'Corbynomics' can work — if you know economics is not neutral

The biggest barrier to the rational economic policies of Jeremy Corbyn, the socialist leader of the British labour Party, is the huge profits the super-rich are making from irrational ones.

The Bank of England has shelled out £375 billion in “quantitative easing” since the 2008 crash. It has, quite literally, created electronic money out of nowhere and used it to buy up financial assets held by the banks. The idea has been to pump “liquidity” — lendable money — into the economy.

But the financial system is loaded with debt, austerity has deflated demand and the real economy is stagnant. So instead of lending, the banks have used the new government money to pay debt and fund a new round of speculation.

Corbyn, Labour shadow treasurer John McDonnell and others are proposing “people's quantitative easing”. In this case, instead of using public money to re-finance casino banks, the government would create money for direct investment in jobs, homes and public services.

The problems being raised with this have nothing to do with economics. The proposal is eminently sensible. The problem is political: it poses a clear and present danger to the wealth and power of the 1%.

Greek lesson

The Greek economic crisis is no longer headline news. It should be.

The destruction by European finance-capital of the Syriza government in the first six months of last year — a triumph of debt over democracy, of profit over people — has plunged the country into an economic death-spiral, trapped in an austerity-induced depression.

Unemployment stands at one in four. Among the young, it is one in two. Wages have fallen by about a third. So has employment in education, health and other public services. Overall, the economy has contracted by about 25% since the 2008 crash.

As a direct consequence, the Greek debt burden has risen from about 130% of GDP to about 180%. Deflation is choking off revenue flows and reducing the country's ability to pay its way, forcing it to take out new loans to roll over old debts.

The statistics represent untold human suffering. Yet the Greek economic crisis — unlike the Greek refugee crisis — has dropped from view. The reason is simple: it is the elite that decides what counts as a “crisis”, not the poor.

When the Syriza government was challenging the wealth of the 1%, it was a “crisis”. Not any more: democracy has been trampled, the rule of the bankers restored and the rich are again sucking the lifeblood out of the Greek people to sustain their parasitic existence.

Class and power

Economics is not neutral. It is inseparable from questions of class and power.

We live in a class society ruled by the 1%. The banks and the corporations are run by a small class of the super-rich. In the end, the reason banks are bailed out, public services privatised and the poor screwed is very simple: it makes the rich richer.

All the bad things — monopoly prices, terrible working conditions, unfair taxes, refugees being tear gassed and jailed, hospitals sold to profiteers, unaffordable rents, student fees and all the fear, stress and despair of modern life — happens to make the rich richer.

The class interest of the 1% forms the hard-wiring of the political response to the crisis. A pathological form of neoliberal capitalism based on debt has imploded, and it is the greed of the rich that drives every attempt to shore it up.

These efforts are contradictory and self-defeating. But they cannot contemplate the only rational alternative: public ownership of banks and money, and the dispossession of the global financial elite.

To understand why, we have to grasp the inner logic of early 21st century capitalism.

The challenge posed by the economic crisis does not boil down to simply putting right “ideological” distortions, correcting “imbalances” and injecting some “demand” into the economy. The challenge is to stop the current process of capital accumulation in its tracks; to begin the dismantling of the bank-run, debt-based, hyper-exploitative system of neoliberal capitalism that has us in its coils; and thus to begin confiscating and redistributing the wealth of the speculators and oligarchs.

Rise of corporations

We have not tumbled into a world of growing corporate power and social inequality by accident. We have arrived here because the system was remodelled in the great crisis of the 1970s and '80s.

On the one hand, we have the rise of the corporations to the point where they burst the national shell and, operating globally, are able to dictate terms to nation-states.

Take the example of Walmart. By 2014, with annual revenues approaching half a trillion dollars, it was bigger than Greece; in fact, had it been a country, Walmart would have ranked as 25th largest in the world, ahead of 157 smaller countries.

The 2014 top 25 corporate list included oil giants like Exxon Mobil and Chevron, banks like Bank of America and JP Morgan Chase, motor manufacturers like Ford and GM, electronics firms like General Electric and IBM and the private health conglomerate UnitedHealth Group. All these had annual revenues above those of Iraq (about $80 billion).

These corporate giants manage the market, create the demand and set the price. Their power in relation to workers, consumers and nation-states is at an unprecedented level.

The result has been a huge shift of wealth — thanks to reduced wages, rip-off prices, and soaring profits — in favour of capitalists.

The system has therefore faced a problem of corporations awash with profit-seeking capital, while union-busting, rising unemployment, the squeeze on wages, and falling public and welfare spending have drained the economy of demand.

Faced with a choice between building a new global-scale production facility — a risky long-term investment — and fast profits in the money markets, industrial corporations have turned to financial speculation.

So financialisation is not just to do with banks. The whole capitalist system has become a debt junkie. Debt offers a ready solution to the twin problems of over-accumulation and under-consumption. Capitalists can make money out of trading debt and workers can compensate for falling wages by borrowing against future earnings.

Debt economy

The circuit of industrial capital accumulation has now been superseded by the circuit of financial capital accumulation.

This is pathological economics. The dominant form of capital accumulation in the modern economy is money-market operations.

Wealth is also being accumulated by a plundering of public wealth. Existing assets — and associated or potential revenue streams — are sold off to profiteers in a rolling wave of privatisations.

No new value is being created. All that is happening is that public assets and revenue streams are being gobbled up by private corporations.

Boom, bubble, bust

The financial circuit inflates asset prices without any corresponding increase in the real wealth of society. The debt economy is therefore highly unstable: an economy of boom, bubble and bust.

What powers financialisation is that it has become the principal mechanism whereby wealth is redistributed from people to corporations — from poor to rich. It is the economic explanation for the growing and grotesque inequalities all around us.

An Oxfam study has shown that the richest 63 people now control as much wealth as the poorest 50% of humanity (3.5 billion people). The richest 1% control more wealth than the remaining 99%.

Social inequality has increased sharply throughout the neoliberal era. In 1990, in Britain, the average chief executive earned 25 times the pay of the average worker. By 2008, this had risen to 150 times as much.

Since the 2008 crash, across the world, the hoovering of wealth to the top has accelerated. In 2010, the richest 388 people owned the same as the poorest 50%. Four years later, just 85 people had this much wealth, and now it is down to that gold-plated 63 — who between them are worth US$1.76 trillion.

This wealth is hoarded in tax havens. Oxfam says the global rich have $7.6 trillion stashed out of reach of government taxation. Who out there believes that these people will surrender their wealth in obedience to a democratic mandate?

To make a difference, we will have to nationalise the banks, cancel the speculators' debts, ratchet up taxation on the corporations and the rich, and begin a huge program of public spending to build a million green homes, create a million climate jobs and double the pensions, benefits, and wages of the poor.

The rich have been waging a class war against the rest of society for a generation. They have created a deeply dysfunctional economy of debt, stagnation and obscene social inequality.

The Corbyn leadership of Britain's Labour Party has created an opening on our side. What happens now depends on whether or not the left builds a mass movement for radical change that can burst through that opening, end the rule of the 1% and start the process of building a new economy based on equality, democracy and sustainability.

[Abridged from Red Pepper. Neil Faulkner is the author of A Marxist History of the World: from Neanderthals to Neoliberals (Pluto). The Sociailsm for the 21st Century conference in Sydney on May 13-15 will feature a session on Corbyn, Sanders and the repopularisation of socialism.]

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