Industrial Employment and the Celtic Tiger Years
Kevin Doogan in his excellent book, New Capitalism? correctly points out that employment is the achilles heel of right-wing economic analysis.
You can’t model jobs - either they are there or they are not.
If you follow work, and keep focused on the jobs, then more realistic appraisals of the actual dynamics of the economy start to emerge.
[Taken from Census Reports, 1926-2006. Excel file here. PDF here.]
With regard to Ireland in the 1990s, a credit bubble is a handy shorthand, but nonetheless misleading.
It gives the impression that a bubble formed on the back of wealth creation in the real economy. This is not quite the case.
There has been a fundamental shift in wealth creation in the past thirty years. Once upon a time, banks and financial institutions made their money by leaching off the real economy. They used people’s savings to make loans to people and businesses that needed money, and received a handsome cut for their troubles.
Today, banks and financial institutions are the real economy, with financial innovations treated with the same awe and wonder as the light bulb and the automobile a hundred years ago.
In other words, the current crisis is not part of a business cycle; the way business does business these days is what is causing the edifice to crumble.
This is why the bank bailouts are nothing more than a glorified mugging.
The banks have not received billions of euro in taxpayers’ money so that they can act as conduits for industrial and service-based investment.
They have received billions of euro because their own private money - the money they use to fund their business strategies - is a phantom, without substance, devoid of any actual value.
They are robbing us to make their private money real, because their business strategies are absurd.
The greatest single product created in Ireland in the 1990s was credit, as was the case in other parts of the western world.
Not computers. Not chemicals. Not cattle.
Credit making credit and modelled as a business plan.
The levels of credit generated in the 1990s did not emerge out of the workings of the real economy - that is, financial surplus put to work by banks and financial institutions.
The credit was created through financial innovations which were created by the banks themselves with little relation to the actual wealth production in the rest of the economy.
In 1994 Paul Sweezy gave a talk to Harvard economics graduate students where he pointed out the changing nature of economic conditions. The following quote is taken from The Great Financial Crisis: Causes and Consequences by John Bellamy Foster and Fred Magdoff.
In the old days finance was treated as a modest helper of production. It tended to take on a life of its own and generate speculative excesses in the late stages of business cycle expansions. As a rule these episodes were of brief duration and had no lasting effects on the structure and functioning of the economy.
In contrast, what has happened in recent years is the growth of a relatively independent financial sector, not in a period of overheating but on the contrary in a period of high-level stagnation… in which private industry is profitable but lacks incentives to expand, hence stagnation of private real investment.
But since corporations and their shareholders are doing well and, as always, are eager to expand their capital, they pour money into the financial markets, which respond by expanding their capacity to handle these growing sums and offering attractive new kinds of financial instruments.
Such a process began in the 1970s and really took off in the 1980s.
By the end of the decade, the old structure of the economy, consisting of a production system served by a modest financial adjunct, had given way to a new structure in which a greatly expanded financial sector had achieved a high degree of independence and sat on top of the underlying production system.
That, in essence, is what we have now.
Sweezy was talking about the States, but the idea of finance not as the facilitator of growth and late business cycle bubble creator, but as the primary engine of growth itself, has a lot of relevance to Ireland in the late 1980s and 1990s.
The idea that Ireland went through such levels of industrial expansion through foreign investment as to create an economic miracle labelled the Celtic Tiger, which was followed by a financial bubble brought on by the exuberance of the real expansion - a bubble which has finally burst - is common among the Left in Ireland.
Yet the expansion of the Irish economy in the 1990s cannot be separated from the financialisation of the economy itself. The IFSC did exist, even if the profits didn’t.
The Communist Party of Ireland have produced a great little pamphlet which places financialisation front and centre in its analysis of Ireland over the past thirty years.
It is well worth checking out, as is Monthly Review and, of course, The Great Financial Crisis which should be on the bedside table of every Irish left-winger worth he/r salt.
