The following essay tries to put the current crisis in perspective. Any comments are very welcome.
Hans. In order to understand the response to the crisis by the US Administration, and in order to develop possible alternatives, we have to see the present credit crisis in conjunction with two other looming crises in the background. The main looming crisis, the mother of all crises, is climate change. Right now, as we speak, we should be engaged in a crash program switching to renewable energy, mass transportation, much more energy-efficient housing and much more energy-conscious consumption patterns. This is not being done because our economy is so complicated and rigid that a switch is too painful, and continuing on the path of high fossil fuel usage is so profitable that it cannot be resisted. Not only do we know that a response to climate change will be necessary, we also know that we are heading for other environmental breaking points such as overfishing of the oceans, depletion of our water tables, food insecurity, natural disasters and diseases. In other words: the present financial crisis is only one of a series of crises we are facing in the next two decades. And fortunately it is an early and still isolated crisis. The stock market is still high, the real economy is still strong, the country is not overrun with hurricane refugees or reeling from an epidemic or terrorist attack. The response to this crisis should therefore be to embrace this partial breakdown and make the best of it instead of resisting it. Let the investors who made bad investments go bankrupt and use the taxpayer's money to jump-start the economy in the right direction, on a path of distributed energy supply, lower growth fueled by smaller businesses, with renewable energy and drastic energy savings. If the assets which Wall Street has been dealing with are so complicated that nobody can understand or regulate them, and it is not even possible to know after the fact how the meltdown occurred, then these assets must be wiped out, together with the huge debt overhang which depresses economic activity in general. Policies would be (1) single payer health care and beefing up social security so that people who lose their jobs still have health care and pensions, (2) bankruptcy reform to allow people to build a new life, (3) green job initiatives to train workers in the new renewable energy industries and public funding for research in renewable energy the results of which will be made available to everybody in the world, (4) feed-in tariffs and credit guarantee to stimulate renewable energy production which is by its nature small scale, (5) businesses that are too big to failed will be nationalized, (6) the nationalized Freddy Mac and Fannie Mae should guarantee mortgages based on high efficiency standards, (7) huge public investments in smart grid, a network of high voltage DC transmission lines, electrification of the railroads, reforestation. This is what we should use the $700 billion for instead of throwing good money after bad in the hope that the existing structure will not break down. A partial breakdown is perhaps our only chance to remove the barriers for the changes that the next generation inherits a livable world. Why are we using all available money to keep the most rotten parts of our system afloat instead of building the resilience and nimbleness which allows us to go forward? On the one hand there is regulatory capture, those who are causing the crisis are influencing economic science, the regulators, and public opinion. On the other, the big elephant in the room nobody dares to talk about is the second looming crisis, the collape of today's international monetary system. Let me explain. Market economies are based on the principle: everybody who wants to buy something must have sold something first. In a growing world economy, there must be exceptions to this principle because the sale of goods in period n does not generate enough money to buy the larger bundle of goods produced in period n+1. Somewhere there must be buyers who buy before having sold. Under the gold standard, these were the gold miners. In the times which are now known as the golden area of capitalism, this extra purchasing power was generated by the banking system and loand to local businesses who in the judgment of the loan officers would make a positive contribution to the economy. But internationally, this credit money regime was not duplicated on an international scheme; instead of a truly multilateral international credit money, the national money of the USA served as international money. The USA, the richest country in the world, was able to print dollars and buy real goods from the poorer countries with this newly printed money. This worked as long as the USA was the strongest economy, monetary and fiscal policy was sound, corporate financial statements and economic statistics were reliable, and the USA was investing capital around the world. All these fundamentals have been reversed. Today, the richest country of the world sucks in capital from the poorer countries in order to finance war expenditures and speculative bubbles. The only thing that keeps the dollar afloat is the "safe haven" effect, that in the turmoil created by this lopsided world system the dollar itself was considered the safest investment. If the US cleans house and lets its financial bubbles burst, it destroys the dollar's track record as a safe haven and shows to the rest of the world that the dollar is an emperor with no clothes. But the longer we prop up this system the more fagile it becomes. Is there a way out? Yes. The US must take the initiative to replace the dollar system with an international monetary system based on ecological equity: those countries who need to grow to feed their populations must be given seigniorage so that their growth is based on clean energy rather than coal. In the Bretton Woods negotiations, Lord Keynes himself was in attendance. England, which just had lost its hegemony, was pushing for the bancor, a truly progressive international monetary system. They understood that another hegemon, who would no longer England, was not in England's national interest. Keynes lost, and the world saw another period of monetary hegemony. Today, the US, the declining hegemon, can and should take the role Keynes tried to take in Bretton Woods. I am sure the world would be delighted to follow. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
