r. bellofiore - 2011.03.11_athens

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Public debt and the socialization of the economy: the challenges for the European Left

Athens, March 11th 2011

Riccardo Bellofiore Hyman P. Minsky Department of Economics

[email protected] facebook page: Economisti di classe


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A new Great Crash?

Great Mode rat ion t urn ing int o Gre at Recessio n 2007-8 : financ ia l, glob a l; p rivat e deb t 2008-9 : re a l, glob a l; neolibe ra lism ou t?

2010 : sove reign deb t? Europe Which crisis, of w hich ca pita lism?

Financ ia l, re a l? The re t urn of M arx? TRPF, unde rcons ump t ion:not re a lly

The re t urn of Keyne s + Mins ky? Dem an d plu s Financ ia l Insta bilit y Hypo: not re a lly


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Neoliberalism beyond the myths

Neolibe ra lism I ( 1980s) ; Mone tar ismpolicy d rive n : M s , N, w, I, G; Re agan as a Keyne sian (th e t win deficits)

Neolibe ra lism II ( 1990s) : Gree ns pan e ra

tra um at ized wo rke rs, man ic sa ve rs, indeb t ed cons ume rsmo ney m ana ge r ca pita lism , pe ns ion fund ca pita lism =>Capita l Ass e t Inflat ion

re a l sub sump t ion of labou r t o financ e => Ce ntra lizat ion with ou t Conce ntrat ionHorizonta l Ph illips curve (f ra gme ntat ion of labou r) ;horizonta l M s (e ndoge nou s mo ney suppo rt ing CAI)

Privat ized Key ne sian ism : financ ia l, ass e t-bubble d rive n configurat ion


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A dynamical capitalism?

A new ca pita lism: US , deb t drive nprivat e deb t, oth e r f ac e of shr inking publi c deficits hou se hold deb t, no leve ra ge of indu str ia l firmsCB le nde r 1

r

re sort, originat e & di str ibu t e b an kingSchumpe t e rian new e conomy: p art ia l, ins ufficie nt

Count e rde nc ie s t o sta gnat ion?int e rna l: indeb t ed cons ump t ion as aut onomou s dem an de xt e rna l: p roviding dem an d t o neome rcant ilism( s)

Asia : J apan + E ast Asia, th e n Ch ina (+ I ndia)Europe ( Ge rman y an d sat ellit e s ) Lat in Ame rica, Russ ia

Japan sta gnat ing since 1990s, Europe since 1980s


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Stabilising disequilibri a

Financ e: self -feedi ng di sequilib ria Financ ia l disequilib ria ha mpe r corre ct ion of curre nt acc ount disequilib ria

Which be come s a lso self -feedi ngBoth sta bilising fo r a while an hidde n unsta ble ca pita lismUnt il th e b re ak up fo r its uns usta ina iba lit y

Financ ia l crisis (p rivat e deb t) => re a l crisis public deb t crisis => u nemployme nt


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F inancial explosion


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Pr ofits and GD P


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Th e t r iad at wo rk


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Europ e an Ne om e rc antilis m

Pe rs ist e nt Ge rman ne t e xpo rt surpluse s how? compe t it ive dev a luat ions an d w age defl at ion throug h single curre ncy now , befo re EMS => ERM provide p rofits, inve st ed abroad

t o w he re ?

mo st ly with in th e ar e a (hie rarch y b t w regio ns) Asia? growing defi cit with China bu t Me ans of P rodu ct ion thus, ne t e xpo rts mo st ly t owar d USA (an d East e rn Europe ):we ake ning

1950s : Eu rope as an int e rna l mar ke t (EPU:

re cycling) 1960s : st op an d go , ma inta in tra de surpluse s 1970s : compe t it ive (diffe re nt iat ed ) dev a luat ions (I ta ly)

1980s : Eu rope an Mone tar y Syst em


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Europ e an Ne om e rc antilis m 1990s :

depe n

de nc

y f rom USdo tcom bubble

unbridge able defi cits with Asia, bu t e xpo rts in USan d a lso Ru ss ia, Bra zil/Arge nt ina unt il 1998 /2001

2000s : depe nde ncy f rom US deepe ned re a l e stat e bubble role of C h ina : not on ly ne t e xpo rts

also financ ing US defi cit (s)low w age s a long a comple t e int eg rat ed v a lue cha in, upg ra ded

Conta gion a f t e r 2007 : no deli nking t oxic ass e ts, f rom US: Ge rman Lande sban ke n collapse US dem an d (C h ina => Ge rman y => I ta ly) crise s with in th e ar e a : e.g. , UK or Spa in


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Cu rr ent acco u nts 2002-2007


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Cu rr ent acco u nts 2002-2007


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Europ e an f r ag m e ntati o n

Ge rman an d sat ellit e s :str ong neomk t Ne th e rlan ds, Scan dina via, Belgium , Austr ia, Swiss ;transnat iona l va lue cha in with East e rn Eu

bre ak be ca use of Reu n ificat ion

France: d re ams of bei ng like Ge rman yUK: financ ia l ce ntr e; an oth e r game Ita ly: we ak neomk t : se cond e xpo rt e r a f t e r Ge rman y, crisis of big i ndu str y an d di str icts

bu t 4r

ca pita lismSpa in an d Gree ce: re a l e stat e (=> London, ca pita l mk t) vs. fisca l policy defi cits (=>bonds)


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GD P g r owt h befo r e t h e c r isis


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C h ange in GD P end 2009


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F iscal stim u lu s 2009


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P u blic secto r balancesbefo r e/afte r c r isis


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P u blic debte u r o a r ea 1999-2007


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P u blic secto r debt2007 % 2009


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B an k s and p u blic debt 2009


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P u blic debt h oldings 2009


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Pr ivate secto r debt2007 & 2009


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Deficits saved t h e wo r ld?


