nations (which is endemic in capitalism). It is the banks of France and Germany which have been bailed out, not the average indebted person in Greece or Finland, as Stiglitz repeatedly proves.
Spain and Ireland didn’t even need a bailout in 2009: They had a fiscal surplus and healthy debt-to-GDP ratios, but not anymore. Greece is now actually running a fiscal surplus! No matter – they are slated to be paying back banks further west and north for perhaps decades.
Stiglitz says these things, backed by academic facts, all the time in his book.
And yet with that seemingly ironic “perhaps the real goals” statement –a question mark is missing, which must be a grammatical error because it is clearly a question – Stiglitz simply ends the matter and moves on to a new topic. Tellingly, it is “The Need for Growth”.
Perhaps if Stiglitz were not trapped by capitalist ideology, by capitalism’s obsession with growth, he could have pursued his own hypothesis (which matches with reality) even further. But he didn’t, he dropped the potato once it got hot, or he doesn’t realize he has a capitalist-programmed obsession with “growth”.
“A cynic might say that this was the intent of the law: to preserve power relations. But I am convinced that the rule in Europe was driven more by ideology and misguided economic beliefs than narrow self- interest.”
It is not at all cynical to say that capitalists in the Eurozone have not yet rectified a long-standing criticism by the left: that capitalism needlessly and inefficiently promotes international competition and imperialistic rivalries. Leftists have said this for decades, are saying it now, and will say it forever until 1) capitalism stops doing it, which they won’t (can’t) or 2) capitalism finds a solution to this problem, which they can’t (won’t).
Either Stiglitz, with all of his honorary degrees, has not read basic leftist economist thought, or he has forgotten it, or he has ignored it in the confirmation bias of his definitely non-progressive adoration of capitalism.
Like all capitalist promoters, and like all mainstream media members who live in a 24-hour news cycle, instead of taking a longer view Stiglitz is guilty of viewing the Eurozone as some sort of isolated case in capitalism when the moment arrives from clear conclusions and logical condemnation. He remains in his ivory tower, and his telescope does not take in the full historical view.
“Its construction (the ECB) was based on ideological propositions that were fashionable at the time (Stiglitz is discussing the ECB’s mandate, which is limited to only inflation, and not growth, employment, etc.) These beliefs, however, are increasingly questioned, especially in the aftermath of the 2008 global financial crisis.”
An obsession with inflation is not a “fashion”: this is a fundamental concern of capitalism throughout its history. Why? Inflation is called “the great leveler” for a reason – it reduces the values of the most immense fortunes. The rich have far more to lose than anyone else from inflation!
It also reduces debts, so God send us inflation! At least for the poor debtors, who will be able to pay off their burden and stop being tortured.
Inflation also reduces the power of interest – without that power, bankers/moneylenders will have to actually work for a living, which is why they fear it so.
Finally, lacking the stability provided by communistic cooperation, an inflation-induced downturn also spells chaos, and that could force a revolution and compel the wealthy to flee to some other country with only a part of their ill-gotten gains (see revolutions in Russia, China, Cuba and Iran for examples).
Stiglitz knows that for all these reasons an obsession with inflation is fundamental, not fashionable.
“The dismal (economic) forecasts made it clear: the Troika’s grasp of the underlying economics was abysmal”.
Really? All those eggheads with their salaries so much bigger than mine don’t understand their own domain?
The problem here is not that people with a PhD do not “grasp” their own field – the problem is their ideology.
It is not a conspiracy of stupidity or a confederacy of dunces – it’s the promotion of capitalism over communism.
The ideology of communism shows clearly that the Eurozone was indeed a conspiracy – a money-lending cartel on the grandest scope. And why would such a scope be out of the reach of banks whose yearly gross corporate product can exceed half of all nations in the world?
Stiglitz says that from 1999-2007 the Eurozone had a short period of success – “divergence reigned” – i.e., rich countries loaned to poor Eurozone members (economic redistribution). But what happened is those loans were called in during a crisis, and they could not be repaid.
We know that bankers routinely aim for such a scenario to happen. What happened in the Eurozone has happened all over the 3rd world during the 2+ centuries of European-led imperialism – indebted countries were picked apart by foreigners.
To say that the bankers/Eurozone planners/Troika didn’t know what they were doing is pathetic. Stiglitz has too much sympathy, perhaps, or not enough contempt for negligence.
“Was it just an accident, a slip, that they opted for a property tax that would have inflicted pain on ordinary Greeks, rather than one that would have hit the oligarchs?”
This is – somehow – an honest question from Stiglitz, and a less ideologically-rigorous reader will be lulled into complacency and sympathy for those who are orchestrating the re-colonization of Greece.
Stiglitz poses the question but he never takes a stand. This is as far as a person like him is willing to go – fake leftism. The leftism that nobody wants to associate with. The leftism that loses. The leftism that embarrasses leftists to say that they are leftists.
To take a stand would force Stiglitz to change his fundamentally pro-capitalist view, and it would risk all those honorary degrees. (I have a t-shirt which reads “Where’s my bailout?”. Where’s my honorary degree, huh? Hundreds of unpopular leftist reports and French tear gas attacks don’t cut it, eh?)
For those who do go further we conclude: “No, it was not an accident! It happens all the time. Such pro-oligarchy decisions are routine in capitalism. This is just one measly little example you have publicized and you haven’t even interpreted it correctly, Dr. Stiglitz, PhD, Esq, Rev., DDS,!”
Why care about ‘alternative facts’ when ideology is neglected?
Facts don’t matter because in the social sciences ideology filters everything, people. Again, this is not calculus or physics – if it was, then economic policy wouldn’t be disputed and austerity wouldn’t still be reigning.
The capitalists have an ideology and they won’t call it “Islamic market fundamentalism” so they call it “neoliberalism”, and it is the foundation of the Eurozone.
You want to be a capitalist and not an “Islamic market fundamentalist”, you complain? The Eurozone is necessary, you say?
Fine. Let’s judge the Eurozone on your own neoliberal terms: As a capitalist you obviously accept that economic downturns and depressions are simply a part of life, and you are willing to make everyone suffer the consequences.
But the judge of any capitalist policy is how long and how deep your capitalist downturns are, and by this fair gauge the EU has totally failed. This will be a lost decade. I pity the poor and unemployed youth because they are suffering for the refusal to accept the facts which impose a change of ideology.
There is an alternative to the Eurozone – it has not been decreed by God. As Stiglitz writes, monetary systems come and go. If structural limitations prevent us from changing the euro then the euro has to go.
Capitalist reader, even your emperor is cold from wearing no clothes: Germany has averaged 0.8% annual growth since 2007 – that is failure, and this is your leader and success story?
Joe oughtta know better
But Joseph Stiglitz, with all his egghead degrees that make him so much smarter than me and your regular bus driver, should know extremely well how capitalism ravages everything because isn’t he reading economic literature from the left at least some of the time?
That is not clear. But I say Stiglitz should know better because he is from Gary, Indiana, my former hometown.
