productive - Blog - Global Risk Community2024-03-29T08:28:39Zhttps://globalriskcommunity.com/profiles/blogs/feed/tag/productiveThe Age of Finance Capital—and the Irrelevance of Mainstream Economicshttps://globalriskcommunity.com/profiles/blogs/the-age-of-finance-capital-and-the-irrelevance-of-mainstream2015-11-05T03:30:03.000Z2015-11-05T03:30:03.000ZEnrique Raul Suarezhttps://globalriskcommunity.com/members/EnriqueRaulSuarez<div><p></p><p></p><p><a href="{{#staticFileLink}}8028239663,original{{/staticFileLink}}"><img src="{{#staticFileLink}}8028239663,original{{/staticFileLink}}" width="286" class="align-center" alt="8028239663?profile=original" /></a></p><h2 class="center" style="text-align:center;"><strong>The Age of Finance Capital—and the Irrelevance of Mainstream Economics</strong></h2><p style="text-align:center;"> </p><p class="center" style="text-align:center;"><span class="font-size-3">Source:</span></p><p class="center" style="text-align:center;"></p><p class="center" style="text-align:center;"><span class="font-size-3"> <a href="http://www.globalresearch.ca/author/ismael-hossein-zadeh" target="_blank">Prof. Ismael Hossein-Zadeh</a></span></p><p class="center" style="text-align:center;"><span class="font-size-3">Global Research, September 12, 2015</span></p><p></p><p><em>Despite the fact that the manufacturers of ideas have elevated economics to the (contradictory) levels of both a science and a religion, a market theodicy, mainstream economics does not explain much when it comes to an understanding of real world developments. Indeed, as a neatly stylized discipline, economics has evolved into a corrupt, obfuscating and useless</em><em>—nay, harmful</em><em>—field of study. Harmful, because instead of explaining and clarifying it tends to mystify and justify.</em></p><p>One of the many flaws of the discipline is its static or ahistorical character, that is, a grave absence of a historical perspective. Despite significant changes over time in the market structure, the discipline continues to cling to the abstract, idealized model of competitive industrial capitalism of times long past.</p><p>Not surprisingly, much of the current economic literature and most economic “experts” still try to explain the recent cycles of financial bubbles and bursts by the outdated traditional theories of economic/business cycles. Accordingly, policy makers at the head of central banks and treasury departments continue to issue monetary prescriptions that, instead of mitigating the frequency and severity of the cycles, tend to make them even more frequent and more gyrating.</p><p>This crucially important void of a dynamic, long-term or historic perspective explains why, for example, most mainstream economists fail to see that the financial meltdown of 2008 in the United States, its spread to many other countries around the world, and the consequent global economic stagnation represent more than just another recessionary cycle. More importantly, they represent a structural change, a new phase in the development of capitalism, the age of finance capital.</p><p>A number of salient features distinguish the age of finance capital from earlier stages of capitalism, that is, stages when finance capital grew and/or circulated in tandem with industrial capital.</p><p>One such distinctive feature of the age of finance capital is that, freed from regulatory constraints, finance capital at this stage can and often does grow independent of industrial or productive capital. Prior to the rise of big finance and the dismantlement of regulatory constraints, the role of finance was considered to be largely <em>greasing the wheels of the economy</em>. Commercial banks consolidated people’s savings as bank deposits and funneled them as credit to manufacturing and commercial enterprises. Under these circumstances, where regulatory standards stipulated the types and quantities of investments that commercial banks and other financial intermediaries could undertake, finance capital largely shadowed industrial capital; they grew or expanded more or less apace.</p><p>Not so in the age of finance capital where buying and selling of ownership titles, instead of producing real values, has become the primary field of investment, and asset price inflation constitutes the main source of profit making and (parasitic) expansion. Not only has this slowed down the traditional flow of national savings (through the banking system) into productive investment in the real sector of the economy, it has, indeed, reversed that flow of funds into productive investment. Today, there is a net outflow of funds from the real into the financial sector.