A look back makes the outlook easier: A speculative boom in 1929 leads to a stock market crash and recession, the budget deficit increases, the austerity policies drive the economy into a depression. Tensions within and between countries increase, scapegoats are sought, anti-Semitism and protectionism are spreading.
Forward to the 1930s?
by Stephan Schulmeister
[This article posted in 2012 is translated from the German on the Internet, https://www.wsi.de/data/wsimit_2012_06_kommentar.pdf.]
How will the major crisis develop? Let us first recapitulate the course of events to date. Between 2003 and 2007, a speculative boom drove up the value of shares, real estate and commodities; the bull market was followed by a bear market.
The simultaneous devaluation of the three types of assets causes an economic slump. The manic-depressive fluctuations of the (“freest”) financial markets cannot be the main systemic cause of the crisis. So they limit themselves to combating the symptoms through banking and economic stimulus packages, the financial capitalist gambling system remains untouched.
Economic collapse and rescue measures increase national debt. This enables a new game, speculation on national bankruptcy. The interest rates on the bonds of the “bad” countries – from Greece to Italy – are rising more and more, while the “good” countries benefit from this, especially Germany.
Neoliberal sovereignty of interpretation has been restored: The other southern countries are to blame, “the markets” should discipline them with high interest rates. In general, the (welfare) state must make savings, the fiscal pact increases the pressure. The more radically Greece, Portugal, Spain and Italy cut unemployment benefits, pensions and wages, the more their economies shrink and their national debt increases.
A look back makes the outlook easier: A speculative boom in 1929 leads to a stock market crash and recession, the budget deficit increases, the austerity policies drive the economy into a depression. Tensions within and between countries increase, scapegoats are sought, anti-Semitism and protectionism are spreading.
The speed of the spread and intensity of the current crisis are much lower than in the early 1930s. The welfare state is delayed – its expansion was a result of the global economic crisis – the downward spiral. Also, the sentiment stirred up in newspapers and books against “the Greeks” or “the Turks” is harmless compared to the attacks on “the Jews” (although the agitators then as now see German interests threatened).
Nevertheless, the current crisis is unfolding with the same logic as the one 80 years ago. Then as now, the elites are using the same navigation map: a market-based economic theory legitimizes financial alchemy, which causes a collapse of the economy and thus high budget deficits. The crisis is transformed or reinterpreted as a debt crisis of the (welfare) state. The austerity policy leads to a downward spiral; hostility between countries increases. This process began in Greece and has spread to Ireland, Portugal, Spain and Italy,
In just a few months, the rest of Europe will slide into recession. In a situation like this, we need politicians who have the courage to reject the advice of mainstream economists and change the course of economic policy – as Roosevelt did with his New Deal. In today’s Europe, Germany would have to show such leadership – and is failing for several reasons
Firstly: in no other country is the market-religious dogmatism of economists so pronounced. For them, even in the 1950s, “ordoliberalism” was more attractive to them than Keynes’ theory. This only requires a state-imposed “regulatory framework” (derived from the theology of St. Thomas Aquinas), and competition takes care of the rest.
Secondly, while the elites in other countries act ambiguously- market-religious in their Sunday speeches, interventionist during the week – in Germany they believe in what they say – which is highly dangerous in a crisis. Intellectual dogmatism is supported by the emotional value of “remaining true to oneself”.
Thirdly, the (relatively) good situation of the German economy is attributed to the neoliberal “structural reforms” such as Hartz IV. In fact however, it is thanks to the demand from those countries (China, India, Brazil, etc.) which do not organize their economies in a neoliberal-financial-capitalist way.
Fourthly, the growing national sentiment since reunification, media and authors, the simplicity of ana- logies like the “Swabian housewife”, all this results in a stream of opinion driving politicians especially during election campaigns.
Civic courage and leadership against the mainstream (currently) have no chance in Germany.
The way to depression is mapped out. To counteract this a “New Deal” is needed, the central components of which are
– Creation of a European Monetary Fund as a financing agency of the euro states, which stabilizes bond interest rates below the growth rate;
– Setting ranges for the most important exchange rates;
– Long-term stabilization of the price path of the main raw materials responsible for climate change, especially oil;
– Introduction of a tax on financial transactions, even if only by some eurozone countries.
The aim of these measures: The pursuit of profit should (once again) drive the turbines of the real economy instead of going crazy on the financial markets. Furthermore, a “New Deal” should improve those social and ecological conditions that cannot be (sufficiently) guaranteed by the market. The wealthy must contribute to this – also to their advantage.