Socialism and Errors

A tentative thesis: 

The Soviet Union towards the end of  WWII made a mistake similar to the one the Paris Communards made who did not raid the Paris central bank (as Marx thought would have been sensible to pay their soldiers, etc), they did not invade Switzerland and confiscate the ill gotten stashes of the European bourgeoisie who evaded the affects of the carnage and continued to play the stock markets. Instead they acted, post war, in an increasingly imperialist fashion, emulating the bourgeois countries, imposing socialism and giving it, therefore, a bad name across Europe. Why leave Switzerland, the bank of the European bourgeoisie and one big bankroller of the Nazis, untouched? It is unfathomable if you are a communist to grasp why any communist would do this. The centre of European capitalism was, and remains, Switzerland. The answer to this question is key.

We are now living, therefore, in the aftermath of a kind of socialist funk, the result of a lack of resolution and theoretical understanding of Marxism. This is why Greece is so fascinating as a case in the crisis. The Cold War policies that made the Allies turn on the local communists who had bravely fought the Nazis meant Greece was facing years of rightist corruption and money lending to support an unpopular capitalism, it led to the reign of the Generals, and then to the joining of the Eurozone and now Greece’s massive debt crisis, all of it still being fuelled by debt.

Democracy and Law

If you have just laws, you have no overwhelming need for elections, the laws and accountability through these laws (i.e. constitutional and general law including employment law) can form the essence of democracy and protect the citizen and provide for an accountable system of government; elections are in contrast something of a lottery, and they can rarely provide a result that really represents the majority interests, although it always holds this promise out to the electors. The law is something that is crafted over time by society to, ostensibly, provide social justice; it is in this sense science at the level of politics. But this science meets with the anti science of current economics, the science that wishes to ignore science and opt for chance; the anarchy of the markets, it sees order and the idea of a 'command economy', an economy guided by humans, to be the enemy. It therefore likes lotteries. Here therefore it has met the rigors of the class struggle. The struggle for just law sits alongside the struggle for more authentic democracy, it is the bedrock of the move to greater accountability.

The fact is that the law in current advanced capitalist societies has failed to represent the majority, and electoral democracy has also failed to defend their interests, and this is the major problem of our times, we have seen protests ranging from Brazil to Egypt via Turkey and Greece. This is a problem that cannot be solved by more and more elections with the same arrangements (as in Egypt is being tried, but at least the recent elections are over a constitution). Certainly, less corruption and more genuine accountability is always to be welcomed if it is at all possible or credible by election, but can this be achieved within most of the present corrupt parliamentary systems in Europe? Specifically Greece, Spain, Italy, the UK, or within the EU state apparatus that sits atop them, there is a democratic deficit.

The law in capitalism supports capitalism, this is obvious, which means it supports a system of wages and exploitation and the anarchy of the markets. Lately this system has bailed out massive corporations and banks, but called for austerity for workers, who are also intended to pay for these bail outs in their taxes. This is patently unjust, but there is no law that can really intervene; at best more obvious fraud may be tackled with ineffective fines and in a very few cases imprisonment of individuals (e.g. Madoff). So the problem of current democracy, even if it was at its best and most representative and accountable, always hits the wall of law which defends capital against its critics. The structures of exploitation are legal, so to abolish them would therefore be illegal, unless the law is changed. Can the law be changed by the elected lawmakers in parliament?

Superficially this is the role of the executive power, but we can readily see that no party or representative is so radical as to suggest the abolition of the employment laws that allow for exploitation, on the contrary, we even, since the onset of the crisis, have witnessed a return to near slavery with the expansion of zero hours contracts in the UK and 'mini-jobs' in Germany. Precarious kinds of labor are rife these days. Electoral democracy has stagnated not because it has the possibility of ever actually functioning perfectly but has merely lately slipped into bad ways, but because we have reached its political limits within the capitalist economy and the laws that maintain it and it maintains. This has been shown to us by the crisis. The crisis has revealed the truth of electoral representative democracy, that it has limits of representation, and so is limited democracy, limited by law and by economics, There will be calls, against this, for a new constitutive power, new law, and new kinds of democracy; we have seen the start of these with the Occupy type movements. But many of these calls avoid looking at the issue of class, and therefore tend to ignore the necessary role of the majority working class in protests, which is likely to lead to fragmentation. Recently more working class protest has broken out in Burgos, Spain, which have so far been successful and have not been shy of this dimension.

Gary Tedman

The Class Struggles in Southern Europe (2)

Euro-area finance ministers approved the payout of 49.1 billion euros ($64 billion) of loans through March and committed to “additional measures” in case Greece’s debt reduction veers off track.
While another cut in bailout-loan rates and an increase in infrastructure funding would top the list of extra measures, the policy makers hinted that outright debt relief -- still a taboo topic in creditor countries led by Germany -- would be on the table as well.
http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_13/12/2012_474302

The failure of the bond buy out target was waived very quickly, you might say they stopped short at appearing to bend over backwards to lend Greece more money, but that's all. And they still argue that Syriza (the radical left Greek party that advocates strong negotiation) would not have (had) any leverage!

From, for instance, Merkel's recent position on Greece as well as banking supervision, you can see that she does not act chiefly for her own nation as a whole but also and predominantly for her class as a cosmopolitan European entity. This is why Greece gets the bail out despite failing (and once again defaulting) to meet the criteria of the bond buy back, and why Merkel must sell the idea that Germany will not mutualise debt to her own ordinary citizens, while making sure that this is a future possibility. Each other bourgeois leader does similar, more-or-less, and is involved in the political charade.

So what does this mean for a future Europe?

While it shows that there can be compromises between the national interests, these interests are only compromised by trading with and often away the rights and interests of the lower classes (especially in the crisis), namely the general European working class. Where their own national bourgeois interests outweigh their general interest, national interests tend to win out, but this depends on the relative national power of the competing nation too. Germany is the biggest European economic power and can therefore better defend its own national interests while also ensure its cosmopolitan elite profits from the European project too. Notwithstanding, the national interest does not always coincide with the interests of the ruling national class, which is easier to see in Greece than in Germany of course, but is also just as true in Germany.