</p><p>The financial sector, properly functioning, primarily recycles idle balances into additional capital formation. Years of financial deregulation fostered the creation of new instruments, ever more reliant on Ponzi-like methods of profit acquisition, by reversing this dynamic and sucking profits out of production to expand the financial sector at the expense of productive investment. . . . The relationship between the financial sector and the nonfinancial sector had effectively morphed from symbiotic to parasitic [1].</p><p>A clear indication of this ominous trend of capital flight from the real to the financial sector is reflected in the glaring divergence between corporate profitability and real investment. Prior to 1980s, the two moved in tandem—both about 9% of GDP. Since then whereas corporate profits have increased to about 12% of GDP, real investment has declined to about 4% of GDP [2].</p><p>This obviously means that as larger and larger portions of corporate earnings are funneled out of the real sector into the financial sector (mostly through stock buybacks, dubious mergers and predatory takeovers), real investment has been dwindling accordingly.</p><p>A closely related hallmark of the age of finance capital is that the draining mechanism of the real by the financial sector is facilitated by monetary policy, which is crafted by the financial aristocracy’s proxies at the head of central banks and treasury departments. Every sign of a market downturn is met with generous injections of cheap money into the banking and other financial institutions—ostensibly to stimulate production and employment by extending low-cost credit to real sector businesses/producers. In reality, however, the nearly interest-free funds thus bestowed upon the financial sector hardly leaks out to the real sector. Instead, it is invested in asset price inflation, or creation of market booms and busts. Each bust is “remedied,” once again, by injections of larger doses of public money and, thus, creation of a bigger bubble that, in turn, would entail higher social costs of bailing out the next bust—and so on.</p><p>Thus, when the so-called Third World debt bubble burst in the 1980s, big finance abandoned the debt-burdened nations in South–Central America and moved to new markets in Russia, Turkey, Indonesia, Thailand, South Korea and others in South-East Asia in search of fresh speculative ventures. After blowing a series of financial bubbles in these new markets, which were followed by bursts and economic crises in the second half of the 1990s, international financial speculators, once again, packed and hurriedly left the scene of their crimes, so to speak, in the hunt for newer fields of speculation. Technology sector was considered a favorable candidate for this purpose. Following the implosion of the tech- or dot-com bubble in the early 2000s, speculative finance moved to yet another market, the housing/real estate market, whose fantastically huge bubble burst in 2008, with disastrous consequences for the 99%.</p><p>It is therefore no exaggeration to argue that, in the age of finance capital, central banks have evolved as institutions designed to subsidize the powerful financial interests with public money. Win-win gambling is, of course, an oxymoronic expression. Yet, that’s exactly what Wall Street banks and other financial institutions are enjoying nowadays: they win as long as the financial bubbles they create continue expanding, but they also win when the bubbles burst; as they are then compensated for their losses with bail-out monies and all kinds of other shady rescue plans.</p><p>And who would ultimately pay for the blackmailing moneys thus bestowed upon the <em>too-big-to-fail</em>banks and other financial entities?</p><p>The answer is, of course, the people—through extensive measures of austerity cuts. Under liberal capitalism of the competitive industrial era, a long cycle of economic contraction would usually wipe out not only jobs and production, but also the debt burdens that were accumulated during the expansionary cycle that preceded the cycle of contraction. Although such massive debt destructions were often painful, especially to giant financial speculators, they also occasioned much larger salutary effects of unburdening the society/economy of unsustainable debts and, thus, bringing about a fresh start, or a<em>clean slate</em>.</p><p>By contrast, in the age of finance capital debt overhead is artificially propped up through its monetization, or socialization. Indeed, due to the influence of powerful financial interests, national debt burden is often exacerbated by governments’ generous bailout plans of the bankrupt financial giants and the transfer or conversion of private to public debt.