Gary, if you don’t know, is the American industrial hellhole par excellence. It is the poorest, Blackest, most violent city in America, per capita. White flight, racism, capitalism, pollution, drugs, guns, blocked futures – it all the stuff nobody wants.
You cannot compare it with a stereotypical Soviet-era counterpart because there is humiliating racism, deadly violence and crack instead of vodka.
Gary truly is the foul, steel-fume belching armpit of America. Most people in nearby Chicago are too frightened to even stop there for gas…and mainstream media/politicians couldn’t care less.
Gary’s dismal past, present and future should have been enough for Stiglitz to renounce capitalism, but it wasn’t.
Like most “progressives” who do not go far enough to make any real or lasting difference, the tone throughout his book is that Stiglitz “sincerely cares”. He really, truly does and…this only makes him more enlightened than your average, selfish fascist.
Like most of his fake-leftist peers he never discusses “class”, but loves to discuss the environment. And if there was an economic component to transgender bathroom rights I’m reasonably sure Stiglitz would have focused on that as well.
He – by blinding himself to a true leftist interpretation – by being content with being “mystified” in the most non-poetic ways in the most dismal of “sciences” – he creates a false impression of what “progressive” should truly mean.
The best that such a half-hearted progressive like Stiglitz can do is provide us ammunition for the struggle – and he does in “The Euro”.
This makes him without fault, but it does not earn him great praise. Somebody in his influential position should break free of his mainstream confines and propose real solutions instead of trying to fix what he clearly knows is fundamentally broken: capitalism.
Being “mystified’ should not earn you prizes in economics – the people deserve immediate solutions.
The Euro has proven there is no “Third Way”
Urbane, cultured, human rights-loving Europe has not been able to show that one is able to combine a capitalism and communism in a capitalism-centered system.
This is exactly what the Euro was supposed to do. Capitalism is simply too strong and must be confined in a drastic manner.
The Eurozone has allowed European imperialism to turn on itself. This should be as crystal clear to you by now as it is to an increasing number of Eurozone citizens.
What is working, and even despite the global recession, is combining capitalism and communism in a communism-centered system.
China is booming; Cuba has had steady 2% growth since the Great Recession started, despite the genocidal blockade; since 1989 in Iran (communism’s ignored victory) only one country in the world has increased their Human Development Index more – South Korea.
Destroy the euro, yes, because it has been created in a way so that it is possible to reform, as Stiglitz repeatedly demonstrates. It was an economic union before there was a political union, and the pain of muddling through to finally get that political union correct is going to hurt hundreds of millions of people for decades – that price is too high.
There has to be another way, even though pro-euro people repeatedly cry TINA: There Is No Alternative. The euro was, after all, created in 1992 – the USSR was over and so was “history”. This anti-democratic philosophy has been inscribed in the euro’s genetic structure, per Stiglitz .
But the only way any pan-European project can ever possibly succeed – and Stiglitz repeatedly notes this as well – is through solidarity.
What he doesn’t say is that there is no pan-national solidarity ever in capitalism.
He holds up the US model as an example, but the US has always been, fundamentally, the same country. It’s not as if the US merged with Native American tribes or territories of freed Africans. Europe requires their own solution, not just a US copy, just as Cuba requires their own model, Iran their own model, etc.
The euro has undoubtedly decreased the sentiment of solidarity so vital to something like the euro ever having a chance of working. Greece distrusts Germany, Germany distrusts Portugal, France distrusts everybody including other Frenchmen, etc.
There can be no doubt about that. The capitalist euro project has ruined European solidarity, and I – intrepid reporter on the ground – can report to you that I see no “solidarity boom” on the horizon. I see the far-right, racism, protectionism and closing of borders. Why? Well, the euro has failed to bring about prosperity and security, dummy – you can even ask a capitalist reactionary like Stiglitz!
Modern history proves that any sort of solidarity – especially pan-national or racial – requires a commitment to communist ideology. The USSR was the only empire built on affirmative action, after all.
Communism is the only way forward, as we’ve all known for decades. The question, if there is one, is not “if” but “how much”.
Stiglitz, and his fundamentally pro-capitalist fake leftist ilk, can see that but they look away.
Ramin Mazaheri is the chief correspondent in Paris for Press TV and has lived in France since 2009. He has been a daily newspaper reporter in the US, and has reported from Cuba, Egypt, Tunisia, South Korea and elsewhere. His work has appeared in various journals, magazines and websites, as well as on radio and television.
We here in the US are beyond familiar with this mystification. The root of it is that we assume leaders must be trying to represent our interests. In reality, they regard us as natural resources to be exploited. Understand that and everything clears up wonderfully.
@ TtC
I think you hit it on the head: the political class is, well, in a class of it’s own, usually for hire to the highest bidder, that is, the deepest pockets. And that is the fundamental flaw in any social system: the obligatory, axiomatic, symbiotic linkage between capitalism and political power as they depend on each other.
Dear Saker please look back in time and ask yourself why LePen always get crushed by a landslide in the second turn of the election ? why will it be it different this time ? How can she reach 50% when she can barely reach 20%.
I hope though that you and Lepen are different I hope that the core of your belief is not the hate and fear of arabs , chinese or blacks. Seeing how shallow your perspective on French politic is really make me question your analysis on other subjects.
Secondly the lack of wealth redistribution from Germany is not due to capitalism it’s simply because german don’t feel any empathy for greek for example because they are not the same people.
There is wealth redistribution from rich to poor region in the USA, France, Germany , Japon , Russia which are all pretty capitalistic. You can’t merge country with 1000s of years of history simply because they are on the same continent and expect them in a few decade to all feel as brother. That ‘s the main problem of the EU .
Finally how exactly does one country get out of the Eurozone ? The only legal way you can do that is by getting out of the EU all together by art.50 , as Mario Draghi as confirmed . Does Lepen intend to get out of the EU , clearly not as she as confirmed man times during her interviews . She intend to change to EU like all the mainstream political parties propose since the last 30 years.
What she intend to do for the Euro is to impose her will on 27 other countries to adopt something that suit the french economy without consideration for the other countries interest that is called nationalism and it is a failed plan.
Please for god sake stop being a sheep and advertise the Lepens they already get all the msm coverage they can possibly get which should already tell you that something is off.
dude, have you even taken 3 min to find out what my views about France are?! do you even realize that the author of this article is 1) not me 2) Iranian and that 3) he lives in France.
Besides, when did you see my advertise Le Pen?! Show me ONE QUOTE of my promoting the Le Pen family?
If you knew anything at all about me you would realize that my views are much closer to the ones of Alain Soral and E&R than Le Pen’s…
what is wrong with you? Is it the full moon today?!?!?!
@ Unhappy
No wonder you are unhappy; and you should be, first with yourself for blaming The Saker of supporting Le Pen.
The failure of the Euro, or even European integration, is not due to narrow nationalism – in fact the “project” was doing very well until the 1980s. What derailed it was the neoliberal creed widely adopted following the dissolution of the USSR when capitalism removed its mask of pretending to be “considerate” or having a “human face” or a “social conscience” and showed its true nature: a voracious appetite to accumulate wealth from the exploitation of labour and its concomitant need to expand into more markets, hence the enlargement of the EEC to the east at the expense of deeper integration.