The big problem is the reality that is the present economic crisis. The progress of the crisis has been relentless, and the politics has run kind of parallel to it in a way that is consistently only really self interested, so it uses the crisis as a means to implement measures that the European ruling classes desired anyway, it is an opportunity for it, and it takes its opportunities like any opportunist would. But in doing so it tends to ignore the reality of the crisis or give to it only a passing nod of attention. So we have two paths that, in fits and starts, are diverging. The first path is the apparent political route to financial harmonization and federalism in the Eurozone, backed up by humanist rhetorical flourishes such as the recent Nobel Prize awarded (to the EU, or to itself you might say) for 'creating peace in Europe'. As well as proving a negative this piece of ridiculous hubris is set against a reality of harsh austerity measures deriving from its neoliberal policies which have generated poverty and some extreme reactions such as the rise of fascism in Greece and extreme rightist policies in Spain.

This clash of opposites has not yet become so sharp as to be able to puncture the smug pomposity of the Eurozone apparatchiks or the club of political leaders, who only see a slow and steady progress to something ill defined that could possibly be a federal social democratic Europe, but which looks like at the moment a vehicle for the richest nations to better exploit the poor of the poorest 'peripheral' nations at the behest of their lesser endowed bourgeoisie. Yet the problem of the economic crisis is not resolved either by the austerity or the manifold agreements to unify, at some stage, Europe. In actual fact the problems are exacerbated by these, at best partial illusions under the influence of which both the club of national leaders and Euro apparatchiks can drift into the self satisfaction that they have 'acted' and so at least absolved themselves from further responsibility. That in, say, Greece people are suffering, with a lack of a social safety net, from the effects of the crisis and the failure of their policies, can be set aside as something that exists as if in another dimension which cannot impinge on theirs. Of course, the contours of this partition between the two dimensions has, as well as ideological illusions, also some real aesthetic accoutrements, the repressive state apparatus that in the end enforces the will of the state by violence, the riot cops and suchlike.

The central core of the Eurozone ideology sees itself as a hero of peaceful diplomacy and soft power (to use an appropriate phrase from Saif's LSE doctoral thesis) belonging to its humanist-humanitarian ideals, which are in fact stressed in the European Charter, but just as this document is being trampled underfoot in the rush to austerity for the workers, the reality is one of implementing by increasingly authoritarian means anti-social and anti democratic policies. It is not that the European peoples have failed to notice this disparity, they have protested vigorously as we all know; the problem is what to do about it beyond mere protest. While, say, Egyptians are strenuously trying to get a democratic government at least as democratic as exists in a few nations central to Europe, European peoples are protesting against secular democratic governments and systems that have been achieved after similar long historical struggles. These governments and their democracies still appear to be advanced; they still appear to represent the people, and to belong to the people. This is democracy, how can they attack democracy without seeming to want despotism? So protests tend to flounder on the rocks of democracy itself, and/or the question of democracy begins to loom: what is it exactly? Why are we apparently failed by this system, yet we have the vote? Have we really voted to represent us these fools who have squandered money and got into enormous debt just because we, like them, became greedy? The poor became greedy!! The people are told this is how it was, that it was their choice and so also their fault as well as the fault of democracy (and its baggage of 'entitlements', the sense of entitlement, and the dignity that goes with that) itself that the crisis led to such huge debts. There is little room left here for a critique of democracy. The bourgeoisie say it is democracy or fascism, you choose one or the other, and the people do not want fascism, so it is democracy, this democracy. The question as to whether this democracy was ever truly representative is not to be discussed, it is a taboo subject. For on this assumption, that we have such a choice, rests the whole underlying bourgeois media story of ordinary folk being to blame for the crisis.

It is not the end of the matter though, again because the crisis is just too big and too deep. It has its own reality that will trump the measures and the illusions both. At some future point we can expect the opposition between the reality and the rhetoric of power to become too sharp. Even if, for instance, a federal states of Europe becomes increasingly a genuine possibility, long before this can happen the crisis will be also visiting Germany, and with that the problem of sharing the debt, as federal partners, or not. Indeed this crisis is likely to be both the motivation for federalism as a solution to the crisis and at the same time the reason why its biggest apparent exponent does not want it to be the solution. In the process we can expect that the debts will be smuggled and dispersed even more onto the shoulders of the European working classes, but as the consequences of austerity approaches the core, so too will the protests that follow it. The European project may not be about to fail formally, but it has in fact failed as a form of social democracy, the ideals of a harmonious Europe have been shattered and left behind and what we face is not necessarily a de facto break up of the Eurozone but its repressive iron fist poking out of threadbare holes in the soft glove in order to hold it together. That it may or may not break up is therefore a merely academic question, European nations are not about to sail away from Europe, but in actual fact what has been lost is already the most important part of it, you might say, its heart. It will be the task of the European workers to start it beating again, even though it was mostly fictitious in the first place, only they can give real heart to the heart of Europe.

by Gary Tedman

Neoliberalism, Marx and the 'Marginal Revolution'

Neoliberalism is a contemporary form of economic liberalism that emphasizes the efficiency of private enterprise, liberalized 'free' trade and open markets to promote globalization (a term which might also be interpreted as neo-imperialism). Neoliberals therefore seek to maximize the role of the 'private sector' in determining the political and economic priorities of the world. Neoliberalism seeks to transfer control of the economy from 'public sector' (or state) to the 'private sector' under the belief that it will produce a more efficient government and improve the economy.

The definitive statement of the concrete policies advocated by neoliberalism is often taken to be John Williamson's 'Washington Consensus', - a list of policy proposals that appeared to have gained consensus approval among the Washington-based international economic organizations such as the International Monetary Fund (IMF) and World Bank. Though apparently not Williamson's original intent, the Washington Consensus has anyway become synonymous with the ideas of neoliberal market fundamentalism.

Some claim that Chicago School economists are associated with Washington Consensus The 'Chicago school' of economics describes the neoclassical school of thought within the academic community of economists focusing around the faculty of The University of Chicago, sometimes referred to as the 'freshwater school' of economics in contrast to the 'saltwater school' based in US coastal universities, notably Harvard, MIT, and Berkeley; Chicago is considered one of the world's foremost economics departments; Milton Friedman taught there for more than three decades. A significant body of economists and policy-makers argues that what was wrong with the Washington Consensus as originally formulated by Williamson had less to do with what was included than with what was missing in it, arguing that it was an incomplete project, and that countries in Latin America and elsewhere need to move beyond 'first generation' macroeconomic and trade reforms to a stronger focus on productivity-boosting reforms and direct programs to support the poor.

