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Published on June 6th, 2012 | by Patrick Armshaw
Image © [caption id="" align="alignnone" width="566" caption="Bang on Banking © Josh Clark"][/caption]   The Greek crisis is back on the front pages of the newspapers, with Greeks prepare for the second election in as many months as fears of a potential Grexit are leading to pressure on Ireland, Portugal, and worst of all, Spain.  A recent article by the Guardian’s economics editor Larry Elliott provides a nice run-down on the issues facing the common currency, but there are two arguments in particular that are worth thinking about: one of them because it should be true and one of them because it is completely false. The first comes from economics professor (and former speechwriter for the Greek socialist party PASOK) Yanis Varoufakis, who argues that ‘Europe's made a mess of Greece for the past three years. Those responsible will go down as the biggest idiots in the history of economics.’  While a pedant might quibble that that dubious distinction has to go to Mao’s Great Leap Forward (an economic debacle that led to the starvation of tens of millions of people),   it certainly is true that austerity has been a complete failure, even on its own terms.  Rather than higher taxes and lower spending leading to smaller deficits and greater business confidence, the opposite has happened. The resulting collapse in demand has caused spending on unemployment and poverty programmes to skyrocket, while tax-yields have been slashed.  So the gap between spending and revenues refuses to close, while support for extremist parties (most frighteningly the neo-Nazi Golden Dawn) has been on the increase.  Austerity in Greece is not only ruining the economy and throwing hundreds of thousands into extreme poverty, it is weakening the very basis of democracy itself.   Unfortunately, those who have argued and agitated, demanded and enforced austerity are unlikely to face any accountability, even professionally. Their greatest shield remains the argument that everything would be fine, if only business confidence would get back on track. It is this claim that is at the heart of the second argument I want to focus on.  An unnamed senior banker has argued that the Greek economy will recover once stability returns after the election, since some portion of the estimated €80 billion withdrawn over the last few weeks from Greek banks might be re-deposited, ‘provid[ing] the banks with scope to lend more money and so finance a slow recovery.’  To see how fallacious this argument is, you have only to look at the failure of quantitative easing in Britain and the United States.  Since the beginning of the crisis, both states have flooded the financial industry with cheap loans, hoping that banks would then turn around and lend to businesses at rates cheap enough to make it worthwhile for businesses to expand.  Under normal circumstances, this works tolerably well – but these are not normal circumstances.  Banks have certainly gotten the money, but they refuse to lend it – and for good reason!  There is nowhere in which to invest, because there is no demand for loans!  Businesses aren’t looking to expand right now – they are laying people off!  The theory that the recovery can only be solved by business confidence, as opposed to resurgent demand, comes down to the assumption that cold-blooded, unsentimental, rational capitalists – the heroes of Neoliberal lore – will provide jobs and expand the economy for the greater good.  Without expansion of aggregate demand, without the state borrowing and spending as much money as it takes to put the unemployed back to work,  there will be no increase in business confidence because there will be no opportunity for profit other than by laying people off. Growing up in America, I often heard it said that businesses aren’t charities – and I’ve come to believe that this is true.  However, if businesses and banks are purely self-interested, then it’s high time for the rest of us to follow suit. We must realise our interest lies entirely in ending austerity, taking on the banks, and driving the final nail into the coffin of the Neoliberal ideology that has failed so utterly.

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Business is Not Charity

Bang on Banking © Josh Clark

 

The Greek crisis is back on the front pages of the newspapers, with Greeks prepare for the second election in as many months as fears of a potential Grexit are leading to pressure on Ireland, Portugal, and worst of all, Spain.  A recent article by the Guardian’s economics editor Larry Elliott provides a nice run-down on the issues facing the common currency, but there are two arguments in particular that are worth thinking about: one of them because it should be true and one of them because it is completely false.

The first comes from economics professor (and former speechwriter for the Greek socialist party PASOK) Yanis Varoufakis, who argues that ‘Europe’s made a mess of Greece for the past three years. Those responsible will go down as the biggest idiots in the history of economics.’  While a pedant might quibble that that dubious distinction has to go to Mao’s Great Leap Forward (an economic debacle that led to the starvation of tens of millions of people),   it certainly is true that austerity has been a complete failure, even on its own terms.  Rather than higher taxes and lower spending leading to smaller deficits and greater business confidence, the opposite has happened. The resulting collapse in demand has caused spending on unemployment and poverty programmes to skyrocket, while tax-yields have been slashed.  So the gap between spending and revenues refuses to close, while support for extremist parties (most frighteningly the neo-Nazi Golden Dawn) has been on the increase.  Austerity in Greece is not only ruining the economy and throwing hundreds of thousands into extreme poverty, it is weakening the very basis of democracy itself.   Unfortunately, those who have argued and agitated, demanded and enforced austerity are unlikely to face any accountability, even professionally. Their greatest shield remains the argument that everything would be fine, if only business confidence would get back on track.

It is this claim that is at the heart of the second argument I want to focus on.  An unnamed senior banker has argued that the Greek economy will recover once stability returns after the election, since some portion of the estimated €80 billion withdrawn over the last few weeks from Greek banks might be re-deposited, ‘provid[ing] the banks with scope to lend more money and so finance a slow recovery.’  To see how fallacious this argument is, you have only to look at the failure of quantitative easing in Britain and the United States.  Since the beginning of the crisis, both states have flooded the financial industry with cheap loans, hoping that banks would then turn around and lend to businesses at rates cheap enough to make it worthwhile for businesses to expand.  Under normal circumstances, this works tolerably well – but these are not normal circumstances.  Banks have certainly gotten the money, but they refuse to lend it – and for good reason!  There is nowhere in which to invest, because there is no demand for loans!  Businesses aren’t looking to expand right now – they are laying people off!  The theory that the recovery can only be solved by business confidence, as opposed to resurgent demand, comes down to the assumption that cold-blooded, unsentimental, rational capitalists – the heroes of Neoliberal lore – will provide jobs and expand the economy for the greater good.  Without expansion of aggregate demand, without the state borrowing and spending as much money as it takes to put the unemployed back to work,  there will be no increase in business confidence because there will be no opportunity for profit other than by laying people off.

Growing up in America, I often heard it said that businesses aren’t charities – and I’ve come to believe that this is true.  However, if businesses and banks are purely self-interested, then it’s high time for the rest of us to follow suit. We must realise our interest lies entirely in ending austerity, taking on the banks, and driving the final nail into the coffin of the Neoliberal ideology that has failed so utterly.

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