As Ramin mentioned in his article, there was tremendous solidarity within the Soviet Union (and even today in Russia) in spite of the many diverse nationalities, ethnic groups, languages, historical roots and religions, more so than in many current federated states, although most are really unitary states with some regional autonomy (Australia, Brazil, Canada, India, UK, US., to name just a few).
@Anon. Thanks for confirming my own opinion on the EEC, that “the “project” was doing very well until the 1980s. What derailed it was the neoliberal creed”. In other words, The Gospel of Greed.
One can view the abyss fiat currency systems are facing through the lens of the old adage:
“All debts are eventually paid, either by the borrower or by the lender.”
The EUR was to be the monetary glue that held the EU together politically, but the situation has inverted. The EUR’s management failed to enforce the discipline that any debt-based currency issuance system must maintain. Namely, the loans behind the issuance must first and foremost support productive enterprise, and support consumption only to mop up the surpluses. If not, a debt crisis will surely follow. When the EUR was born, lending accelerated with abandon, the consumption followed prematurely, and finally the crisis arrived. Neither the borrower, nor the lender can pay and the currency system will necessarily implode.
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” Mises
We’re in the “or later” part, so no-one should be surprised that the EU’s political glue is melting in the same crucible.
Sorry to contradict your “All debts are eventually paid, either by the borrower or by the lender.” statement. The truth is “All debts that cannot be repaid, will not be repaid”.
You might want to read Michael Hudson in order to expand your economic horizons?
Will not be repaid by the borrower, that would mean — so ‘repaid” by the lender, who would bear the cost, I suppose that means. Hudson, I think, or maybe it was Black, had also said that the lender bears equal responsibility for the loan, so if a loan goes bad it can’t all be blamed on the borrower — especially if it was a ‘liar’s loan’ where the borrower could not be realistically expected to be able to pay.
But the EU crisis is about more than just debt: it is also about a country being bound to the common currency but not having the sovereignty needed to adjust it’s fiscal policy, adjust an exchange rate, or create more fiat, which are the usual ways of controlling it’s economy.
In the reverse side of a country’s ‘natural comparative advantage’ countries also have natural disadvantages and some countries (or states in the US, or regions in the world economy) will be richer and some poorer, at least in different time periods, so some method wealth redistribution is needed to have a single political entity. In the US for example, the Northern industrial wealthier states pay into the federal government more than its ‘share’ than the Southern states, Another means of evening things out some is military spending. (I suspect that the electoral college as a mechanism that shifts power to the rural states is part of this now.)
With the richer northern EU countries having control of the monetary and fiscal policies of the poorer southern countries there is no way to hold the EU together politically forever, especially when government of the EU is not accountable to the people, but to the oligarchs.
“But the EU crisis is about more than just debt: it is also about a country being bound to the common currency but not having the sovereignty needed to adjust it’s fiscal policy… “
That’s why I qualified my statement with “failed to enforce the discipline”. The ECB first looked the other way to allow states that didn’t meet the Maastricht criteria to join (inc Germany), then watched as the PIIGS’ sovereign debt ballooned far beyond redemption. Knowing that the normal remedies were unavailable to them, and having the daily issuance data at their fingertips, should have raised alarm bells at the ECB. It didn’t, or at least they apparently did nothing to slow it down.
Charles
Erebus is right.
You are wrong.
Quoting, “All debts that cannot be repaid, will not be repaid”. What the situation is reached wherein the borrower does not repay, then the lender pays. He pays when he realises the loss.
The old adage remianss correct. Either the borrower pays the debts, or if he fails to, then it is the lender who pays. Think carefully on it.
Siotu
““All debts that cannot be repaid, will not be repaid”.”
Blue and Siotu have it right. The common understanding of the adage says that the lender effectively “pays” when the debt is written off. Namely, he takes the loss, and the debt is closed.
As for Von Mises, I can simply state his views are nothing short of humbug. Easily debunked by those who understand classical economics. It is the attack upon earned income rather than the appropriate measures that should be taken against the rentier class and unearned income that is behind the economic crisis the entire world faces.
Charles
Again you are wrong in your assertion. Your assertion is baseless. The record demonstrates that Ludwig Von Mises was correct about ABCT, socialism, communism, inflation, fiat money, central banking, fractional-reserve banking and on the list goes.
It is unfortunate that hack academics have so much intellectual investment in what has proved out to be irrational money crankism, empty rhetoric and emotionalism. How fraudulent that, especially when Von Mises was able to demonstrate the error of such approaches as early as the 1920s.
Siotu
Siotu
It may seem inflation is terrible for the rich — the creditors — but it is far worse for those on fixed incomes and the poor whose wages do not keep up with inflation, and simply can’t afford to buy what they used to — and have less available money to pay off their debts (which may force refinancing at higher rates). Higher costs are passed on to the consumers and those who had no money to lend or invest to begin with are hurt terribly by inflation and have no power to do anything about it.
Yes, I tend to agree with that. For one thing, the rich have all sorts of means to escape inflation by moving money around, playing the currencies, investing, etc. whereas the poor only have their paycheck and maybe a little piece of real estate. I sill agree that being focused solely in containing inflation is a rich guy’s policy since, obviously, the rich don’t need to worry about unemployment since unemployment is actually good for the rich who can then easily dictate labor conditions.
Saker the rich don’t have to worry about money because they have lots of it. They have to worry about doing whatever it takes to stay rich and avoid the old maxim – ‘clogs to clogs in three generations’.
Inflation favours debtors against creditors whether they are rich or poor. It favours the lucky gamblers that Hyman Minsky wrote about who borrow betting on inflation to keep them solvent but as a group bring about financial instability and destruction for everyone. It destroys and discredits the age old virtues of thrift and providence. Hyper inflation, a modern derivative of modern paper currencies, sweeps away whole societies leaving poverty and misery in its wake. It favors wage earners against all who are not on inflation adjusted incomes particularly the elderly. Vide Nazi Germany. Very gradual inflation has its virtues; especially for weak, cowardly, corrupt or lazy politicians except that it all too easily gets out of control. What would have happened to US society and the dollar but for Volcker and Reagan – two guys who didn’t give a sh*t but did what they thought had to be done to end high inflation? I recommend the brilliant but limpid definitive work on hyperinflation ‘Monetary regimes and inflation’ by the publicity shy Swiss economist and economic historian Peter Bernholz.
@ Blue
My understanding is that Ramin meant high levels of inflation as a levelling mechanism. Market capitalism necessarily leads to price fluctuations, normally upwards to take advantage of offer-demand disparities, price manipulation, speculation or monopoly. High levels of inflation reduce the purchasing power of money and, since the working class have no, or very little, money, they have little or nothing to lose, assuming of course their wages keep pace with inflation. Catastrophic inflation is the highest leveller.