How did we get to this point in economic science?

'Classical economics' is the term used for the first modern school of economics. The publication of Adam Smith's Wealth of Nations in 1776 is considered to be the birth of the school. Perhaps the central idea behind it is on the ability of the market to be self-correcting as well as being the most superior institution in allocating resources. The implicit assumption is: that all individuals maximize their economic activity. At the root of Smith's modernity, though, is his and Marx's philosophical attitude towards the object of their enquiry and the way this grasped the concept, crucial to economic theory, of value.

The so-called 'paradox of value', or the diamond–water paradox, is the apparent contradiction that, although water is more useful in terms of human survival than diamonds, diamonds command a higher price in the market; Adam Smith is the classic presenter of this paradox. To paraphrase Smith: the one may be called 'value in use' and the other, 'value in exchange', the things which have the greatest value in use often have little or no value in exchange; on the contrary, those which have the greatest value in exchange have frequently little or no value in use; nothing is more useful than water, for example, but it will purchase almost nothing; almost nothing can be gained in exchange for it, whilst a diamond has scarce any use-value; but a very great quantity of other goods may frequently be had in exchange for it. For Smith, the real price of every thing, what every thing really costs to the person who wishes to acquire it, is the toil of acquiring and making it, so Smith thereby denied a necessary relationship between price and utility, and price in this view was related to productive labor. In this he was followed by Marx. Advocates of the labor theory of value saw it as the philosophically materialist resolution of the paradox of value.

The so-called 'marginal revolution' which is based on the subjective theory of value, that is understood to have occurred in Europe, led by Carl Menger, William Stanley Jevons, and Leon Walras, gave rise to what is known as the neo-classical synthesis. As we have seen, Marx had developed and used the materialist concept of use-value versus exchange value. Use-value was classically understood to give some measure of objective material usefulness. This was later 'rebranded' in the 'marginal revolution' as 'marginal benefit', which is understood as the utility of a thing counted in terms of 'common units of value', while exchange value is given as the measure of how much one good was priced in terms of another, namely what is now called relative price. The subjective theory of value identifies value as based in the inner desires and needs of the members of a society, as opposed to value being inherent to an object that exists independently of any observer or user. Once this idealist epistemology is taken as the given grounds, it is able to refer to the units of value as subjective units. Today, the marginal utility of a good or service is seen as the utility gained (or lost) from an increase (or decrease) in the consumption of that good or service, so it is the action of subjective consumption that defines the value not the objective existence of the object. Economists therefore sometimes speak of a law of diminishing marginal utility, meaning that the first unit of consumption of a good or service yields more utility than the second and subsequent units.

The concept of marginal utility played a defining conceptual role in the (so-called) marginal revolution of the late 19th century that led to the replacement of the labor theory of value of Adam Smith and Karl Marx by neoclassical value theory in which the relative prices of goods and services are thought to be simultaneously determined by marginal rates of substitution in consumption and marginal rates of transformation in production, which are apparently equal in 'economic equilibrium'. This neo-classical formulation had also been formalized by Alfred Marshall. However, it was the concept of the general equilibrium of Walras that helped solidify the research in economic science as a mathematical and deductive enterprise, the essence of which is still defined as neo-classical and makes up what is currently found in mainstream economics textbooks today. The key implication is usually that what is new (revolutionary) here is the scientific rigor, i.e. that Marx specifically is not supposed to have. In actual fact this rigor is precisely what is missing in this fudge and mystification of use value and exchange value through the concept of the marginal, which serves to obscure its idealist philosophical roots.

Macroeconomics in its modern form began with the publication of John Maynard Keynes's General Theory of Employment, Interest and Money in 1936. Keynes projected an aggregated framework to explain macroeconomic behavior, leading us to the current distinction between micro and macroeconomics. According to Keynesian theory, some individually-rational microeconomic-level actions—if taken collectively by a large proportion of individuals and firms—can lead to inefficient amassed macroeconomic outcomes, wherein the economy operates below its potential output and growth rate. Such a situation had previously been referred to by classical economists as a general glut, which in Marx is described as overproduction. Keynesian economics argues that private sector decisions sometimes lead to these inefficient macroeconomic outcomes and, therefore, advocates interventionist policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the 'business cycle'. Of special importance in Keynes' theories was his explanation of economic behavior as also being led by 'animal spirits'. In this sense, it limited the role for the so-called rational (maximizing) agent. In fact, this foundational ideology of a division of the rational ('angelic') and the irrational ('bestial') in the human subject seems to underpin the whole of modern post Smithian-Marxian economics, as well as the accepted division of macro from microeconomic theory. It avoids confronting the concept and existence of contradiction in the economic system by founding any antagonism ultimately in innate human attributes; although this underlying thesis is rarely invoked as such (it could sound racist), it is nevertheless always implied.

The neo-classical school dominated the field up until the event of the Great Depression. When the Great Depression struck, classical economists (other than Marx), had difficulty explaining how goods could go unsold and workers could be left unemployed, thus with Keynes's publication, certain of its assumptions were rejected. Keynes argued the solution to the Great Depression was to stimulate the economy ('inducement to invest') through a combination of two approaches: a reduction in interest rates and government investment in infrastructure; the theory has it that investment by government injects income, which results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so on and so forth. The initial stimulation is seen as beginning a concatenation of events, whose total increase in economic activity is a multiple of the original investment; it does not explain why the situation arises in the first place, i.e. why the investments that have taken place always/already in the economy are not producing this effect, or the answer is left simply as a fault of policy. The Post-World War II period saw the widespread implementation of Keynesian economic policy in the United States and Western European countries. Its dominance in the field by the 1970s was best reflected by the controversial statement attributed to ex-President Richard Nixon and economist Milton Friedman: "We are all Keynesians now."

