Crisis, market and “another economy”
Often those who aspire or actively strain in constructing “another economy” – more just, united, not capitalist - tend to observe the domineering economy like experiencing a deep crisis, and they hope that somehow supervene a collapse, demolition, paralyzing of the market, by effect of its own weight, of its internal contradictions, of its crisis. It is thought that when a collapse of the market happens, it will be the moment for “another economy”, which meanwhile would be constructed only in small scale, like pre figuration or precedent of what will be, in big scale, after the catastrophe. In the presence of what seems today to be the beginning of a “big economic crisis”, many announce that the end of capitalism is on the point of happening and, therefore, opens the opportunity for “another economy” to opens like the big longed solution On the causes and depth of this current economic crisis, and on its possible solutions and routes of exit, we offer next a series of analysis and reflections - based on our “comprehensive economic theory” - that we hope helps to a better understanding of the enunciated subject.
Many people imagine the collapse of the "system" as a building that demolishes completely; and consequently, the construction of the “another economy”, like a completely new building, that perhaps could make use of some pieces of the demolished building, which could be recycled and integrated to the new economic order.
Beyond that words as “destruction” or “collapse“, applied to the economy are only metaphors, I think necessary to point out some concepts, to acquire a more realistic perspective regarding the future and conditions that can be hoped to accelerate the construction of “another economy”. This is necessary particularly today that the world is immersed in a big financial crisis that makes us think that the collapse moment is getting closer or would be ready to happen.
First precision: The market does not stop, does not stop working nor collapse (unless a catastrophe supervenes that destroys social life, by causes exogenous to the market as such), however much financial and economic crises of considerable importance are experienced. Because the market is the interaction and coordination of the decisions of production, distribution and consumption carry out permanently by human beings and their organizations. Since they exist, and while human beings and organizations exist, there had been and will be exchanges between them, and the market will keep on working.
Second precision: The market on its historical evolution has experimented and it will experience transformations that can be very deep, structural (as is used to say). The most important and deep transformations, are experienced by the market when society phenomena events impress the collective life deeply, such as wars, natural devastations, discoveries or conquests of new territories, high impact technological innovations, incorporation or depletion of important energy sources, social revolutions, establishment of a new political system, etc . In this sense, it is an essential to understand the market is certain, that does not exist in itself, does not work exclusively based on its own internal dynamics. The market is always a “certain market”. In that sense, it cannot be discarded that the market may collapse, sinking societies in an abyss of catastrophic decline; but it cannot happen because of inherent causes in the functioning of the market itself, but because of exogenous impacts. Today, for example, an economic collapse might happen if economies were affected by a drastic climate change, or by an intensive depletion of oil and other energy sources availability.
Third precision: However what is said above, it must be admitted that the market is capable of resisting very strong exogenous impacts, opposite to which it reacts in accordance with its own internal dynamics. A world war or a civil war can alter drastically the shape of the market and the participation of subjects in it, but the market keeps on working in those modified contexts. The market keeps on working and reacts with its own rationalities when natural disasters, technological changes, resources and energy sources decrease, etc; take place.
Fourth precision: Internal market dynamics, in the sense of its cycles, crisis and expansion phases, inflation and growth phenomena, stagnation or depression, changes at the level of systems and monetary and financial institutions, processes of wealth concentration and distribution, are dynamic that can impress very deeply the functioning of production, wealth distribution, the levels of consumption and rhythms of growth. But by themselves, such dynamics do not drive to an interruption on the market functioning, do not stop it, do not make it collapse in the sense of a building that falls down and of which only debris stays to be gathered. The changes and deepest crises the market can experience as effect of its own imbalances and “contradictions“ do not lead the market to disappear nor stop functioning, although certainly may affect very seriously the levels of wealth and poverty and living conditions of people, organizations and companies, towns, nations and states.
Fifth precision: The market in its internal functioning can alienate and even expel certain subjects that take part in it. In fact, on the market the biggest and important companies can fall down in bankruptcy, the richest countries can decline, others can enter situations of big poverty and misery, and many people can lose all their goods and resources. But the surest thing is that the market keeps on working, with new, different, and even with less members; but it turns out to be less affected of what is believed, by what happens to such individuals, such big companies; such countries.