</p><p>It follows that, in the age of finance capital, monetary policy has turned into an instrument of redistribution of income and/or wealth from the bottom up. This is, of course, diametrically opposed to conventional monetary (and fiscal) policies of the New Deal/Social Democratic era where such policies were designed to temper income/wealth inequality in favor of the grassroots. Not surprisingly, in all the core capitalist countries inequality became slightly less lopsided from the late 1940s to late 1970s but has become increasingly more uneven since the late 1970 and early 1980.</p><p>It also follows that, in general, financial capitalism is more conducive to inequality than the earlier stages of capitalism, or even the pre-capitalist socioeconomic formations. Under pre-capitalist modes of production as well as in the earlier stages capitalism, that is, under manufacturing or industrial capitalism, profit making required commodity/industrial production and, thus, employment of labor force. This meant that although labor was still exploited, it nonetheless benefitted from production—poverty or subsistence levels of wages notwithstanding.</p><p>In the age of finance capital, however, profit making is largely divorced from real production and employment, as it comes mostly from speculative investment, or through parasitic extraction from the rest of the economy. As such, it employs no or a very small percentage of labor force, which means that the financial sector generates income/profits without sharing it with the overwhelming majority of labor force and/or society.</p><p>Not surprisingly, chronic stagnation and chronically high rates of unemployment signify another hallmark of the age of finance capital. As the financial sector systematically appropriates the major bulk of a society’s economic surplus, it thereby undermines that society’ productive capacity. At the heart of the persistent stagnation, as mentioned earlier, is an acute decline in productive investment. By steadily absorbing a society’s economic surplus and engaging in financial manipulations to augment their own personal wealth at the expense of the public, the financial elites deprive the society of expanding its productive capacity and providing employment and income for its citizens. The result is protracted economic sluggishness, chronically high rates of unemployment, steadily declining standards of living, and growing poverty and inequality.</p><p><strong><strong><em>Ismael Hossein-zadeh</em></strong></strong><em> is Professor Emeritus of Economics (Drake University). He is the author of </em><a href="http://www.amazon.com/exec/obidos/ASIN/0415638062/counterpunchmaga" target="_blank"><em>Beyond Mainstream Explanations of the Financial Crisis</em></a><em> (Routledge 2014).</em><em> </em></p><p></p></div>The Myth that Japan is Broke: The World’s Largest “Debtor” is now the Largest Creditorhttps://globalriskcommunity.com/profiles/blogs/the-myth-that-japan-is-broke-the-world-s-largest-debtor-is-now2015-05-20T19:34:43.000Z2015-05-20T19:34:43.000ZEnrique Raul Suarezhttps://globalriskcommunity.com/members/EnriqueRaulSuarez<div><p><a href="{{#staticFileLink}}8028232685,original{{/staticFileLink}}"><img width="173" height="122" class="align-center" style="width:241px;height:160px;" src="{{#staticFileLink}}8028232685,original{{/staticFileLink}}" alt="8028232685?profile=original" /></a></p><p style="text-align:center;"><span class="font-size-3"><b>Enrique Suarez Presenting:</b></span></p><p style="text-align:center;"></p><p style="text-align:center;"><span class="font-size-3"><b>The Myth that Japan is Broke: The World’s Largest “Debtor” is now the Largest Creditor</b></span></p><p style="text-align:center;"></p><p style="text-align:center;"><span class="font-size-3">Source: Ellen Brown</span></p><p style="text-align:center;"></p><p style="text-align:center;"><span class="font-size-3">Global Research</span></p><p></p><p><i>Japan’s massive government debt conceals massive benefits for the Japanese people, with lessons for the U.S. debt “crisis.”</i></p><p>In an April 2012 article in Forbes titled “If Japan Is Broke, How Is It Bailing Out Europe?”, Eamonn Fingleton pointed out the Japanese government was by far the largest single non-Eurozone contributor to the latest Euro rescue effort. This, he said, is “the same government that has been going round pretending to be bankrupt (or at least offering no serious rebuttal when benighted American and British commentators portray Japanese public finances as a train wreck).” Noting that it was also Japan that rescued the IMF system virtually single-handedly at the height of the global panic in 2009, Fingleton asked:</p><p></p><p>How can a nation whose government is supposedly the most over borrowed in the advanced world afford such generosity? . . .