A central conclusion of Keynesian economics is that, in some situations, no strong automatic mechanism moves output and employment towards full employment levels. This conclusion conflicts with economic approaches that assume a strong general tendency towards 'equilibrium'. In the 'neoclassical synthesis', which combines Keynesian macro concepts with a micro foundation, the conditions of general equilibrium allow for price adjustment to eventually achieve this goal. General equilibrium theory seeks to explain the behavior of supply, demand, and prices in a whole economy with several or many interacting markets, by seeking to prove that a set of prices exists that will result in an overall equilibrium. What here seems to have been omitted is the political as such, politics is subordinated to a technical and instrumental understanding of the problem, and (for instance) an effect, prices, are treated as a cause, or as both cause and effect of its own function. Generally speaking any material foundations or groundings are lost.

With microeconomics, macroeconomics is now one of the two most general fields in economics; the fact that macroeconomics is 'smaller' than economics seems to render the terms faintly ridiculous, notwithstanding. Macroeconomics (from Greek prefix "makros-" meaning "large" + "economics") is the branch of modern economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy. Macroeconomists study aggregated indicators such as GDP, unemployment rates, and price indices to understand how the whole economy functions. They develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflation, savings, investment, international trade and international finance. In contrast, microeconomics is primarily focused on the actions of individual agents, such as firms and consumers, and how their behavior 'determines' prices and quantities in specific markets.

New classical macroeconomics, sometimes simply called new classical economics, is a school of thought in macroeconomics that builds its analysis on the neoclassical framework; specifically, it emphasizes the importance of supposedly rigorous foundations based on microeconomics. Macroeconomics descended from the hitherto divided fields of business cycle theory and monetary theory. The quantity theory of money was particularly influential prior to World War II. It took many forms including the version based on the work of Irving Fisher. His work on the quantity theory of money inaugurated the school of economic thought known as monetarism. Both Milton Friedman and James Tobin called Fisher "the greatest economist the United States has ever produced." New classical macroeconomics strives to provide neoclassical microeconomic foundations for macroeconomic analysis; this is in contrast with its rival, the new Keynesian school that uses microfoundations such as 'price stickiness' and imperfect competition to generate macroeconomic models similar to earlier, Keynesian ones.

Problems arose in the Keynesian theory in the 1970s and early 1980s with the onset of 'stagflation'. Stagflation is a situation in which the inflation rate is high and the economic growth rate slows down but unemployment also remains high. The reasons for this were and are often placed upon factors such as oil. The decade of the 1970s saw rising oil prices caused by an OPEC oil embargo on the United States. This oil embargo ostensibly caused both high inflation and a steep economic downturn that in turn generated high unemployment. However, the question arises: what caused the high oil prices in the first place? Is the price of oil an extra economic factor, or totally political? And what was the politics based on which here apparently 'caused' the higher price of oil, if not economic factors? Keynesians were perplexed by the outbreak of stagflation because the original concept of the Phillips curve ruled out concurrent high inflation and high unemployment. The Phillips curve is a historical apparent inverse relationship between the rate of unemployment and the rate of inflation in an economy. Put simply, the lower the unemployment in an economy, the higher the rate of inflation should be. The new classical school emerged in the 1970s as a response to this failure of Keynesian economics to explain stagflation.

During the 1970s in the United States and several other industrialized countries, the Phillips curve concept and analysis became less popular. The new classical and monetarist criticisms led by Robert Lucas, Jr. and Milton Friedman respectively forced the rethinking of Keynesian economics. In particular, Lucas made the 'Lucas critique' that cast doubt on the Keynesian model. The Lucas critique suggested that if we want to predict the effect of a policy experiment, we should model the 'deep parameters' that govern individual behavior, because only such deep models can avoid merely aggregating previous policy; only then can we predict what individuals will do, taking into account the change in policy, and then aggregate the individual decisions to calculate the macroeconomic effects of the policy change. His idea of deep, though, only meant relating to preferences, technology and resource constraints and not a deeper theoretical model in the sense of its philosophical foundations (such as the theory of value). This nevertheless strengthened the case for macro models to be based on microeconomics.

Milton Friedman (July 31, 1912 - November 16, 2006) had already proposed before the phenomenon of stagflation that the Phillips curve did not exist and would fail. On this basis he theorized the existence of a 'natural rate of unemployment' that contradicted the then accepted relationship between inflation and unemployment rate, and this became a concept fundamental to monetarist economics, on which also worked Lucas Papademos (who was to become the 'technocratic' prime minister of Greece during the 2011-12 years of the crisis,; in January 2012 he warned that workers would have to accept cuts in income for a default to be avoided, he also told business and labor leaders that the 'troika'—the European Union, the IMF and the European Central Bank—was looking for Greece to take steps to open up so-called closed professions, as well as adjustments to the minimum wage, abolition of Christmas and summer vacation 'bonuses' and automatic wage increases) and Franco Modigliani. As far as many economists were concerned, the Phillips curve had little or no theoretical basis anyway. Critics like Friedman argued that the Phillips curve could not be a fundamental characteristic of economic general equilibrium because it showed a correlation between a real economic variable (the unemployment rate) and an only nominal economic variable (the inflation rate). Their counter-analysis was that government macroeconomic policy (primarily monetary policy) was being driven by a low unemployment target and that this caused expectations of inflation to change, so that steadily accelerating inflation rather than reduced unemployment was the result.

In economics, 'adaptive' expectations means that people form their expectations about what will happen in the future based on what has happened in the past. For example, if inflation has been higher than expected in the past, people would revise their expectations for the future. Chicago macroeconomic theory, as above rejected Keynesianism in favor of monetarism until the mid-1970s, when it turned to new classical macroeconomics based on the concept of rational expectations. Rational expectations is a hypothesis in economics which holds that agents' predictions of the future value of economically relevant variables are not systematically wrong in that all errors are random. Equivalently, this is to say that agents' expectations equal true statistical expected values. An alternative formulation is that rational expectations are model-consistent expectations, in that the agents inside the model assume the model's predictions are valid. Since most macroeconomic models today study decisions over many periods, the expectations of workers, consumers and firms about future economic conditions are an essential part of the model. How to model these expectations has long been controversial, and it is well known that the macroeconomic predictions of the model may differ depending on the assumptions made about expectations (e.g. see Cobweb model).