Sixth precision: On the market, in fact, participate all subjects, individuals and groups, all organizations and institutions, all States and communities, all countries and regions. The participation of each one of these subjects, nevertheless, can be and in fact is very differentiated, as some take part more and others less, some do it in a way and others in another, each one offering certain factors, products and services and demanding certain products, services and factors. On the market, every individual or collective subject is more or less inserted, occupying a more or less central or marginal place. Any “other economy” will have to take part on the market; all subjects, companies and organizations of “another economy”, are determined and need to make space of action and exchanges on the market.
Seventh precision: Someone (an individual or collective subject of any level it may be, including a country, or a group of countries from a region of the world) might “leave” the market and keep on surviving, but it implies two basic conditions. One, to become completely self sufficient in the sense of being capable of providing itself with all goods and services needed; and two, to limit its needs exclusively to those regarding the ones that can be self provided with the indispensable things to satisfy them. These conditions although examined, imply extreme sacrifices for those who try to fulfill them. “Another economy” that wants to become independent from the market dynamics, will have to assume the costs that it implies, and between its participants will have to construct its own market, accentuating the interactions and exchanges between those who integrate it. In such exchanges between its members, as also in the exchanges that these should establish with those of the general market, may become evident the different rationality that characterizes them, as soon as they act and relate supporting their principles, values, ethics and their own behavior ways. This also applies for fulfilled countries that may claim autonomy from the market and its crisis, and even for groups of countries from an entire region.
Having done these initial precisions that perhaps allow to correct some quite habitual theoretical confusions between those who look for constructing “another economy”, the key question remains open regarding the sense and measurement in which the market alters its functioning, gets united in its habitual dynamics, gets into a deep crisis, and that in such contexts could change and make possible for spaces to be open for the expansion of this “another economy”. To understand these possibilities demands from us to stop on some fundamental economic concepts and to apply them in the present situation.
Deepen into the causes of the global financial crisis
The current financial crisis is being understood –essentially- like effect of an exaggerated indebtedness expansion (especially, but not only, of mutual mortgage), which has given place to a rapid increase of insolvency and nonperformance of the debtors. This way are accumulating in banks and credit entities, debt titles that lack value, or lose it in significant proportions. Consequently, is generated a loss of assets (or value) from banks and creditors in general, which result on suspicion on investors and holders of qualifications, bonds and actions, who hurry in getting rid of these threatened papers, and look for refuge in assets that provide them major safety. With all this diminishes the aptitude to give and receive credits, which is translated in economic contraction and recession.
Being the crisis understood, the matter is a "normal" and appellant phenomenon that happens periodically on markets. What could differentiate the present crisis from previous ones would only be its depth and extension. In such sense, the involved numbers lead to thinking that we would be facing a crisis which intensity had not been seen since the big crisis of 1929-30.
The current markets situation analysis carried out based on the Comprehensive Economic theory concepts, admits that the exposed (in terms of the conventional economic conceptions) is correct; but it goes further away and opens us to another crisis dimension, which places it in a historical and economic perspective that allows us to see it not only as deeper and widespread but as qualitatively different. Even more, it places us in the perspective of understanding that the "normal" or habitual answers applied to this crisis, will not have the awaited effects, that is to say, they will not drive this time to a real overcoming and/or crisis exit.
The "normal" way out of a "normal" financial crisis consists of combining in a suitable (or ideal) proportion, three elements: a) the value loss of the creditors assets; b) the loss debtors must assume; c) the loss that necessarily has to affect the set of other economic agents (consumers, entrepreneur, workpeople, etc.) through inflation and/or economic contraction. This way is known that the loss, the damage and pain provoked by the crisis is distributed (and diluted) among different involved sectors. These processes are carefully monitored by Governments (fiscal, tributary, regulative, subsidiary and incentives politics, banks rescue etc.) and for the monetary authorities or central banks (money-market rates, monetary emission, exchange rate, etc.).
