Hey everyone, it’s Mexie, and welcome to the second promised video from the Twitter poll Debt, Deficits, & Austerity So, I’m going to start by throwing just a few completely oversimplified definitions at you So that we all *generally* understand what I mean by each of those terms In this discussion we’ll be talking a lot about private debt, which is debt accumulated by private persons, or private businesses Austerity, or neoliberal economics, follows the belief or the assumption that markets are at their most ‘efficient’ and ‘effective’ with minimal government intervention Policies in this vein include: reducing public spending on social services, shrinking the public sector in general, privatising government services or assets, deregulating trade barriers, and basically just liberalising the economy as much as possible. So we’re basically talking about Conservative economics or ‘responsible economics’- ‘fiscal responsibility’, is what we’re talking about here To libertarian or free-market economists budget deficits are liable to cause significant problems: However as we’ll see today in an economic downturn deficits play an important role in stabalising economic growth, and also in limiting the rise of unemployment. What we will also see is that the fallout of austerity politics, or neoliberal economics, is far worse. So, as we talked about before, and I won’t go too far into today, conventional economics, or mainstream neoclassical economics, is spectacularly ill-equipped to accurately describe how our economy operates, and even less equipped to predict future behaviour. The failure of conventional economics to predict crises is rooted in the belief or assumption that if we were to have a pure free-market system, then we would reach an optimised equilibrium of: full employment, perfect competition, and everyone operating to maximise their own utility, would create an overall system where people were just engaging in mutually beneficial transaction always. And la de da, isn’t it grand? As we’ve also talked about, but I could honestly talk about forever, and should be talked about forever, this is a fantasy that has never and can never exist. Rather then basing their analysis of the economy on the actual economy, or on the actual history of how Capitalism developed, as did the classical economists. The new classical economist whose vision largely makes the world of conventional economics, basically did a bunch of thought experiments about what a perfect system *would* look like. And then they characterised deviation from that perfect system as a disfunction or an aberration. To make their models work, they had to abstract so far from the real world. Which is probably an indication that you should just change the model that you’re working with. But no no, no, no. Let’s assume away anything that might challenge the model. This neoclassical or conventional economic vision was certainly not uncontested. We’ve talked in previous videos about the monthly review school. And today I’m going to be drawing a lot from Steve Keen, who draws from Keynes and Minsky; We’ll start with a brief discussion of the boom and bust cycles that Capitalism is just endlessly fluctuating between; and then we’ll take a look at the role of private debt in triggering crises; and the role of deficit in softening the blow of those crises. One of the major problems with the mainstream economic model is that they treat money, banks and debt as if they do not exist. Or as if they would have little to no bearing on the functioning of the economy Private debt, which is also ignored, we will see plays a major role in these boom and bust cycles. So this is from Steve Keen, and it might seem a little bit inaccessible, or complicated, but stick with me till the very end, I promise you, it will all come together. Even if you don’t understand every line that i’m saying, it’s ok. You’re gonna get the overall point if you just stick with me. So first, the boom. A period of tranquil growth thus leads to rising expectations, this leads to finance being given to projects that are doomed to fail, and banks accepting liability structures that they would normally reject. These investments accumulate losses during the boom, the demand for finance during the boom drives up interest rates; reducing the viability of otherwise conservative investments. Stock market participants might sell equities in response to this perceived excessive asset evaluation at the height of the boom. Thus triggering a collapsing credit. In a boom there’s also higher employment, and higher wages, and higher prices of commodity inputs. So these ultimately lead to lower profits then the Capitalists expected, which makes investment fall, the rate of growth of the economy fall. And the boom gives way to a slump. The slump turns euphoric expectations into depressed ones. And reverses the interest rate asset prices and income distribution dynamics that the boom set in motion. Demand falls, leading to rising unemployment, and climbing wages and material cost. Lower cash flows after the crisis means that debt servicing falls short of what was planned. A recovery from each slump thus leaves a residue of unpaid debt. Eventually the profit share of output returns to a level that once again sets off another period of euphoric expectations. And high debt financing investment. But this starts from a higher level of private debt relative to GDP then before. Importantly inequality rises every time as well. Because a higher share of the