To assume rational expectations in this view is to assume that agents' expectations may be individually wrong, but are correct on average. In other words, although the future is not fully predictable, agents' expectations are assumed not to be systematically biased and use all relevant information in forming expectations of economic variables. This way of modeling expectations was originally proposed by John F. Muth (1961) and later became influential when it was used by Robert E. Lucas Jr. and others. Modeling expectations is crucial to all models which study how a large number of individuals, firms and organizations make choices under uncertainty. For example, negotiations between workers and firms will be influenced by the expected level of inflation, and the value of a share of stock is dependent on the expected future income from that stock.

Rational expectations theory is the basis for the 'efficient market hypothesis' (efficient market theory). If a security's price does not reflect all the information about it, then there exist 'unexploited profit opportunities': someone can buy (or sell) the security to make a profit, thus driving the price toward equilibrium. In the strongest versions of these theories, where all profit opportunities have been exploited, all prices in financial markets are deemed 'correct' and reflect market fundamentals (such as future streams of profits and dividends). Each financial investment is as good as any other, while a security's price reflects all information about its intrinsic value.

The idea behind the natural rate hypothesis put forward by Friedman was that any given labor market structure must involve a certain amount of unemployment, including 'frictional' unemployment associated with individuals changing jobs and possibly classical unemployment described as arising from real wages being held above the market-clearing level by minimum wage laws, trade unions or other labor market institutions. Unexpected inflation might allow unemployment to fall below the 'natural rate' by temporarily depressing real wages, but this effect would dissipate once the expectations about inflation were corrected. Only with continuously accelerating inflation could rates of unemployment below the 'natural rate' be maintained. The resulting prescription was that government economic policy (or at least monetary policy) should not be influenced by any level of unemployment below a critical level, the so-called 'natural rate'.

The analysis supporting the natural rate hypothesis proved controversial, because empirical evidence suggested that the 'natural rate' varied over time in ways that could not easily be explained by changes in labor market structures. And the analysis is especially problematic if the Phillips curve displays 'hysteresis', that is, if episodes of high unemployment raise the rate. This could happen, for example, if unemployed workers lose skills so that employers prefer to bid up of the wages of existing workers when demand increases, rather than hiring the unemployed. As a result of such problems the 'natural rate' terminology was largely dropped in favor of the NAIRU (Non-Accelerating Inflation Rate of Unemployment) , which referred to a rate of unemployment below which inflation would accelerate, but did not imply a commitment to any particular theoretical explanation, or a prediction that the rate would be stable over time. In short, the conceptual basis of the concept was left fallow, undecided, and ambiguous. There is no theoretical basis for predicting the NAIRU. The NAIRU theory was mainly intended as an argument against active Keynesian demand management and in favor of free markets (at least on the macroeconomic level).

Friedman was an economic advisor to conservative President Ronald Reagan, and his political philosophy extolled the virtues of a free market economic system with minimal intervention. In his 1962 book Capitalism and Freedom, he advocated policies such as a volunteer military, freely floating exchange rates, abolition of medical licenses, a negative income tax, and education vouchers. His ideas concerning monetary policy, taxation, privatization and deregulation influenced government policies, especially during the 1980s, and his monetary theory influenced the Federal Reserve's response to the current global financial crisis (2008-12). The advent of the global financial crisis in 2008 caused some resurgence in Keynesian thought and the Chicago school came under attack and has been at least partly blamed for the growing income inequality in the United States. Economist Brad DeLong of the University of California, Berkeley for instance says the Chicago School has experienced an 'intellectual collapse', while Nobel laureate Paul Krugman of Princeton University, said that recent comments from Chicago school economists were "the product of a Dark Age of macroeconomics in which hard-won knowledge has been forgotten." Critics also charged that the school's belief in human rationality contributed to bubbles such as seen in the financial crisis, and that the school's trust in markets to self-regulate has offered no aid to the economy in the wake of the crisis. The 'new Keynesian' view of the backlash rests on microeconomic models that indicate that nominal wages and prices are 'sticky', i.e. do not change easily or quickly with changes in supply and demand, so that quantity adjustment prevails. According to Paul Krugman, "while I regard the evidence for such stickiness as overwhelming, the assumption of at least temporarily rigid nominal prices is one of those things that works beautifully in practice but very badly in theory." This integration is further spurred by the work of other economists that questions rational decision-making in a perfect information environment as a necessity for micro-economic theory. Imperfect decision-making such as that investigated by Joseph Stiglitz underlines the importance of the management of risk in the economy. Notwithstanding, over time, many macroeconomists have returned to the IS-LM model and the Phillips curve as a first approximation of how an economy works. New versions of the Phillips curve, such as the 'Triangle Model', allow for stagflation, since the curve can shift due to supply shocks or changes in built-in inflation. In the 1990s, the original ideas of 'full employment' had been modified by the NAIRU doctrine. NAIRU advocates suggest restraint in combating unemployment, in case accelerating inflation should result. However, it is unclear exactly what the value of the NAIRU should be—or whether it even exists.

What seems obvious to any reader of Marx is that the effort in modern economics is to avoid looking at contradictions in the capitalist mode of production and how these contradictions enter into the ideology of the economy, the illusions about what the economy is doing and how it is working. Both the Keynesian and Friedmanite economic theories tackle significant problems and proffer solutions to actual economic strife, but they do so one-sidedly so that they are still unable to explain significant factors commonly occurring in the economy: high unemployment while high inflation (stagflation) for Keynes, and now, the collapse of neoliberal economics in the same kind of crisis. Neither form of the perfect market exists in which their respective theories would make sense, yet also putting them together in their positivist (a priori pre-Marxian) synthesis provides no way out. Many other commentators have suggested going back to basics and to the concept of value to look for answers. To look at one, specifically, there are the arguments of Ecological Economics: for this understanding the primary example of the concept of value in neo-classical economics is 'market value', or 'willingness to pay', which is the principal method of accounting used in 'receiver-type' theories, where the receiver (the 'interpreter of the world') determines the value. By contrast, in Ecological Economics value theory is separated into two types: 'donor-type' value and 'receiver-type' value. Ecological economists tend to believe that 'real wealth' needs a donor-determined value as a measure of what things were needed to make an item or generate a service (H.T. Odum 1996). Marx's and the Smithian labor theory of value and the 'Energy' concept is in this interpretation 'donor-type' value theories. Energy theorists, agreeing perhaps with Marx's concept of labor power, believe that this conception of value has relevance to all of philosophy, economics, sociology and psychology as well as Environmental Science (something which Marx was of course aware of long ago).