All that is, in fact happening. But from the point of observation provided to us by the Comprehensive Economic theory, we can see something else, below and beyond everything stated. (Since we cannot explain here what it is and how the Comprehensive Economic theory proceeds, we must limit to exhibiting some conclusions of an analysis that we can not explain. Be enough for the time being to say that this Theory comprises the phenomena and economic processes from the inter subjectivity of actions, decisions and intentions of the private and public subjects that produce them, framed in a certain institutional, juridical and political context).
From this optics we basically appreciate two phenomena of incalculable consequences:
The first phenomenon is a change fulfilled in nature or money “essence“. And since money is – in the current economic system - the articulator element of markets and economy all together, the present crisis is meaning a very deep structural dismantling of the market determinants, so the crisis will not be solved but through an institutional, juridical and political reform. Let's understand: the market will keep on working, but in crisis, which will extend until the above mentioned reforms are fulfilled.
The second phenomenon, closely connected to the previous one, is a mutation at the level of relations between private economic agents and public economic agents, so balances that have remained without substantial changes during the last six decades are not supported any more, raising the need to re-define the relations between economy and politics.
The value of money and the global financial crisis
The money (so contemn by some, so loved by all), is one of the most important inventions and creations of humanity. In effect, money has been during millenniums and will keep on being until we invent a better alternative, the solution to the biggest problems of social life.
Since no individual, nor family, nor human group is self sufficient, we all need to exchange goods and services we need and produce. We, human beings need each other and we work for each other. This gives place to exchange, to market, which when money did not exist was done like direct exchange of a few goods and services for other goods and services. But the exchange has two problems: it is difficult to do (because each time it demands the empirical coordination of each offerer decision with those of each claimant), and is usually very unjust (because there is neither a criterion nor a measurement mechanism for goods and services value being exchanged).
Money solves these two problems, on fulfilling the following functions: 1.To serve like measurement unit of factors, goods and economic services value; 2.To serve as universal currency change, coordinating the decisions of all market participants across the prices system.
There are another two tremendous economic problems that money solves. Individuals and societies need to assure the future, what supposes reserving and accumulating wealth. To accumulate cash commodities that constitute wealth (wheat, bricks, etc.) is not always possible and is usually very inefficient, since things are damaged, lose value, are stole. Money becomes, then, to fulfill function 3. To serve as a mean of wealth accumulation, or serve for “value reservation”.
Another problem and need that does not find solution without money, and with such solves it fulfilling its function 4, is the coordination in time (inter temporary coordination) of different economic agents decisions, in such way that the productive resources and produced goods are available for every subject at the moment they are needed , without remaining inactive or unemployed during long periods of time, or without the need of waiting to gather all resources before initiating an activity. This connects with function 5. Money allows that what some save today (to spend tomorrow) becomes available today (in the form of credit or loan) for whom needs it now but only will be able to pay it later.
So: What happens if money stops being reliable as value “measurement unit”? Let's imagine: what would happen in the construction of a building, cathedral, castle, if the meter we use for measuring, one day measures 80 centimeters , the following day measures 110 cm., then only 90, and nobody really knows nor can trust in the meter used every day?
In history has happened several times – and every time has been an occasion of a economic “big crisis” - that money has stopped being reliable like value measurement unit. Because, when it happens, money stops being useful to accumulate wealth and reserve value; it is not useful either for inter temporary coordination of decisions (since savers and indebted cannot know the costs of what they have today and what they will be able to have tomorrow). And money function becomes seriously obstructed as universal exchange currency.
We argue that this is what happens today. My thesis is that the current financial crisis is a “big economic crisis”, which fundamental cause resides in the distortion and change happened at the level of "essence" and money functions. And that, if it is like that, the crisis will not excel itself until money recovers its aptitude to correctly fulfill its essential functions. In such sense, financial "rescues" governments of many countries are currently implementing just aggravate the crisis and postpone its overcoming, every time they contribute – and in a very important way - to accentuate money distortion and make difficult for it to fulfill its essential functions.