In a controlled (planned) economy the price of goods is fixed, therefore inflation is zero regardless of the market conditions. But even under capitalism some countries used to regulate the prices of some basic goods and services (say, rents or milk). In NSW, Australia, the Rice Marketing Board, set up in 1928 is still going!
Blue, the other posters make very good points. If I can add:
Your point about inflation seriously hurting people with fixed incomes, like pensioners, is certainly true.
For years polls have shown that the #1 concern in France has not been the record unemployment rate – it’s been decreasing purchasing power, for the reasons you explained. Inflation, after all, touches everybody, and not everyone is unemployed/has unemployed friends and relatives.
I was being a bit glib by writing “God send us inflation!” But it was to make the point that the inflation obsession has very specific benefits for the very rich. Inflation concerns are so overwhelmingly rampant among the media and elite that the view of inflation has become distorted, and Europe has been so crazy about it that they have pursued economic policies which actually produced deflation in France for 4 consecutive months last year, if I recall correctly. So…enough about inflation, LOL! There are other concerns to be addressed!
I think that any government can easily help those on fixed incomes by indexing pensions/welfare according to inflation. France stopped doing this about 2.5 years ago, I think (pension freezes)? The effect has been dramatically negative for retirees/the elderly.
What the government should not do is have a single-minded obsession with inflation – Stliglitz makes this point repeatedly, that the fundamental charter of the ECB is too limited and must be changed to include growth, employment, etc. However, changing the fundamental charter…that won’t happen, in large part because the wealthy don’t really care about employment or growth – they only care about preserving the size of their huge fortunes.
We can ask ‘what is inflation?’ I’ve look but don’t see a straightforward answer.
We can say it’s too much money chasing too few goods, but who has that money? If I’m rich and buy stuff – precious metals, real estate, other tangibles, than inflation will increase the relative value of my stuff, and decrease the wealth of those who hold money, so it can benefit the manufacturing sector over the bankers. Yet, the banker can hold on to money and reduce the supply, bringing or holding inflation down, which we see now. And, as Saker mentions, currency trading can offset inflation for the wealthy. There is a lot of manipulation happening.
Inflation can be caused by weather and such, and wells or mines running dry, which hits the supply of tangibles, but ti is also the result of money creation and manipulation. I’ll say that most inflation now is caused by creation of debt by banks and investors creating bubbles, and it’s isn’t simply more money but more debt — indogenous money, which may be only on paper, maybe only speculative valuation.
Over time we have seen two things: money is worth less than it used to be, and the wealth gap has increased. This leads me to think that the inflation has resulted in transfer of wealth from the poor to the rich — and the lenders end up with the interest by increasing the indogenous money. This has nothing to do with exogenous money — the fiat money created from the government. How can there be too much money when the vast majority of people do not have enough? Somebody has it — so it must be the wealthy.
We had the bailouts — lots of money for the rich, and now everybody else has to pay the bill. Less money for the workers — and keeps inflation down, good for the rich and bad for the workers. There is a game being played here. Not enough money for enough decent jobs and investment in production, but plenty for rich, so whose is being inflated? Production is down but money supply is up, and steady prices or deflation gives the rich, who have the money, the ability to buy more stuff (including labor) so the inflation which should hit the rich with more money is not realized. It seems that inflation is not all the same and it depends on which sector one looks at. Too much being included in that one word — whose measurement is skewed and rigged by the government, such as with ‘substitution’ where it’s not called inflation if I buy lower quality cheap stuff because I can’t afford the good stuff I used to be able to buy. Deflation, money being able to buy more, doesn’t mean what it used to when the ‘more’ I can buy is lousy quality and the meat has 15% add ‘broth’.
In short, the models and measurements of inflation, as well as shifting and deceptive definitions, obscure the reality. Much as low unemployment includes 94% of new jobs being part time, temporary without full benefits, and low wage.
We should not inflation because in real terms, the workers should be producing to the levels which they consume, and the labor value should equate to their purchasing power — if automation and other efficiency increases the available goods the workers should get the benefit of that (higher incomes, or lower prices) so they can consume the increased supply.
The real economy should be in balance, and money supply reflect the real economy. But there is the problem — if money reflects actual production and consumption, then how can the rich get so much richer by taking a bigger proportion of the wealth? The answer if by inflating prices so the workers can’t afford ti buy more, at least not be able to keep up with the increasing prices vs their wages, effectively making the poor even poorer. If those who create debt-based wealth lose some of it along the way through inflation it doesn’t matter because they are still getting more than they used to and the created that endogenous money out of nothing anyway — so they create a billion for themselves and lose 100 million to inflation, what do they care? It’s all gravy for them anyway.
“High levels of inflation reduce the purchasing power of money and, since the working class have no, or very little, money, they have little or nothing to lose, assuming of course their wages keep pace with inflation.”
Wages do not keep up with inflation — there is always at least a time lag. Additionally, when you live close to the edge it doesn’t take that much to be pushed off because you have very little buffer stock. When the price goes up on something you need, you get get it, and that ripples out to inefficiency, things falling apart, and perhaps total defeat ‘for lack of a horseshoe nail’.
Can’t get your tooth fixed — in infects — can’t afford dentist and antibiotic, and you die from infection…. this has really happened to people.
Interesting view. If capitalism = the rule of globalist elites, then it truly is evil. I still believe in liberty and laissez-faire, but it has to be freedom and empowerment for the little guy, not just for the wealthy. They screwed all of us in the 99% with the “free trade” scam which actually meant “let’s game the system in our favor.”
Thank you Ramin for your elucidating article, especially debunking the aura of Stiglitz as an economics guru representative of the left. As you very well stated, he is – like most economists – imbued with the sacrosanct precepts of capitalism namely the near-perfectibility of markets, otherwise he would not get a Nobel.
True, he does criticize the excesses of capitalism and inveighs against globalization, in the same way that Chomsky does, that is, gentle nibbles at the big monster, but they are part and parcel of the same mind-set, otherwise they would not hold professorships and get accolades from the MSM.
As to the demise of the Euro as an ill-conceived plan I’m not so sure. The work on the single currency started as far back as late 1960s, which led to the ECU (electronic currency only), the EMU and finally the go-ahead for the Euro in 1995, that is, the project started well before the political landscape of Europe suffered the massive change of the 1990s and when the EEC had only 12 members, that is, all Western Europe plus Greece, whose entry in 1981 baffled most observers at the time and even Giscard d’Estaing commented as having been a mistake.
(As a side note, Greece’s application to join the EEC got a sharp cold shoulder from the EEC Commission whose report was negative and recommended a 10-year negotiation process to establish Greece’s credentials for admission. However the Council of Ministers overruled the Commission and fast-tracked Greece for political reasons and UK’s strong sponsorship. It is also noteworthy to point out the UK’s early schemes to widen the EEC and prevent deeper integration.)
Very good and informativ article for a Sunday morning read! But for critics on the subject of the EU you can read a hundred year old artical written by a guy called Vladimir Ilyitsch Uljanov ” About the slogan of the United states of Europe”. Say’s it all!