It is worth noting finally again how these ideas of value are inevitably epistemological (theory of knowledge) definitions and these definitions have inevitable political overtones. The two great camps of philosophy are materialist and idealist. In short, materialism holds that matter exists independently of thought, while idealism takes the contrary view. Marx and Smith's concept of value in their economic theory is philosophically speaking materialist in its theory of knowledge: In this, it is not the receiver's understanding and subjective valuation on the market which determines value, or the movements of the market itself, which would only explain the market by the market and therefore be tautological, but the independent properties of the entity combined with human labor power. Marx (in Volume I of Capital) distinguishes the value of a commodity into its use-value (utility) and exchange (market) value, both of which (aside from naturally occurring use values) are produced through the labor process by labor power, human effort or energy. This division is a theoretical distinction however, and not an absolute epistemological division. A characteristic of modern economics is to take exchange value as the dominant side, to extend its dominance to include dominance over use value, and then to regard this as the actual manifestation of the truth of philosophical idealism, of abstraction and the mind over matter, which in all other respects is the dominance of capital over labor, or as Marx says the dominance of dead labor over living.

Gary Tedman

The Class Struggles in Southern Europe (1)

The embourgeoisment that has been enabled by the massive credit injection over the last years, plus the shifting to the super-exploitation of overseas workers ('outsourcing') rather than those at home, plus the expert predominance of bourgeois culture through the media, has seemed to create European societies without working classes. It is not that the economic relations of class difference have disappeared, far from it, but that these were smoothed over and erased as feelings, and so as corresponding ideas:- there is no working class culture, or if there is, it is rather like dark matter and dark energy in the cosmos (it is there, it has mass, has a huge effect, but it is unknown). This is one reason why the big economic crisis has had few obvious political effects by the standard routes so far. Parliaments remain what they are, representative democracies unshaken by the crisis, except in the places in Europe where the effects have been most acute, where the crisis brings the reality of class exploitation into sharper relief, Greece for example, where Syriza, a radical left party, has risen dramatically to become the second primary force, dissolving the hitherto entrenched certainties of the false dialectic of the 'balance' of pseudo Left and Right. What we see, therefore, is a slow dawning realization of the shakiness and falsity of the bourgeois sensibility and ideology as it comes into contradiction with the economic reality of the crisis for large sections of 'middle class' people who are being thrown down (losing their employment, being evicted from their homes, falling into debt and poverty).

One feature of this is and has been the sense of indignation (i.e. the 'Indignado' movement) that the 'middle class' sensibility has when it finds itself in this situation. To be 'indignant' expresses the loss of dignity, but also a dignified sense of that loss: so it is actually an assertion of dignity against the forces that are stripping it away. For this section of the people the relation between them and workers unions and the working class who also struggle, always, but also specifically now against the effects of the capitalist crisis in various, usually traditional, ways is not exactly or always harmonious, they grate against each other and jockey for position. So this is a cause of division among those who oppose such policies as the troika directed austerity drive, and prevent a Popular Front from being as effective as it could be, although things are still rapidly developing. The case of Argentina is mildly instructive, their earlier, similar, crisis led to the fall of governments and leaders, a great amount of suffering for ordinary people, inspirational uprisings, and a similar movement to the Indignados (the piquiteros, or pickets), but not so much has changed in terms of class division in Argentina, to an extent because of the separation of the opposition into factions and the lack of clarity about what was (and is) to be done.

This lack is to be expected and is not to be taken as a sign of failure, I suggest. The strongest positions become adopted through the struggle and not by imposition, but it is always necessary to point this up and engage in the ideological debate. Socialism remains the only real alternative to the neoliberal policies of the European bourgeoisie and its troika, whose aim is always to push more loans and debt as the answer, but there are so many illusions about what constitutes socialism, and illusions that are 'made real' and acted out too, that the broad Popular Front is the best current movement that serves these struggles. One fear is that 'socialist' or 'communists' wish to impose their 'grid' for revolutions upon these struggles, probably harking back to the USSR's socialist imperialism in Eastern Europe. This could not be further from Leninist principles, but nevertheless these feelings are widespread, there is a great deal of associating the name with the thing itself, as if all Communist Parties in Europe are by default therefore communist or Marxist, as if the act of naming alone means that. And then there is the question of democracy. Probably the most advanced critique of the current democracy in Europe is that of the updated Hannah Arendt version of performative democracy, which in the end and in practice seems to have the US republic as its ideal form, and so is very limited given this form is also currently being severely criticized as failing to represent. Will this theoretical limit form the actual limit of these anti-austerity protests? It looks as if Argentina reached this limit, a kind of buffer zone, hovering at the edge of something new, something greatly resisted by the established powers.

Gary Tedman

The 'Two Views' of Europe

There has been talk in the news recently of two contrasting views of the way Europe could emerge from the crisis: One strategy assumes it must take immediate steps toward debt mutualisation and needs either the European Central Bank (ECB) or an expanded European Stability Mechanism (ESM) to purchase distressed governments' bonds as soon as possible. Over time, this view has it, Europe would build the institutions needed to complement these policies: it would create a single bank supervisory body, build up the European commission's powers, and create a European Treasury, and strengthen the European parliament.

The other view being put forward is that to proceed with these new policies before the new institutions are in place would be reckless; it thinks that mutualising debts before European institutions have a veto over fiscal policies and going forward with capital injections before the single supervisory body is in place would only encourage more risk taking. Additionally, allowing the ECB to supervise the banks before the European parliament acquires the power to hold it accountable would worsen the EU's apparent lack of democracy.

The second view has not, however, placed democracy as its primary reason for the apparent reticence. It has mostly asserted that what is needed first is fiscal control over apparently unruly governments and state authorities, and that it wishes to build these institutions and powers first. Note that reckless government spending is put forward as the reason for this authority needing to be in place, even though it has been widely observed that private financial enterprises and banks have been the main source of needs for bail outs from public accounts. It is also not entirely evident that the European authorities such as they are prefer a political establishment or governments that are fiscally responsible in the terms that they seem to be suggesting. In fact they have supported New Democracy in Greece and the coalition including Pasok, which are the two parties that between them have the most responsibility for the lamentable condition of the state finances in Greece.