For money to fulfill its five precious functions, it is necessary that it satisfies two essential, closely associate conditions. The first one is that money has value, which represents sell out value on the market. For that it must have – as it is said - a suitable and consistent "support". The second condition is that it is "reliable" for all economic agents.
For money having value, being endorsed by real wealth, is an obvious need, every time it is the economic assets exchanged by goods, services and real factors. Nobody would change anything that is worth for something that does not.
Money being reliable is a consequence of the support that holds it, and also, of standing juridical and institutionally the “social contract” or inter subjective convention according to which is fixed the “measurement unit ” for money used in deals, that guarantees the circulating money authenticity, and that punishes the non performances of commercial contracts. In the modern time this reliability guarantee is given by the State and its central financial entity, which issues legal currency money.
The essence of money is that “it has value”, that is endorsed.
Formerly money used in deals had value in itself: it was a matter of golden, silver and precious metals portions.
Later gold was placed in the vault of banks, which issued paper tickets "convertible" into gold or silver.
Later it was discovered that it was not necessary for money to have support in gold, since it could support itself straight on goods and services by which it was exchanged on market. The one issuing money was guaranteeing that it had sufficient economic assets to endorse the monetary issue and to answer for the money value.
Later on it was thought that not necessary the issuer should have values equivalent to the expressed money, since it was enough that the money set was endorsed by the set of goods and existing economic assets on a certain market.
But, for that to generate the indispensable confidence, it was necessary that the State had the money emission monopoly, guaranteeing that no new money was issued but in proportion to the production growth. (If it did not fulfill this requisite with moderation, this is, if it realized "inorganic" issues, money was devalued on the market producing inflation which reduced the monetary unit value).
Finally, recently, it was invented that money could be expressed without current support in existing economic assets on the market, being sufficient that the support was granting by the set of commitments of future payment assumed by the economic subjects that were receiving the money in the shape of loan or credit. The support consists, at present, only on believing that the debtors will pay the money issued expressly like credit.
It is so, today, money is expressed like debt, and this is done by private banks, companies, and even supermarkets and all business that express money on having accepted payments deferred in time.
This money, then, is endorsed exclusively by debts: this way, money "is" debt. Money support is not in current economic assets, but in production and future wealth. The issuing money bank – the private bank or commercial company that creates money in the moment that grants credit to its clients – can require that the client should guarantee the payment, for example, by means of mortgage of a real estate good which value is equivalent to the credit. But it can also grant credit without obtaining from the debtor a sufficient guarantee.
Is this last sense which explains the current financial crisis that originates in the prices bubble of real estate goods mortgaged like guarantee of credits, which have not kept their value.
Let's leave aside, for now, the fact that the Federal Reservation of the United States has been authorized to issue a lot of money (700.000.000.000 of dollars) endorsed by papers, bonds and other payment documents known do not have value, that are a defaulting, irrecoverable debt, almost without real value. This is, in facts, the last step in the process of money value loss.
What is tried by this "rescue" is that “markets” (or economic agents) recover the trust in banks and is avoided the fearful panic which reminds the big crisis of 1929.
Indeed, today they all speak about the financial system being based on trust, that money is sustained in trust, on credibility.
But this is just one part of the real money essence, as we have seen. Our analysis allows us to understand that the thing is very different, and that problem is much deeper, and that it affects the set of issued money, and not only the defaulting debts.
The substantial change that happens at money nature level, when it is issued based on debt and is endorses according to its future payments, derives from the fact that any debt implies a payment commitment for a major quantity of money than the received in loan. In effect, the interest must be paid. And as almost all the issued and circulating money has been issued against debt, inevitably happens that the entire total payment commitment is bigger than the total of circulating real money. By definition, the tickets put in circulation are not enough to amortize the credits and also pay the fixed interest. Like that, big part of the debt can never be paid.
This can only be supported in time through inflation (that dilutes the value of money in time) and based on the permanent increase of production, which allows to endorse a part of the interests to pay.
But inflation makes money lose its credibility and reliability. And the permanent growth would only be possible if the increase of debts (money created on the market) was proportional to the production increase.
