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Saturday, February 27, 2010

Raise salaries to tackle the crisis

Interesting quasi-Keynesian economical theory the one
explained by Alberto Garzón Espinosa at Altereconomía and developed originally by A. Badhuri and S. Marglin: European economies are in fact wage-led, not profit-led, hence destroying salaries will only sunk the economy further, what the system needs therefore is higher salaries.

The problem is that the Economic Doctrine, as in the seminaries... oops, I mean faculties of economics of virtually all universities ignores such fundamentals. The Doctrine says, erroneously, that economies are by definition profit-lead.

Demand is obviously driven mostly by the purchasing power of the people and if you destroy this purchasing power in order to minimize costs you destroy the demand and hence the economy. It doesn't matter how much the capitalist saves because he won't find a market for his super-cheap products if there is no demand.

This is, by the way, the fundamental contradiction of Capital as described by Marx more than a century ago. And that's why The Capital developed the now deprecated Keynesianism, as mechanism of defense when it faced its first structural crisis in the 1930s. But then came Thatcher and Reagan and their hordes of neoclassical priest-economists and decided that somehow the remedy was worse than the illness (was it?) and launched Reaganomics: plunder today that, in the immortal word of Keynes himself, "the future will take care of its own business".

Problem is that the future is today. Meh!

Meanwhile they created The Bubble, temporarily replacing the wage-based demand by a credit-based one. It could not last of course and millions of people and even whole nations were pushed into irrational indebtment in order to generate a spurious demand not sustained by the economy itself, i.e. by the salaries. It was nothing but a pyramid scam (Madoff? Thousands like him rule the world today!)

Whatever the case, the thesis defended by Garzón Espinosa is solid (not in vain it's consistent with the methodical analysis of the only economist worth that name ever: Karl Marx) and shows that the neoclassical remedies promoted by the FMI and acolytes, demanding salary reduction in order to reduce costs of a production that will nevertheless not find any significant demand, are fundamentally wrong. This is probably the case for any large economy anywhere but it's clearly true for Europe, which lives essentially on internal demand.

However, and this is my criticism, in order to make it work properly, a good deal of protectionism would be needed as well, at least while other countries/regions resort to the neoclassical recipes of the FMI. Otherwise the regional demand would be largely "wasted" in foreign products, not supporting the local economies. This is contrary to the interests of the Global Capital, particularly in the Toyotist paradigm, so the recipe cannot in fact be implemented within the system.

A change of system, a change of socio-economical paradigm is needed in order to save the economy, which is, let's not forget it, our very survival.


Ken said...

'Raise salaries ...'


'Raising salaries...'

Inside The Great American Bubble Machine

Maju said...

Ok, thanks.

Maju said...

"Any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything".

That's kinda funny (better laugh than cry).

This guy has some excellent clairvoyant sentences:

"... in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy".

Ken said...

Here is Matt Taibbi's latest Wall Street’s Bailout Hustle

Maju said...

Hopefully you will agree with banks being nationalized without compensation, right? What do we want them for if they can't even serve the public?