So is it a question of tardiness over fiscal authority due to possible risk, or merely unwillingness to move forward unless they have in place their preferred political parties? Or is it something else that is holding up proceedings? It does not appear to be a desire to have democracy in place first. In fact democracy would be a hindrance to the proposed fiscal authority, since it might not be wanted, and what we are seeing is a set of projections for the future put forward, already, by an authority. This authority decides to keep itself in the background, but from the talks on the need for fiscal authority it is clear that this desire must come from somewhere, from some already existing authority. This authority, therefore, is seeking greater powers, not mere existence, and it would be to reduce their powers to put their authority at the mercy of democratic oversight.

So in fact we have an already existing power deciding to delay because of the lack of power it perceives over its own authority. This power can see the reason for swift injections of capital to the European nations' central banks, but does not do so because, for some reason, it sees hurdles that must be overcome, such as to give it more power. So one of these reasons is presumably simply that it wants more power and can use monetary need as leverage, but is there other reasons? Capital injections from the ECB or ESM straight to banks would be a step on the road to mutualisation of Euro debt; the northern economies would be sharing the burden with the southern states that are in financial trouble, which would mean that their economies become more risky according to the markets. Perhaps this also could be a source of delay, a certain amount of protectionism of the northern economies. They are, after all, also capitalist competitors. As competitors, it stands to reason that some reward would be wanted for the sharing of risk, it is a point of strategic leverage, so this also implies more power is being sought, and that there is a lack of trust among competitors.

Is this central power guided by principles of European fraternity or is it guided by the principles of capitalism and neoliberal free market ideology? All factual evidence points to the latter. The logic of fiscal authority has been put forward under the banner of austerity and with the spin that it is profligate governments that are and have been to blame for the crisis, implicating democracy and the peoples' choices and sense of entitlement to welfare as a problem. There has been a particular focus on Greece where this story can be told in the most convincing fashion, because of its history and particular level of state corruption. Yet even in Greece the corruption of the state is due to private graft and the ability of the wealthy to escape from taxes, so that state money ends one way or another in private hands. Despite this, the 'troika' of lenders still wanted the old duopoly of state power to keep control, and threatened dire consequences if this was strayed from. And of course the state power persist with the austerity measures and the neoliberal ideology that it is peoples' entitlements that are the main cause of the crisis.

What does this ideology achieve? Three things: 1) it deflects from the real causes of the crisis; 2) in doing so deflects from the real solution to the crisis; 3) it pulls to the extreme right at a time when the left and socialism is resurgent. The extreme right is seen as political protection, a buffer, against the left, which have grown in stature (such as the rise of Syriza in Greece) simply as a result of the perceived failures of free market capitalism and neoliberal rightist policy. This left is not the standard left of duopoly politics but a new and more genuine kind, and is therefore not trusted by the traditional order.

Gary Tedman

The Greek Crisis (June 2011)

by Gary Tedman

BBC:

"Berlin, backed by the Dutch, Austrians, and Finns, have been arguing for weeks that there can be no new bailout of Greece without the country's private creditors being forced to suffer losses on their loans. Otherwise, they argue, European taxpayers will be shouldering the costs while the international banks pocket the proceeds.

The ECB, the European Commission and other EU countries led by France argue that this could pave the way to disaster, with the financial markets decreeing the compulsory "haircuts" on private bondholders a Greek default, a "credit event" that could lay waste to the single currency.

"We are against any sort of default with haircuts and any form of private-sector event that could lead to a credit event or a rating event," Constancio said."
http://www.guardian.co.uk/world/2011/jun/15/europe-warned-greece-financial-crisis

So we have an impasse, both positions make no sense. This was bound to happen sooner or later. They do not want default, but they do not want 'haircuts' on the loans, and they do not want the single currency to fail. But Germany also does not want to keep bailing out the bad loans that it and the other Euro big nations have made. In effect, what they are saying is that they wanted the Eurozone if it meant they win from it financially, but not if they have any responsibility for losses. This represents the position of the German ruling class, but not all, because some German banks will want the endless bail outs, because it is they who need bailing out. And some big French banks too. But anyone can see that this must come to an end somewhere. The debts are unsustainable and so are its bailing out. Something has to give. The ordinary people cannot keep being made to give up their public wealth to the private banks. Even if they did, at the end of that road exists a notional single private bank owning all public debt and assets (i.e. owning Greece), and thus becoming effectively the state, i.e. that would be de facto socialism of one type or another, probably national socialism. No capitalist wants that solution in general, for this is why they break up monopolies (because they in the end mean the death of capitalism as such), but each individual capitalist entity, fighting for their share and to avoid taking the hit, will not try to prevent it, they only want to protect themselves.

So what will happen? What can happen? Greece will default one way or another. Either Germany or Greece or both will have to effectively withdraw from the Eurozone, at least as a financial structure. Or can it be fudged, they take on the option of the haircuts but try to call it something other than a default?

This seems to have been tried, but it does not fool anyone, it is still a default. And even if suiccessful, Greece still defaults. In fact the bail outs would have to be a permanent feature of a united European currency for the long term, as for instance California in the USA is a part of the USA. But Europe is not united in this way, it is just set up for the benefit of the big nations, and these do not want the responsibilities of a real central government, so they will each go their separate way if this is political issue is left unresolved. So the German project of a unified Europe flounders on its own selfishness and the profligacy and greed of its banks. Its 'sober' and 'successful' capitalism eats itself.

How the mighty have fallen from their self made pedestals.

It looks like they might just try to stave off the culmination of this crisis, yet again In a sense they seem to be waiting for the Greek people to decide what they will do, given it is only they who have any choice and power at this time, the politicians are too hampered by their masters the banks, who want two things at the same time which are in contradiction to each other. Yet the politicians also fight the Greek people with all the forces at their disposal, because they wish to blame the people for their plight, so they are also hampering any (albeit temporary) conclusion to the crisis in this way too. So even on this front there is an unsustainable stasis. An event is awaited, a spark that will change things, some fortuitous or unfortuitous happening. The bourgeoisie keep things the same, they prolong, and cross their fingers, shuffling the lame parliament, trying to reinvigorate the semblance of democracy, for no particular reason than their is nothing else left to do.