The EU:
In theory it works, in practice it doesn’t.
They espouse the principle of subsidiarity (solve at the lowest level possible) but ignore its purpose.
The temptation of central ‘control’ has twisted the structure and process.
The Euro is a Deutschmark designed to maintain competitiveness.
NATO is used to dominate the debate and direct the narrative.
Russia is a useful ‘threat’ to engineer and manipulate fear and anxiety.
But the southern and eastern borders cannot be sustained against the chaos largely generated by aggressive EU/NATO adventurism in the Middle East, Afghanistan and North Africa.
The system of ‘globalising’ is a defunct experiment as the disaggregation of the Soviet Union and the Transformation of communist China has shown.
Too big to fail simply means too complex to succeed.
The age of ideologies is dead (at least for a while) — a cycle of pragmatic reality is emerging.
The EU is following the path to dissolution and irrelevance as the economic growth engine moves to Asia.
21st century socialism and 21st century capitalism are convergent and circling the same drain hole.
Socialism and ‘common wealth’ and ‘common good’ (values) are not in the hearts of the people.
And there is no ‘capital’ — it largely went bankrupt in the global financial crisis of 2007-2009.
It is simply engineered fake money pumped by the central banks and backed by the military that ‘trickles’ down to shareholders.
‘Debtism’ would be a better name for this new game in town.
Cui bono?
An excellent article. The EU/EURO design became a cover ( with Germany as a proxy for American geopolitics) for NATO spreading its tentacles to the last corners of Europe. In economic terms it is unsustainable. Greetings from France.
It seems to me that the notion of inflation as a Good Thing can’t be right, and the diagnosis of the Euro can’t be the whole story.
If the rate of inflation is more or less steady, people come to expect it and factor it into nominal prices and interest rates. The effect in the short-run is negligible, In the long-run it merely adds noise to the information prices convey. It throws grit in the machine.
If the rate of inflation is accelerating, it is more disruptive and eventually unsustainable. It benefits borrowers in the short-run. In the long-run, it harms everyone.
The main advocates of the Euro were an unholy alliance of New Keynesians and New Classicals. The main critics were monetarists. They pointed out that a central monetary authority without a central fiscal authority was a bad idea; that a central monetary authority without central banking supervision was a bad idea; and that a single currency for countries with different productivity rates, levels of debt, and exposure to “shocks” was likely to force some members of the union to adjust by grinding deflation because currency depreciation was no longer available (the benefits of a floating currency in certain circumstances were well illustrated by Russia’s response to the fall in oil prices).
Ramin , you and many others are mistaking crony capitalism for capitalism . This applies to the EU as well as the USA . Warren Buffett making a deal with Obama to kill the Keystone Pipeline so that its railroad company can move all that oil with an abysmal safety record is not capitalism . Those deals are the way the EU works . The same deals were also the rule in the Third Reich . Crony capitalism is corporate fascism . It is not capitalism . You are barking at the wrong tree
Capitalism will always result in crony capitalism, and eventually fascism (government and business being conflated) because those who get a little more money can use it to get more money without producing, and by exploiting workers, and rigging the government, in a positive feedback loop. The basis of capitalism is exploiting other people — the workers. Becoming richer just by having money instead of producing tangible goods (which are always produced by the workers, not the owners).
Capitalism is different things to different people. To some it is the unrealized ideal; to others a cold monster. Debt and fiat money ensure that we have a class system and an economic superstructure. just my two cents.
Growth is actually the problem and not the solution. If Planet Earth was the size of Jupiter then this policy would still function , but its not . I believe that is why capitalism is starting to sputter out ,lack of Growth. Yet there is no alternative but to find an alternative system to the existing one .If the paradigm remains the same the depletion of natural resources and the environment (Natural Living Arrangement) will collapse and the changes environmentally speaking may well be devastating. The Class needs this Fiat system to live for Free and they require the Crust (stock markets ,hedge funds etc) to maintain the illusion . The Class gets richer and the crust gets thicker at the expense of the Working Economy . This is a recipe for certain disaster.
Ramin, great article really enjoyed it,
one thing you failed to mention, is that all communist models came after radical and violent historical events of one sort or another, wars most of the time.
There is no chance that any ‘beautified’ flavor of communism will be accepted anywhere in the west, I’d dare say anywhere in the world at the moment, unless it’s a result of some larger upheaval in the world.
Neoliberals today are often characterized as left, or worse communist, Marxist etc. which I don’t have to say how ridiculous that is. The negative connotation of communism is too high, especially in the west (not to mention US).
For what it’s worth, I consider myself a true ‘leftist’ since forever.
The capitalist system is an historical economic/political product just as much as both slavery and feudalism which were its forerunners. Like all political, social and economic systems it will be characterised by birth, youth and blossoming, but ultimately decadence, decay and dissolution. The British solidier/statesman Sir John Glub, as follows:
The Age of Pioneers (outburst)
The Age of Conquests
The Age of Commerce
The Age of Affluence
The Age of Intellect
The Age of Decadence.
(e) Decadence is marked by:
Defensiveness
Pessimism
Materialism
Frivolity
An influx of foreigners
The Welfare State
A weakening of religion.
All of which sound eerily ubiquitous and familiar. Economists as such are pro-establishment by definition, and economics is little more than an apologia for the putative permanence of the capitalist system. God put it there and it will endure forever, amen. This dumb, ahistorical Panglossian outlook is shared by all mainstream economists; such disputes which occur within this priestly fraternity are strictly in-house affairs about how the system ought to be run.
According to Marx, genuine economics (which at that time was referred to as Political Economy) ended with David Ricardo. Marxism is not economics it is, as the sub-title of Capital states, ‘A Critique of Political Economy’. According to KM ‘economics’ was really little more than ideology which attempted to justify the ruling class power over society as a whole. He wrote in this respect,
”In France and in England the bourgeoisie had conquered political power. Thenceforth the class struggle, practically as well as theoretically, took on more outspoken and threatening forms. It sounded the knell of bourgeois economy. It was thenceforth no longer a question, whether this theorem or that was true, but whether it was useful to capital or harmful, expedient or inexpedient, politically dangerous or not. In place of disinterested enquirers, there were hired prize-fighters; in place of genuine scientific research, the bad conscience and the evil intent of the apologetic.” (Capital Vol 1 Afterword to the Second German edition).
Contemporary economists do not see anything wrong with capitalism as a system. It’s internal critics rather believe that it is a matter of wrong policies and wrong personnel that is the root cause of the problem, and if only it was possible to get the macro-variables right then everything would be hunky dory.
Ah yes but the real aim of mainstream economics is not to analyse society objectively but to defend and promote capitalism and markets as the only viable system of human organisation. (This will be vehemently denied by the priesthood of course). Truth to tell, however, modern economics is an apologia not a science. For this wasteful and unproductive exercise, economists are paid relatively well compared to occupations that provide things and services that most people actually need.