</p><p></p><p>The betting is that Japan’s true public finances are far stronger than the Western press has been led to believe. What is undeniable is that the Japanese Ministry of Finance is one of the most opaque in the world . . . .</p><p></p><p>Fingleton acknowledged that the Japanese government’s liabilities are large, but said we also need to look at the asset side of the balance sheet:</p><p></p><p>[T]he Tokyo Finance Ministry is increasingly borrowing from the Japanese public not to finance out-of-control government spending at home but rather abroad. Besides stepping up to the plate to keep the IMF in business, Tokyo has long been the lender of last resort to both the U.S. and British governments. Meanwhile it borrows 10-year money at an interest rate of just 1.0 percent, the second lowest rate of any borrower in the world after the government of Switzerland.</p><p></p><p>It’s a good deal for the Japanese government: it can borrow 10-year money at 1 percent and lend it to the U.S. at 1.6 percent (the going rate on U.S. 10-year bonds, making a tidy spread.</p><p></p><p>Japan’s debt-to-GDP ratio is nearly 230%, the worst of any major country in the world. Yet Japan remains the world’s largest <i>creditor</i> country, with net foreign assets of $3.19 trillion. In 2010, its GDP per capita was more than that of France, Germany, the U.K. and Italy. And while China’s economy is now larger than Japan’s because of its burgeoning population (1.3 billion versus 128 million), China’s $5,414 GDP per capita is only 12 percent of Japan’s $45,920.</p><p></p><p>How to explain these anomalies? Fully 95 percent of Japan’s national debt is held domestically by the Japanese themselves.</p><p></p><p>Over 20% of the debt is held by Japan Post Bank, the Bank of Japan, and other government entities. Japan Post is the largest holder of domestic savings in the world, and it returns interest to its Japanese customers. Although theoretically privatized in 2007, it has been a political football, and 100% of its stock is still owned by the government. The Bank of Japan is 55% government-owned and 100% government-controlled.</p><p></p><p>Of the remaining debt, over 60% is held by Japanese banks, insurance companies and pension funds. Another chunk is held by individual Japanese savers. Only 5% is held by foreigners, mostly central banks. As noted in a September 2011 article in The New York Times:</p><p></p><p>The Japanese government is in deep debt, but the rest of Japan has ample money to spare.</p><p></p><p>The Japanese government’s debt <i>is</i> the people’s money. They own each other, and they collectively reap the benefits.</p><p align="center"></p><p align="center"><b>Myths of the Japanese Debt-to-GDP Ratio</b></p><p></p><p>Japan’s debt-to-GDP ratio looks bad. But as economist Hazel Henderson notes, this is just a matter of accounting practice—a practice that she and other experts contend is misleading. Japan leads globally in virtually all areas of high-tech manufacturing, including aerospace. The debt on the other side of its balance sheet represents the payoffs from all this productivity to the Japanese people.</p><p></p><p>According to Gary Shilling, writing on <i>Bloomberg</i> in June 2012, more than half of Japanese public spending goes for debt service and</p><p>social security payments. Debt service is paid as interest to Japanese “savers.” Social security and interest on the national debt are not included in GDP, but these are actually the social safety net and public dividends of a highly productive economy. These, more than the military weapons and “financial products” that compose a major portion of U.S. GDP, are the real fruits of a nation’s industry. For Japan, they represent the enjoyment by the people of the enormous output of their high-tech industrial base.</p><p></p><p>Shilling writes:</p><p></p><p>Government deficits are supposed to stimulate the economy, yet the composition of Japanese public spending isn’t particularly helpful. Debt service and social-security payments — generally non-stimulative — are expected to consume 53.5 percent of total outlays for 2012 . . . .</p><p></p><p>So says conventional theory, but social security and interest paid to domestic savers actually do stimulate the economy. They do it by getting money into the pockets of the people, increasing “demand.” Consumers with money to spend then fill the shopping malls, increasing orders for more products, driving up manufacturing and employment.