Wednesday, May 16, 2012

Repeating History



Tom Walkom writes this morning that the world economy is on the brink. As in 1931, international austerity has brought us to the tipping point:

Then, as now, the watchword among the major world economies was fiscal restraint. Government deficits were up in Canada, the United States and Europe. The overwhelming orthodoxy, then as now, was that these deficits had to be cut.

The second overwhelming orthodoxy of 1931 was adherence to the gold standard. In effect, gold was the world’s currency. Individual nations pegged their own domestic currencies to the precious metal at a fixed price.

To allow that price to vary was heresy. To exit the gold standard entirely was unthinkable.

This time around the gold standard has been replaced by the Euro. Canada, the United States and Britain control their own currencies. But the nations of Europe are caught in a straight jacket:

Eurozone countries like Spain and Greece cannot export their way out of recession by devaluation. They are stuck with the euro, a transnational currency that in terms of their economic needs is worth too much.

Even worse, they are being told they must slash wages and jobs if they wish to keep that common currency.
Understandably, the inhabitants of these hard-hit countries are loath to exit the security of the eurozone. But they are even more unwilling to pay the price of membership.

Something will have to give. As in 1931, what will almost certainly give is allegiance to an abstract monetary principle.

The questions are: What will happen when the Euro crashes and burns?  And what will happen if nations such as Canada insist that more austerity is in order?

Those who refuse to learn from history are doomed to repeat it.

8 comments:

Tossing Pebbles in the Stream said...

We are always told we should think that the latest economic orthodxy is the only way a country can organize it's economy. Economics is not heaven sent it is a human creation which can be worked out any number of ways.

The current orthodoxy of austerity is telling people the working class and poor must pay of the auterity. At the same time, the super rich are getting richer, even getting tax beaks. (One of the myths of the orthodoxy is that the super rich create job which justifies the tax breaks. Not true!) People, now in revolt, are say they will not pay to protect the rich and super rich. People would accept suffering longer if it was more widely shared. It is time the rich paid for the debt at a level that they would find painful. Why shouldn't they? They have benefited the most when times were good. They made profits on the backs of workers, now that times are bad, they should pay more and help protect those who laboured so long for their benefit.

I remember the conversations of forgiving the debt of African countires so deep in debt they could not get out. Why not forgiving some or all of the debt of Greece, Spain, Italy etc. as the way of saving the Euro??

The money being lent to Greece does not help the Greek economy, it all goes to pay back the current banks, and adds to the overall Greek indebtness. Austerity will not solves this downward spiral.

Owen Gray said...

More austerity will not solve the problem, Philip. But the key players think it will.

And unless -- and until -- they change their minds, they will simply repeat the mistakes of the past.

kirbycairo said...

They will repeat the mistakes of the past . . . . unless, of course, they are not mistakes but an intentional effort to impoverish Western nations in order to further intrench the wealth and power of the few.

Owen Gray said...

I suspect that the second alternative is really what's going on, Kirby.

However, history teaches that concentrating wealth and power in the hands of a few is ultimately self destructive.

Don't expect the wealthy to learn that lesson, though. They never do.

ck said...

I always wondered how lowering the mnimum wage would help a government economy problem. Most of those jobs are in the private sector as opposed to the public. Lowering the minimum wage, if anything, lowers tax revenues and a worker's buying power. If no one is shopping, how does that help the economy? It doesn't. So it's all bunk.

I remember watching this professor from the US talk on a video from Real News. He said this is all about a gang of elites who simply believe the working class have too much power. They want to curtail that. These moves are all about making the workng class desperate, so they won't get tooo uppity.

We've heard it here in Canada not long ago. Jason Kenney defending the foreign workers hirings by saying that Canadians should learn to work for less. Most of these foreign workers, as far as I know, are seasonal migrants from Central America who come in the summer to help on farms; probably paid less than the legal set minimum wage.

Now, we hear about a draconian law from Flaherty and Finley regarding EI. Basically suggesting that Canadians must be not only open to taking just any job at all, but to be open to moving. Futhermore, they say they will define what is a 'suitable job'. Frightening indeed. Kinda hints at clawing back labour laws.

Lisa Raitt said awhie back she wants to rewrite the labour code. I never believed that was simply to neuter unions. I also believed she meant to claw back labour standards for all--unionized and non-unionized. After all, once the unions are gone, who to go after next? Why non-unionized labour, naturally. We're seeing hints of that today.

Owen Gray said...

When Mike Harris came to Queen's Park, ck, one of the first things he did was to change the Ontario Labour Standards Act.

Originally, that act declared that, if a someone worked over 48 hours in a week, he or she had to be paid overtime.

Harris changed the threshold to 60 hours per week, averaged over three weeks.

Harris was clearly in management's pocket. And, remember, Flaherty, Clement and Baird were part of that crew.

These guys have a record; and it's a disgrace.

Beijing York said...

CK asked, If no one is shopping, how does that help the economy?

The Harper Regime doesn't care about protecting and promoting the manufacturing sector that provides goods for a fairly affluent society. They will continue to encourage free flight of capital.

The wealthiest will be able to afford to shop freely for retail services staffed by low wage workers as well as purchase imported luxury goods.

Meanwhile, the Giant Tiger, Walmart and Bargain Bargain stores will continue to expand to provide cheap goods to the poor. Plus the financial institutions will probably flog all sorts new insurance plans to offset these new insecurities with the destruction of fixed pension, EI and universal health care.

Harper was certainly sincere when he said we wouldn't recognize this country once he was through with it.

Owen Gray said...

The whole problem with the Conservative economic program is that when wealth is sucked to the top of the economic ladder, the ladder collapses at the bottom -- just as ck says.

It should be crystal clear, Bejing, whose interests the Harper government is serving.

That's why the notion that Harper heads a "majority" government is a grotesque fiction.