from Norbert Häring
In Germany and beyond, public policy in response to the Corona crisis operates with
an unspoken basic assumption: the claims of capital are sacred.
This is unfair and economically unreasonable.
German economists largely agreed on how not to deal with the corona crisis. Sending a cheque to all taxpayers, as the US government did, is considered an unsuitable anti-crisis measure. After all, the 1200 dollars were too little for 30 million who lost their jobs within a few weeks, and unnecessary for the others who were supposed to stay at home anyway and not go shopping.
Instead, the German government, to roaring support of German economist, decided to lower the value added tax for half a year, starting in July. Few of the arguments against Trumps consumption checks would not apply to this measure.
The statement of the head of the Austrian National Bank, and thus member of the Governing Council of the European Central Bank (ECB), Robert Holzmann, that the crisis is an opportunity for “creative destruction”, as advocated by the radical “Austrian School” of Economics, was also widely rejected. For this is would badly hurt many employees, who, contrary to the unworldly assumptions of economics textbooks, will not find a new job so easily. And it is also hurting the owners of capital. Production facilities would be permanently devalued and many loans would have to be written off due to bankruptcies.
Leo Kaas, Professor of Macroeconomics at the University of Frankfurt, counters: “Even before the corona crisis, the discussion about zombie companies was misleading; to talk about them now and to cite the purifying effects of recession is completely off the mark”. Even the European Central Bank felt compelled to make a public clarification that its council member was speaking only for himself.
“Such unusual measures are right and urgently necessary in the current situation”, Kaas defends the governmen’sl efforts to save as many companies and jobs as possible in his article “Das Kapital in der Corona-Krise” “(Capital in the Corona Crisis), published in the online magazine Makronom.
Adjustments of the capital stock through liquidation or shrinkage of companies need be avoided, he argues. In order to adjust the capital stock to the collapsed sales and production opportunities, part of the buildings and facilities would have to be sold, leased or the entire company liquidated. In normal times, these would be quite normal and desirable transactions. At present, however, things are quite different.
In the current circumstances, a market is missing on which, for instance, the facilities of hotels, restaurants or fitness centres could be sold at reasonable prices or for which commercial premises in the shopping zone could be rented. What is more, the problem is a temporary one, so that relocating production facilities permanently is not appropriate anyway.
Left-wing economists as accidental “Austrians”
Nevertheless, some economists make suggestions that could also come from widely criticized Holzmann. This even applies to Peter Bofinger, the former member of the Council of Economic Advisors (Sachverständigenrat), who is close to the trade unions.
Like many other economists, he criticized the fact that aid to companies by German government focuses too much on liquidity, i.e. loans. This increases the debt ratio and thus the risk of insolvency. Instead, he proposed a retroactive reduction of income and corporation tax for 2019 by 20 percent, solely for income from self-employment and trade. The tax offices should reimburse this from the tax prepayments, the companies would then have immediate cash and no additional debt.
There are many such proposals for tax cuts as corona aid, some of which have been included in the recent stimulus package of the goernment. Most of them, however, come from the camp of economic liberals and corporations. With little surprise.
These subsidies mainly end up with those self-employed and businesses that had the highest profits before the crisis, while those with low profits or even losses would go away empty or almost empty. These are precisely the businesses that Holzmann would like to see fall victim to “creative destruction”.
“Artificial coma” for the economy
The former senior partner of the management consultancy BCG, Daniel Stelter, suggested, in a term possibly not quite accurate, but striking, to put the economy into an “artificial coma”.
His proposal is to pay all companies and self-employed persons during the months of closures and initial restrictions (lockdown) an amount equal to the average monthly turnover of the last year, with no duty to apply for or assessment of need.
Once normality restored, recipients would first have to repay any excess over the previous year’s average revenue and tax the remaining emergency aid as normal revenue.
Capital as the main beneficiary
Leo Kaas pointed out the major shortcoming of the proposal, which also applies to the government’s aid programmes. “The government’s liquidity programs benefit the owners of capital, since they enable companies to remain solvent.”
Potentially, without the rescue programmes, capital owners would be willing to make voluntary concessions to save their borrowers or tenants from bankruptcy, and themselves from even greater losses. However, Kaas believes that it is not the task of the state to generally protect the assets of capital owners against the consequences of such crises.
