By Alain Parguez The free choice of disaster: A unique situation in history A definition: The race to poverty Modern Austerity Programmes (MAP) reflect the permanent effort of the State to impose increasing levels of poverty on society. On the one side
By Alain Parguez
The free choice of disaster: A unique situation in history
A definition: The race to poverty
Modern Austerity Programmes (MAP) reflect the permanent effort of the State to impose increasing levels of poverty on society. On the one side MAP forces society to live more and more below what could be deemed its global capacity frontier. That is the level of welfare it could attain by the full use of its real productive resources.
On the other side, MAP generates a downwards shift of the frontier by destroying global capacity or at least imposing a drop in the real rate of growth. Ultimately, they could determine some restoration of what has been deemed by historians of economics, the Malthusian trap without any hope for a better future.
MAP raises four fundamental questions: When did they start and why? How do they impose increasing poverty? Who wants them? How can we fight MAP?
When did they start and why?
MAP are a unique re-engineering of society. They are fully different of old style stop and go policies or cyclical deflation because they are permanent, and never promise a return to a better situation. I do think they appeared in the 1970s: first in the USA with the Nixon then Carter Administrations and next in their most drastic form in France where they became the official long-run commitment of the State. Phase I was the so-called “Plan Barre” 1976-1981 while Phase II was the Mitterrand pledge to accelerate austerity from autumn 1982 onwards.
For the first time, a Government – to be followed by others including the UK – explicitly planned a sharp rise in unemployment, a decrease in labour share, an increase in the degree of exploitation (i.e. the ratio of the labour productivity over the real wage). MAP were implemented to generate a strong capitalist French system in the forthcoming European Union. They were enshrined into the Euro-System to ensure their permanency. Herein is a crucial point: the euro was not just a single currency, it was a new social order aimed at the rule of the techno-capitalist elite and a dismantling of the State.
How do they impose increasing poverty?
The core principle of MAP is the planned long-run decrease of all kinds of State expenditures especially investment in the creation of global capacity (tangible and non tangible i.e. human capital). This is accompanied by an increase in taxation targeting the drop of consumption. The ultimate goal is a minimal State in the Austrian tradition running a permanently balanced budget – if not a budget in surplus. Thereby, the economy is deprived for ever of any anchor or external driving force.
New planners explicitly bet that the private sector will react by a collapse of investment; private sector employment would fall while public employment would be squeezed. Thereby, labour strength would collapse, real wages could reach some below-China level ultimately at least it was expected exports should rise!
How could those policies leading to poverty be imposed? The solution was to make them compulsory by abolishing any connection between the State and the Central Bank. The State like in the 19th Century would be obliged to finance its expenditure like a private corporation, and a corporation of bad reputation wasting resources by asking for more and more from the bonds market. States would be forced to beg banks by offering bonds at the conditions set by the banks. It was hoped that the banks would ration the State producing a greater squeeze of the economy to maintain the value of their assets.
Who wants them?
The new system took a more aggressive form I would argue in the Euro enshrined in the Treaty of Maastricht. The State became secondary to the bonds market through the limits to be forced on State expenditures. Taking care of the collapse of their revenues States were obliged to run unwanted deficits, banks imposed harsher conditions to maintain the value of their assets, higher interest rates and more fiscal deflation! Finally the real economy is now near a total collapse. Thereby what are the stakes?
First, the total dismantling of the former “European Social Model” and the dream of ”revenge” against all social reforms had always been motivating the European ruling elites. Next, a new system evolved out of the new order. Real profits do not matter anymore; it is the rent, the sum extracted out of MAP in the form of interest rates and capital gains out of the rise in the market value of assets; public debt and household debt. When one looks at the balance sheet of the largest former productive corporations and banks, the larger share of assets is composed of pure financial assets providing dividends and enormous incomes to managers.
How can we fight MAP?
Obviously the new order has brought disaster and it is strongly opposed everywhere. To fight it one must frame a strategy:
1. Make people understand that MAP are the outcome of absurd free choices which destroy all stable conditions of the economy;
2. Do not fear the public debt; it is not a problem when the State frees itself from the bonds market by relying on its Central Bank;
3. Plan State investments (tangible and non tangible) targeting a growth in welfare then public debt will be endowed with a real value.
Alain Parguez is Emeritus Professor of Economics, University of Franche-Comte, Besancon (France) and is associated with the Economics Department at the University of Ottawa.
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