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EU Should Admit Greece is Bankrupt | Christian Rickens
The unvarnished truth - the second Greek Bailout should not have happened.
The mistake isn’t the size, but the construction of the bailout package. It isn’t geared to the requirements of the people of Greece but to the needs of the international financial markets, meaning the banks.
How else can one explain the fact that around a quarter of the package won’t even arrive in Athens but will flow directly to the country’s international creditors? The holders of Greek government bonds are to get some €30 billion as an incentive to convert their old paper into new bonds. The aim is to keep alive the illusion that Greece isn’t bankrupt — after all, the creditors are voluntarily forgiving part of the debt. The financial sector is cleverly manipulating the fear that a Greek bankruptcy would trigger a fatal chain reaction.
That leaves €100 billion. But that too isn’t geared to what Greece needs in order to get back on its feet. It’s linked to an estimate of how much debt the Greek economy can bear without collapsing. International technocrats agree that with debts amounting to 120 percent of gross domestic product, the country can just about go on servicing its debt. That’s the level at which the cow can go on supplying milk without dying of exhaustion. So 120 percent became the goal.
Collaboration, with our European partners | Cunning Hired Knaves
The European project was supposed to be a bulwark against the dangers of fascist ambition, but now it is the instrument used to dismantle European democracy in the interest of the risk adverse looking for a steady income stream from the provision of the social net by those who cite the words and actions of old fascists while doing so.
The post Collaboration, with our European partners by Richard of Cunning Hired Knaves summed up in one sentence. For much better sentences and many more urgent points read the post.
On Sunday there were massive demonstrations throughout the Spanish state, with half a million people on the streets of Madrid and 450,000 in Barcelona, protesting against the labour ‘reform’ planned by the Partido Popular, the right-wing party that most closely represents the interests of the power elites that conserved their position when the transition from dictatorship to democracy was undertaken.
S.P.A.R.K. protest at cuts to lone parents, Dublin 18th February 2012
Many families were cut in the last budget but lone parent families were particularly hit by the Fine Gael/Labour Party government.
The key elements are that single parents can’t take advantage of training such as Community Employment (CE) Schemes and when the youngest child turns 7 years old, the parent is declassed as a lone parent but treated as an ordinary worker even though there are few affordable creche places. There is a bill coming up in March which will copper fasten some of the worst elements of government plans.
There is particular anger directed at the Labour Party because they are associated with women’s rights and a more progressive society.
Please share the link to this video
Exiting the euro | Michael Roberts
Michael Roberts argues that those in Greece who cite the example of Argentina when suggesting that Greece should leave the Euro are not necessarily looking at the whole picture. The situations are not the same, Roberts points out, citing Argentina’s former central bank governor at the time, Mario Blejer and his recent piece in the Financial Times. He also points to research based on the the experience of five recent devaluations of economies in crisis (including that of Argentina) which “shows that they lead to a 10-20% fall in real GDP and take five to ten years to recover to previous real GDP levels. But that is not to say that there is no alternative to “lowering wages, privatising the state sector, reducing taxes for the corporate sector (especially big business) and ‘deregulating’ labour markets i.e. the super-exploitation of the Greek people to raise profitability.”
But the left could also find an alternative policy to exiting the euro where Greece negotiates a full default on its debt to private and foreign bondholders; takes over the banks; and uses the savings from bond and interest repayments (€17-20bn a year) to start state directed investment in jobs, technology and funding small businesses, while staying in the euro to protect the savings of the people from destruction, keeping down inflation and avoiding a rise in foreign debt. The question of exiting the euro then becomes an issue for the Euro leaders to impose (and to be resisted by a campaign within Europe), not as the main policy plank of the left.
Corporate tax avoidance: where are the worst offenders?
This table comes via the Tax Justice Network (and Richard Murphy). It’s from a table produced by U.S. researcher Kimberly Clausing and as TJN notes “demonstrates which countries are working hardest to wage economic warfare on the United States (and, by extension, on other countries,) via the global tax system”.
