[p2p-research] must read: The era of extreme neoliberalism and the end of the European social state

[Michel Bauwens]

The era of extreme neoliberalism and the end of the European social
state<http://blog.p2pfoundation.net/the-era-of-extreme-neoliberalism-and-the-end-of-the-european-social-state/2010/07/04>

see
http://neweconomicperspectives.blogspot.com/2010/06/europes-fiscal-dystopia-new-austerity.html
for
the full article


[image: photo of Michel Bauwens]
Michel Bauwens
4th July 2010

 *Europe is dying. If its trajectory is not changed, the EU must succumb to
a financial coup d’êtat rolling back the past three centuries of
Enlightenment social philosophy*. The question is whether a break-up is now
the only way to recover its social democratic ideals from the banks that
have taken over its central planning organs.

*Michael Hudson* has a brilliant
analysis<http://neweconomicperspectives.blogspot.com/2010/06/europes-fiscal-dystopia-new-austerity.html>of
the tragedy that is unfolding in Europe, where the politicians
beholden
to the financial predatory class are ’suiciding’ the European social state
and three centuries of a particular logic of civilization.

*Excerpt*:

*“The idea is to create an artificial financial crisis, to come in and
“save” it by imposing on Europe and North America “Greek-style” cutbacks in
social security and pensions. For the United States, state and local
pensions in particular are to be cut back by “emergency” measures to “free”
government budgets.*

*All this is quite an inversion of the social philosophy that most voters
hold. This is the political problem inherent in the neoliberal worldview. It
is diametrically opposed to the original liberalism of Adam Smith and his
successors. The idea of a free market in the 19th century was one free from
predatory rentier financial and property claims. Today, a “free market”
(Alan Greenspan and Ayn Rand style) is a market free for predators. The
world is being treated to a travesty of liberalism and free markets.*

*This shows the usual ignorance of how interest really are set – a blind
spot which is a precondition for being approved for the post of central
banker these days. Ignored is the fact that central banks determine interest
rates. Under the ECB rules, national central banks can no longer do this.
Yet that is precisely what central banks were created to do. As a result,
European governments are obliged to borrow at rates determined by financial
markets.*

*This financial stranglehold threatens either to break up Europe or to
plunge it into the same kind of poverty that the EU is imposing on the
Baltics. Latvia is the prime example. Despite a plunge of over 20% in its
GDP, its government is running a budget surplus, in the hope of lowering
wage rates. Public-sector wages have been driven down by over 30%, and the
government expresses the hope for yet further cuts – spreading to the
private sector. Spending on hospitals, ambulance care and schooling has been
drastically cut back.*

*What is missing from this argument? The cost of labor can be lowered by a
classical restoration of progressive taxes and a tax shift back onto
property – land and rentier income. Instead, the cost of living is to be
raised, by shifting the tax burden further onto labor and off real estate
and finance. The idea is for the economic surplus to be pledged for debt
service.*

*In England, Ambrose Evans-Pritchard has described a “euro mutiny” against
regressive fiscal policy. But it is more than that. Beyond merely shrinking
the economy, the neoliberal aim is to change the shape of the trajectory
along which Western civilization has been moving for the past two centuries.
It is nothing less than to roll back Social Security and pensions for labor,
health care, education and other public spending, to dismantle the social
welfare state, the Progressive Era and even classical liberalism.*

*So we are witnessing a policy long in the planning, now being unleashed in
a full-court press. The rentier interests, the vested interests that a
century of Progressive Era, New Deal and kindred reforms sought to
subordinate to the economy at large, are fighting back. And they are in
control, with their own representatives in power – ironically, as Social
Democrats and Labour party leaders, from President Obama here to President
Papandreou in Greece and President Jose Luis Rodriguez Zapatero in Spain.*