The last above mentioned is what has trumped, in gigantic proportions, in the last decades. Through credit derivatives, contracts to future, etc., the entire total of debts has increased exponentially. Just one fact to illustrate it: the whole debts (money) current in the economy of the United States (included the public and private debts, the bonds, mortgages, public deficit, etc.) is at present 300 times the Gross Internal Product of USA. Three hundred times is too much to keep on trusting that money "costs". The support of created money as credit is a negligible portion of the value attributed to money.
Hence the current crisis, that undoubtedly, will be big. The credit is diminishing rapidly, because there is no confidence in that what is loan will be recovered. That's why, “cash” money, the legal currency tickets, acquire an enormous value. This big crisis will be very deep, and will last until a new monetary system is created: a new money type, which costs, which is endorsed, and causes confidence. That needs, in turn, a new political, institutional and juridical order.
Can a Keynesian politics serve to overcome the big current crisis?
Currently a renascence of Keynesianism is happening. Many people remember that the New Deal both in America and Europe produced decades of well-being: occupation and standard of living elevation of the population, together with the overcoming of the thirties big crisis. Such is today a very widely used belief, that also explains why almost everyone tend today to think that to get out from this crisis, Keynesian politics are needed: more State, more credit, more monetary emission, more regulations.
It is known that winners interpret history; but not for it the interpretation results scientifically rigorous and real. But Keynesianism beliefs spread and proclaimed during the last six decades of the last century need some important corrections:
1. The New Deal applied by Roosevelt between 1933 and 1937 (consisting basically on a big State interventionism on the market, and a consisting promotion of consumption by means of monetary issuing), far from saving the world from the big depression as is believed, in fact made the crisis to extend during a whole decade, practically in the whole world, until the beginning of the war.
2. The impressive economic apogee observed after the Second World War: is it explained through Keynesianism? The answer we can give from the Comprehensive Economic theory – that comprises the economic processes in its historical, political and cultural context - is negative. The so called Keynesianism was a cause of the notable distribution of wealth, which generated a more equitable market and in a way more democratic; but it was not an important cause for economic growth neither of wealth generation.
There is a fact of gigantic dimensions but remains quite secret for ideological reasons: war and war economy are at the origin of the impressive economic heyday of postwar period. In effect, war put the technological, social, institutional, political and demographic bases which explain the big impulse experienced by economy during the thirty following years.
They emphasize, in particular, the following 7 war impacts, each of them conditions of the later economic apogee:
a) The war generated impressive technological innovations (in the fields of energy, communications, maritime and terrestrial transport, aviation, engineering of civil works, industrial engineering, automation, electronics, the chemical industry, medicine, food production, etc.) that, later, applied in the production and civil economy, impelled the productive innovation and an incredible expansion of productivity.
b) It produced a big capital accumulation, concentrated to a great extent on the State hands, which allowed this to be a decisive actor in the industrialization, urban development, technology, education, health, etc. during the 30 years following the postwar period.
c) It gave place to a disciplined and efficient hard-working class, which was necessary for industrial development.
d) It allowed reaching a surprising social discipline, which facilitated the establishment of fundamental institutions for development.
e) It gave the State legitimacy to implement fiscal (high taxes) and distributive (welfare state) politics that allowed the State to stay as principal economic agent during decades.
f) It generated conditions for the mobilization of natural, social and demographic resources in view of important national projects achievement.
g) It established and consolidated an international market division (with extremely unequal exchange terms), which generated a systematical resources transference towards the United States and Europe, from Latin America, Asia, Africa and the whole rest of the world that remained in the underdevelopment (nevertheless there also were applied the Keynesian politics). To the previous mentioned it is necessary to add another determinant, which was not an effect of war but which affected significantly the economic growth during the second half of the last century: the impressive expansion of low cost energy availability, especially originated from the hydrocarbons.
3. This way - like immediate war effect and as an actor capable of making use of opportunities created during that one - the State could be and in fact it was, in developed countries, a big economic apogee promoter during the postwar period.
