Why Do We Have Austerity And High Unemployment?
Most people know very little about economics or why we have austerity. We are told we have austerity because we are in debt, but we do not get any information about how this debt came about or who we are supposed to be in debt to.
As the old saying goes, "Bullsh*t baffles brains" and the media have been so successful in confusing the whole issue, that people don't understand what is going on. So what is the truth about our so-called economic crisis?
To try to inform the public what is going on, the BBC produced three programmes called, "The Masters of Money," (See below) which were about the economic theories of John Maynard Keynes, Friedrich Hayek and Karl Marx. Now the latter would be a surprise to many as it is assumed by most people that he was a revolutionary. This is not really true as most of his writings were about capitalism. Marx had a very clear understanding how capitalism works and many people now claim, in fact, that he forecast the present economic crisis. So if this is true, we need to look at what he actually said
Marx claimed that capitalism must always fail in the long term because it will always increase the gap between rich and poor, which will destabilize society when it becomes too large. We all know that capitalism works through competition, which means firms that produce the same product, have to try and make it cheaper than competing companies. The most common way to do this is to have fewer workers making the product and/or pay them less wages.
So ideally, the most successful companies are going to have ruthless bosses, who can overwork and underpay their workers. The result is that even if you have a boss who cares about his workers, and pays them a decent wage, he will soon go bankrupt because his products will be more expensive to produce than his competitors who are exploiting their workers
This might be all right for individual companies, but if we look at the economy as a whole, where every firm is successfully underpaying their workers, then the economy will stagnate or decline. This is because the workers are also the buyers for goods being produced. So if they do not get paid enough to buy anything but the bare essentials, then these companies will not have a market for their goods. So we will have a depression like the one we have today and back in the 1930s.
This is why people now are saying that Marx predicted the present economic crises. Of course what Marx also predicted was that the bosses would end up making the conditions for the workers so terrible that they would rise up and have a bloody rebellion, like that of the French Revolution. To some degree this prediction came true after he died, when we had the Russian Revolution. So perhaps the Russian Revolution was a warning to the ruling elite of the capitalist countries, of what might happen if they go too far. They were later to fear a worldwide Communist revolution and this is why we had a cold war between the USSR and the West. In recent times we have had the Arabian uprising where dictators in the Middle East have been overthrown but nothing like this so far in Western countries.
Franklin Delano Roosevelt
The New Deal
So if Marx was correct, why didn't capitalism fail back in the 1930s when we had a world wide depression? The reason was that John Maynard Keynes came up with a new economic theory, which solved all the problems of capitalism, that Marx highlighted. He did this, by showing government how to take their countries out of the depression in the 1930s.
Like Marx, Keynes points out that the reason why economies were locked in a depression was because of low wages, though he blamed low wages on high unemployment. Also like Marx, he explained that the workers were also the main consumers of any society. So if they didn't have any money to spend in shops, there was little demand for goods. As a result, factories didn't have a market for the goods they made and the whole economy stagnates. So his solution was to artificially create full employment with decent wages. This then allowed the workers to spend money in shops, which creates a demand, and factories have to produce more to meet this demand, boosting the whole economy.
This was the solution adopted by Franklin Delano Roosevelt, to take the USA out of the depression of the 1930s. He created jobs by starting large projects like the Hoover Dam, to bring down unemployment. Hitler did the same thing. The German economy suffered far more than any other Western country during the depression but he boosted the economy, by having the German workers employed in building autobahns but also making weapons. Unfortunately the latter, led to the Second World War.
After WW2, all Western countries adopted Keynesian economics which solved Marx's problem with capitalism. Employers can only exploit workers in times of high unemployment. This is because if they leave their jobs because of low pay or terrible working conditions, they are not likely to find another job. So the choice for workers is either to put up with bad pay and conditions or be unemployed. But when a country has full employment, the workers are free to leave their jobs and work somewhere else, because jobs are easy to find. So in times of full employment the employers cannot exploit their workers, because they are competing with other employers for staff. So they have to pay their workers well and give in to demands for better working conditions if they want to retain their workforce.