profit going to pay the bankers is offset by the lower share going to pay the workers, the actual labourers, or the material suppliers. So that the Capitalist share of profits fluctuates but remains relatively constant over time. So, rising inequality is not just a ‘bad thing’, or an ‘aberration in the system’, it is intrinsic to it, and is also a prelude to crisis. So this keeps going up and down, and up and down, and without bankruptcy, debt would just be compounded forever. Profits do not recover, investment terminates, and the economy absent, massive government spending, can fall into, and stay in a great depression. However, neoliberal economics, or austerity, encourages government to reduce their spending as much as possible. And we will see later that this is not a good move. For example, the 2008 crisis did not happen in Australia, the way that it did elsewhere, because they boosted government spending so that firms who would have gone bankrupt didn’t And they also provided a direct cash grant to taxpayers to increase household spending. This, of course, does not actually solve the contradictions of Capitalism, or get us out of these cycles. It merely postpones the crises and softens the blow of them as they’re happening. This is what David Harvey would call a ‘temporal fix’ for the contradictions of Capitalism. There are spacial or temporal ‘fixes’ for the contradictions of Capitalism, which of course can never actually be fixed. These things don’t actually fix the contradictions or crises of Capitalism We would need an entirely new system to do that. So these ‘fixes’ merely displace the crisis, either in space, or through time, into the future So, another great example is what happened in the UK. The great political triumph of the Conservative Party was to convince the voting public, the media, and even the Labour party, that the UK’s recession in 2008 was caused by the deficits run by the Labour government. It certainly was not, but rather then challenge this narrative, the Labour Government accepted it, and in the 2015 election they just repeated ad nauseam that they were going to ‘cut the deficit’ every year. Feel how you will about the Blair-Brown government, this is not to applaud them, but to merely say that it was not their fault, they were merely in office when the staggering trend of UK private debt broke down. If any politician deserves the blame for the 2008 recession, it’s Margaret Thatcher. Shortly after she entered office, the private dept to GDP ratio, which had shown no trend for the century before her, began to climb at 3x the rate that it was rising in the USA. Canda is one of the next places where this is slated to happen, and once again Trudeau has just come into power, and is committed to running deficits. I’m no fan of Trudeau, but it really does boil my blood to think that he and running deficits themselves are going to be blamed for the upcoming recession we’re going to face, and that people around me are going to just do what they always do when ‘one party’ disappoints them. [sarcastic voice] “Oh no! We must need the Conservatives back in power! This is why we need ‘fiscal responsibility’!” But austerity politics actually greatly contribute to producing these crises in the first place And they magnify inequality every time that it happens. As we’ve talked about many times before, this economic ideology decimates labour, makes work more and more precarious, it makes wages stagnate, it slashes vital social services that people need to live. The IMF has actually come out, finally, and admitted that austerity politics do more harm then good. They don’t work for people, or the planet, and they actually hinder growth because growing inequality reduces demand. Which is something that Marxist economists have been talking about, since time immemorial it feels like, honestly. And all of this is premised on the idea that we need to ‘get serious about the deficit’, ‘the deficit is the most important problem we are facing today, and that future generations are gonna be facing tomorrow’. Never mind climate change, never mind the ability to make a living wage. No no! It’s the deficit, that is our top priority! But this is all part and parcel of a Capitalist system. This is how it works. We are never going to solve the contradictions of Capitalism. We’re never going to escape these boom and bust cycles, while we are within this system. We can choose between cycling through endless ups and downs, that decimates labour, and decimates people’s ability to live. Or we can increase deficits, and postpone the crises into the future. But this is all ridiculous, it does not work! We need to burn these systems to the ground, and build something conscious, and compassionate, and forward thinking, into the future! So, I will link a number of resources below, I don’t want to make this video an hour long, it may already be an hour But I will end with a quote from Phil McDuff, who is talking about the way that neoliberal apologists, or, champions’ often use this whole deficit idea as an excuse to push their economic ideology. I would like to give a special thanks to my Patreons now, and a super special thanks to Ryan Hodgson. If you would like to support this channel you can become a monthly Patreon donor Or you can toss me a bit of change on PayPal.Me Check out my podcast at veganvanguardpodcast.com Check me out on Facebook and Twitter Like, Share, Comment and Subscribe, and I will see you in another video And I will see you in another video.