Solidarity campaign to support the people of Greece
Mikis Theodorakis, famous Greek composer of Zorba’s Dance, and Manolis Glezos, veteran resistance fighter against the Nazi occupation, have issued a call for a European Front to defend the people of Greece and all those facing austerity. We have decided to support this call and work with trade unions, campaigns and parties across Europe to establish a European Solidarity Campaign to defend the people of Greece. We will organise solidarity and raise practical support for the people of Greece; they cannot be made to pay for a crisis for which they are not responsible.
Chris Dillow | Capitalism against freedom
[...]
During the Cold War, opponents of communism routinely, and not entirely wrongly, claimed to be champions of liberty. Freedom for capitalists and freedom of speech and thought go together, it was claimed. “Freedom is indivisible” wrote Bruce Winton Knight in 1952. “Economic freedom is…an indispensable means toward the achievement of political freedom“ wrote Milton Friedman in Capitalism and Freedom. And back in 1944 Friedrich Hayek complained that “We have progressively abandoned that freedom in economic affairs without which personal and political freedom has never existed in the past.”
Today, though, this seems wrong. Many threats to freedom come from capitalists. The story is no longer capitalism and freedom, but capitalism against freedom.
Ian Stewart | The mathematical equation that caused the banks to crash
In The Observer, Sunday 12 February 2012
Anyone who has followed the crisis will understand that the real economy of businesses and commodities is being upstaged by complicated financial instruments known as derivatives. These are not money or goods. They are investments in investments, bets about bets. Derivatives created a booming global economy, but they also led to turbulent markets, the credit crunch, the near collapse of the banking system and the economic slump. And it was the Black-Scholes equation that opened up the world of derivatives.
The equation itself wasn’t the real problem. It was useful, it was precise, and its limitations were clearly stated. It provided an industry-standard method to assess the likely value of a financial derivative. So derivatives could be traded before they matured. The formula was fine if you used it sensibly and abandoned it when market conditions weren’t appropriate. The trouble was its potential for abuse. It allowed derivatives to become commodities that could be traded in their own right. The financial sector called it the Midas Formula and saw it as a recipe for making everything turn to gold. But the markets forgot how the story of King Midas ended.
Greece: a Sisyphean task | Michael Roberts
In a Eurozone that is unwilling to share its surplus with weaker, hardest hit economies there is no other option for those economies but default. Despite the agreement of Greek politicians to shorten their political life and accept the deal all that they have done is simply postpone this eventuality once again. However, even that postponement might be shortened by the Greek elections in April where the smaller leftist parties outside the coalition currently have 40% of the vote. Or so says Michael Roberts:
Whatever the Greek coalition leaders agree to and try to implement, such is the weakness of Greek capitalism, it will not be able to meet its fiscal targets or get its debt down to reasonable levels. Before the end of the year, the Troika will have to report that Greece is not delivering. Then the EU leaders will have to decide whether they ‘let Greece go’ or not. The EU leaders have agreed to more money for Greece (or more accurately its bondholders and banks) in return for draconian cuts in living standards in order to provide more time to try and ‘ring-fence’ other vulnerable Eurozone states like Portugal and Ireland (where they are preparing extra funding). So when Greece goes down, it will not affect the rest (or so the EU leaders hope). Of course, the Greek people may force the issue earlier if they vote in an anti-Troika government in April.
As Greece stares into the abyss, Europe must choose | Maria Margaronis
Do we really want to live in an economic union that must destroy the future of millions in order to just tick along? Maria Margaronis points out that the situation in Greece today says little about Greece and everything about the EU.
The trouble with historical metaphors is that they can obscure the present: what’s really at stake here is not Greece’s identity but Europe’s. All eyes are fixed on Athens, but the way out of the crisis requires a choice about what kind of Europe we want. The one we have now, with its deep structural inequalities and its rigid adherence to a failed economic ideology, protects neither democracy nor human rights. Stiff-necked and punitive, it prefers to eat its children.
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