But the price of apologetics is to fail to see crises coming in the capitalist mode of production. Mainstream economics failed to forecast the Great Recession and then to explain it. And it has failed to explain the subsequent Long Depression and how to get out of it. Like the Bourbons, economists have learnt nothing and forgotten nothing, theirs is a studied ignorance.
And so the farce continues. The capitalist system like all systems, nations and empires will go the way of the rest. This will happen because of the ultimate inability of the system to maintain itself indefinitely. This type of breakdown – which is a recurrent historical phenomenon – is a long-run tendency and internal to the system. When and how this will end is anybody’s guess.
Very interesting gloss on Marxist thought.
Thanks for the insights.
Katherine
What a joke are the modern (fake) leftists.
All these Social democrats, greens, Socialists, feminists, radical leftists etc
The pseudo-left around the world is the main political supporter of globalization and has a very disorienting role as it focuses on gay rights, human rights, and the environment.
And they are against any nationalisations , national and popular sovereignty , trade protectionism, etc .
One of the biggest jokes of modern fake leftism is the so called “radical left” party of
Syriza , which is now in power in Greece.
While the international and greek media promoted them as a very radical and hard core leftist “communistic ” party , they were in essence a neoliberal social-liberal group of opportunists , totally obedient to EU and to the international capital. They sold out the greek people so as to continue to
remain into EU and EURO as for them EU has a
“religious” importance and they believe that only hope is that in the far distant time maybe EU should change from the top to become more social ( in the meantime, Greek people are starving and the country is being imploded).
. Syriza signed the worse of the worst agreements with EU , after launching a pseudo referendum ( with a meaningless question, ” do you agree with EU commission proposals ?” ) and then ignoring the Greek people who voted NO.
Their ex finance minister , Giannis Varoufakis was very similar to Stiglitz. He is a conservative capitalist professor of economics (who pretends to be a leftist or ” Marxist ” – even though he admits he never has read Marx ). Varoufakis is from a well off oligarch greek family , well connected to the ruling papandreou family , and in general
cultivates an image of a meaningless
pseudo-resistance so as to sell more books and become more famous. His proposals are inconsistent and he offers no solution, as he thinks that the only solution can be brought only from the elites by changing the structure of the global economic system. In the meantime, the regular Greeks , Portuguese, Italians will continue to suffer and there is no point resisting !!!!!
He also claims that there is no alternative to EU and euro as independent nation states are a form of ….evil that will cause the re emergence of “Nazism” and WW 3 . His views are theologically and dogmatically pro EU . Nothing to do with a scientific approach to economic theory or rationalism
RM
Enjoyed the article and the refreshing point of view you presented. Too often, as with Stieglitz, the view of the right is watered down (humanised) with leftwing principles and then presented as that of the left. I liked how you exposed that.
The Left , left town a long time ago.
Take the Netherlands as an example. It is one of the founding countries of the European Union. But only a minority of 39% is still in favor of membership. (Poll Jan. 2017). And leaving the European Union implies leaving the euro.
“The Eurozone has allowed European imperialism to turn on itself. This should be as crystal clear to you by now as it is to an increasing number of Eurozone citizens.”
Very true, and that’s precisely the very ‘beauty’ of it. With the Euro-trash (and their hangers-on such as the Ukro garbage) beset by disunity, squabbles, and mammoth corruption, it’s as if they really don’t care about their PR anymore. It’s so ugly that it’s comical.
fantastic article – many thanks!
It’s not just Stiglitz – ALL mainstream politicians and academics exhibit the same wilful ‘three monkeys’ type of blinkered intellectual cowardice.
well said!!!!
Well guys, tehy work for the man. Stiglitz goes as far as he can and keep his job.i.e. publication, recognition. It’s the old controlled opposition, he would surely know his Marx well, etc.
The growth issue is one I would like to see more on, I have long lost some reading about the curse of that tenet, it’s requirement has always seemed to me the worst disease, absorbing, or smothering, the failure of the real job of maintenance and stability. I am not academic enough, but I gathered some things long ago from JK Galbraith, has trilogy(?) in the sixties when I was in school. I recall introducing The New Industrial State to my econ. teacher, who did take interest. He was Asian but I never knew more about him.
thanks to all thoughtful participants, p.
He is not the only one who can’t quite bring himself to see or say “certain things”.
If by saying China only works because it employs a little bit of capitalism WITHIN A COMMUNIST SYSTEM you actually meant to say that ALL BANKS MUST BE NATIONALIZED AND USURY
DONE AWAY WITH EVERYWERE for the people to prosper….you could have saved yourself the trouble of writing this long and informative article.
–and us the trouble of reading it. And yes, I agree with you.
Here in America our situation seems a little less clear…..BUT IT APPEARS THAT TRUMP INTENDS TO CONTROL THE CIA–where all the bankers nest–so with that [and perhaps as well a restructuring of “The Fed” or an outright take-down] we MAY be ready to come out of the woods.
Or not……..Our future is not clear.
Dennis Morrisseau
US Army Officer [Vietnam era] ANTI-WAR
–FOR TRUMP–
Lieutenant Morrisseau’s Rebellion
FIRECONGRESS.org
Second Vermont Republic
POB 177, W. Pawlet, VT USA 05775
dmorso1@netzero.net
802 645 9727
Yes, the elephant in the room is never mentioned, which is that virtually the whole world, including China, slaves for a rabid, evil, fascist mafia (e.g. the private Nazi BIS in Basle & its affiliates, all banks actually), who are massively creating ‘money’ out of thin air. It makes of course this bunch of evil fascists ever richer, at the expense of everyone else (if only by the incredible inflation they cause, which if not for this monstrous fraud wouldn’t even exist)
It is useless to talk about capitalism, ‘communism’, ‘socialism’, whatever, without mentioning that the whole world is monstrously enslaved (terrorized/tyrannized), and has been so since the 17th century. First comes free speech (press), and other freedoms, traditional values, real democracy, and so forth. Then one can talk about cooperation (‘communism’), regulation, and so forth.
Very well said.
While bright energetic minds like those on this blog expend their energy on diagnosing problems and imaginary solutions, the cancer grows.
The penalty for failure to deal with the cancer in a timely manner is first amputation followed by toxic chemical warfare and finally irradiation.
Anticipating victory for Marine LePen leans upon two presumptions:-
A/..That elections are fair, without unwanted interfering by intelligence agencies (or Soros).
B/..That the Deep state will accept her.
The agendas in play since the Lima Declaration have moved forward, seemingly unstoppable, until impacting against Russias’ unbending will, and national interest.
Germany, it seems to me has been the spoilt child of Europe from the beginning. The only country to have gained, and gained massively from the Euro. It is not just the Euro though Germany and France are the main beneficiaries of the EU treaties whose rules have permitted these nations to buy out the Energy sectors, water sectors, transport sectors, and too a large amount of member nations communications sectors. Bought from member nations often at knock down prices agreed by Governments I can not help but see as traitors to the People whose interesta they were elected to protect. Now I hear France is taking over our (UK) Nuclear armaments, as British forces are being integrated into European commands in indecent haste by an MP named Michael Fallon (part of the European Youth) initiative a long time ago. Yet one more traitor in my book. As this article states, the British Government Corporative machine is striving to return Britain to its “Dickensian” Victorian past, and I have every reason to believe the rest of Europe is on its own Journey to “Wigan Pier” (the road to Wigan Pier is a story, or commentary by George Orwell aka Eric Blair).
