A PARADIGM CHANGE OF ECONOMY: FOR A NEW GLOBAL FINANCIAL ARCHITECTURE (short)

© February 10, 2016, Alexander Sigismund Gruber, Germany, bluewinds44@gmail.com

A PARADIGM CHANGE OF ECONOMY: FOR A NEW GLOBAL FINANCIAL ARCHITECTURE (short)

This manifesto for a new global financial architecture is especially written with an eye on the policy of the World Social Forum. It has a potential to unite the revolutionary and the reformist left within this Forum. The policy, which I describe in the essay, is meant as a minimum claim for a functioning capitalism, of course to be amended by many specific or specialized claims. Then one can say: “Either this policy or a non-violent revolution, patterned according to the Arab Spring!” This is my approach to overcome the differences between revolutionary left and reformist left. I would like this policy of a new global financial architecture being taken up by the World Social Forum as a joint approach. Please read it to form your own opinion. On my opinion this policy can combat poverty and hunger effectively on the planet and it would lead to a more ecological capitalism.

Table of contents:
INTRODUCTION
1 THE POLICY OF THE CHEAP MONEY
2. FOR A NEW GLOBAL FINANCIAL ARCHITECTURE
3. OUTLOOK ON THE PERSPECTIVES OF MANKIND WITH THIS POLICY

 
1. THE POLICY OF THE CHEAP MONEY

The most important societal precondition for a life, which is in dignity, seems to me a functioning and just economy. The present system of the cheap money (low interest rate public credits for the banks) is only in a limited way effective for this goal. Let me analyze the economy in a simple picture in two parts. There is the cycle of real economy. Within this cycle rotates money, while it is spent and re-earned with the clock of the wages. And there is money, which is not immediately spent again. This is the portion of the gains with any purchase, after subtraction of the payment of human labor, natural resources, taxes, preliminary products etc. The latter gains are collecting in a bubble of money, the big bubble of the gains.
Before the crisis of 2008 corporate gains had sucked out the cycle of real economy. At the same time this cycle was buffered again and again by public and private debts, which avoided a big recession. Money was borrowed and spent and again gained and re-lend, before the original credits had been repaid completely. Austerity policy is the indicator that this system stumbles over its own feet. It caused the missing of demand. The gains cannot be reinvested then in a profitable way, because the demand is missing to convert them again into the value of the means of production, the goods and new gains. Ten years of lowering real wages in Germany, while corporate gains were increasing. This means that real economic growth is becoming scarce then. Financial capital becomes “jobless” and begins to speculate. The policy of the cheap money has now lifted this hypertrophied system to a new level. Between the years 2007 and 2013 the worldwide public debts grew by 80%. Corporate debts grew at somewhat the same pace. Much of the present real economic cycle consists of borrowed money in this way. The volume of the global debts has reached 100 trillion USD by summer of 2013.
This state of affairs was especially brought about by the flood of cheap public credits, which the Western central banks lend to private banks after the crisis. These large amounts of printed money clearly overcompensated the losses of the banks, which were due to the bursting of the real estate bubble, and in corporate hands they made the production more profitable, with the option to lower export prices – boosting Western export. I think the latter effect was the true reason for this policy (the bursting of the real estate bubble was only an occasion). Otherwise the interest rates for credits would not have dropped that low in most Western countries. The policy of the cheap money far over-compensated the lack of money of the banks due to the real estate crisis. At the same time the credits, which are given by the private banks from cheap money to rich and well to do, are certainly exiting a hyper-cycle of the real economy of purchases of non-ecological luxury.

And when the cheap money from the central banks, which now buffers the real economic cycle, would have to be extracted (subtracted) again from this cycle (to pay back the credits), then one would either have a big financial bubble bursting or at least would have the old crisis back. Then the cycle of real economy would have to be deprived of the whole volume of demand, which was now inserted by the flood of cheap money. Hence these credits can never be paid back totally. They can only be replaced again and again by new credits. The policy of the cheap money can never finish, without causing a financial crisis and a crisis on the labor market. Even on global scale one cannot extract more money from the cycle of real economy, as was previously inserted into the system by this policy. So present capitalism lacks a mechanism to provide for the matching money volume for real economic growth, which is not on credit basis. Moreover, because the credits can never be paid back completely, much of the cheap money is just a gift to the rich. This makes the policy of the cheap money a totally unjust system. There will burst some other bubbles, than the real estate bubble. And printed money, which one never sees back can be given better to the poor and hungry and never seeing it back, than to the rich, who always take their big share. This would have been a just policy.

