Warm Southern Breeze

"… there is no such thing as nothing."

“Radical reforms” are needed to stabilize economy.

Posted by Warm Southern Breeze on Monday, April 6, 2020

The Financial Times is no slouch organization – neither are they “left-leaning,” nor “liberal,” per se – at least not in the common, modern political sense.

They’re as “conservative” as they come.

And to read that “an irregular and precarious labour market,” combined with “monetary loosening by central banks [that] will help the asset-rich,” the loss of income by ” the young and active,” multiplied by

In short, nothing but “radical reforms” – defined as “reversing the prevailing policy direction of the last four decades” – will save individual nations’ economies, and the global economy at large.

The “laissez faire” attitude toward business, economy, and finance must be replaced by governments taking “a more active role in the economy,” including making “labour markets less insecure.”

Investing in public economic infrastructure, i.e, considering “public services as investments,” reconsidering the notion of “redistribution” of wealth, in conjunction with eliminating “the privileges of the elderly and wealthy,” and implementing “basic income and wealth taxes” will no longer be “considered eccentric.”

In short, “you must offer a social contract that benefits everyone.”

Suddenly (it seems), Bernie’s ideas aren’t so “radical,” anymore.

Suddenly (it seems), Elizabeth Warren’s ideas aren’t “way out in left field.”

Suddenly (it seems), Andrew Yang’s “Freedom Dividend” isn’t “extremist.”

Suddenly (it seems), everything old is new again.

But, you know the saying,

“Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it.”

–– George Santayana (1863-1952), Spanish philosopher, writing in The Life of Reason: The Phases of Human Progress (1905-1906), “Vol. I, Reason in Common Sense”

The post-WWII Bretton Woods agreement, which pegged international currencies to the U.S. Dollar, which was itself based upon the “Gold Standard,” will again be in the fore of discussion, and was unilaterally abolished by then-POTUS Richard Nixon through a series of measures called the “Nixon Shock” which effectively destroyed the Agreement, which was created when the world’s nations assembled in Bretton Woods, New Hampshire to establish a globally stabilizing economic system.

The Federal Reserve writes this about the Bretton Woods agreement:

“The international monetary system after World War II was dubbed the Bretton Woods system after the meeting of forty-four countries in Bretton Woods, New Hampshire, in 1944. The countries agreed to keep their currencies fixed (but adjustable in exceptional situations) to the dollar, and the dollar was fixed to gold. Since 1958, when the Bretton Woods system became operational, countries settled their international balances in dollars, and US dollars were convertible to gold at a fixed exchange rate of $35 an ounce. The United States had the responsibility of keeping the dollar price of gold fixed and had to adjust the supply of dollars to maintain confidence in future gold convertibility.”

Up until the time of the “Nixon Shock,” employees’ wages in the United States had generally kept pace with increases in GDP, or economic output. But after the “Nixon Shock” in 1971, wages have essentially flat-lined, while GDP has risen.

In response to Nixon’s unilateral decision, the ten leading developed nations in the world – Belgium, Canada, France, Germany, Italy, the Netherlands, Japan, Sweden, the United Kingdom, and the United States – entered into an agreement monikered as the Smithsonian Agreement which was a temporary agreement negotiated in 1971 which adjusted the system of fixed exchange rates established under the Bretton Woods Agreement and created a new standard for the dollar, to which other industrialized nations then pegged their currencies to the U.S. dollar.

As Certified Financial Analyst Michael Lebowitz, wrote in 2016, “unshackling the U.S. monetary system from the discipline of a gold standard, allowed the Fed to play a leading role in replacing the Virtuous Cycle with an Un-Virtuous Cycle. Eliminating the risk of global redemption of U.S. dollars for gold also eliminated the discipline, the checks and balances, on deficit spending by the government and its citizens. As the debt accumulated, the requirement on the Federal Reserve to drive interest rates lower became mandatory to enable the economic system to service that debt. And this effectively changed the course of U.S. economic history.”

