| 1 |
Adults in the Room |
| 2 |
“lived nearly three months in Athens between February and July 2015, and in the context of my work as scientific coordinator of the audit of Greece’s debt, I was in direct contact with a number of members of the Tsipras government.” |
| 3 |
“I continue to believe Tsipras was right to climb down in the face of the EU’s ultimatum, and that Varoufakis was at fault for the way he designed the “game” strategy.” |
| 4 |
“Varoufakis rea***ured his opposite numbers that the Greek government would not request a reduction of the debt stock, and he never called into question the legitimacy or legality of the debt whose repayment was demanded of Greece.” |
| 5 |
“persist in using the worst forms of blackmail.” |
| 6 |
“When a coalition or a party of the Left takes over government, it does not take over the real power. Economic power (which comes from owners***p of and control over financial and industrial groups, the mainstream private media, ma*** retailing, etc.) remains in the hands of the capitalist cla***, the richest 1 per cent of the pop****tion. That capitalist cla*** controls the state, the courts and the police, the ministries of the economy and finance, the central bank, the major decision-making bodies.” |
| 7 |
“In reality, a major strategic choice of the Syriza government–one which led to its downfall–was constantly to avoid confrontation with the Greek capitalist cla***. It was not simply that Syriza and the government did not seek pop****r mobilization against the Greek bourgeoisie, who widely adhered to the EU’s neoliberal policies. The government openly pursued policies of conciliation with them.” |
| 8 |
“should have resolutely followed the path of disregarding the European treaties and refusing to submit to the dictates of the creditors. At the same time they should have taken the offensive against the Greek capitalists, making them pay taxes and fines, especially in the sectors of s***pping, finance, the media and ma*** retail. It was also important to make the Orthodox Church, the country’s main land owner, pay taxes. As a means of reinforcing these policies, the government should have encouraged the development of self-organization processes in existing collective projects in various domains (for example, self-managed health dispensaries to deal with the social and humanitarian crisis or a***ociations working to feed the most vulnerable people.” |
| 9 |
You see, it is not an environment for radical socialist policies after all. Instead it is the Left’s historical duty, at this particular juncture, to stabilise capitalism; to save European capitalism from itself and from the inane handlers of the Eurozone’s inevitable crisis”. |
| 10 |
“does not have a whiff of Marxism in it.” |
| 11 |
“to save European capitalism from itself” |
| 12 |
“minimise the unnecessary human toll from this crisis; the countless lives whose prospects will be further crushed without any benefit whatsoever for the future generations of Europeans.” |
| 13 |
“we are just not ready to plug the chasm that a collapsing European capitalism will open up with a functioning socialist system”. |
| 14 |
“a Marxist analysis of both European capitalism and of the Left’s current condition compels us to work towards a broad coalition, even with right-wingers, the purpose of which ought to be the resolution of the Eurozone crisis and the stabilisation of the European Union… Ironically, those of us who loathe the Eurozone have a moral obligation to save it!” |
| 15 |
“the likes of Bloomberg and New York Times journalists, of Tory members of Parliament, of financiers who are concerned with Europe’s parlous state.” |
| 16 |
what would I have done differently with the information I had at the time? I think I should have been far less conciliatory to the Troika. I should have been far tougher. I should not have sought an interim agreement. I should have given them an ultimatum: “a restructure of debt, or we are out of the euro today”. |
| 17 |
Below is the transcript of the presentation that I made on 30 April to the Indian Students Forum (TISS) in Mumbai. It has been published by Students’ Struggle, the monthly bulletin of the Students Federation of India, a student organisation a***ociated with the Communist Party of India (Marxist). It is a little out of date on the COVID-19 cases and deaths but I am republis***ng the presentation to blog readers as i think it still sums up my position on the nature of coronavirus crisis. It is very long. But this is an exception to the rule. |