Therefore, he proposed that for the period of lockdown all companies with a sharp drop in sales should be given the right to suspend their rental and leasing payments for the same period in proportion to the drop in sales. He does not explicitly mention interest payments on loans. But when asked, he adds that the proposal could be extended in principle, at least to defer interest and redemption payments.
“Should individual banks get into trouble, you could still help them, after all, we have known how to do that since 2008 at the latest.” According to Kaas, the state should help those capital owners for whom the lack of payment would be a particular hardship, just like unemployment benefits.
If the owners of the capital were to share in the costs of closing down the capital which they provided or financed, the debt of both State and companies would have to increase less, Kaas argues. Accordingly, the economy could recover more easily after the crisis, as only companies that do not have to try to reduce debt can nvest.
Kaas’ proposal highlights an unspoken and unquestioned basic assumption of the rescue policy: payments to capital owners are sacred. It would only be right and proper – and much more favourable for economic revival – if the costs of the crisis were to be borne not only by companies and workers, but also to a considerable extent by beneficiaries of capital income, whose claims on the production result must be served from current production.
After all, the core of the problem for people as well as companies in the crisis is that, though their income is reduced or lost, they still have to make full payments to the capital owners, in the form of rent, leases and interest.
The majority of capital income recipients are wealthy enough to cope with shortfalls for a certain period of time without assistance. The state could easily help the ones that don’t. And anyway, banks are being helped by the European Central Bank.
Real-World Economics Review Blog 
The claims of capital ARE sacred (in this system). This is capitalism after all. The ongoing crisis will not be solved until capitalism is abolished. Whether this occurs by the death of a thousand cuts (for once applied to subsidies to capitalists) or by phased changes or by revolutionary overthrow or by collapse into barbarism and human extinction is yet to be determined. It will determined by the processes of the natural world and of political economy operating in a complex feed-back fashion to generate an emergent outcome.
Those who think that capitalism can continue forever are living in la-la land. Those who think endless material (quantitative) growth can continue indefinitely are again living in la-la land. Real systems (on earth) are finite and do have fundamental laws. These fundamental laws cannot be transgressed, or a least not consistently transgressed, and this is known to at least 5-sigma scientific certainty. (For example the Laws of Thermodynaimcs.)
The contradiction of capitalism has turned out to be external not internal. Capitalism has, until the present time, solved all its internal contradictions, at least to the satisfaction of capitalists. It cannot solve its external contradiction with the containing environment. The natural environment is not just external to the political economy, it is containing. The economy in total, real and notional (money-financial), is a subsystem of the biosphere and all universal fundamental laws apply to it.
Essentially, capitalism in the processes of capitalization, debt-money creation and assumptions of future income to pay down debt, presumes and indeed mandates endless expansion for its money-financial perputual motion, perpetual expansion machine to continue its expanding cycles. Endless quantitative expansion implies endlessly expanding matter and energy utilization and endlessly increasing disruption of natural cycles and bio-services. Endless qualitative expansion implies increasing creation and maintenance of complexity against the trend of entropy which implies endlessly expanding energy utilization at least. It takes energy to increase order. There are other effects, as in substitution and efficiency effects, but these effects also cannot be assumed to be infinitely available. Fundamental limits will still intervene at some point.
Capitalism is going to collapse or we are going to have to pre-emptively obsolete it. What do we do? What is the way forward? I’ve posted suggested programs in other threads. There is little to nothing that is unique about my pragmatic program suggestions. I claim no novelty in that arena. Eventually, we are going to have to envision the abolition of the open-ended right to own theoretically unlimited amounts of private property and we are even going to have to envision the emerging retrenchment and abolition of money and markets themselves.
Just as those trapped historically and conceptually in the feudal paradigm could not imagine the advent of capitalism (early stage and late stage), so those trapped in the capitalist money and markets paradigm today tend not be able to imagine anything but capitalism, money and markets. In our case, because we now have knowledge which the feudal mind did not possess, it is nothing less than a failure of intellect and imagination which leads to this continuing conceptual entrapment in the extant paradigm. Such intellectual failure was understandable until the occurrence of the scientific discoveries and philosophical advances related to evolution, relativity, emergence, complex systems science, information science and comparative studies in the social sciences including the intellectual and cultural capacity for self-reflection about our own SISs (socially imaginary significations). Such intellectual failure is no longer understandable or acceptable.
