The Face of the Crisis – And Alternatives
EDITORIAL, 26 Mar 2012
From Madrid, Universidad Nacional de Educación a Distancia-UNED, Foro Los Nuevos Problemas Sociales, 24 Mar 2012
Here is one of the hidden faces of the economic crisis:
(¶C/¶t) + (¶C/¶S)rS + (1/2)(¶2C/¶S2)q2S2 = rC
The famous Black-Scholes equation to find the “correct price” for financial derivatives. Based on partial derivatives over time, this is classical calculus for continuous change; useful within a zone of stability, but not at the edge of that zone, the tipping points explored in René Thom’s catastrophe theory years earlier. Black-Scholes is intellectually like calculating increasing speed of an accelerating car heading for a wall or an abyss. But, with warnings, no 1997 “Nobel Prize in Economics” (actually a Swedish State Bank’s prize honoring Alfred Nobel)? And, one year later their company “Long Term Capital Management” had lost $100 billion and collapsed. The trade in derivatives is now at $1 quadrillion a year (15 zeros), ten times the industrial economy of the whole 20th century. Many got rich, but the system collapsed. Maybe prison would have been more adequate for intellectual sloppiness?
That equation is a part of the closed paradigm of economism. Does it offer a solution, not only for banks and bankers, but for the bottom 99.9%? The 0.1%/99.9% income ratio USA 2007 was 140; an unbelievable inequality, both cause and effect of the crisis.
They look at Germany’s decreasing unit labor cost 2005-2011 and high employment.[i] With top rate quality export products, and a single Euro currency their Eurozone trade surplus grew from 64 to Euro 140 billion in 2002-2009. They financed the trade deficit of Greece-Italy-Portugal-Spain-Ireland (GIPSI) with credits from German banks, at the end of 2009, with Euro 522 billion. However, they do not invest in GIPSI, but offer higher interest credit to pay back the credits, thereby putting the GIPSIs in debt bondage.[ii]
A very dangerous policy, close to a tipping edge, endangering not only the Euro but also the European Union as a peace project. A policy of debt forgiveness, buying out legitimate net creditors, letting other banks collapse, would be better than a debt bondage feeding nazism memories with hatred, like in Greece.
Terrorism next? We need good debt maps to design intelligent forgiveness policies for households, municipalities, countries, regions. The way out of a complex man-made catastrophe is not to punish the victims.
But we also need political action unlikely to come from the Berlin-Frankfurt-Brussels triangle. The strong formula would be GIPSIs unite; you have only your German banks to lose. They could jointly negotiate much better terms, compare successful policies, increase trade with each other, and lift themselves out of bondage. But, the illegitimate, perhaps illegal, Goldman-Sachs have former employees as prime ministers in Greece and Italy, economy minister in Spain and head of the ECB-European Central Bank. That spells finance, not real economy.
Inside victim countries periphery-periphery cooperation could alleviate much suffering from basic needs deficits. Class warfare from above displaced the economic shocks down to the vulnerable: the women, the older, the younger, the excluded, depriving them of money for food-clothes-housing-health-education. But the old lady in poor health with little money may offer housing for the younger at good health, against cleaning, helping, company. Money may not change hands: service for service, hours for hours, togetherness.
A farmer produces food; student farm hands could bring them closer to culture. Neighboring farms could have sales points directly from producers to consumers. At a world level four lane highways through Africa could make Latin America, Africa and Asia revive, and expand, the 500-1500 AD globalized real economy trade. GIPSI countries might link to South-South-South through North Africa.
Periphery-periphery cooperation is the best remedy against hierarchy and exploitation, not legislation when State politicians have been bought by Capital. The other approach is to lift the bottom up. In the giant Chinese 1991-2004 lifting of 400 million, the local community was the unit of development. The five-pronged approach–the public, private, civil society, technical sectors and a coordinator–gave micro credit to small companies dedicated to produce necessities, food-clothes-housing-polyclinics-schools, at low cost and price, employing the most needy. When their needs were met they sold to others at low prices, paid back the credit, and entered the economy with some cash in the pockets. Capi-communism, the latter for needs, the former for wants and markets. But the extreme West, the USA, might not bridge this gap mentally.
Some of the finance economy should be criminalized like those who give credit far beyond their capital and those who contract loans far beyond their earning capacity. Failing that, the worst finance economy dealers should be boycotted. The trend towards globalization should be away from Western neo-liberalism to more rational and human Buddhist, Islamic, Japanese and Chinese models. And global economies should be balanced with more local economies.
But the whole focus of economics should be changed, from the economism growth of market economy to meeting basic needs. From GNP-Gross National Product to the UNDP-United Nations Development Program HDI-Human Development Index, focusing on how many and who suffer basic needs deficits. The Czech economist Tomás Sedlácek[iii] concludes from the years after communism that egoism is not the alternative; some state regulation is indispensable. There will be more approaches and alternatives as more economists leave the sinking ship of neo-liberal economism.[iv]
And hopefully not the likely and available use of war as the stimulus to get a stagnant inflation-deflation economy running again.
[i]. Floyd Norris, IHT 17-02-2012.
[ii]. Rune Skarstein, the leading Norwegian economist specialist on the crisis, Klassekampen, 16 March 2011.
[iii]. Der Spiegel, 12/2012.
This article originally appeared on Transcend Media Service (TMS) on 26 Mar 2012.
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