Why don’t we start with a work guarantee to usher in a genuine Green New Deal that saves the planet? An inclusive Green New Deal for all by definition entails massive public investment.
Juan Laborda teaches Financial Economics at the University of Carlos III and Money and Banking, Syracuse University (Madrid)
Originally published in Spanish at vozpopuli
Translated and edited by BRAVE NEW EUROPE
Recesssion is looming again. We have learned nothing. Following the Great Recession we had a false discourse, while the can was repetedly kick down the road. The “League of Injustice” was quick to contaminate everything with its lies, including the true origin of the crisis, an absolute failure of that system of economic governance called neo-liberalism. The media, transformed into megaphones purportedly with no agenda or interest in maintaining the status quo, undoubtedly a very productive investment for the superclass; and accomplice academics, those who remain stubborn in repeating the fairy tales of neoclassical orthodoxy. They turned the world upside down to give us a perfidious, fallacious, wrong story. This is “fake news”. They have the audacity to blame the state, thereby allowing those who repudiate it to take it hostage, as well as viciously attacking the weakest, the most unprotected, the disinherited, the outcasts, abandoning them to their fate. For this perfidy they always have a reserve army, a certain middle class afraid of losing their own privileges, when in reality it is the policies that they endorse with their votes that irremediably impoverish them day by day.
During the Great Recession we did not do what was most socially and economically efficient, to banish the four pillars of neo-liberalism identified by economists James Montier and Philip Pilkington. The connection between the current system of economic governance, “neo-liberalism”, and aspects as diverse as populism, secular stagnation, and the various asset inflations since 1998, is becoming increasingly evident. The global economy is in exactly the same situation as 2006-2008. The West only knows how to grow via asset inflations, fed by a total debt that does not stop growing; productive investment is neither occurring nor expected; wages do not increase; productivity continues to fall; the global banking system is extremely fragile; and there is high financial instability.
Orthodoxy only generates deflation, submission, and genuflection.
We have arrived at this disaster because of the implementation of a system of economic governance that today is completely broken, neo-liberalism. The four basic pillars of its most significant economic policies have failed, and we must repudiate them, banish them. Now! First: We refer to the programmed abandonment of full employment as a desirable political objective and replaced it with inflation targets. The objective is to create a docile, submissive reserve labour army. You can see the result. Developed economies are not capable of generating inflation, not even if they try. By the way, no matter how intuitive it may seem, by lowering interest rates, deflationary dynamics intensify.
The second pillar of neo-liberalism has been the increasing globalisation of flows of people, capital, and trade. Only the Chinese economy has been able to take full advantage of this to grow and massively while reducing poverty by equipping itself with the necessary instruments that have prevented the collapse we are seeing in the West. From capital controls, through a tight control of foreign investments – the Chinese government has always decided where, when, how much and how to invest – to a massive and determined commitment to education and innovation. In the West, we are already feeling the counter-reaction to globalisation in a dangerous double direction, the rise of fascism and the fall in the volume of world trade.
The third pillar, undoubtedly one of the most damaging, through the work and misfortune of Milton Friedman, is a business approach based exclusively on maximising shareholder value, rather than on reinvestment and economic growth. It is undoubtedly the biggest nonsense of the last century. All this is accompanied by the ideological abandonment of investment and public expenditure as the engine of innovation. Allow me to be straightforward, I dislike the liberals who repudiate the State. All “revolutionary” investments come from the public sector. I repeat, all of them! Our politicians would do well to read Mariana Mazzucato. The role of European governments, short-sighted, champions of blind liberalism, and well connected to certain lobbies, is regrettable. As a result, today, technologically speaking, China is light years ahead of Europe: 5G, aluminium electric batteries, data mining, artificial intelligence, …
Finally, the fourth and last pillar, the search for flexible labour markets with the disruption of trade unions and workers. It is a project that benefits a few at the expense of the majority. This is reflected in a pampered class of high-income individuals.
Under this framework of analysis, from the demand side, the West can only try to counter secular stagnation with negative real interest rates. However, the implementation of such monetary policies will activate different financial and/or property bubbles. This presupposes in advance recognising the fiasco of one of the most false hypotheses of the current dominant paradigm: market efficiency. In addition, it shows how economic and political elites designed, in the absence of wage increases, a system aimed at sustaining an artificial expansion of demand. With regard to the supply side, there is little to say, except that it is not the engine of anything, just pure academic smoke and mirrors to justify the four pillars of that dystopian potion called neo-liberalism.
Green New Deal and Job Guarantee
The optimal solution is to reverse each of these four neo-liberal economic policies. The question is how? It requires a combination of medium and long-term economic policies; and the implementation of certain transitional policies to correct the most negative effects of current policies – marginality, exclusion, and poverty – until the medium- and long-term objectives are achieved.
As a necessary and possibly sufficient precondition, we must recover the goal of full employment, assumed during the golden age of capitalism and abandoned to its fate after the implementation of the neo-liberal agenda (Washington Consensus). Once again, I laugh at the apocalyptic forecasts associated with the effects of robotisation. These analyses assume the neo-liberal mindset. Nevertheless, what we are talking about is the termination of neo-liberalism. To do so, it is fundamental to understand the concept of monetary sovereignty, the basis of Modern Monetary Theory (MMT). The basic instrument linked to Modern Monetary Theory is guaranteed work (0% unemployment). After the Bretton Woods rupture in 1971, we are in an MMT environment. Most governments began to issue their currencies through legislative decrees under a floating exchange rate: A flexible exchange rate monetary policy instead of having to defend a fixed parity. Therefore, fiscal and monetary policies can concentrate on ensuring that domestic spending is sufficient to maintain high levels of employment. Governments that issue their own currencies no longer have to finance their spending, as currency-issuing governments can never run out of money. However, from the moment the money issuers, the states, begin to be governed democratically, the elites decided without hesitation to create and disseminate myths that they have been spreading for decades, and that now are deeply rooted in the collective consciousness. The aim was none other than to maintain the privileges of the wealth extracting class by turning the economy into a kind of religion.
Why don’t we start with a plan for a job guarantee at the dawn of a genuine Green New Deal to save the planet? An inclusive New Green Deal for all by definition is public investment. And in the current environment MMT is ideal for achieving that. However, here in Europe they still do not understand anything. Or maybe they do. The proposal of the next president of the European Commission, Ursula Von der Leyen, has been a “Green Deal”, not “New”, using the same deck of marked cards, based on mere market mechanisms, where private companies will extract the income derived from collective efforts against the climate emergency. In addition to the fact that these companies neither have nor will have the necessary muscle to implement it, this means corruption of what Roosevelt’s New Deal meant in terms of theory and economic policy. Meanwhile, until now, the only serious New Deal on the table: China’s new Silk Road.