 

2. FOR A NEW GLOBAL FINANCIAL ARCHITECTURE

The economic stress by gains that shrinks the money volume of the real economic cycle creates, as I said, a demand problem (of missing fulfillment of the basic needs of the socially lower classes, so called “mass consume”). This stress is transferred onto the working class by lowering or not appropriately increasing real wages and joblessness as causes of missing demand. If the real economy should grow, there must exist a matching money volume to buy the newly produced goods. The sucking out of the cycle of real economy by gains can only be buffered in three ways: Either money is printed or the taxes are risen or by going into public debt (generally going into debt returns a part of the big bubble of the gains into the real economic cycle). The latter two alternatives are rejected. Hence only the first remains. Without the generation of money, capitalism cannot expand from a point on, when not more money from foreign sources can be absorbed. Gains are reinvested to realize even bigger gains, not for its own sake. And without money expansion this has a limit (or big losses are encountered: housing bubble). This is a question of the macroeconomic balance. The designers of the system of the cheap money seem to have understood this. But it is made totally unjust, non-sustainable and ineffective for the poor and hungry. This problem cannot be solved sustainably by borrowed money.

Let me introduce my system at this point as a new global financial architecture. Instead of the policy of the cheap money (credit basis) I am proposing a coherent way of money expansion. I am actually proposing that not only some countries are printing money, but that all countries are printing money simultaneously and coordinately. This should happen under the framework of a multilateral agreement within the UN or WTO. To each country would be designated a certain printing facility, a certain percentage of its GDP, which it is allowed to print annually. I would recommend 2% – 5% of the GDP as a rule. Thereby a certain inflation would be caused, but it should be done in a way that all currencies remain stable in relation to each other (retain their exchange ratios). This means, because all countries print the same amount of money in comparison to the productivity of their economy, currencies would not shift significantly in their ratio to one another. The inflation would be majorly a domestic phenomenon. So the disadvantages of devaluating currencies with single states printing money would be avoided. Meanwhile the money expansion on credit basis would be replaced by a true money expansion.

And the money coherently printed by the central banks of the world should be given to the poor and hungry. The new role of the central banks would be poverty reduction by the money printed by them. This would also be an excellent business support program (to create jobs). The dilemma between investment policy and austerity policy would vanish, as the money from the printing facilities would be the investment program, while the usual public budget can stay balanced. This policy would be more ecological than the policy of the cheap money, because the real economy grows from the side of the expenses of the poor and hungry (qualitative growth) and not from the side of the expenses for none-ecological luxury of the rich. Note that hunger is not so much caused by that the people in the rich countries eat up the food for the poor, but it is caused by lack of money in the hands of the hungry to buy their own food and in this way driving the agricultural production to follow their demand. The printing facilities would equip the welfare state with the necessary money to give this demand into the hands of the hungry. In Sub-Saharan Africa the number of the hungry could be right away cut to half with 5% of the GDP there (62 USD per capita monthly, GDP: 1950 billion USD, 239 million hungry). And one and so many would find work in the growing agricultural sector with my policy. In Germany the minimum net income could be risen from about 800 Euro monthly to the 1050 Euro monthly, which The Left requires. Thereby the policy of the printing facilities should be started with care not to overdrive the economies (causing high inflation). I would start with 2% of the GDP for Sub-Saharan Africa to consider other productive factors, than the available money volume of demand.
My proposed policy is a true third way, as it would replace the neoliberal supply policy (tax reliefs for the rich, policy of the cheap money), which deprives the welfare state of its financial capacities, by a demand oriented policy against joblessness. This would be enabled by the printing facilities for money expansion of capitalism. The poor and hungry of this world would not be left aside by this policy.
Inflation would exhibit a “push”-factor for financial capital to be invested. The demand exited with the expenses of the poor and hungry would exhibit in turn a “pull”-factor to drive financial capital into investments. Thus both helping to combat joblessness. The inflation additionally would have the wanted side effect of melting away public and private debts.