Here in the UK inflation is already getting worse despite lower demand trying to apply the brakes: Well the Bank of England keeps printing the stuff so that our criminal bankers get their welfare. I have zero idea why Europe is not in a state of revolution seeing what is going on. Amazing.
Lastly, everybody keeps talking about Brexit: Well, given what is being done re the EU army and Fallons effots in that direction I don’t Brexit has any meaning at all.
The soviet style socialism that dominated Eastern Europe up to 1990 wasn’t that bad after all.
The “Actually existing socialism” of the time was very successful and its achievements were exceptional, especially if we compare it with the disastrous neoliberal capitalism that succeeded it after 1990.
Moreover, lets not forget that those countries that followed socialism were devastated by WW2, started from a far lower level of development compared to the West, and were under US economic and military pressure.
Even though they paid enormous amount on defence, they still managed to eradicate poverty and to create an economic system that provided for all the populace and satisfying all the basic needs. Wages may seem to be lower than western ones, but many things were provided for free.
There was high quality public education (at no cost), free public healthcare and subsidised medicine, subsidised food products at stable prices, guaranteed jobs for everyone, almost free public transport, * provision of public apartments with very low cost etc.
(* Western propaganda made fun of the tiny soviet apartments (which were provided for free), but today westerners pay exorbitant amounts and get huge bank loans to buy apartments that are even smaller and sometimes of very low quality. Real estate bubbles and speculation is the norm in many western cities. Such as in Melbourne, a city called as the most “liveable” in the world where shitty cramped 1 bedroom apartments are sold for $600,000 – 800,000. Similar at Vancouver, London, Paris, Stockholm etc Wages have grown at a far lower pace than house prices and rental costs )
For sure there were problems in this alternative social and economic system but it was the regular people who were at a great loss by its dismantlement.
It is well known what social and economic disintegration followed the demise of USSR and Eastern Bloc countries. These countries lost any national and economic sovereignty and became western vassals. Oligarchs stole the state property and businesses and became billionaires, multinational corporations exploited the natural resources, numerous people became unemployed, the underfunded health systems collapsed and life expectancy dropped, drug use increased significantly, millions were forced to immigrate to do low wage jobs in the West, numerous young girls became prostitutes to western brothels and strip clubs. A disaster of epic proportions…..
But even the working and middle class of western countries have started to pay the price. Similar things are happening to Greece, Portugal, Italy, France, Germany etc. With the demise of the USSR, western elites didn’t have to fear anything and dismantled the welfare state that they have created so as to keep the populace under control and avert the threat of revolution.
Gary Indiana is proud of you! My first 20 years Iived it..You speak it plain, you are a brother. Stiglitz often mentions Gary but he didnt learn it like you did. thank you..keep on making it plain.
No fiat currency succeeds in the long term. Each eventually reverts to a value of zero (or very near to it). One reason is because the controllers of a fiat money system are not omniscient, omnipotent nor good (they are not moral).
The Euro (and the EU) is doomed, not for reasons of not being leftist enough but because of leftist ideas at the core, right from inception. These ideas have failed and no amount of repetition or iteration will alter the inevitable result. Fiat currency is an inevitable fail. Centralisation of political power inevitably fails also and for similar reasons. Democracy is no answer to that. Communism is no answer either (perhaps the writer failed to notice the abject failure of that system wherever it was imposed).
As for “solidarity”, what nonsense. There is no “pan-national solidarity” and never was. People are different from each other, always were, always are. They have different subjective values from each other. They have different ideologies, different languages, different families, different likes and dislikes, different friends, different habits, different nationalities, different cultures, different histories and myths, different religions, different traditions etc etc etc. The idea of some sort of “solidarity” of everyone across an entire continent is silliness writ large. Just aint gunna happen.
It is interesting to note that all sorts of creepy statists are now oozing out of the shadows to tell everyone that the Euro “experiment” has failed. That it has is now obvious to all but the most dim witted or wilfully ignorant. It takes no great insight or understanding to tell everyone the blatantly obvious. Yet that is how they are promoting themselves- by stating the visibly obvious. Such “experts”. Laughable really. That the Euro and the EU would fail was clear decades ago. Frankly, it is amazing that Stiglitz is taken seriously on this matter. He has nothing to reveal. The bus has already left the station, or, if you prefer, the Titanic has already encountered the iceberg.
Siotu
“Communism is no answer either (perhaps the writer failed to notice the abject failure of that system wherever it was imposed). ”
Who is that imposes communism? If it’s imposed by other than the people then it is not communism, by definition. The leftist ideas you talk about is a straw man, without economic democracy, which results in no political democracy as well. The EU had no economic democracy, and that is the main cause of its failure. Controllers of fiat money are supposed to be accountable to the people. The problem is not fiat money but accountability, and that holds for any sort of currency system, and why monarchies, plutocracies, and oligarchies always fail.
As you said “Centralisation of political power inevitably fails” — so that’s what needs to be resolved if it’s excessive (which it tends to become). There can certainly be solidarity across the world when it’s based on people’s rights, fairness, and justice — which are common values for all humans, until it is distorted by sociopathic rulers and propaganda about exceptionalism and demonizing others.
“No fiat currency succeeds in the long term.”
Not sure how long your “long term” is, but that no mismanaged fiat currency succeeds in the long term is certainly true. However, there have been examples of fiat currencies that succeeded for centuries and failed only for political as opposed to any monetary mismanagement reasons. Tally sticks come to mind.
Currency systems have, historically, adjusted themselves to long term economic cycles. During the growth part of the cycle, fiat currencies tend to appear because they foster growth. As growth slows, commodity based currencies of (something called) “intrinsic value” tend to come to the fore.
The type of currency in use tends to follow the stage in the cycle, so we should not be surprised that they come and go as required over time.
As we are heading into a long period of slow growth, or even contraction, after an extraordinary 200 years of growth, the world’s fiat currencies are indeed in trouble. They will give way to currencies tied, however loosely, to items of “intrinsic value”, though the currency masters will fight a desperate rear guard action until the inevitable wave that “nobody saw coming” overwhelms them.
“No fiat currency succeeds in the long term. Each eventually reverts to a value of zero (or very near to it).” The way you phrase this suggests you think there is some underlying principle makes it so. What is it? Omniscience, omnipotence or benevolence would seem to be neither here nor there.
Hi Lindsay
Every day there are billions of transactions between various people throughout the land. They transact according to their own subjective valuations. There are billions of subjective valuations (each person has many). It is common for people’s subjective valuations to alter. They are not static or permanent for the most part. The people transacting use currency to store value. They require the utility of a currency for the purpose. The controllers of a fait currency have control over a critically important functional tool in people’s lives. It has the ability to have major effects upon them and their interests.