So Keynesian economics seem to be a win-win situation where the workers can have good pay, and the employers have a strong market of workers who have money to spend to buy their goods. What is there not to like about this form of economics? There was a grumble that it pushed up inflation. This was because as the workers demand more pay rises, this pushed up the price of goods. As Harold Wilson a British Prime Minster at the time was to say in the 1960s: "One man's pay rise is another man's price rise". The point is that in those times inflation was driven mostly by the rise in workers’ wages. Today inflation is driven by the large increase in the salaries and bonuses of the wealthy, which are pushing up inflation faster than workers’ wages
So for the workers the Keynesian period was a Golden Age. Another British Prime Minister, Harold Macmillan, was also to say to the workers in the 1950s: "You never had it so good." But another problem with Keynesian economics is that the rich are restricted in how rich they can become. Keynesian economics was used in Western countries during the 1950s, 60s and most of the 1970s. In that time, the gap between rich and poor was closing all the time, creating a more equal society. This might be great for the working class but it seems this wasn't all right for the rich and powerful. Towards the end of the 1970s they decided they had had enough and ditched Keynesian economics and brought in Monetarism economics.
Hayek And Monetarism
Monetarism was advocated by economists like Friedrich Hayek. What he promoted was a sort of Social Darwinist economic system. He claimed that conditions like in the Great Depression of the 1930s were normal, and governments shouldn't intervene to make things better. The theory being, that in these very challenging conditions only the most efficient firms will survive and the less efficient firms will go bankrupt
So it was a sort of "survival of the fittest" economics. Of course he didn't talk about Marx's fears that the most successful companies in these conditions will be the ones who can best exploit their workers. And although he claimed that the government shouldn't interfere with the economy, for his theories to work, the government still had to ensure there was high unemployment to create the challenging conditions he advocated. So instead of pumping money into the economy, like you have in Keynesian economics, the government did the opposite and ensured there were as few government projects as possible. The government is by far the biggest employer in most countries, so it can manipulate the level of employment by how many government projects it takes on
As a result of all governments in the western world adopting Monetarism, money was taken out of the economy and the levels of unemployment began to quickly rise. Then with high unemployment the employers could easy exploit their workers. At the time they called this, "squeezing inflation out of the economy", which means in reality squeezing the living standards of workers. As a result of this the gap between rich and poor greatly increased.
This was wonderful for the rich, but in ditching Keynesian economics the shadow of Karl Marx returned. Yes, the employers could now push down the workers’ wages, but because the workers didn't have enough money to spend, economies all over the world went into recession. But to make sure this didn't go down too much, the ruling elite had one other trick up their sleeve and that was easy credit. They made through things like credit cards, unlimited lending, so workers could spend money they didn't really have, and this helped boost the economy.
Restrictions on interest payments were lifted so banks and money-lenders had another way to exploit the people, as they forced borrowers to pay exorbitant interest rates. So it seemed a win-win situation, where unemployment could remain high, giving the advantage to bosses, while the economy was still growing, fuelled by easy credit. Unfortunately the mountain of debt this produced in the end became too much, and so we had the banking collapse in 2008
But even the banking collapse is being used by the ruling elite for their own ends. They now tell the public that because the governments had to bail out the banks we now have to pay back that debt by cutting public services. What they don't tell the public is that this debt can be easy written off through something called, "quantitative easing". What this means in English is printing money. Governments and banks all have the ability to print as much money as they like. Or as we have today, the money is produced electronically in computers. So a bank would have to be mind-bogglingly incompetent to go bankrupt when they can do this. The only restriction on printing money is inflation. Print too much money too quickly and inflation goes through the roof.
- Why Austerity is a Con-trick
We are told that we need austerity because banks have gone broke. But is this true? Isn't it strange that austerity seem to greatly benefit the rich, who cause this crisis in the first place.
Do we have to accept austerity?
The only country in the world not to accept the con-trick that banks are going bust was Iceland. They tried it on there but the government got voted out of power. Unfortunately, the new government again tried the same trick; however, the people of Iceland wouldn't accept it.
