Clearly, the global capitalist
crisis that started in 2007 will be neither short nor shallow. The government rescue of the U.S.
financial industry pumped enough extra money into the economy and sufficiently reduced interest rates to give banks and the
stock market the heavily hyped “recovery” that started March 2009 and is now over.
What is worse, their recovery never reached much of the rest
of the economy. Efforts to broaden the recovery or extend it beyond one limp year have failed. That failure cost Washington
trillions in borrowed funds from lenders who now demand guarantees that those loans will be
repaid to them with interest. Similar demands now confront many other governments who likewise
borrowed heavily to cope with the crisis in their countries.
demanded by lenders is “austerity.” Lenders want
governments to raise taxes or cut government spending or both. Governments will then have more money available to pay interest
on loans and to repay those loans. Governments that fail to impose austerity will face higher interest on new and renewed
loans or will be denied loans which would cripple those governments’ usual operations. Austerity
is yet another extreme burden imposed on the global economy by the capitalist crisis (in addition to the millions suffering
unemployment, reduced global trade, etc.).
Who are these lenders demanding austerity? The globally
active financial enterprises—mostly banks that collapsed in the crisis and were rescued by their home governments—are,
together, also major lenders to those governments. Banks own their own governments’ debts but also other governments’ debts.
For example, major banks in France and Germany are among the Greek government’s chief creditors. US banks and related
financial enterprises hold significant amounts of other governments’ debts and other nations’ banks own much US
2007 crisis froze the credit system that sustains capitalist production. Private borrowers—enterprises and individuals—could
no longer repay loans because their investments had generated too little and their incomes had failed to grow enough. Banks
had failed to properly assess risks in deciding how much to lend to whom. They therefore stopped lending to private borrowers because that had become
too risky. As private borrowers defaulted and new lending atrophied, banks’ capital and their profits collapsed. The
whole capitalist system ground toward a halt because credit became unavailable.
The only solution most leaders in capitalist countries could conceive
was to unfreeze credit by having the government guarantee bank solvency, guarantee many private debts, invest massively in
and lend to private banks, and become the ultimate borrower of a huge portion of loanable funds. Banks everywhere lent to
governments because it had become unsafe to lend to almost anyone else. Governments everywhere used the borrowed money to
rescue banks and other financial enterprises.
This peculiar “nationalization” of debt served capitalism
by having the government temporarily function as the lender and borrower of last resort. Nationalization unfroze the credit
system sufficiently to stop the crisis from collapsing global capitalism. Few policy-makers (and few others) in 2008 and early
2009 worried much about the consequences of so massively increasing government debts. The looming possible capitalist system
collapse overwhelmed worry about any “longer run.”
The international banks that were rescued (from their own
bad loans and investments) by governments now worry that governments they lent to won’t be able to repay those loans. Banks threaten to make further loans much more costly or even impossible unless those governments impose
“austerity.” Most political leaders recognize that the banks’ threats, if carried out under their watch,
would end their careers quickly and badly. All capitalists see in possible government defaults the specter of another credit
freeze with terrifying ramifications for global capitalism. Still worse for those banks: governments
in default would not likely be able to borrow again to rescue banks again.
Nearly all current political leaders of major capitalist countries responded
positively to the banks’ demand for austerity (as in Canada’s recent G-20 meeting). This immediately raised a
basic political conflict always simmering inside capitalism: who will pay increased taxes and who will suffer decreased government
spending? Militants in Europe have already marched and struck against austerity as an unacceptable plan to make workers pay
to fix capitalists’ crises; more general strikes are set in many European nations with a Europe-wide general strike
now scheduled for September 29. Meanwhile, capitalists work with politicians to define as “reasonable in crisis times”
austerity programs mixing both tax increases (chiefly on workers) and spending cuts (chiefly on workers).
An Athens trucker says, “Public employees here don’t work
hard enough, so it is reasonable to cut their pay.” A Parisian clerk thinks it “reasonable to postpone the official
retirement age a few years; we all live longer now.” A Minneapolis office worker agrees that it is “reasonable,
in crisis times, to get by with fewer public services.” A New York laboratory technician supports a new tax on cell-phones
as “probably reasonable; after all, people overuse them.” Remarkably, such notions of “reasonable”
are silent about other possible and, to say the least, more “reasonable” forms of austerity.
Let’s consider some alternative “reasonable” kinds
of austerity (i.e., austerity for others) and then question austerity itself. Serious efforts to collect income taxes from
U.S.-based multinational corporations, especially those who use internal pricing mechanisms to escape U.S. taxation, would
generate vast new federal revenues. The same applies to wealthy individuals. The U.S. has no federal property tax on holdings
of stocks, bonds, and cash accounts (states and localities levy no such property taxes either).
If the federal government levied a 1 per cent tax on assets between $100,000
to 499,000, and 1.5 per cent on assets above $500,000, that would raise much new federal revenue (everyone’s first $100,000
could be exempted just as the existing U.S. income tax exempts the first few thousands of dollars of individual incomes).
Exiting the Iraq and Afghanistan disasters would do likewise. Ending tax exemptions for super-rich private educational institutions
(Harvard, Yale, etc.) and for religious institutions (church-goers would then need to pay the costs of their churches) would
be among the many other such alternative “reasonable” austerity measures. Comparable alternatives apply—and
are being struggled over—in other countries.
A capitalist system that generates so massive a crisis, spreads it globally,
and then proposes mass austerity to “overcome” it has lost the right to continue unchallenged. Should we not be
publicly debating whether America (and the world) might be better served by going beyond capitalism? Can we not learn from
capitalism’s repeated cycles (failures) and change to a new, non-capitalist system? Having learned hard lessons from
the first socialist attempts during the last century in Russia, China, and beyond, can we not rise to the challenge to make
a new attempt that avoids their failures and builds on their strengths? When better than now?
by jk. For those who don’t learn from history, they live to repeat it. See the detailed analysis of the great depression.
Secondly, Naomi Klein points out that what is coming is a rerun of what she calls the Pinochet solution, in her The Rise of Disaster Capitalism. Finally, the decline that the bottom 95% is experiencing
in their standard of living--contrary to the expansion of productivity averaging a compounded over 2% per year since the 1960s--is
because the financial community in those years has grown from 15% of the GDP to over 46%, and they only produce debt payments. Assuming Ms. Klein is right, the world is about to undergo an implosion following
the Pinochet pattern of Argentina. The call for austerity follows that pattern.
is another solution, but government cannot stand up to those who fund their elections.
It is the Roosevelt fix, put money into the hands of those who buy things, the bottom 95%. This didn’t happen
until, what Teddy Roosevelt called the shadow government, many of them called for this solution. These moguls of business feared a populist revolution. We
have a long way to go.