| 18 |
It was transcribed for us by Goutham Radhakrishnan, a research scholar at TISS. |
| 19 |
Fig.1: Mortality Rates |
| 20 |
Fig. 2: Curve Flattening |
| 21 |
Fig. 3: Trade-off Between Lives and Economy |
| 22 |
Fig. 4: Anatomy of a Crisi |
| 23 |
“Every child knows a nation which ceased to work, I will not say for a year, but even for a few weeks, would perish” |
| 24 |
Fig. 5: Output Losses |
| 25 |
Fig. 6: Capital Flight |
| 26 |
Fig. 7: Food Crisis |
| 27 |
Fig. 8: Global Growth Trend |
| 28 |
Fig. 9: US GDP Decline |
| 29 |
Fig. 10: IRR on Capital |
| 30 |
Fig. 11: Trend in Global Corporate Profits |
| 31 |
Fig. 12: Debt Vs Growth |
| 32 |
Fig. 13: Profitability – India |
| 33 |
Fig. 14: India’s GDP Forecast |
| 34 |
Fig. 15: Expenditure by Countries |
| 35 |
Fig. 16: US Economy – Historical Trend Vs Current |
| 36 |
Fig. 17: World Trade |
| 37 |
Fig. 18: A Long Depression |
| 38 |
“the Covid-19 pandemic and the world economic and trade environment.” |
| 39 |
“still room for improvement in the work of government,” |
| 40 |
Pointless formalities and bureaucratism remain an acute issue. A |
| 41 |
small number of officials s***rk their duties or are incapable of fulfilling them. Corruption is still a common problem in some fields,” |
| 42 |
“Houses are built to be inhabited, not for speculation.” |
| 43 |
The larger profit rate explained the robust mechanization in the early stages of the process. Fast capital acc***ulation diminishes capital productivity and the profit rate. Then, the success in catching up must hinge on raising the saving and investment rates. It may further reduce capital productivity and the profit rate, putting the process at risk, which seems to be the case in China and India |
| 44 |
‘‘if China were to follow essentially the same economic laws as in other capitalist countries (such as the United States and j***an), a decline in the profit rate would be followed by a deceleration of capital acc***ulation, culminating in a major economic crisis.’’ |
| 45 |
dominated (2) |
| 46 |
Source |
| 47 |
“The scope and speed of this downturn are without modern precedent”. |
| 48 |
Among people who were working in February, almost 40% households making less than $40,000 a year had lost a job in March”! |
| 49 |
“while the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks”. |
| 50 |
“The record shows that deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy |
| 51 |
“A prolonged recession and weak recovery could also discourage business investment and expansion, further limiting the resurgence of jobs as well as the growth of capital stock and the pace |
| 52 |
technological advancement. The result could be an extended period of low productivity growth and stagnant incomes.” |
| 53 |
“the recovery may take some time to gather momentum, and the pa***age of time can turn liquidity problems into solvency problems.” |
| 54 |
that “a***et prices remain vulnerable to significant price declines should the pandemic take an unexpected course, the economic fallout prove more adverse, or financial system strains re-emerge.” |
| 55 |
“material losses” |
| 56 |
“The strains on household and business balance sheets from the economic and financial shocks since March will probably create fragilities that last for some time,” |
| 57 |
“All told, the prospect for losses at financial inst**utions to create pressures over the medium term appears elevated,” |
| 58 |
The current downturn is unique in that it is attributable to the virus and the steps taken to limit its fallout. This time, high inflation was not a problem. There was no economy-threatening bubble to pop and no unsustainable boom to bust. The virus is the cause, not the usual suspects—something worth keeping in mind as we respond.” |
| 59 |
I’m sure when this disaster is over, mainstream economics and the authorities will claim that it was an exogenous crisis nothing to do with any inherent flaws in the capitalist mode of production and the social structure of society. It was the virus that did it.” |
| 60 |
“Even before the pandemic struck, in most major capitalist economies, whether in the so-called developed world or in the ‘developing’ economies of the ‘Global South’, economic activity was slowing to a stop, with some economies already contracting in national output and investment, and many others on the brink.” |
| 61 |
“the underlying health of the global capitalist economy was poor before the plague but was obscured by cheap money driving speculative gains which fed back into the economy”. |