Election goodies of all kinds would not allowed to be financed by the printing facilities (these facilities are under the supervision of the central banks). But ecological goals and peace building can be promoted by using the printing facilities as a steering policy. For example countries, which take over refugees can be rewarded by a 0,5% – 1% of their GDP increase of their printing facility per million of refugees, which they host. There can be given a 0,5% – 1% of the GDP increase of the printing facility also for countries, which abolish coal-burning power plants and had favored them before, because of their own coal deposits. I am speaking of Poland here for example. Further my proposed policy would also lead to a more ecological capitalism, because majorly domestic demand would be created, cutting down transport pathways (thus reducing the CO2-emissions of transportation of the goods). And combating joblessness makes always the way free to more attention of the workforce for ecological standards (against which the destruction of jobs is so often the argument). The printing facilities can carry social and ecological standards in their back pack. Thus my approach provides the economic framework for an alternative globalization.
The printing facilities would consist of a mix of “strong” and “weak” currencies. Always both in such quantity that the ratios between all currencies remain stable (overall inflation of maximally 5%). So not every country would receive its facility in its own currency. Strong currencies would support weak currencies to satisfy the stability of ratios criterion. This is the aspect of balance or of development aid with my system: It would be a system of solidarity of currencies. Mankind needs to cooperate to find the right answers to the challenges of the 21st century, the warmongering, the depletion of mineral resources, global warming and overpopulation.

The issue of inflation is very important. To make a test on the ratio of inflation to real economic growth I experimentally tested the totally different economic periods for Germany from 1969 to 1978 and 2004 to 2013. The average of real economic growth during the first period, the boom period, is 3,6% and that of inflation 4,66%. The corresponding figures for the second period, the lean years, are 1,26% and 1,61%. If one computes now the ratios between real economic growth and inflation, one gets 78,3% for the first period and 77,1% for the second period. There seems to be a very constant ratio between real economic growth and inflation, if one selects the periods under consideration long enough to average out economic fluctuations, but short enough to compare enough periods. I have completed the investigation now, whereby I found a ratio of 78,0% for the period from 1979 to 1988 and 89,9% for the period from 1989 to 1998. The period after the reunion of Germany drops out significantly, but for the three other periods the ratio is very constant.
This means that usually inflation is right away a natural side effect of real economic growth. This is also systematically apprehensive, because when the money volume is expanded, such that more goods can be bought, then the prices are rising, until the production has followed the demand. And for this phenomenon there seems to exist a quit constant long term ratio (so far under the conditions of the German economy), which I still like to take over as being typical into the following considerations.
Inflation is no law of nature. It depends on many individual decisions of purchase and offer. Especially, if the money, which causes the inflation, is given to the poor and hungry, they will more likely than the well to do tend to buy more different goods at a cheap price, than paying for the same goods a higher price. This is an explanation for the 89,9% above, because after the reunion of Germany most East Germans were poor.

If now there are printed 2% of the GDP annually and given to the poor and hungry, then happens the following: A part of it will be set forth into real economic growth, while another part is set forth into inflation. Still these 2% are circulating several times during the year within the economic cycle. With each cycle the money contributes to the GDP, but each time diminished by the gains from the last rotation. So the GDP rises in this way far above of 2%. This is the effectivity of this measure. I can think that this continual rotation causes an inflation of 5%. And therefor with the empirical factor of the last section, the world’s real economic growth would be 5% * 78% = 3,9% (for comparison, worldwide real economic growth was at 2,4% in 2015, according to the World Bank). So these would be the expected or intended figures for the world economy. If one spends additionally the usual development aid for education and health care, then hunger and joblessness would be soon extinguished by this rate of growth (still the Third World children need their daily food, which would be given to them through the printing facilities, to enable them to go to school). The world economy would flourish. Wages, welfare money and pensions would be of course continually adjusted to the inflation (like in Germany during the boom years). This policy would provide a solution against the cuttings during the Greece debts crisis. And “free” trade agreements like the TTIP, which drive the competition for the worst payment and conditions of labor, would be superfluous, because enough jobs would be created. The problem of the capitalist economy that it today always produces prosperity for a few on the cost of miserable conditions for so many would be overcome.