The Keynesianism was for thirty years the economic conception that accompanied the above mentioned economic apogee and its principal merit was making wealth to be distributed in a more equitable way in the society, through social policies and well-being. But irresponsible neo-Keynesian politics in the monetary field, an excess of state regulations, too high taxes, and a big social and political pressure for the State to be in charge of all collective need and/or corporate demand to reach certain fame, drove to the fact that in only 30 to 35 years, the economic impulse became weak, currency debased, and the crisis took place again at the end of the seventies and beginning of the eighties.
What is today left from the 7 apogee determinants of the postwar period? : Really, the State seems to have squandered them.
4. Keynesian politics cannot be useful to face the current crisis. That, in the short term, because they might not even have the limited positive effects that New Deal had in the thirties facing the crisis. In effect, if it was necessary to admit that in the conditions then, measurements applied by the New Deal were reasonable, today they are not anymore. Actually, the conditions in which the New Deal was applied were very different from the current ones. There was then a clear under consumption, today we come from a notable consumerism. Money was scarce, because of high money-market rates; today the monetary issuing abounds, with very low money-market rates during very long periods. It was leading the gold standard and convertibility in gold giving an excessive money support; today money is created “ex-nulla”, or "credit" is its only support. At that time saving was highly prized; currently and from long ago saving is punished by the inflation and low money-market rates.
As for medium and long term, we do not see the State as actor who could head the recovery and new economic apogee, because:
a) It does not seem capable of generating consistent technological innovation dynamics.
b) Far from having abundant piled up capital, most of the States experience high shortfalls.
c) It does not seem capable of disciplining and motivating the hard-working class in a big work effort with ends of national development.
d) The public institutions are debilitated, even often ethically corrupted, and are provided with scarce aptitude to make enthusiastic around national projects.
e) The over-exploitation of many natural resources puts limits (even cultural) to growth for its incidence in the environment and ecology.
f) The emergence of big societies that were plunged in under development puts limits on the easy resources transference towards advanced countries.
g) The low cost energy availability is seriously threatened.
None of these conditions which during the postwar period made possible for the State to rise like the development big agent can, today, be activated by means of a new warlike conflict. On the contrary, for reasons that it is not the case to exhibit in this occasion, from war it cannot today be waited but the acceleration of decomposition and the economic, social and cultural decline.
If it is like this: how will we be able to overcome this crisis? If it is not the Keynesianism: what other answer alternative can be formulated?
What other options and stages are currently possible?
In a first analysis and search of alternatives instance, appears a fundamental matter, on which depend many others, therefore it is convenient to refer to it in first place. It is the matter of geo-economic-politics "dimensions" of the new possible world arranging.
We can call the first option an "economic-political globalization”, which supposes advancing in the direction of an accented globalization, which could be evident in a series of processes between which would stand out:
a) The creation of a world single currency (substitute of the dollar, euro, yen and all national coins).
b) The establishment of an economic institution that fixes financial, commercial, fiscal, energy, environmental, labor, juridical and even military regulations, which should apply and be applied in all world nations (with the alone exclusion of those countries that supremely want to avoid the system and would remain political and economically isolated).
c) It is involved in this stage a dramatic reduction of the national States power, which among many other attributions it possesses currently, would lose the aptitude to put restrictions to free trade.
We can call the second option an "economic-political regionalization”, which would imply the emergence of three big economic regions that would compete between them for world markets control (and principal resources), and domain and/or international politics hegemony.
In this stage we can visualize the formation and consequent geographical confrontation between big regions, economic and politically formed, that would be North America , the European Union and an Asian Block.
Each of these potencies would have its own currency and financial system, would fix its own regulations, even of a strong protectionism of its markets and economic borders, and competing for the resources and markets of the areas that would probably remain without integrating the above mentioned regions, such as Latin America, Russia, the petroleum countries, etc.
A third option would be the prevail of nationalistic states, keeping national coins, the increase of protective politics, the increase of restrictions for free trade, the national State assuming increasing functions, and probably giving place to the rise of conflicts and wars between countries.
To formulate these three possible stages is in fact a minor intellectual exercise. Also is easy to imagine the three options will have their promoters and advertisers, so during a certain period of time we will see and will be able to continue the debate and confrontation between these three options. What is truly complex and that raises major intellectual challenges, can be differentiated in two aspects.