Capitalism has to go. That doesn’t mean that Marxism/Socialist re-distributive taxation is its inevitable and/or best replacement.
Craig,
I have long viewed mixed economy Capitalism as a hybrid maldistribution / redistribution system. It follows logically that If redistribution is needed then maldistribution has occurred. It is the issue of the initial maldistribution which must be addressed.
A maldistribution / redistribution system is inefficient. It involves what is standardly called churning. We are putting too much into one pot (earnings from ownership of property and capital and from elite salaries) and then we need to tax it to top up another pot (income from low wages and the non-income of the poor). There is double-handling and an administrative overhead to this churning. One can argue that both the tax office and the welfare office are bigger than they need to be and each takes its own slice of administrative costs to run. From a mechanical point of view metaphor we can see that where a machine has a steering bias and then requires extra effort to hold on course, there is a waste of energy. Such a machine is not as efficient as it could be.
How do we address the issue of the initial maldistribution under mixed economy capitalism? It really comes back to the issue of the ownership of private property. The ownership of private property which produces income has been permitted to become excessive for some under mixed economy capitalism. The ownership of private property producing income has been permitted to become maldistributed in itself. This equates to the ownership of the means of production in Marxism and it includes rights to land, land products and real estate to produce income.
There are many solutions and they would currently involve expanding the state and nationalization. Until a radically new post-capitalist system evolves (and there are signs that such could evolve along with modern technology if facilitated) then the pragmatic answer is to limit private ownership and to increase collective and national ownership. I’ve posted practical (and completely unoriginal) ideas about this on other threads. There are many more ideas which could be added.
Don’t need to expand the state, do need to revamp legal relations in civil society by rewriting the definition of the firm from a proprietary one to an organic (stakeholder) view.
I don’t know what an organic (stakeholder) view entails, but if it’s nonproprietary, that would be great. “Proprietary” has become a dirty word to me as it becomes more clear to me that monetization always, always, always brings value subtraction.
Rhineland capitalism is a stakeholder version of the firm, where, most importantly, employees have a voice in firm governance. Rhineland capitalism has been in effect since the 1950s, but it is a well kept secret on this blog.
I’m vaguely aware of Rhineland capitalism, but probably a biased take on it, because most of what I’ve read about it was during the ’00s, and most came from radical Indymedia-type websites. So, my understanding of Rhine capitalism (the appellation I remember) is that there is a three-way separation-of-powers framework, like in the United States, but the framework in continental Europe (especially Germany) was that the three power centers to be pitted against one another in hopes of a happy compromise were business, labor and government. Learning of this excited me very much as, by that time, I had long been expressing dismay that America’s founders had not thought to include any part of the private sector (especially “big business”) in their checks-and-balances schema. The radical sources from which I learned of Rhine(land) capitalism were most concerned with what was replacing Rhine capitalism (also referred to sometimes as corporatism), which they called the Har(t)zkonzept, which was seen as a neoliberal wedge deployed against Rhine capitalism. The spear-point of this attack against Rhine capitalism was something called the “one euro job.” Apparently people getting unemployment benefits were expected not only to accept any job on offer, but the system arranged for unemployed folks to get offers that paid €1 (though I forgot whether that was per hour or per day).
What Ike says about collective ownership could be what Robert is arguing for if we rethought the purpose and responsibilities of ownership. Maybe the other Locke, John, got it right when he says every man has a right to what he produces himself. As I see it, that went wrong with the doctrine of corporate personality, leaving the corporation legally allowed to own what it took many men to produce, then sell off shares of itself and what it considered to be surplus.
The problem isn’t so much economics, it’s the monetary paradigm. Change that correctly by basing it on the concept of grace and the deepest problems of the economy will be resolved.
Capitalism’s driving force is power and control, Socialism’s is actually the same. Direct Monetary Distributism’s driving force when aligned with the new monetary paradigm of Direct and Reciprocal Monetary Gifting and its equally aligned policies would be grace as in both benevolence and sovereign power. Grace is the pinnacle concept of every one of the world’s major wisdom traditions, is the unitary power of love in action and is the only concept that, self actualized, can effectively unite the opposites of benevolence and sovereignty. Mankind is shaped by its culture. An economy with its ever present-ness in everyone’s life, based on grace, is precisely the cultural instrument needed to lift humanity out of its long adolescence and enslavement by the paradigm of Debt Only.