Anyhow the real economic growth of the world economy is driven today by those countries, which still go into public debt or print money solely. For all states to break even would be the end of real economic growth of the world economy (except by private debts). Without deflation more goods can only be bought within the closed, total system of the world economy, if there is created a matching money volume to buy them. There is no trade with extraterrestrials.
The industrialized countries compete to absorb money form foreign economic cycles to compensate the sucking out of their own cycle into the big bubble of the gains (to maintain their stock of jobs and welfare state by export). For this competition the supply oriented policy is designed (tax reliefs for the rich, cheap money to boost export). But only those states, which go into debts or are printing money, inject money into the worldwide cycle as a closed system. Hence countries are driven into a desperate competition to absorb the scarce injections into the worldwide cycle. Present capitalism still lacks a coherent mechanism to expand the worldwide money volume (instead of absorbing money from foreign sources as an insular phenomenon). Such a coherent mechanism my proposed system provides. It would inject a “flood” of “cheap” money too, doing so in favor of the poor and hungry, instead of in favor of the rich, but not as an insular phenomenon and not on credit basis. Thus it would be just, worldwide and sustainable.
The present system instead is maintaining a policy of scarcity of the money volume within the real economic cycle (or of cheap money only in the hands of the rich), which gives the wealthy their power over the rest of society.

 

3. OUTLOOK ON THE PERSPECTIVES OF MANKIND WITH THIS POLICY

Another question is the long term stability of my system. There is a maximum size to which the real value of the money in the big bubble of gains can grow. When the melting away of the total money volume in the big bubble of the gains by inflation exceeds the inflow of money from gains out of the real economic cycle, the bubble will not grow any more. Also the real economic cycle has a maximum, when the inflow of printed money equals its melting away by inflation plus the outflow into the big bubble of the gains. The system is resembling a physical non-equilibrium system in floating balance. Alike all ecosystems it has a strong circular aspect. The inflow of printed money resembles the inflow of radiative energy from the sunlight and the inflation resembles the dissipation of energy.
The monetary system is overlaying the physical system of the planet. When the inflow of printed money does not excite more real economic growth, but only rising prices, this is an indicator that the monetary system has reached the boundary of physical resource limits.
Let me say something on Malthus’s theory at this point. If the population is growing exponentially, then also the work force and technology grow exponentially. Additional surfaces are cultivated and the efficiency of agricultural production rises, such that also the food production grows exponentially. This is what happened since the Second World War. The resource limit – the Malthusian trap – will be indicated instead of growth rate problems by a bounce at the resource limits of this process (rising prices, rising child mortality and famine in the Third World). So I am proposing to replace Malthus’s growth rate theory by a “bounce”-theory of the Malthusian trap.
Moreover with the depletion of mineral resources, especially of petroleum, the highly industrialized agriculture of the world would face a breakdown, leaving an overhang of population without food. This I call the “Malthusian gap”. This is in my eyes an even more severe reason for decarbonization, than climate change. Coal liquefacation seems to be no alternative, given its high carbon output and costs. In the end the goal should be a totally solar and circular economy (I mean from the physical side of human ecology).
I think that mankind with its continual population growth will run into a trap by a hard, unexpected bounce. But it is better for the poor and hungry to run into that trap with a just and functioning capitalism, than with the present unjust system.

The pathway of catching up development is not open to all developing countries. If all countries are the producers of the same industrial mass products (cars, refrigerators, TV-sets, computers, mobile phones and the like), then in which countries are located their buyers? Hence to maintain the welfare state and big stock of jobs by export surplus of industrial goods cannot be open to all countries. Consequently, if some countries have no mineral resources either, there must exist countries with a lower density of population, than was reached in the industrial countries.
In fact Susan George is wrong, when demanding that capitalists want to kind of abolish superfluous population. This aim would only appear, if this hypertrophy of population on the planet would become a danger for the people of the rich and super-rich class themselves. This is almost nowhere the case yet. Moreover population growth results in harder competition of the youth for the few jobs in the Third World, which allows the entrepreneurs to press wages low the most and which makes the poor the more dependent on the wealthy. This is clearly in the interest of the class of the capitalists. This is the preference of the rich class, when outsourcing jobs. And this was recently recognized in the corporate centrals with feminist criticism on population policies. And that’s why they all support the feminist view now. Overpopulation is in fact no economic disadvantage (what feminists rightfully claim), quit to the contrary, by rising competition between the workers it is a factor of locational advantage, but at what price of underpayment and low labor standards? Still overpopulation is a stress on the resource situation of mankind.

