Yet, as Rumi would say, we never really left the subject; all posts on this blog are about systemic risk. Such is the nature of the "relations" about which I have been philosophizing of late. When you get the main relation, the whole, right, the parts, in the forms of individual developments, will confirm, accentuate and strengthen it.
Yesterday, for example, I read that Chancellor Angela Merkel had quoted Swabian housewives to give a lesson to German and European “overspenders”: “One should simply have asked a Swabian housewife. She would have told us her worldly wisdom: in the long run, you can’t live beyond your means.”
I had written about this very topic the day before.
Also, yesterday, Bloomberg reported that the president of the European Central Bank was considering “tossing out” the bank’s rule book to better handle the Greek crisis:
European Central Bank President Jean-Claude Trichet, who capitulated on a January pledge not to relax lending rules for the sake of one country, may have to sacrifice more principles to prevent Greece from bringing down the euro.
Trichet yesterday diluted rules for the second time in a month to guarantee the ECB will keep taking Greek government bonds as collateral for loans. The central bank may have to extend that to other nations, renew a program of lending unlimited cash to banks for a year, and even start buying government debt if the 110 billion-euro ($146 billion) bailout plan for Greece fails to stem the euro’s slide, economists said. “Rather you break the rule book than the euro area,” said [a European economist].
This, too, is familiar to us. Recall that it was Bernanke who first tossed out the rule book, as I discussed here and here.
Returning now to election in England, you would do well to keep in your wholesome remembrance that the heated exchanges on immigration, EU membership and such are campaign tactics meant to highlight the differences among the candidates. These differences are real, to be sure, in the same way that the differences between a wolf, a fox and a coyote are real. But when it comes to farmers’ poultry and livestock, there is a remarkable, and altogether not surprising, convergence of opinion among the three.
The chicken coup and livestock in the British election are the NHS and the government services. Head, they will be sharply cut. Tail, they will be sharply cut. If the coin lands on its edge, they will be sharply cut.
So, what are the messages we have been getting from political leaders and their humble servants, the press?
- People have to spend within their means.
- Governments have to spend within their means.
- The central banks have to toss out their rulebooks.
The technical arguments for the austerity that you hear – that, for example, the population is living longer so there are less workers supporting a larger number of pensioners – have a modicum of truth in them. But they are the description of the effects, and not the cause. The underlying cause of the problem is the fall in the profit rate. That is why workers are laid off, in consequence becoming a double drain on resources: they do not contribute to tax revenues, and, furthermore, receive unemployment benefits.
The problem is actually quite serious. Imagine a 40 year old suburban woman comfortably married to a successful businessman. The husband dies, leaving behind some money, but not much. What are the woman's options, without any work experience or a trust fund to support her?
Realistically, there are two options. She could drastically, very drastically, cut back on her life style – goodbye SUV, good bye expensive handbags, gym and perhaps country club membership, clothes, jewelry – and become a teacher earning enough to put bread on the table. Or she could become a wealthy neighbor’s mistress. Given the mentality and social background of a suburban woman, there is really one choice. That is, there is no alternative.
Consider now, if you will, a political leader whose convictions about social issues – justice, equality, progress – are approximately at the level of the conviction of a suburban housewife about chastity. (Else he would not be a political leader.) Faced with the reality of falling revenues, he would have two alternatives: drastic cuts, or sacrificing convictions in the hope of re-starting revenues. That would be the story of Tony Blair who, as a Labourite, could not tolerate deep social cuts. That left him with no alternative but to embracing the only source of revenue which, for the social system he was elected to lead, was the “entrepreneurship”. All the compromises that followed, followed from there.
Blair, needless to say, is not alone. He is a politician of “our time”, in the sense that I have explained.
What complicates matter is that long term has finally caught up with us. It is now 20 years later and our suburban widow is no longer 40 but 60. Now there is really no alternative to draconian cuts. That is what we are seeing across the Western world.
The politics of the matter do not concern us here; of course politically conscious Greeks are more vocal than the social zombies in much of the Western Europe and the U.S.
What concerns us is the material basis of this phenomenon – the fall in the rate of profit – that is rooted in economics and finance. That is the subject of Vols. 4 and 5 of Speculative Capital. It will also be the subject of future posts on this blog.