They forced another election and managed to get people elected who weren't professional politicians. The new government, instead of balling out the banks, charged the bank owners with fraud. As a result, some were put into jail, while others fled the country. Then suddenly, Iceland had no debt
The point is that if some people knocked on your door and told you: "you owe us a million dollars", you would call the police and charge these people with either fraud or extortion. Yet banks are doing the same thing to whole countries and are getting away with it. The reason is that the rich own nearly all the newspapers and TV stations and so can use the media to hide the truth of what is really going on. The only way this information can get out there is through the Internet, and this is why governments are now trying to find ways to control and censor it
The unfortunate fact is that the ruling elite will continue to do this and even push it further while they can get away with it. If they can continue to force austerity onto the people, driving down wages and cutting pensions and public services, without any penalty to them, then they will continue to do this
It is noticeable, that in the time when Western countries adopted Keynesian Economics that it was also the time when we had the Cold War. The Western ruling elite at that time greatly feared a worldwide Communist revolution. This is why we had wars in Korea and Vietnam. So they didn't dare force austerity onto the people at this time because it could fuel a Communist revolution in Western countries. But in the 1970s it became clear that the USSR was losing the cold war, while in Communist China, its leader Mao Zedong had died and those who followed had less interest in promoting Communism abroad. So the Western ruling elite lost no time in adopting Monetarism economics as they no longer feared a Communist revolution. The irony is that Communism didn't benefit the people in USSR or Communist China but greatly benefited the ordinary people in Western countries.
This then is the problem today. We have protestors on the streets in most Western countries but these protestors are unlikely to create a Communist revolution. This is because 50 years of anti-Communist propaganda has convinced most Western people that Communism or even Socialism is terrible. Also, Communism didn't give the people, equality or freedom when it was in power.
This is why we need a completely new political system. So what I advocate is matriarchal rule by women. Capitalism suits patriarchal rule because men are very competitive with each other. Men are like stags or rams who fight each other each spring for dominance, where the winner gets to have the largest harem of females. Men do the same and fight each other for power and wealth, where the winners get everything and the losers get nothing. For this reason all societies ruled by men have a large gap between rich and poor
The only way to change this is to allow women to rule our world instead. Unlike men women are driven by maternal and nurturing instincts. Women do not have the same competitive drive to selfishly want to have power and wealth for themselves. This is why they mostly tend to lose out in very competitive patriarchal societies. Only a minority of women are able to be ruthless enough to get to the top in a patriarchal society. Women like Margaret Thatcher and Angela Merkel have proven themselves to be as heartless as any male politician, but they are in the minority. Yet it is this lack of competitiveness, ruthlessness and aggression in women that would make them the better rulers of our world. If the people want to be ruled by fair-minded and caring people, then maternal and nurturing women would be the obvious choice. If the world was ruled by women like this we would have no wars or such a large gap between rich and poor.
So we need a matriarchal revolution of only female political parties, who promote the feminine, caring and nurturing side of women. This means if a matriarchal political party was elected into power it would now be willing to use Keynesian economics to bring down the gap between rich and poor, and create a fairer and more caring society
Sources, and for further information:
- You Never Had It So Good
Since the 1970s governments have deliberately created high unemployment and Austerity, to drive down wages of the working class and increase the gap between rich and poor.
- Profits At High, Wages At Low - Business Insider
Our priorities are seriously screwed up.
- The Great Debt Delusion: How Math Keeps Proving Austerity Wrong - Matthew O'Brien - The Atlantic
The austerians' foundational text lost a battle with Excel -- and reality
- The Economic Argument Is Over — And Paul Krugman Won | Daily Ticker - Yahoo! Finance
From the blog Daily Ticker: For the past five years, a fierce war of words and policies has been fought in America and other economically challenged countries around the world. On one side were economists and politicians who wanted to increase govern
- Could These 3 Simple Changes to Banking Fix the Economy?
If someone told you that a mountain of personal debt could be cleared via 3 simple changes to the way that money and banking works, would you like to know how?
© 2013 William Bond
William Bond (author) from England on May 11, 2013:
No, communism didn't deliver a better life for the people. It was only Keynesian economics that done this.
tuteramanda from beijing china on May 11, 2013:
you believe communism?
William Bond (author) from England on March 31, 2013:
Thank you HSchneider, I couldn't agree more. I am sure with the communist threat out of the way, they don't care don't care about the living standards of ordinary people.
Howard Schneider from Parsippany, New Jersey on March 31, 2013:
Excellent Hub, Wabond. Keynesian economics kept our country from falling into communism or fascism in the 1930s. Pure capitalism had absolutely failed. The income and wealth gaps have now grown so wide that we are now again being threatened. I agree that stronger does of Keynesian economics are needed.