The first one is to foresee the course of events, to identify the actors (included the nations) that will put themselves in favor of every option, to visualize the relation of forces that will be evident between them, and to move forward the historical - political result of the confrontation (that will be, obviously, theoretical and practical).
The second one, certainly different from the previous one although the ideological thought tends to often confuse them, is to identify which of the special options is the best, or the most suitable and adapted in terms of overcoming the current crisis and reached a better future for humanity.
By which of these options, and with what other components, could be glimpsed an exit of this big crisis?
Before facing this question, let's turn the look on the magnitude and intensity of this big crisis. Since one speaks and writes too easily on “the overcome of the crisis”. It is announced that it will last two or three semesters, or one year, even some of them say than up to two whole years. The last one is the stage that describes it as a crisis in the shape of U, image with which is indicated that to the intensive fall will follow a relatively long depressive situation, after which inevitably will come the increase, for which one waits will be so accelerated as the fall. Nobody, in effect, doubts that from this crisis it is possible to leave, and that the economy will recover growth, returning to normality, and beginning a new cycle of expansion and growth.
It is thought and reasoned this way, because it is conceived that this crisis is one more among the cyclical crises the marked is used to experiment.
I do not believe it. When I support that this crisis will be prolonged, I do not think in two or three years, but in so many more needed so the conditions to overcome this crisis are fulfilled, to which I have referred in post previous and that we can sum up this way: A new international currency, a new financial order, a new institutional, juridical and political arranging of global dimensions, and a new culture that implies a deep transformation of the economic behaviors of subjects, groups and societies. This way, the crisis will be able to last three years, five years, ten years, twenty years, or more. More or less, depending on how long we will take to create these new conditions.
When I affirm this crisis will be deep, I do not think about one, two or up to three points (as the most pessimistic believe) of decrease, but in a widespread fall of production and consumption, even bigger, like the one that happened with the crisis of 1929-30, and whose effective overcoming started only at the end of the Second War. Obviously, in this judgment is contained a certain concept of crisis, which comprises the economic, social, political and cultural dimensions.
Let's see some facts.
First Fact: Only 4 months ago (middle of July, 2008) oil was reaching almost 150 dollars per barrel, and analysts were announcing it would quickly come to 200 dollars, and some of them were raising major numbers. Were the analysts wrong? Obviously, in a certain way, but it does not have major importance. The fact is that oil went so far as to cost 150 dollars, and “the market” announced the price would keep increasing rapidly. All this was accompanied by another two facts: a) A surprising diffusion of Hubbert´ s “peak oil” theory, according to which a catastrophe approaches as a result of no productive capacities nor oil reservations capable of supporting in time the current levels of production of this fundamental energy source. b) Governments of the whole world realized a coordinated campaign tending to reduce energy consumption and to look for alternative sources; a campaign that had scarce results.
Second Fact: By the time when oil price came to its historical maximum, began a brutal contraction of the available money in economy, which generated a "drought" of credit, not only to the consumption and real estate mortgages, but also to the biggest companies. The Stock exchanges indexes fall down between 40 and 70 % in all countries of the world. At the same time housings and main prime matters prices collapsed between 25 and 60 %
Third Fact: Central banks and governments everywhere go out simultaneously to the selective "rescue” of main banks and companies that become insolvent, avoiding they enter definitely on bankruptcy.
Is there any logic behind all this?
I have read many explanations given by analysts, with regard to each of these isolated considered facts. There is a different explanation for every fact. All, facts explain themselves by “the market”, affected by imbalances, that motivate speculative actions, panic, schizoids behaviors, anyway, extreme "volatile nature". Well, behind it, certainly, bubbles which get conceited and deflated. Is that everything?
With our Comprehensive Economic theory we try to understand the processes, applying a complex conceptual structure. We sum up the hypotheses to which we have come.