Capitalist production by electric machines, which is rationalizing labor, in turn is not so non-ecological in comparison to manual labor, as one thinks. In fact the solar efficiency of electric labor (31% maximally) is more than ten times higher, than that of manual labor (1,8% maximally). Only bio-fuel propulsion is worse (with 0,14%). I have considered the solar surface efficiency here, by which the sunlight is converted into mechanical energy output through the intermediate step of conversion into the chemical energy of food by photosynthesis or into electrical energy by photovoltaic cells. And I have considered with electrical energy a factor for the harvesting with solar cells and for storage of electrical energy. To say a word on the loyalty of robots, it will practically reflect the hierarchical structures and conflicts among the humans, who are operating them.
The rejection of rationalization is besides the point, because I am really not fond of, if workers have again to paint cars in hard, boring manual toil with spray-guns at the conveyor belt for the only reason that there should be more work. I think that rationalization is an advantage, if it is set forth in the right way for the working class.
When German ex-chancellor Helmut Schröder said: “There is no right for laziness in our society!”, this is simply wrong. Of course the working class has the right to convert higher productivity either into more consume or into more free time, the two promises of industrial revolution. Within the present system of continually high joblessness especially corporate gains are rising. If there is an alternative for the working class, present capitalism exhibits more consume. But this can be changed by struggle for shorter working hours.
Still there is a problem of shortening working hours within unlimited international competition. Thereby crisis and boom of the labor market unfortunately exhibit always an anti-cyclic behavior to the chances to take up the struggle for shorter working hours. During phases of recession, when jobs are rare and the need to split working hours is most obvious, the workers movement has not the force to combat for shorter working hours. And during phases of boom, when jobs are abundant, the entrepreneurs reject the shortening of working hours most, because they need labor. Hence there should be struggled for shorter working hours still during a phase of boom (which my policy would exhibit). For this reason the global trade union movement needs to network even more.

The policy to stop population growth may consist of three components: provisions for old age, being independent of the individual number of children, availability of contraceptives and political information campaigns about the consequences of population growth. “Act locally, think globally”, but first and foremost in reproductive behavior. It needs a strong informative counterpoint against traditional systems, which favor a hypertrophy of population to have combatants for the warmongering of their elites and to have provisions for old age. The point of decreasing per capita resources with population growth is no “abstract” dimension, but it is very concrete on local level with the competition between herdsmen and farmers for land resources in Guinea Conakry for example. Still the continent-wide land resources in Africa are not yet exhausted? But fine, then let’s try to stop population growth that it remains this way in anticipation of possible crisis (caused by global warming for example). Not only this or only that. Reality is multidimensional, multifunctional and multicausal. Both problems have to be addressed, population growth as well as global warming. This thinking in exclusive alternatives, which are repressed for the sake of the other, is so disastrous.
If Third World ladies are not aware of that many children are providing their income, when they are old, then this awareness should be risen by educational initiatives. My policy of the printing facilities is in the end some means to provide also for the old aged in the Third World, until they have developed their own system there. And of course women have no special responsibility to stop population growth, but the couples are responsible and in patriarchal surroundings the men. All these counterarguments of feminists, which are put forward against population policies, are easily replied, but they are used to distract from the truly vital point of decreasing per capita resources with population growth. At the same time capitalism maintains its dis-proportioned consumption patterns.

Basically we have a conflict of aims here: On one hand only the capitalist system can provide the technological resources to establish an ecological way of mass production of affordable products of advanced technology (computers and the like) as well as for basic needs and has the productivity to nourish the growing population on the planet. On the other hand this system establishes its hyper-cycle of the real economy of consumption of non-ecological, superfluous luxury (big cars and the like). Maybe a compromise should be made, not too much consume, to stay ecological enough and not too little consume to provide the necessary incentives for a functioning capitalism. The Tesla company with its electric sports car seems to show a workable way (but flights into space with solid-fueled rockets for super-rich are ecologically unacceptable). And at this point also my system of real economic growth from the side of the poor and hungry would take grip (to minimize inequalities by real economic growth “from below”). But this system should not be overheated too, to save natural resources. Still sustainable agriculture and a growing population are a contradiction (for lack of productivity of the first). Hence the long term strategy should be to revert or at least to stop population growth and to fulfill the needs of the working class by my policy. Thereby I am on all hands concerned about a surplus above the existential minimum. A socialist economy of scarcity, which would be non-ecological at the same time, I would not accept. My economic theory is rather a philosophy of achievements for mankind, than one of only avoidance of crisis. It is rather a philosophy of reasonable surplus, than one of negligence and survival.

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