Right Answer for the Wrong Question

Whoever wishes to understand modern politics or economics must stay tuned to America. Despite the fashionable talk about its imminent decline, America is still the most powerful nation on Earth which its influence goes far beyond “hard” power. Visible trends and even underground streams developing in America are the marking paths to be followed by the rest of the world, whether as a vulgar imitation or as a reference point. It´s just impossible to ignore America

Accordingly I think that the annual State of the Nation speech is an event worthwhile to follow. This week ( January 2010) President Obama launched his annual message with some intersting ideas . First of all , the President made the economic worsening situation of millions of citizens the first priority of his administration, in his own words :

“.....But the devastation remains. One in 10 Americans still cannot find work. Many businesses have shuttered. Home values have declined. Small towns and rural communities have been hit especially hard. And for those who'd already known poverty, life has become that much harder...”.

Such a description ( which nobody can ignore ) sounds as the preamble for a major economic initiative. Still, the President was much specific when he turned to deal with a much thorny issue , the balance of public accounts :

“[F]amilies across the country are tightening their belts and making tough decisions. The federal government should do the same. (Applause.) So tonight, I’m proposing specific steps to pay for the trillion dollars that it took to rescue the economy last year. Starting in 2011, we are prepared to freeze government spending for three years. (Applause.) Spending related to our national security, Medicare, Medicaid, and Social Security will not be affected. But all other discretionary government programs will. Like any cash-strapped family, we will work within a budget to invest in what we need and sacrifice what we don’t. And if I have to enforce this discipline by veto, I will. (Applause.)

Beyond the impressive rhetoric, any mainstream observer would notice the apparent incoherence between the two President´s messages : How this administration intends to create jobs while freezing public spending? Is the President adopting the classic laissez faire stance, counting on free market forces to turn around the situation? Is this an admission that the ultra expansionist policy with a record deficit of almost 10% out of US GDP and low interest rates had failed? Hard questions, big dilemmas....

Now, let me make it clear : the above “dilemmas” are typical mainstream questions which are drawn from a wrong analysis. The apparent dilemma between jobs and “fiscal responsibility” is an “issue” for those who consider the crisis as a deviation from a normal path. Under such a pespective , the economic system periodically staggers due to “exogenous shocks” ( such as the predatory habits if Wall Steet ..) and requires a temporal intervention . To put in it in a simple analogy ,the economy system is like an healthy person which suffers from a temporal disease and the job of the Doctor government is to apply the right dose of medicine. The dilemma is between the types of treatments, their intensity and the possible collateral damages.

Those who think that the actual crisis is a natural outcome of our economic system can be divided into two camps : right and left. The “Right” believes that tides are a normal behavior of a market economy and that the system is resilient enough to overcome the crisis. According to that view, public intervention just makes things worse since market is always smarter than bureaucrats. It is like adopting a “natural cure” attitude refusing to visit a doctor because “the body can heal itself”. These guys don´t understand the above “dilemma”. Mainstream observers consider that i the body cannot cure itself, the experiment can bring to a premature death ….what seems to be an interesting view might become a too risky option for the whole society.

The Left doesn´t consider any dilemma situation. view believes that crisis are a normal component of the economic system but not as a temporal “illness” but as a revelation of the inner contradictions and as a signal that things must change. In our case, I believe that the current crisis can accept only a Left interpretation . The crisis caused high unemployment and low capital utilization as a result of deficient demand ( sub consumption) . In simple words, the crisis is not because we, the economy, cannot produce more products but because there is not enough “money” around willing or able to buy what we can produce. How it comes? Doesn´t the market system balance between supply and demand? The economic system tends to concentrate wealth and consumption power too few hands. That creates a situation in which the economy is able to produce vast amounts of products, but since the majority does not have sufficient purchasing power, there is no buyer of these products , unless they are loaded with debt. Since the the only way “not to remain behind” is working harder or amassing debts

This is more or less what happened in the world economy in the last 30 years : a few Gates, Buffets and bankers earned millions and billions that cannot being spent. Their aim is not to spend that money but to accumulate more money ( Buffet is more than 80 years old and still hanging around, looking for new bargains) . The conclusion of such analysis is that only a redistribution of wealth and incomes can generate the demand to turn the wheels of the economy once again. The pathetic attempt to push the economy through bailouts , public spending or reducing interest rates to inflate financial and real assets is just a ideological fixation and will probably bring to a sovereign debt crisis ( the IMF is already warning) . The hole is too deep and the need to finance the public deficit brings back to the arena the cry for “fiscal responsibility”, but the error made by Obama and his Pseudo Keynesian advisors is to try and maintain the health of the public accounts through freezing, while the only available, logical and required step was to increase taxes on those wealthy people. Let us be clear : fiscal responsibility is not a monopoly of conservatives.....

Since US and the global economy are still , unfortunate, far away from such a “radical” idea ( not so radical as it is exactly how the American economy worked for almost 40 years after the Great Depression) , the crisis and its consequences, high unemployment, sluggish growth and poor horizons is what is expected from us , Courtesy from the “Change, Yes We Can “ President .