Saturday, September 15, 2012
Understanding the Eurozone crisis
'The whole problem in Europe, the whole reason why you are seeing these countries like Spain, like Greece and right through southern Europe in the sort of mess they are is that they have huge levels of government debt. So the answer to New Zealand is not coming up with a make work scheme funded off taxpayers' taxes. It comes from New Zealand having a competitive industry, flexible labour markets, investing in things that will make the economy grow faster...' - John Key, Q + A, 16/09/12
John Key when he explains the global economic outlook and the prospects for economic growth avoids the real issues. Three simple but wrong assumptions he makes about the economic crisis and possible recovery are explained here.
1. Why do southern European governments have such high levels of debt in the first place?
'After the introduction of the euro, banks and other investors flooded the “periphery” countries of the eurozone with cheap credit. They weren’t trying to improve workers’ living standards. They were trying to make a profit by encouraging spending with money that didn’t exist. This cheap credit benefited the rich, who profited massively and are experts at avoiding tax. But the level of debt in countries like Greece grew. And the cost of living in Greece rose by more than 35 percent between 2000 and 2008.The influx of cheap credit encouraged countries to rely on debt to get by. When the economic crisis hit and access to credit dried up, the poorest countries suffered the most. So the crisis is rooted in bosses trying to protect their profits.' - David Sewell, Socialistworker.co.uk
2. Will flexible labour markets lead to growth or union busting?
Demands for labour market flexibility is ruling class code for reducing the wages and conditions of workers by destroying trade unions. The recent Ports of Auckland dispute is one example. The employer was demanding the complete casualisation of work done on the port, but it was more about de-unionising the workforce. As CTU President Helen Kelly explained, 'In the end this dispute is about two things - whether the workers for the Port of Auckland will be dismissed to be replaced by a casualised workforce (along the same lines as Tauranga where there have been three deaths in 15 months) and whether Auckland ratepayers are losing the value of their port by stealth to those who simply want to make more and more profit out of our assets through privatisation.'
The new laws making it easier to fire workers and harder for unions to negotiate being passed around the world from Wisconsin to Spain do nothing to support economic growth but effectively reduce wages. As the economist John Maynard Keynes described the effect, 'Although reducing money wages could boost a single firm, in the whole economy the effect would be to depress demand for consumer goods, as workers had less money to spend. Workers typically spend more of their income than bosses do, so redistributing income away from workers was likely to further decrease effective demand.'
3. Should the government create jobs and support industry?
John Key does not believe the Government should intervene to assist the railway workers at Hillside, smelter workers at Tiwai Point, miners at Spring Creek or the paper workers of Kawerau. But he was happy for $1.8 billion in taxpayer money to go towards bailing out South Canterbury Finance and for $100 million in tax breaks to go to Warner Brothers over the Hobbit. He links job creation schemes with the imploding economies of southern Europe but they are not doing any job creation.
However in France the new centre-left government has begun a timid programme of raising taxes on the wealthy and creating 150,000 jobs. It's not much but it is an alternative do the do-nothing policies of Key and the National Party. The Mana Movement has an Employment policy that would create full employment and abolish the dole. Mana would also have a national economic strategy that supported industry in New Zealand and was environmentally sustainable. This is the type of thing the government should be doing to reduce unemployment.