</p><p align="center"></p><p align="center"><b>Myths About Quantitative Easing</b></p><p></p><p>Some of the money for these government expenditures has come directly from “money printing” by the central bank, also known as “quantitative easing.” For over a decade, the Bank of Japan has been engaged in this practice; yet the hyperinflation that deficit hawks said it would trigger has not occurred. To the contrary, as noted by Wolf Richter in a May 9, 2012 article:</p><p></p><p>[T]he Japanese [are] in fact among the few people in the world enjoying actual price stability, with interchanging periods of minor inflation and minor deflation—as opposed to the 27% inflation per decade that the Fed has conjured up and continues to call, moronically, “price stability.”</p><p></p><p>He cites as evidence the following graph from the Japanese Ministry of Internal Affairs:</p><p></p><p style="text-align:center;"></p><p style="text-align:center;"><a href="{{#staticFileLink}}8028232487,original{{/staticFileLink}}"><img width="604" class="align-center" src="{{#staticFileLink}}8028232487,original{{/staticFileLink}}" alt="8028232487?profile=original" /></a></p><p>How is that possible? It all depends on where the money generated by quantitative easing ends up. In Japan, the money borrowed by the government has found its way back into the pockets of the Japanese people in the form of social security and interest on their savings. Money in consumer bank accounts stimulates demand, stimulating the production of goods and services, increasing supply; and when supply and demand rise together, prices remain stable.</p><p></p><p align="center"><b>"Myths About the “Lost Decade”</b></p><p align="center"></p><p>Japan’s finances have long been shrouded in secrecy, perhaps because when the country was more open about printing money and using it to support its industries, it got embroiled in World War II. In his 2008 book In the Jaws of the Dragon, Fingleton suggests that Japan feigned insolvency in the “lost decade” of the 1990s to avoid drawing the ire of protectionist Americans for its booming export trade in automobiles and other products. Belying the weak reported statistics, Japanese exports increased by 73% during that decade, foreign assets increased, and electricity use increased by 30%, a tell-tale indicator of a flourishing industrial sector. By 2006, Japan’s exports were three times what they were in 1989.</p><p></p><p>The Japanese government has maintained the façade of complying with international banking regulations by “borrowing” money rather than “printing” it outright. But borrowing money issued by the government’s own central bank is the functional equivalent of the government printing it, particularly when the debt is just carried on the books and never paid back.</p><p align="center"></p><p align="center"><b>Implications for the “Fiscal Cliff”</b></p><p></p><p>All of this has implications for Americans concerned with an out-of-control national debt. Properly managed and directed, it seems, the debt need be nothing to fear. Like Japan, and unlike Greece and other Eurozone countries, the U.S. is the sovereign issuer of its own currency. If it wished, Congress could fund its budget without resorting to foreign creditors or private banks. It could do this either by issuing the money directly or by borrowing from its own central bank, effectively interest-free, since the Fed rebates its profits to the government after deducting its costs.</p><p></p><p>A little quantitative easing can be a good thing, if the money winds up with the government and the people rather than simply in the reserve accounts of banks. The national debt can also be a good thing. As Federal Reserve Board Chairman Marriner Eccles testified in hearings before the House Committee on Banking and Currency in 1941, government credit (or debt) “is what our money system is. If there were no debts in our money system, there wouldn’t be any money.”</p><p></p><p>Properly directed, the national debt becomes the spending money of the people. It stimulates demand, stimulating productivity. To keep the system stable and sustainable, the money just needs to come from the nation’s own government and its own people, and needs to return to the government and people.</p><p></p><p><b><i>Ellen Brown</i></b> <i>is an attorney and president of the Public Banking Institute,</i> <i><a href="http://PublicBankingInstitute.org">http://PublicBankingInstitute.org</a></i><i>. In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are</i> <a href="http://r20.rs6.net/tn.jsp?e=001sOSqCKXB8QgwFM-ng2Kg43MDtVTYxy2qQB3fLD8i2nJFYRK3oeUksasXm0XkbQ2TzhnfjeHSeupIWGa7iooogsUQ6jw4cIRE7kUDFmsnmemJGY7NBJ6ZdA==" target="_blank"><i>http://WebofDebt.com</i></a> <i>and</i> <a href="http://r20.rs6.net/tn.jsp?e=001sOSqCKXB8QhpQUhDMJ7I4BfqCc6ISHNrH4VfeXIWfI2qR5AtIcOsQ1SHmxDpM2kH9GEJda8NlhCPMLJPfHR13qZ8JH4i5uYf8K2981MqFxTGdoOKRvU2oQ==" target="_blank"><i>http://EllenBrown.com</i></a></p><p></p><p></p><p></p><p></p></div>