Just Another Cheesy Meltdown

The last days have been marked by the financial markets going into another nosedive. On Thursday, the Dow Jones lost 3.7% of its values, the FTSE 4.5%, the Italian MIB even 6,15%. Hysteric comments regarding a ‘possible double-dip’ in the global economy flared again.

Personally, I think that the panic fuelled by mainstream economic pundits is ridiculous. To talk about a US and Europe ‘hovering dangerously close to recession’, as in yesterday’s words of Morgan Stanley, means to overlook the very evident fact that Western economies have been – and still are - in a state of depression at least since 2008 (but, in a broader sense, since the 1970s). By depression, I mean slack consumer demand, high levels of unemployment and growing inflation.

Let’s have a look, for example, at the data regarding unemployment between 2008 and 2011 in what is still the biggest world economy, the USA.The rate of unemployment is currently 9.1%. It has been constantly higher than 8% since February 2009, peaking in the October of the same year (10.2%) and without improving of more than 1% ever since. Notably, it has been substantially steady from the beginning of this year.

By the same token, according to the Bureau of Economic analysis, in the United States the personal consumption expenditure for durables is still much lower (about -5%) than in 2008. No wonder why: fewer jobs + higher inflation = less money to spend in the household!

In this situation, one can ask themselves how it is possible that the Dow Jones Index already surpassed its pre-crisis levels in November 2010. I am not an economist, but I guess that there are two possible answers:

1. either financial brokers are magicians;  
2. or between 2008 and now the transfer of wealth from the real economy to the financial markets has intensified.

Let’s assume that financial brokers are not relatives of our beloved (not really) Harry Potter.

In this process of transfer of wealth, the Western governments have been concurrently accomplices and victims. Accomplices, because they have agreed with pumping public money into the financial sector to save/revive it. Victims, because it is exactly financial sector companies that hold most of the public debt that has been generated to save them! In other words, political leaders have borrowed money on behalf of their citizens in order to save private investors – and the result is the latter are still (or better, even more) able to speculate on those public- loans...  Does ‘socialisation of the losses, privatisation of the profits’ sound familiar?

What is rather clear here, is that this process is brutally widening the social gap within Western societies. In fact, the decision of the governments to steer their public spending to bailouts, and then to savagely cut it, affects mostly the (only economically speaking!) poorest chunks of society: women, ethnic minorities, young people, and generally speaking the lower classes. The increasing exclusion of these subjects from employment and consumption is itself a crucial factor in hindering economic recovery.

In this situation, the gains made in the last 3 years by the brokers of Wall Street or the City of London could not but be short-termed. In fact, they have been essentially based on a negative redistribution of the existing wealth rather than on the production of additional one. The most important, this process of negative redistribution is placing enormous strain on the low and even middle classes, and can potentially fuel destructive forms of social unrest, as in the case of the London riots.

The capitalist toy, in its neoliberal shape, is broken. The attempt to fix it playing according to the orthodox rules has failed. While the trail becomes narrower and narrower for moderates such as Obama or Merkel, the real challenge might be between a genuinely left-wing alternative (which has still to be defined), or a fear-driven reaction after the example of the Tea Party. Meanwhile, I will not shed a tear for the Wall Street sharks.