The 'Endarkenment' and the Euro Debt Fiasco in the Cradle of Western Civilization (Greece)

By Gary Tedman

I found this, I think, brilliant term (to 'endarken', implying the opposite to enlighten, to confuse and obfuscate) mentioned by the blogger 'suav' on a BBC blog. The writer says it was from Polish youth.

The principles of 'endarkenment' are working well in the Press these days while they try hard to disassociate the current sovereign debt crisis (Greece and so on) from the earlier banking crisis (Lehman collapse), whilst constantly trying to highlight the 'recovery', but the fact that the latter crisis developed from out of the former will not go away, it is history and it shapes events anyway.

From an article in the Independent online edition "Sean O'Grady: Greece is a problem – but Spain could destroy the euro" Friday, 30 April 2010, a useful timeline of the current shenanigans is given:

See:
http://www.independent.co.uk/news/business/comment/sean-ogrady-greece-is-a-problem-ndash-but-spain-could-destroy-the-euro-1958682.html


"2 May IMF talks in Athens with Greek officials end
3-6 May French parliament expected to approve rescue package
3-10 May IMF board, EU Commission have to formally approve the deal
6-7 May Greek parliament votes on new three-year austerity programme
6-10 May German Bundestag expected to endorse the deal, the last of those required to, the Netherlands and Luxembourg already having given tacit approval
9 May Key elections in North Rhine-Westphalia, Germany's most populous state
10 May European summit formally endorses the deal
19 May Next repayment of Greek debt; €8.5bn must be in place if Greece wants to avoid default
31 May €355m debt repayment due
Summer/autumn 2010 Threat of widespread strikes and unrest in Greece at harshness of deal; risk of political instability or that the government might fall
29 September Further €180m debt repayment due
2011 Greece needs to refinance the equivalent of 18 per cent of its GDP, or €23bn, with almost €9bn due on 20 March 2011. Annual deficit down to 9 per cent of GDP. Return to world growth should help
2012 Annual deficit down to 3 per cent of GDP by year end"

From http://www.independent.co.uk/news/business/comment/sean-ogrady-greece-is-a-problem-ndash-but-spain-could-destroy-the-euro-1958682.html

To illuminate this from NYTimes "As Greek Drama Plays Out, Where Is Europe?", Published: April 29, 2010, Steven Erlanger writes:

from http://www.nytimes.com/2010/04/30/world/europe/30europe.html?hp


“The fact that a German regional election can play such a disproportionate role in messing up efforts to contain what was a much smaller crisis several months ago is astonishing,”

Mr. Kirkegaard said. And the fact that there will be no European Union summit meeting until May 10, after the German elections, “is so blatantly political,” he said.

“This is no way for an E.U. that has to contain an accelerating crisis and market panic to behave,” Mr. Kirkegaard said.


"...the Lisbon Treaty that created Mr. Van Rompuy’s position, and which was intended to make the enlarged European Union more agile and coherent, deliberately left out powers for coordinating fiscal policies, which are the fiercely guarded prerogative of the separate nations. Even so, countries like Germany can only blame themselves for not insisting on realistic European oversight of Greek statistics, which were widely believed to be false for two decades."

(…)


“Questions are asked to nations, not to the E.U. — but nations cannot deal with this problem alone,” said Dominique Reynié, director of the Foundation for Political Innovation and a political scientist at the Institut d’Études Politiques de Paris.

“The silence of the E.U. and its institutions has become deafening. It is incapable of demonstrating that an entity called Europe exists. This is a situation that cannot go on.”

"...The European Union “seems to be in a state of permanent self-promotion,” he said. “But it cannot ask its voters to relinquish part of their nations’ sovereignty and then not answer the call when there’s a problem.”…."

from http://www.nytimes.com/2010/04/30/world/europe/30europe.html?hp


Well… it has… so far; Merkel is, or was, trying still to put off any vote to ratify a loan in Germany until May 10 after the elections there, when it 'is expected' to be agreed by the whole Bundestag, all of whom are (weirdly, given they are still 'expected' to agree it) voicing strong anti-bail-out sentiments, and thus making her job rather more difficult. This would, if achieved, exculpate her party from sole responsibility for dumping the crisis onto the backs of German workers again.

Meanwhile neither the Greek nor the German working people want a bail out. They didn't cause the crisis.

Yes, the Greek and German people agree, they don't want a bail out which will just make them suffer more and help make the bankers and bourgeoisie even more wealthy (yet again). But the politicians, they want a bail out and don't want it all at the same time. The one's who stand to lose from a default want the bail out, but the others who want the euro low for exports want the falling euro, they also fear more for their personal political position. If both lots look at the future though, they see whole rounds of bail outs being necessary, including very probably for themselves, but will there be any money left in the kitty after a few have gone to the wall? Unlikely. But they won't worry about the future much.

Thus the current 'solution' is letting things slide, the anarchy of the market. And the longer the politicians dither about the loan the higher its price becomes and the more serious the social consequences of 'contagion', but it doesn't matter to these politicians because they know they won't be paying the price anyway, this will be taken on by the working classes of Europe, who they seek to be elected by (!), thus what matters to them is their own political futures. After all, the founding members of the EU wanted Greece on board for the benefits, to collude and trade with, not for its social problems, not to share responsibility for looking after the people who they are meant to represent, just for swapping them as a cheap labour force.

At the moment the world is being led by credit rating agencies, big investment banks, and big speculators (this is almost always the case in capitalism, but it is now very visible in the crisis). The main credit rating agencies are anointed by the SEC, based in New York they are private financial corporations that wield a lot of power and influence and are a part of the problem, they are not independent and 'objective' as is often made out, but have vested interests. Their judgements are as political as they are economic. The SEC was once run by Bernie Madoff, now in prison, and that just about sums up their approach to regulating finance. Of course they got the ratings wrong in the crisis (giving top ratings to bankers toxic CDSs), but that isn't the point - it just proves the politics of it. Most 'economists' are paid to get it wrong in the 'right way' for the ruling class, they are perhaps one of the last academic professions to still be in this backward condition of anti-science.