The big mistake and the great pain called neoliberalism

The big mistake and the great pain caused by neoliberalism

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The best way to stimulate the economy is to spin 180 degrees, ending the counter-reforms that were imposed on the population.


Vicenç Navarro * – Público.es

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If you read the business press or the economic pages of the press in general banking practices must have seen that in many countries are being introduced through which financial institutions rather than pay interest for the money that citizens deposit in the bank, charge the even to save that money. It’s what they call negative interest. You ask, why do? And the answer to that question varies according to the economist says. The so-called “economic science” are not as scientific as most people believe.

A very common response is that in the world today most money. In fact, there is so much money that you do not know what to do with it. And for the rich, it is safer to have the money deposited in the bank under the pillow of your home. The answer has a certain logic. But what do you do if you had a lot of money would be, instead of putting the money under the pillow or in a bank? I try to use it well, investing, buying properties that would generate income now or in the future in the medium or long term, increasing consumption. This is precisely what most economists also say. Since the biggest problem of the developed economies is the limited demand, it seems logical to take steps to increase consumption. Public authorities try to make, instead of saving money, people use these resources buying. It is important, therefore, that the banks, instead of pushing it with the interest on deposits, increasing savings.

This explanation seems logical, but there is a big problem: assume that it is unable to increase consumption in the country – either because there is not enough money in circulation, which is not true, but it’s hard to explain. In fact, central banks, including the ECB (European Central Bank) is printing more and more money (billions of new circulating euro. However, the economy remains stagnant. In fact, banks have reached deliver loans with negative interest rates for a long time. If the interest on the money you deposit in the bank are lower than inflation (which is what happened for a long time), you are losing money in bank deposit.

Why monetary policy is dramatically insufficient?

The big mistake of neoliberal Taliban is there. Believe that the economy can become the basis of the amount of money that is in the market (which depends, among other factors, the amount of money that the central bank prints, which is what is called monetary policy) is to be profoundly mistaken. That does not mean it’s completely wrong. There is an element of truth, but only one element, and is now a very minor component. This is not to say that the banks could not help stimulate the economy. But, today, private banks do not. The Central Bank should give (very low interest) money to states (an amount that can be regulated) so that they can, with these resources directly support families and small and medium enterprises. But they do not, because they prefer to do it through the private banking, which uses most of that money for speculative purposes.

Do not, and not because the bankers are bad people (though many think so, because they are greedy and not always honest with their customers), but because the return on investment is much higher on speculation that the so-called investment production (in the production of goods and services). Also, do not rely on small and medium enterprises, as sees it as unsafe. In other words, the problem is not lack of money but the channels through which they are distributed such money. In fact, big companies never had much money, but also face a big problem: there is no where to deposit it. So banks charge to save it.

What is the problem then?

Believe me, although you do not see it in the press, the biggest problem of the economy today is the lack of demand for goods and services, because the population has no money to buy them. And the fact that no money is because most get their income on the basis of labor, ie wages or other forms of compensation related to the work. Here is the turning point. The derived income from work (as a percentage of all incomes) are falling, while capital incomes are growing. This is a very serious problem, but silenced and hidden by the media. If you think this theory is paranoid, try to show where you read about it in articles or materials on television. There may be one or two exceptions, but they will only confirm the rule.

This absence does not mean that journalists know the truth and hide. This usually happens, but it is not the most frequent. In fact, what predominates is more ignorance, not manipulation, even in the said means specialized in economy – though there really those that run by the other rule.

It is very easy to see what is happening. The cuts in social policies decreased demand in a substantive way. Today, the lack of demand is the biggest problem in the Eurozone (especially in southern Europe), and is responsible for economic stagnation and very low economic growth. This stagnation was caused, in turn, by the fall in productive investments (in the European Union, the low was 8.4% in investments in 2000 to 6.8% in 2014, while in Spain, even worse, 7, 5.7% to 5% during the same period). The decline in support in areas such as research and development is also quite remarkable. In fact, labor reform policies impulsadas by different governments – both the PP (People ‘s Party, right-wing force which is part of the president Mariano Rajoy) and the PSOE) (Socialist Parties Workers of Spain, center-left), and including the new front center-right called Citizen applauded these measures, which resulted in the fall in the real value of wages and increased job insecurity, and austerity policies, made cuts and applauded by such parties, which had an impact very negative first causing the great recession, and then delaying economic recovery.

The conventional wisdom is changing?

The most notable examples of delay occur because of the huge domain of the media by conservative and neo-liberal forces. Both the direction of the IMF and even the President of the ECB indicated that monetary policies are inadequate, and that what appears to be the solution is a package of fiscal measures to stimulate the economy through fiscal measures.

What is meant by tax measures is to reduce taxes, with what is considered to stimulate the economy, which is true, but only up to a point, since the tax reductions, as a rule, the more benefit the higher income that the majority of the population, and the first already have so much money that they receive as exemption or lowering of taxes becomes accumulation, not more consumption, contrary to what the majority of the population that does not have many possessions and spends almost all the extra help you receive.

Therefore, the best way to stimulate the economy is to spin 180 degrees, ending the counterreforms that were imposed on the population. In fact, US President Franklin Roosevelt took his country from the Great Depression thanks to a huge increase in public spending, through public investments much needed in the country, the establishment of Social Security and the encouragement of union membership, so that if they increased wages . Today, this is what Spain needs, for example. Unfortunately, neither the PP nor the PSOE, the front center-right Citizens propose something similar to that. The proposals of the PSOE not distance themselves enough public policies pursued by his predecessors, and that’s part of the problem. Today, the main need is to stimulate the economy through a marked increase in public investment in social, energy and industrial areas, creating quality jobs. An important increase in wages, reversing labor reforms to strengthen the unions, rather than weaken them. If Spain does not do this, follow the same path faced by Greece, which ended up accepting the continuity of neoliberal reforms. And such a change of policy against what is stated in the economic and political circles, where it reproduces the conventional wisdom. Portugal is an example of where the leftist ruling coalition tried such policies. Spain could be another. In fact, the days of austerity are numbered, because today there is a rebellion of the eurozone countries (see what happens in France). Faced with such policies, which greatly affect the working classes. The victory in the next elections and internal can cause, on 26 June, a coalition of anti-austerity progressive parties, would be a very important step to reverse this austericídio. Think, therefore, your vote may determine to continue with these disastrous policies or someone to be able to confront all.

* Professor of Political Science and Public Policy at the University Pompeu Fabra, Professor of Public Policy at The Johns Hopkins University, former professor of economics at the University of Barcelona.

Translation: Victor Farinelli

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