These observations, and others, are, and have been, borne out by others, as well, such as in February 14, 2019, by Bloomberg writer Noah Smith, who wrote about wage stagnation in part that, “Workers lost a lot of ground between 1973 and 1994, and didn’t make up enough of it between 1994 and 2009. Stronger worker representation within companies, as well as government health care, would help restore some of those losses.”

But perhaps the simplest explanation I’ve ever heard, or read, about the value of good, strong and effective regulation is one which I’ve said for many years, which is this:

Regulations strengthen markets the same way that regulations create competitive sports, and operate machinery. Remove regulations and games become a pointless free-for-all, while removing or changing regulations on an automobile engine (such as through changing timing), and it will self-destruct fairly quickly.

But again, it seems that “Those who cannot remember the past are condemned to repeat it.”

Are our memories truly that Alzheimered?

Or, do we just not give a damn?

I contend that for some, “it’s all about the money,” and are wholly innervated by greed.

Fortunately, those are but a few.

Unfortunately however, they wield power through money, like water erodes rocks.

History has a peculiar way of repeating itself.

––//––

Virus lays bare the frailty of the social contract

Radical reforms are required to forge a society that will work for all
https://www.ft.com/content/7eff769a-74dd-11ea-95fe-fcd274e920ca

April 3, 2020 4:42 pm
by The editorial board

If there is a silver lining to the Covid-19 pandemic, it is that it has injected a sense of togetherness into polarised societies. But the virus, and the economic lockdowns needed to combat it, also shine a glaring light on existing inequalities — and even create new ones. Beyond defeating the disease, the great test all countries will soon face is whether current feelings of common purpose will shape society after the crisis. As western leaders learnt in the Great Depression, and after the second world war, to demand collective sacrifice you must offer a social contract that benefits everyone.

Today’s crisis is laying bare how far many rich societies fall short of this ideal. Much as the struggle to contain the pandemic has exposed the unpreparedness of health systems, so the brittleness of many countries’ economies has been exposed, as governments scramble to stave off mass bankruptcies and cope with mass unemployment. Despite inspirational calls for national mobilisation, we are not really all in this together.

The economic lockdowns are imposing the greatest cost on those already worst off. Overnight millions of jobs and livelihoods have been lost in hospitality, leisure and related sectors, while better paid knowledge workers often face only the nuisance of working from home. Worse, those in low-wage jobs who can still work are often risking their lives — as carers and healthcare support workers, but also as shelf stackers, delivery drivers and cleaners.

Governments’ extraordinary budget support for the economy, while necessary, will in some ways make matters worse. Countries that have allowed the emergence of an irregular and precarious labour market are finding it particularly hard to channel financial help to workers with such insecure employment. Meanwhile, vast monetary loosening by central banks will help the asset-rich. Behind it all, underfunded public services are creaking under the burden of applying crisis policies.

The way we wage war on the virus benefits some at the expense of others. The victims of Covid-19 are overwhelmingly the old. But the biggest victims of the lockdowns are the young and active, who are asked to suspend their education and forgo precious income. Sacrifices are inevitable, but every society must demonstrate how it will offer restitution to those who bear the heaviest burden of national efforts.

Radical reforms — reversing the prevailing policy direction of the last four decades — will need to be put on the table. Governments will have to accept a more active role in the economy. They must see public services as investments rather than liabilities, and look for ways to make labour markets less insecure. Redistribution will again be on the agenda; the privileges of the elderly and wealthy in question. Policies until recently considered eccentric, such as basic income and wealth taxes, will have to be in the mix.

The taboo-breaking measures governments are taking to sustain businesses and incomes during the lockdown are rightly compared to the sort of wartime economy western countries have not experienced for seven decades. The analogy goes still further.

The leaders who won the war did not wait for victory to plan for what would follow. Franklin D Roosevelt and Winston Churchill issued the Atlantic Charter, setting the course for the United Nations, in 1941. The UK published the Beveridge Report, its commitment to a universal welfare state, in 1942. In 1944, the Bretton Woods conference forged the postwar financial architecture. That same kind of foresight is needed today. Beyond the public health war, true leaders will mobilise now to win the peace.

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