| 62 |
increases |
| 63 |
vice versa |
| 64 |
“rather slim”. |
| 65 |
“the pandemic poses especially big economic hazards to companies with highly leveraged balance sheets, a group that now includes much of the corporate world. Yet the only viable short-term solution is to borrow more, to survive until the crisis pa***es. The result: companies will hit the next crisis with even more precarious debt piles.” |
| 66 |
“in the US, non-financial corporate debt was about $10tn at the start of the crisis. At 47 per cent of gross domestic product, it has never been greater. Under normal conditions this would not be a problem, because record-low interest rates have made debt easier to bear. Corporate bosses, by levering up, have only followed the incentives presented to them. Debt is cheap and tax deductible so using more of it boosts earnings. But in a crisis, whatever its price, debt turns radioactive. As revenues plummet, interest payments loom large. Debt maturities become mortal threats. The chance of contagious defaults rises, and the system creaks.” |
| 67 |
,“this is happening now and, as they always do, companies are reaching for more debt to stay afloat. US companies sold $32bn in junk-rated debt in April, the biggest month in three year |
| 68 |
“Containing corporate debt by regulating lenders is also unlikely to work. After the financial crisis, bank capital requirements were made stiffer. The leverage merely slithered off of bank balance sheets and re-emerged in the shadow banking system. A more promising step would be to end the tax deductibility of interest. Privileging one set of capital providers (lenders) over another (shareholders) never made sense and it encourages debt.” |
| 69 |
“the best book this century”! |
| 70 |
both the Great Recession and Great Depression were preceded by a large run-up in household debt… And these depressions both started with a large drop in household spending.” |
| 71 |
“demand is sufficiently indebted, the economy gets stuck in a debt-driven liquidity trap, or debt trap”. |
| 72 |
“aggregate debt grew faster than aggregate income” |
| 73 |
“making financial activity increasingly hazardous and compelling riskier behavior.” |
| 74 |
Moreover, if one excludes the largest 5% of listed corporations, the corporate leverage picture is more extreme and worrisome (chart 45). One indication of the risk a***ociated with this increased corporate leverage is the profound rise in the proportion of companies with ratings just above junk levels in the past 10 years.” |
| 75 |
that “since the mid-1980s, the U.S. economy has been swept up in a series of increasingly balance-sheet-dominated cycles, each cycle involving to some degree reckless borrowing and a***et speculation leading to financial crisis, deflationary pressures, and prolonged economic weakness.” |
| 76 |
“without balance sheet expansion (ie buying financial a***ets), it is exceedingly difficult to achieve the profits necessary for the economy to function. Moreover, once those profits are achieved, it is also exceedingly difficult to stop households and businesses from responding by borrowing and investing, thus reaccelerating balance sheet expansion and defeating the entire purpose. Bubble or nothing.” |
| 77 |
“reflected s***fts in technology and globalization that began in the 1980s.” |
| 78 |
“It is for the interests of the well to do . . . that we should take from them a sufficient amount of their surplus to enable consumers to consume and business to operate at a profit.” |
| 79 |
“Escaping a debt trap requires consideration of less standard macroeconomic policies, such as those focused on redistribution or those reducing the structural sources of high inequality.” |
| 80 |
“structural sources” |
| 81 |
“we have a huge opportunity now to replace government lending to companies in the Covid-19 crisis with equity purchases. Indeed, at current ultra-low interest rates, governments could create instantaneous sovereign wealth funds very cheap!” |
| 82 |
“Free markets must be protected through the pandemic |
| 83 |
, with s |
| 84 |
ensible and targeted state intervention |
| 85 |
that |
| 86 |
can help capitalism to thrive post-crisis.” |
| 87 |
“there is neither a realistic set of federal policies to painlessly solve the Big Balance Sheet Economy dilemma nor even a blueprint of what the optimal policies should be.” |
| 88 |
“the economic crisis, by destroying capital, can provide a way out. The investment opportunities created by the collapse of part of the production apparatus, like the effect on prices of support measures, can revive the process of creative destruction described by Schumpeter.” |
