Thu Aug 21st, 2014 at 09:52:49 AM EST
Continuing my review of Wolfgang Streeck's Buying Time : The delayed crisis of democratic capitalism. (The first installment is here)
I want to strongly recommend reading the book. Streeck is a philosopher and sociologist, and his take on economics is a refreshing re-injection of the social element that orthodox economics so rigorously excludes and ignores. My feeling is that, in the fightback against neoliberalism, "Buying Time" is as important as, and convergent with, Thomas Piketty's "Capital".
Chapter 2 : Neoliberal reform : from tax state to debt state
Streeck documents the progressive disenfranchising of actual electors, as each nation's creditors gain the whip hand after the transformation of our "tax states" into "debt states", and aggressively counters the neo-liberal meme that the slide into debt has been the product of demagogic profligacy.
front-paged by afew
The fundamental political narrative of standard (neo-liberal) economics is that politics is an inherently dirty business; a matter of pandering to pressure groups, and buying them off out of the public purse to assure re-election. Therefore, the perimeter of the commons should be reduced by privatization (according property rights to that which was previously in collective ownership) and the powers of politicians should be circumscribed; "social justice" should be replaced by "market justice".
This discourse is applied with great propaganda success to the huge increase in public debt in the past few decades. It is alleged that this has been a matter of giving too much away to the unproductive elements of society, and that this represents a failure of democracy.
Streeck agrees that there is a failure of democracy involved; however, he convincingly demonstrates that the main driver of increasing debt, and the main beneficiaries of excessive handouts, are respectively neoliberalism and the rich.
The rapid increase of public debt, starting in the 1980s, coincides with "austerity", when central banks set high interest rates to dominate inflation, and choked off economic activity. Governments fought trade union power, and capital improved its profit margins at a time of rocketing unemployment. The social costs were, of course, immense, and paid from the public purse, at a time when, for ideological reasons (and to favour the formation of capital), top income tax rates and company tax were lowered.
Public borrowing filled the gap. As the rich, looking for safe investments for their tax windfalls, were happy to buy government bonds, this had the amusing effect of privatizing a part of the common pool, as governments had to borrow money which was previously theirs through taxation.
The expansion of the financial sector, and the ever-increasing mobility of capital, have made the capital markets a harsh and fickle mistress for democracy. In fact, Streeck identifies the fact that governments are now accountable to two distinct constituencies : their citizen electors, or people of the nation (Staatsvolk), and their creditors, or people of the market (Marktvolk).
Here is Streeck's table, fairly self-explanatory, of the characteristics of these two constituencies of the debt state :
|elections (periodic) ||auctions (continuous)|
|public opinion||interest rates|
|public services||debt service|
The democratic state, ruled and (qua tax state) resourced by its citizens, becomes a democratic debt state as soon as its subsistence depends not only on the financial contributions of its citizens but, to a significant degree, on the confidence of its creditors.
Shorter Streeck : they have us by the short and curlies.
He notes that the functioning of the government bond market is absolutely not transparent : who are the bondholders? How are prices determined? Who finances the rating agencies? Streeck deplores an almost complete lack of research on these crucial matters (is this really the case?). Thus, the bond markets demand growth, stability and long-term guarantees in order to accord their favours (in the form of a low interest rate), but are impossible to predict, completely capricious and unreliable in doing so.
[Editorial note: the implied misogyny is all mine, and absent in Streeck]
[Eurogreen's Macho Moment of the Day™ Technology]
It is noted that the emergence of activist bondholders parallels the rise of activist shareholders in the stock market; fund managers want to extract "bondholder value", independently of outcomes for the debtor nation or its citizens. What's more, governments actively seek the advice and policy prescriptions of the Marktvolk. The limitations on the freedom of the Staatsvolk to make democratic decisions declines in parallel. This is now seen as so banal that Alan Greenspan can say in 2007 :
We are lucky that the political decisions in the US, thanks to globalization, have been widely replaced by global market forces. With the exception of national security, it does not
matter that much who will be the next president. The world is governed by market forces.”
Feeling depressed yet? But wait, it gets worse... The next chapter covers the EU as enforcer of the neoliberal doctrine. To be published as time allows.