If the US were a democracy, which today it is not, this would not be the case. Paul Krugman has an op-ed in the NYT today, “Why Do the Rich Have So Much Power?” The teaching example he uses is the budgetary ‘Grand Bargain’ that almost happened in 2011. At the time, Washington was firmly in the grip of deficit fever. Even though the federal government was able to borrow at historically low interest rates, everyone who mattered seemed to be saying that the budget deficit was the most important issue facing America and that it was essential to rein in spending on Social Security and Medicare. So, the Obama administration offered congressional Republicans a deal: cuts in Social Security and Medicare in return for slightly higher taxes on the wealthy. The deal foundered only because the Republicans refused to accept even a small tax increase on the wealthy. Krugman wonders, “…who wanted such a deal? Not the American public. Voters in general were not all that worried about budget deficits. While most Americans believed that the deficit should be reduced — they always do — a CBS poll in early 2011 found only 6% of the public named the deficit as the most important issue, compared with 51% citing the economy and jobs. To answer Krugman’s question, we need to focus on the phrase above, “everyone who mattered.” Obviously, this is not the 94% who did not see the deficit as the most or even an important issue; and certainly not one that ought to be addressed by cutting Social Security and Medicare. In contrast to the positions and even the debate underway between the Obama Administration and Congressional Republicans, a large majority of Americans consistently express a desire to expand Social Security benefits and Medicare. A similar majority of Americans regularly want upper-income Americans to pay more in taxes, not less. So, whose interests were reflected in the 2011 budget fight? The wealthy. The 1% along with their fellow travelers.
As Krugman summarizes, “…in 2011 a Democratic administration went all-in on behalf of a policy concern that only the rich gave priority and failed to reach a deal only because Republicans did not want the rich to bear any burden at all.”
Krugman attributes the situation the three actors:
• The domination of campaign contributions by the wealthy. This shapes politicians in two ways. First, no politician can run without money from the wealthy, which will not be forthcoming if the politician fails to support the issues of the rich. Second, politicians feel compelled to ensure the rich access to themselves available to no other constituents.
• Politicians and those on the edge of politics receive direct financial support from the rich for their personal lives (e.g., homes, vacations, stock, etc.) so long as they toe the line laid down by the rich. Krugman demurs on whether this is bribery. I do not. It is bribery!
• The control of advertising dollars gives the rich an avenue to control media content, even if not directly visible to everyday viewers and users of the media. Numerous examples anger much of the American public today. Facebook, Amazon, Verizon, Comcast, Redditt to name just a few.
Krugman concludes while we should be contemptuous of this situation, we should not become too cynical. America is and has been from the beginning a combination democracy and oligarchy. The balance of these has varied during American history. Today America is clearly leaning more toward oligarchy than it has since the last 20 years of the 19th century. Of more concern is that America is leaning toward the form of oligarchy that the founders of the nation feared most, plutocracy. Their great fear of this form of “factionalism” grew out of their concern that it was more harmful to American democracy and more difficult to eradicate.
In Federalist Paper No 10, Madison sets out factionalism as the greatest danger facing the new nation. And the most dangerous faction is “men of property.” He sets a hard path to deal with this problem. “…the CAUSES of faction cannot be removed, and that relief is only to be sought in the means of controlling its EFFECTS.” At different periods during American history democratic government has lost either its desire to control the faction of the wealthy or suffers from fear to do so. A combination of the two perverts America today. Many American “leaders” are corrupt beyond redemption and/or so in fear of the plutocratic faction that they are paralyzed into inaction. It is time once again for all of us to re-read John F. Kennedy’s ‘Profiles in Courage,’ ‘A History of American Life’ by Mark Carnes and Arthur M. Schlesinger, Jr., and ‘The United States: The History of a Republic,’ by Richard Hofstadter, et al. It is also past time for Americans in general to become directly once again involved in “fixing” American democracy. After all, it is their democracy. No one can do the job for them.
Completely agree. Especially regarding the necessity of individual involvement in a mass socio-economic and political movement to democratize the monetary system.