*Having bided their time for the past few years the global predatory class
is now making its move to “free” economies from the social philosophy long
thought to have been built into the economic system irreversibly: Social
Security and old-age pensions so that labor didn’t have to be paid higher
wages to save for its own retirement; public education and health care to
raise labor productivity; basic infrastructure spending to lower the costs
of doing business; anti-monopoly price regulation to prevent prices from
rising above the necessary costs of production; and central banking to
stabilize economies by monetizing government deficits rather than forcing
the economy to rely on commercial bank credit under conditions where
property and income are collateralized to pay the interest-bearing debts
culminating in forfeitures as the logical culmination of the Miracle of
Compound Interest. *

*This is the Junk Economics that financial lobbyists are trying to sell to
voters: “Prosperity requires austerity.” “An independent central bank is the
hallmark of democracy.” “Governments are just like families: they have to
balance the budget.” “It is all the result of aging populations, not debt
overload.” These are the oxymorons to which the world will be treated during
the coming week in Toronto. *

*It is the rhetoric of fiscal and financial class war. The problem is that
there is not enough economic surpluses available to pay the financial sector
on its bad loans while also paying pensions and social security. Something
has to give. The commission is to provide a cover story for a revived
Rubinomics, this time aimed not at the former Soviet Union but here at home.
Its aim is to scale back Social Security while reviving George Bush’s
aborted privatization plan to send FICA paycheck withholding into the stock
market – that is, into the hands of money managers to stick into an array of
junk financial packages designed to skim off labor’s savings. *

*So Mr. Obama is hypocritical in warning Europe not to go too far too fast
to shrink its economy and squeeze out a rising army of the unemployed. His
idea at home is to do the same thing. The strategy is to panic voters about
the federal debt – panic them enough to oppose spending on the social
programs designed to help them. The fiscal crisis is being blamed on
demographic mathematics of an aging population – not on the exponentially
soaring private debt overhead, junk loans and massive financial fraud that
the government is bailing out.*

*What really is causing the financial and fiscal squeeze, of course, is the
fact that that government funding is now needed to compensate the financial
sector for what promises to be year after year of losses as loans go bad in
economies that are all loaned up and sinking into negative equity.*

*When politicians let the financial sector run the show, their natural
preference is to turn the economy into a grab bag. And they usually come out
ahead. That’s what the words “foreclosure,” “forfeiture” and “liquidate”
mean – along with “sound money,” “business confidence” and the usual
consequences, “debt deflation” and “debt peonage.”*

*Somebody must take a loss on the economy’s bad loans – and bankers want the
economy to take the loss, to “save the financial system.” From the financial
sector’s vantage point, the economy is to be managed to preserve bank
liquidity, rather than the financial system run to serve the economy.
Government social spending (on everything apart from bank bailouts and
financial subsidies) and disposable personal income are to be cut back to
keep the debt overhead from being written down. Corporate cash flow is to be
used to pay creditors, not employ more labor and make long-term capital
investment. *

*The economy is to be sacrificed to subsidize the fantasy that debts can be
paid, if only banks can be “made whole” to begin lending again – that is, to
resume loading the economy down with even more debt, causing yet more
intrusive debt deflation.*

*This is not the familiar old 19th-century class war of industrial employers
against labor, although that is part of what is happening. It is above all a
war of the financial sector against the “real” economy: industry as well as
labor.*

*The underlying reality is indeed that pensions cannot be paid – at least,
not paid out of financial gains. For the past fifty years the Western
economies have indulged the fantasy of paying retirees out of purely
financial gains (M-M’ as Marxists would put it), not out of an expanding
economy (M-C-M’, employing labor to produce more output). The myth was that
finance would take the form of productive loans to increase capital
formation and hiring. The reality is that finance takes the form of debt –
and gambling. Its gains therefore were made from the economy at large. They
were extractive, not productive. Wealth at the rentier top of the economic
pyramid shrank the base below. So something has to give. The question is,
what form will the “give” take? And who will do the giving – and be the
recipients?”*

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