Saturday, 12 July 2014

After Obama, What Next? - Part 4

Marx points out that all of the fictitious capital, such as that referred to in Part 3, adds not one iota of real value to the economy, and nothing to a country's wealth. In fact, its destruction is generally beneficial for real capital, and productive development. In 2008, the best thing that could have happened would have been to allow all of this fictitious capital to have been simply destroyed. Rational levels of share and property markets are probably around 10-20% of current levels, requiring prices to fall by around 80-90%. That is around the level they fell in Japan, around the level that the NASDAQ fell in 2000, and slightly more than the 60% falls in property markets in the US, Ireland and Spain after 2008. That would mean that land prices would fall to more reasonable levels, facilitating greater levels of demand and supply of houses, as I pointed out recently - Building More Houses Will Not Cure Britain's Housing Crisis . It would also mean that workers pension fund contributions would buy more shares at these lower prices, giving them a bigger share of the total share capital, and as lower share prices means higher yields, just as lower bond prices would also mean higher yields, so the income from these funds would be more able to meet future pension payments for workers.

But, that would also have meant most banks going bust. It would mean many shareholders losing most of the fictitious wealth they held in the form of these shares, and although this wealth is fictitious, it is very real for the individual, provided they can find some bigger fool to buy it from them at a higher price. As a result, it would have required that the state ensured that there was sufficient liquidity to enable commodity circulation continued, so that the minimum disruption to the real economy occurred. As I've suggested in the past - Sham Rocked – if the banks went bust, socialists would argue for them to be occupied by their workers, and transformed into co-ops, with depositors funds guaranteed by the state, and all of them merged into one worker-owned and controlled co-op bank. Incidentally, the demand I raised at that time, that the trades unions demand an opening of the books of the co-op bank and other mutuals, proved extremely prescient given the subsequent events at the Co-op Bank!

But, its precisely for this reason that neither the capitalist state nor conservative and social democratic governments would adopt this approach in the major economies. The nexus of political power, of financial capital, running into the state, political parties, and the media, as partly uncovered by Leveson, (and the same connections exist in the US), meant that it was always going to be the case that the banks were bailed out, and although a few bankers may lose their honours, they would keep their multi-million pound bonuses, pay-offs, and pensions, whilst the cost of their bail-outs was passed on to the workers. Sraid Marx On Anglo-Irish Bank Tapes

But, equally inevitable was it then that this would provide the ammunition for conservative forces to denounce state intervention to deal with the consequences of their own high debt policies of the last 30 years. In fact, the real problem of high levels of private sector debt, run up as a result of those policies, was largely swept under the carpet, or blamed on central bank intervention, in order to focus entirely on public sector debt, much of which had been run up, as the Sraid Marx post illustrates, to deal with the consequences of the financial crash!

The fact that the bail-out of the banks was undertaken mostly under Bush, was then quickly forgotten, as the Tea Party focussed its attention on Obama. The populist nature of the Tea Party and its appeal to the most ignorant and backward sections of US society, ensured that this opposition would draw in all sorts of lunatic elements, and grounds for opposition. So, the opposition to Obama had significant elements of racism to it, it drew in the conspiracy theorists, who claimed he was a Muslim (as though that should make any difference anyway) that he had not been born in the US (again as though that should make any difference anyway) and so on.

The fact that some of those who put forward this nonsense include very rich people like Donald Trump, and that the Tea Party is funded by people like the Koch brothers, does not invalidate the analysis of its class outlook and general composition, any more than the fact that members of the bourgeoisie like Marx and Engels committed themselves to the working class invalidates their class analysis.

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