| 89 |
“We will have to adopt more radical alternatives. A crisis is a superb a time to change course. Let us start right now.” |
| 90 |
“you’re going to see the economy really bounce back in July, August and September” |
| 91 |
is going to be really strong and next year is going to be a tremendous year”. |
| 92 |
“a disaster relief situation”. |
| 93 |
“a natural disaster, like a war, is a temporary event”. |
| 94 |
it should be met largely through higher taxes and lower spending in the future rather than right away, which is another way of saying that it should be paid for in large part by a temporary increase in the deficit.” |
| 95 |
“It takes a long time for both business and consumers to restore their ‘confidence’ levels in the economy and change ultra-cautious investing and purchasing behavior to more optimistic spending-investing patterns. Unemployment levels hang high and over the economy for some time. Many small businesses never re-open and when they do with fewer employees and often at lower wages. Larger companies h****d their cash. Banks typically are very slow to lend with their own money. Other businesses are reluctant to invest and expand, and thus rehire, given the cautious consumer spending, business h****ding, and banks’ conservative lending behavior. The Fed, the central bank, can make a ma*** of free money and cheap loans available, but businesses and households may be reluctant to borrow, preferring to h****d their cash—and the loans as well.” |
| 96 |
All |
| 97 |
“In the traditional view of the business cycle, a recession consists of a temporary decline in output below its trend line, but a fast rebound of output back to its initial upward trend line during the recovery phase (see chart, top panel). In contrast, our evidence suggests that a recovery consists only of a return of growth to its long-term expansion rate—without a high-growth rebound back to the initial trend (see chart, bottom panel). In other words, recessions can cause permanent economic scarring.” |
| 98 |
“Poor countries suffer deeper and more frequent recessions and crises, each time suffering permanent output losses and losing ground (solid lines in chart below).” |
| 99 |
“The scarring effect of this recession is probably going to be more severe than of any past recessions….If we say that pandemics are the new normal, then people will be much more hesitant to take risks,” |
| 100 |
“This experience is going to leave deep scars on the economy and on consumer/investor/business sentiment. This is going to scar a generation just as deeply as the Great Depression scarred our parents and grandparents.” |
| 101 |
“new sovereign debt crisis” |
| 102 |
“Grants are like water in a fire fight while loans are the fuel,” |
| 103 |
“The question is do we want to create an instrument that gives Italy and Spain significantly more fiscal space?” |
| 104 |
“That requires a lot more real money on the table.” |
| 105 |
“do not belong in the category of what I can agree” |
| 106 |
“we are at a moment where companies are not going to invest because there is a lot of uncertainty,” |
| 107 |
“the disintegration of the eurozone has begun. Austerity will be worse than in 2011″. |
| 108 |
“common sense” |
| 109 |
“the euro was a failed project” |
| 110 |
“not an environment for radical socialist policies after all”. |
| 111 |
“it is the Left’s historical duty, at this particular juncture, to stabilise capitalism; to save European capitalism from itself and from the inane handlers of the Eurozone’s inevitable crisis”. |
| 112 |
“we are just not ready to plug the chasm that a collapsing European capitalism will open up with a functioning socialist system” |
| 113 |
“work towards a broad coalition, even with right-wingers, the purpose of which ought to be the resolution of the Eurozone crisis and the stabilisation of the European Union… Ironically, those of us who loathe the Eurozone have a moral obligation to save it!” |
| 114 |
what would I have done differently with the information I had at the time? I think I should have been far less conciliatory to the troika. I should have been far tougher. I should not have sought an interim agreement. I should have given them an ultimatum: “a restructure of debt, or we are out of the euro today”. |
| 115 |
this vile, infamous theory, this hideous blasphemy against nature and mankind”. |
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