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U nemployment befo r e/afte r c r isis


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Co nfli c ting v iew so n e co n om ic po licy: fail ur e s

Neo -libe ra lismSocia l-libe ra lism

Polit ica l-bu sine ss cycle=> diss olut ion of S LPara dox: NL mana ging th e e nd of neolibe ra lism(as we k new i t)

Radica l lef t distr ibu t ion/dem an d: o nly redistr ibu t ive immat e ria l, knowledge e conomy: K rugm anwage d rive n re cove ry? bas ic income ?

Tobin Tax? neo -prot e ct ionism? Miss ing Eu rope an dime ns ion


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M istak e s o f Euro-L e ft o n e uro

Maastr icht + S ta bilit y Pact :single curre nc y :Fre nch Proje ct lat e 1980s, died e ar ly 1990s, re surge nt a f t e r mid 1990s

curious mix libe ra lism an d int e rve nt ionism: wi th ou t Stat e , no syst em at ic sh ockswage defl at ion, public se ct or re str uct uring

the re w as (is?) an a lt e rnat ive: commo n mo ney like Keyne s 19 44 de B runh off!

nomina l conve rge nc e wi th re a l dive rge nc e ve ry u nsta ble: bu t 1990s f a ll r, plus 2000s f a ll riskpremia

the re w as (is?) an a lt e rnat ive: oppo sit e rule s on inflat ion an d S tat e defi cits be ca use of p ara dox of p rodu ct ivit y


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R elative labo u r costs 1999-2007


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S ove r eign sp r eads to B u nds1993-2010


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E u r o-a r ea debt/GD P r atios


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M oney matte r s

Sovereign debt crisis? Rather, privatedebt crisis in disguise Gvt surplus => Private debt

unstable, and unsustainable

default: not a problem, depends on politicalwill to refinance by CB

debt deflation (both household and firms),less demand, less credit, less income =>bad public deficits

sovereign debt because of crisis Gvt deficits through automatic stabilisers


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Good vs bad deficits Gvt deficits :

provide dem an d: sta bilise re a l e conomyprovide qu a lit y ass e ts : sta bilise financ ia l side

long-t e rm horizon, he nce inh e re nt ly publi c drive n self -liquidat ing: highe r deb t /GDP at first, th e n f a lling

Stat e , employe r of first re sort what, how , how mu ch t o p rodu ce ?

inf rastr uct ura l inve st me nts re se arch, edu cat ion, he a lth, car e

e ne rgy, e cologica l p rodu ct ionmobilit ySocia lizat ion of inve st me nt, employme nt, ban king an d financ e , & ca pita l contr ols

need of a mana geme nt of publi c deb t


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Class m att e r s Ge rman y be tt ing o n e xt e rna lly drive n grow th

US t oo? ne t e xpo rts t owar d eme rging cou ntr ie s?

doub t ful self -defe at ing p remi se s? ant i-inflat ionar y (E)CB policy: commodi t ie s

plus coo rdinat ed Eu rope an fisca l attac k aga inst labou r (publi c se ct or an d tra de u n ions) an d socia lrep rodu ct ion (he a lth, edu cat ion, ge nde r) ;

deflat ionar y effe cts : Ge rman y doe s not want public deficits of *o th e r* cou ntr ie s, bu t need th em as ne t impo rt e rs ; contra dict ion

risks of double dip i nt o dep re ss iononly rat iona lit y: th e making of a world wo rkingclass, bu t risking a new Gre at Crash . How t ode a l with it is an ope n iss ue: compe t it ive diss olut ion, coo rdinat ed regul at ion .


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M ins k y on Keynes on socializationof investment

John Maynard Keynes 1975 , pp. 154-56 GT product of red 1930 s

conservative implications vs complete socialism

once investment grants full empolyment, andtaxation equitable distribution of income

no reasons to suppose the existing system seriouslymisemploys the factors of production

market mechanism may be allowed full play

taxation/transfers control consumption monetary policy influences investment (uncertain) need of a comprehensive socialization of

investment up, but not beyond, full employment of resources


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M ins k y c r iticizes Keynes onsocialization of investment

Inconsistency btw need of socialization of investment and praise to market as allocator of

resources result: no socialization of investment, but supportto high profit/high investment => artificialstimulation of consumption of things: socialismfor the rich

Alternative different kind of socialism

based on socialization of towering heights


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M ins k y beyond Keynes onsocialization of investment

high private investment strategy, hence high rentier and entrepreneurial income artificial stimulation of consumption of things and relative

need waste, defense spending

no increase in well -being

experimentation with liability structures financial (and real) instability, lose of control fruitless inflationary treadmil biological and social environment at risk

we are back to the questions for whom should the game be fixed what kind of output to be produced

high consumption strategy = public investment & consump. leading sectors are socialized, communal consumption control and regulation of finance


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J oan R obinson 1972


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r. bellofiore - 2011.03.11_athens

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