If the controllers of fiat currency are not omniscient, then they lack the knowledge necessary to make decisions to satisfy the interests of all the people. If they are not omnipotent, then they lack the means necessary to undertake actions that satisfy the interests of the people. If they are not good, then they won’t take decisions or act to satisfy the interests of the people. They won’t really care about other people anyway, for they are engaged in an endeavour to engorge themselves at the direct expense of the people. That, of course, is immoral (not good).
Those who control fiat currency are men and women who are not omniscient, not omnipotent and not good. As a result they are incapable of making decisions which could possibly satisfy the billions of people transacting and trading etc. What they attempt to do instead is make decisions and undertake actions based on their own ideology, prejudice, bigotry and self-interest. This distorts other people’s lives, transactions, valuations, decisions and actions which in turn leads to unintended or unexpected consequences. Attempts to repair same by further interferences in other people’s lives inevitably leads to more unintended consequences. What are realised are intractable problems which grow exponentially in magnitude until a reset or collapse of some sort. So the controllers of the fiat currency eventually preside over the destruction of their fiat currency. Their mismanagement, hubris, naked greed, lust for power and their own incompetence catches up with them eventually. The currency fails to do its job and eventually loses value (falling to zero or thereabouts) as people lose confidence and rush to get out of it (for most this realisation is way too late and they get ruined).
The principle is taken from the lesson of the insolvable socialist calculation problem. The conclusion is, no centrally planned scheme of this sort can avoid utter failure. Worse, no endeavour of this sort is moral. They are immoral from inception.
Siotu
And yet fiat currencies persist.
No form of money requires omniscience of anyone. Money is a technology for getting round the problem of information processing you allude to. It does not require anyone to know about each and every transaction. It does not require anyone to interfere in any (legal) transaction.
The technology is so useful it has been invented again and again. Fiat money is particularly efficient. It doesn’t pretend that money is other than abstraction (nonetheless real). I suspect “Free Banking” (a private sector currency) is feasible. States muscled in for the seignorage. In a fiat currency with fractional banking (the least costly form of banking), legal tender and a central bank represent an efficient solution to the problem of maintaining a sound currency – a benefit for all based ultimately on the state’s ability to tax. (As the reference to Free Banking suggests, if ideology comes into it, it is in the particular institutional arrangements, not in the notion of fiat currency itself.)
Fiat currency does not depend on anyone’s benevolence. It is about self-interest and common interest.
The drawbacks are inflation and hyperinflation. Inflation can be managed, as certain central banks have demonstrated in the last three decades. Hyperinflation occurs only in extremis, when the state has lost its ability to tax the population and when its credit rating is too poor to borrow. This is rare. (The state has to be powerful, but obviously is never omnipotent.)
So fiat currencies persist.
There are so many fallacies and unwarranted assumptions in that post I don’t have the energy to go through and refute them. As for corruption, commodity based currency is as subject to corruption and manipulation as any, and there is no shortage of examples of that.
Frankly, I’ve gone through a number of Austrian School and Von Mises material, and have a hrd time finishing any of them because they go along and seem to make sense for a while, but after some time my nose begins to hurt too much from all the face palms I do when they insert things which are utterly absurd.
The prime thing to understand is that money is an instrument of the government (whether controlled by the people, oligarchs, crooks, or whoever) and is a legal instrument, and, as such, must always be controlled by the government. Anything else is just glorified barter, open to abuse by the rich, monopolists, and ‘free market’ warlords, and totally incapable of intelligent planning and investment for the populace or nation — or the virtual ‘fiat money’ of debt and interest created by the banksters.
It’s chaotic, and the planning done is by the corporations and financial warlords for their own benefit (which tends to happen whether fiat is used or not, but it is only with fiat that the government has any ability to stop the fascists from finagling. This faith in a ‘free market’ is a religious like faith in fictional ‘invisible hands’ and strange, chaotic, animistic gods.
“There are so many fallacies and unwarranted assumptions in that post I don’t have the energy to go through and refute them.”
I could refute you easy-peasy. I just don’t choose to.
Always raises a smile.
Well have at it if you want, but i got weary of refuting Von Mises long ago and don’t have the time or inclination to find something outlining Siotu’s beliefs and go through point by point — which never seems to accomplish anything anyway. Austrian, libertarian, classical, neoclassical, etc. economics is more like a religion, and based on obsolete conditions anyway. It always reads like Southern Baptists vs Methodists or something — which a non-Christian has no desire to get involved in.
Just the assumption about people being rational individuals has been strongly refuted by scientific studies, not to mention the fallacy of ‘free markets’.
I see http://socialdemocracy21stcentury.blogspot.com/2010/10/mises-praxeology-critique.html Mises’ Praxeology: A Critique as one ‘canned’ criticism, but I don’t want to read through it all — maybe it’s OK.
Please check the words “which makes him a centrist-tending-right”. I don’t understand this, because Stiglitz is reported as leftist, in some way . Maybe there is a mistake, and the right sentence is something like “a man of the center, slightly moved towards left”.
Italian translation available here:
http://comedonchisciotte.org/leuro-secondo-stiglitz-anche-la-falsa-sinistra-dice-exit/
Stiglitz has a nobel prize for economy.
Bernard Lietar told that the nobel prize for economy is an anomaly because it’s not assigned by the Nobel Institute, but by the Central Bank of Sweden.
And it gives the prize only to that economists who don’t touch the monetary status quo.
Krugman told to Lieater “Don’t touch monetary system!”.
https://www.youtube.com/watch?v=amvZShThpg0
“Would that the people have one neck that I might wring it!” The major problem with both capitalism and socialism or communism is the centralization of power. Modern capitalism through the triumph of a few masters of financial capital concentrates vast power in a few hands. Autocratic control of the state does the same in socialist theories. I will not treat so called democratic socialism.
The be all and end all of both philosophies is power. No system which cannot heavily decentralize power is a solution to the problems generated by either of the above systems. One should speak of capitalism and socialism as centralized power ideologies. Whatever the chosen policy these systems impose the policy on the willing and the unwilling alike without recourse. These policies are likely to be destructive for the general population for the policies will serve the interests of the ruling class.
The essence of decentralization whatever its ideology is that attempted central policies can be evaded and neutralized as groups large and small go their own way. This is the primary reason breakup of the Eurozone will be a general benefit to most Europeans. The individual countries can again go their own way with their own fiscal, monetary and trade policies.
If economic policy is in the hands of a ruling class in any given group then decentralization requires groups never be larger than the ruling class of the group so that policy always favors the group in its entirety. Obviously no real group: nation: class, city, etc. will ever really fit that ideal, but the smaller the group the more likely it will be true. It is obviously identically true for a group consisting of one individual.
As it stands the ruling classes of the Western states are destructively self-centered destroying the states they rule, but so long as centralized power ideologies rule the situation is unlikely to improve. There is no incentive for ruling classes to serve any but themselves. A socialist system in the West can be expected to be no different.