Juan Laborda – The Coronavirus and the End of Neo-Liberalism

The Covid-19 is simply going to accelerate the process of global change in China’s favour

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

Nadia Calviño, ministra de Economía.Nadia Calvino, Spain’s Minister of Economics

The coronavirus has become a global pandemic and its devastating effects will unfortunately go beyond the direct deaths of thousands of people across our planet. A global economic recession, with a strong supply and, above all, demand shock, is no longer in doubt. The economic crisis also kills, and a lot, especially at a time when the global economy is more fragile than ever, by the work and grace of a system of governance called neoliberalism. Covid-19 itself is the result of excessive human pressure on the biosphere, the consequence of an economic system that destroys everything in order to perpetuate itself. From a geopolitical point of view, global power was already changing. The Covid-19 is simply going to accelerate this process in a vertiginous way, in favour of China, the first economic and financial power of the planet.

It is very striking, and I cannot help but be amazed, at the views expressed by many Spanish columnists on how their government is managing the crisis. There is no doubt that there is clearly room for improvement, but those same columnists have been supporting a system of governance that is inefficient and unjust, which, as we shall see later, is going to make the Covid-19 crisis even more devastating. Budgetary austerity kills, and all of them were partners in, or lobbied for, the dismantling of the Western welfare system in the name of efficiency, when in fact their true goal was to serve a number of elites and interests that are constantly acting against democracy, against all of us.

While the big corporations and the superclass, using mainstream media as their spokesmen, meddled in politics to hollow out the welfare system, and thus make money available for their wealth extraction, the state was in service to the market, privatising public services such as electricity, water, public transport, or weakening others, such as education and health. From the remaining debris, this social sludge, only 3 public hospital beds per thousand inhabitants were left! As a result, Madrid’s public hospitals are overflowing. This process accelerated after 2008, the Great Recession. The same thing happened to Italy.

The essence of democracy

In my past articles I have been dismantling each and every one of the fallacies of this dystopian system of governance called neo-liberalism. Now it is time to simply tear it down and return to the essence of democracies, “government of the people, by the people, and for the people”. The struggle will be hard. From a political point of view, neoliberalism was evolving from a cynical vision of democracy, inverted totalitarianism, towards an authoritarian drift, a new fascism. It was the reaction of the elites to what they considered to be social disorder and instability, which consisted only of maintaining their status quo. They also believed that from a repressive authoritarian system they would keep their wealth intact and in the process be able to compete with China. Their strategy has simply fallen apart.

On the one hand, the role of the State must be strengthened following this crisis, in favour of the citizenry. A strong state that puts itself first and limits the power of the elites. Those political parties and pressure groups that demanded private health care, or emptied and promoted so-called public-private partnerships in a multitude of public services, extracting income from the citizenry, will be the big victims of this process. On the other hand, China is already the first global economic and financial power. The effectiveness of the Chinese government contrasts with the decline of Western democracies, which have been hijacked by a minority, the superclass.

The countries that are organising best in the fight against Covid-19 enjoy a strong state. Besides China, without a doubt already the first economic power of the planet, and with a financial muscle far above Europe and the United States, there are other positive examples. South Korea, for example, is a country that has put its neo-liberalism on the back burner. To understand Korea, I recommend the analyses of the Korean economist Ha-Joon Chang, Professor of Development Economics at Cambridge University, and possibly the world’s leading expert on development economics, and without doubt one of the most relevant heterodox economists in the current scene. I highlight three of his books: “Kicking Away the Ladder“, “Bad Samaritans” and “23 Things they don’t tell you about capitalism“. Chang’s proposals are not anti-capitalist, but critical of a particular type of capitalism, that of the free market. His main flank of attack is the orthodox policies promoted by the international financial institutions-IMF, World Bank, World Trade Organization. Finally, do not forget Japan, where the ruling liberal party has recently contacted one of the fathers of Modern Monetary Theory, the Australian Bill Mitchell.

Europe and the United States have a problem of political, economic, and moral decline. Of all those economic analyses that deconstruct neo-liberalism, let me recommend those of a Nobel prize-winning economist who took the step from orthodoxy to the dark side of heterodoxy, Paul Romer. Read his article “The Trouble with Macroeconomics“, which is brutal; or his latest blog, What Went Wrong, a denunciation of economists.

Europe, vanished

Let me make a final comment concerning the euro and Europe. The European project does not exist and has never existed; it was merely a free trade agreement in the service of the 1%, absolutely dystopian. The last meeting of the ECB will go down in the history of the infamy and intellectual nullity of those who now run that entity. It was a declaration of war against Italy. The Italians are outraged and the majority feeling is already to abandon the euro. Mario Draghi next to this gang was God. He understood the endogeneity of money and the quasi-exogenous nature of interest rates. As he neared the end of his term he even approached modern Monetary Theory He will certainly be missed.

To finish the job, our Minister Calviño positioned herself with the Germans and Dutch, against the Italians and French. The networks of power in Spain are very long, and Calviño represents them faithfully. Austerity kills. And what many people call public waste is nothing more than a network of powerful connections formed by public-private clientele networks that are dedicated to extracting revenues from the people of Spain. In order to understand how they work in Spain, I recommend the doctoral thesis of my friend Andrés Villena, which is contained in two books, one very technical, “Cómo se gobierna España”; and another informative, Las Redes de Poder en España”. “Elites and Interests Against Democracy”. If you also want a historical perspective, very opportune after the shameful spectacle of our monarchy, without any doubt a must read is the latest book by Paul Preston: “A People Betrayed: A History of Corruption, Political Incompetence and Social Division in Modern Spain 1874-2018“. All of this is what we must bring down, so that once again democracies become a just and effective political system.

In the following blog I shall explain what to do against Covid-19 from an economic point of view. I would like to tell you that the measures announced by the Spanish government are insufficient, and that there is only one alternative, the one enabled by Modern Monetary Theory.

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