Borrowing Disaster

We've heard it all-- bail-out the banks--no nationalize them!--no--let the market "play out"--oh just let the whole steaming pile collapse! What we have not heard much about is that despite the obvious fraud that has brought the global market to its knees the current financial crisis was bound to happen sooner or later.

"There are two ways to boost profits: you either make your workforce work more effectively, or you make them work harder and longer."

Our Wall St. bankers understand that wealth is power. In trying to wring more "surplus value" vs the ruthless Asian tigers (see China's spectacular growth) they have been suppressing wages and then lending the workers back the difference through inflated mortgages and usurious loans. But just as the Madoff scheme blew up once the economy began to unravel, so has the value of the bankers' portfolio crashed and burned as more and more borrowers are laid off or simply can no longer pay back their lenders.

The reason even nationalization may not help to stem the crisis is that there are not enough industries left to absorb the jobless-- at least not nearly in time to boost consumption. On this point Obama is exactly right. The only chance for an appreciable "rebound" of the global economy is a stimulus package large enough to employ America's "excess labor." Had we not been trapped in the vise of neo-liberal ideologues we would have seen the danger years ago and responded proactively. Instead Bush and Greenspan ignored the rising employment and mushroomed the debt rate. But then we Americans are all middle-class and scornful to call ourselves "labor " like those "wine-sipping, surrender monkeys" in France who have the nerve to believe that workers have rights.

The Financial Times: April 10 2006
Chirac backs down over labour law
Adam Jones, Paris

Confronted by massive street protests as well as blockades and closures of schools and universities, the government had already offered to dilute its plan to introduce the CPE, a new type of job contract that would make it easier to hire and fire people aged under 26. Yet that olive branch was rejected by the unions. They are demanding the total withdrawal of the contract, which had been proposed as a way of cutting youth unemployment in France.

But even back then any political economist with a functioning brain should have understood that the neo-liberal ideal of unlimited trade and constant growth was simply not sustainable. It is fine for well-meaning folks like Krugman to be concerned about the starving peasants in Bangladesh, it's time for someone with some standing and foresight to put forward an alternative to Western-style capitalism. Consider this warning from 2005:

"If its growth continues at 8 per cent a year by 2031 China's grain consumption alone will be two-thirds of the current grain consumption for the entire world. [ ] According to China's deputy environment minister, Pan Yue, five of the 10 most polluted cities worldwide are in China; acid rain is falling on one-third of the country; half of the water in its seven largest rivers is "completely useless"; a quarter of China's citizens lack access to clean drinking water; one-third of the urban population is breathing polluted air."

It's past time we stop letting Wall St. obsess us with thinking of dollars and start speaking sense.