1. The certain market, currently is not working like an automatic mechanism that answers to decisions independent from subjects in competition. The certain market has a level of extreme concentration, and answers to a great extent to the decisions of few gigantic and very powerful big holdings, and is commanded and articulated by few ones and very certain big national and supranational public powers. (To understand each other, big investment funds, the Federal Reservation, the USA Treasure, the BCE, the G8, the IMF and few more).
2. There is, really, the most serious oil scarcity problem, which production does not manage to support the economy growth on a global scale, and whose availability (not exploited reservations) will not allow to support during the next decades not even the current production levels. (See and read carefully – even between the lines - the recent Report of World Energy Outlook in www.worldenergyoutlook.org). From this point of view, and until the energy problem is not solved with new discoveries, new technologies, new solutions, the world will turn out to be facing an inevitable economic contraction.
3. If the market was operating in free, spontaneous and automatic competition, the most probable stage would be catastrophic. But the certain market is controlled and commanded, as our hypothesis argues 1. And those who command the market, have decided to assume the double crisis problem (energy and financial) in its real magnitude, and avoid the catastrophe, imposing a deep and long economic depression.
4. What they have done to avoid the catastrophe can be synthesized in the following movements:
First, with oil at 150 dollars we were (they took us) at the abyss edge of a possible energy crisis. It makes us all understand, that the supported economic growth is not already possible.
Second, with the monetary contraction and the consequent inevitable depression, it is hoped to avoid the energy collapse (with a strong contraction of oil demand), but it puts us at the edge of another abyss, that of the global financial collapse. This way we understand that it will be necessary to adapt to an economy not only without growth but in depression, for a long time.
Third, with the "rescues", new regulations; big banks control and big auto motor companies, airlines and others, big powers are delivered at once to take control of the situation and so handle a very long and deep big crisis. We understand that under such commands a deep and long crisis would not be the worst alternative. This third moment will not be without conflict between a lot of big involved interests, but it will end up being established (with the predominance of some of the three stages that we exhibited in the previous point).
In the next years and perhaps during decades, we will live in economic depression, ranging between two much worse abysses: the abyss of the energy crisis and the abyss of the payments chain interruption. The advance for so narrow footpath will be dramatic, since to avoid falling down in the energy abyss it will be necessary to reduce the economic growth (production and consumption). But on having reduced growth, the functioning of the financial system becomes untenable, which can only operate with certain normality if there is production and consumption growth. This way we will walk along the narrow footpath of a long and deep crisis, between two catastrophic abysses: trying to avoid the first one we will glance the second one, and avoiding falling down in the second one we will glance the first one. We will support ourselves in the big crisis only if we manage to avoid falling down in any of the abysses.
In the assumption of which we avoid the abyss and catastrophe, we will be able to say that the big crisis overcoming has begun when we advance simultaneously in the construction of the following four conditions:
1. To have a new monetary and financial system, which does not need high production and consumption growth to support itself; supposes that money stops being created like credit, and that it recovers credibility and its five important functions.
2. To have a new energy counterfoil, environmentally sustainable.
3. A big intellectual and moral reform, which sustains a new way of life, a new economy, a new culture, faced towards the raising of a new civilization, more just and united.
4. The creation of a new institutional, juridical and political order, that gives stability and guarantees the three previous conditions permanence.
Academia Nacional de Ciencias Económicas de Venezuela (2006), Revista Nueva Economía, Año XV, N° 26, Diciembre 2006, Caracas.
Arango Jaramillo, Mario (1997), La Economia Solidaria. Una Alternativa económica y Social, Ediciones CORSEVA, Medellín.
Catan, Antonio David (org.) (2004), La Otra Economía, Fundación OSDE, Universidad Nacional General Sarmiento, Editorial Altamira, Buenos Aires.
Internacional Energy Agence (2008), World Energy Outlook 2008 Edition, OECD-IEA.
Razeto Migliaro, Luis (1994), Fundamentos de una Teoría Económica Comprensiva. Ediciones, PET, Santiago.
Idem (2001), Desarrollo, Transformación y Perfeccionamiento de la economía en el Tiempo , Ediciones Universidad Bolivariana, Santiago.
Luis Razeto M.
(Traducción de la versión en inglés de la Revista Polis, Nº 21)