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The stalemate of two economic models - Robert Kurz

The stalemate of two economic models - Robert Kurz

In this 2012 article, Robert Kurz discusses the crisis management strategies implemented by the US and Europe, their seemingly paradoxical reversal of roles (neoliberal policies vs. welfare state) and the ineluctable fate they will ultimately share: “Whoever wants to save the financial system has to eliminate demand, and whoever wants to save demand has to ruin the financial system”.

The Stalemate of Two Economic Models - Robert Kurz

For many years, in the economic ideology of the West it appeared that two enemy camps confronted one another: the neoliberal or radical market of the US, and the Keynesianism or Welfare State and industrial policy of Europe, also called “Rhineland Capitalism”. The ideologues of the market put their bets on a policy of supply (cost reduction at any price, first of all with regard to wages), and the ideologues of the State put their bets on a policy of demand (increase consumption by way of public sector expenditures and wage increases).

For more than 30 years the European model has been considered to be obsolete because the increase of public sector consumption led to inflation, and despite the inflation it also led to a paralysis of growth (“stagflation”). The collapse of State Socialism seemed to confirm this assessment. The neoliberal concepts of the US thus began their triumphal global march and the Europeans were converted to their faithful followers, even, finally, social democrats like Schröder and Blair.

The success of the neoliberal revolution consisted, as everyone knows, in the creation of unprecedented financial bubbles that nourished global waves of debt for more than a decade. When the financial crisis of 2008 put an end to this era, a massive storm ensued. The European governments, led by the powerful German coalition, were shamelessly happy to blame the US and its neoliberal doctrine, as if they had not implemented the same policies.

For a short time it appeared that governments on both sides of the Atlantic would turn towards the European model with public bailouts and economic stimulus programs. But the limits of State funding were soon exposed in the form of the crisis of the sovereign debt. The old dispute came to the boiling point, but now with the roles reversed, at least on the surface: the US and its economic elite preferred to bet on state stimulus, and Europe, under the leadership of Merkel, preferred to bet on brutal austerity programs.

In reality there is only one clear economic model, with two contenders who are only involved in a con game.

First of all, austerity programs to reduce state expenditures are being implemented everywhere, one after another. Thus, in both Europe as well as the US, the Central Banks are pursuing a policy of flooding the market with money.

States must save; businesses must invest. But the banks awash in cheap money still are not extending credit, and are instead hoarding money in the central banks. Businesses, for their part, are not procuring credit for major investments but are continuing to pursue the old policy of radical cost-reduction. Now, nothing works without public consumption, which must however be still further reduced.

The truth is that the central banks purchase public debt not in order to bolster real demand but to prevent the decline in value of their titles to wealth and to save the banks that cannot successfully liquidate them.

This con game is a return to an aggravated version of stagflation, but it will not stop there.

At the present time the US appears to favor the inflationary route and Merkel’s Europe appears to favor the regressive route of the terrorism of a financial state of emergency. If by chance a president Romney can stage a comeback he would have to take up the allegedly American concept of the Europeans who have been so long derided as “socialists” and simultaneously apply to the Europeans a reverse course in case he has to resort to Obama’s policies.

Neither model will work. Whoever wants to save the financial system has to eliminate demand, and whoever wants to save demand has to ruin the financial system. The absurdly contradictory mixture of the two economic models as a result of the stalemate in their mutual struggle reveals the broken down condition of the capitalist foundations they both share.

Robert Kurz
February 6, 2012

Originally published in German in Neues Deutschland, February 6, 2012.

Translated from the Spanish version.

Source: http://www.surysur.net/2012/07/robert-kurz-el-empate-de-dos-modelos-econ...

Posted By

Alias Recluse
Aug 25 2012 20:28

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