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“Where is the
Economy of the
Rich Going?”
MALATEMPORA EDIZIONI - ROMA
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The thing that counts is the pure statistical fact that tells us that
production has increased. A funny example of the distortion in the
calculation of this statistical monument – the GDP - lies in this
extremely recent occurrence in the USA. We know, among other
things, that the GDP is made up of the balance of payments, meaning
the algebraic sum of the positive amount of exports, minus imports.
The fact is that, if there is a strong drop in imports as an effect of the
crisis, which obviously translates into less consumption, the GDP
increases, as this resulting amount will necessarily increase.
Therefore, although it produces poverty in the general population, the
effect will be an apparent growth in wealth.
So let’s try and understand the discrepancies that hide behind the
realization of equilibrium models and what horrific consequences
they entail.
We must consider that, for historical reasons, the cost variable tends
to decrease, whereas the variable regarding circulating money tends
to increase, and neither of them follow a linear trend but have a
constant direction.
Even the other two main variables, demand and supply, have a
historical tendency to increase in direct proportion to one another.
The theory of equilibrium describes the dynamic trend of the four
variables and their relationship with another two variables, the
unemployment rate and profits, which collectively depend on these
variables and, in turn, influence their trends.
In this pretty picture, one can understand the control of the central
banks on interest rates, which determine the amount of money that is
created, the worries regarding the drop in employment rates or on
their excessive growth, the need to slow down growth (i.e. production)
to avoid the imbalance with demand or to put the breaks on
consumption to avoid putting pressure on prices, etc. etc.
But there are a few things that this model doesn’t say, and that falsify
the whole process.
Chapter 5
First of all, this model doesn’t say that increasing growth is based on
the indebtedness of the system, in the form of private debt (families
and businesses) and public debt (states and public entities). The issue
involves both the equilibrium of the system and the nature of power
itself.
Suppose someone offers you a job, a house and even the money to eat
and amuse yourself. You would be extremely happy, I think. Then you
find out that the money you get for your job is less than what you need
to live, so each month you get into a little more debt, and you even
pay interest on this debt, which increases your debt. Is it reasonable
to assume that you’d be a little less happy?
The main character, a widower with two small children, is looking for
a job and a decent place to live. He happens to find a farm where they
are looking for workers. They offer him a salary of one thousand
dollars a month (incredibly high), a house, food, a car, amusements
and schooling for his children.
He is extremely satisfied with the conditions and gets straight to work.
As a matter of fact, the house is an unbearable cabin, the car is a
wreck and impossible to drive, the food is terrible and the
amusements non-existent, but one can’t be too picky in his situation.
The surprise comes at the end of the month. That’s right, because
when he goes to collect his salary after a hard month’s work, they tell
him that they have to detract 600 dollars from his one thousand dollar
salary for his accommodation, 400 dollars for food, and another 400
dollars for the car, drinks and amusements (the whiskey was a tad
expensive).
Basically, after a hard month’s work, not only had he earned nothing,
but he was in debt for a total of 400 dollars. In the film, as one could
predict, the whole affair ended up in gun-shots.
The same thing is happening in the world, but strangely enough no
one is complaining. The public debt of the State increases in absolute
terms every year. The element that drops and that is subject to control
is public deficit, which is one of the elements that determine the rate
at which debt increases 2.
The increase of financial mass via indebtedness corresponds to an
impoverishment of the population and not to its enrichment.
Effectively, in the Western world, impoverishment is increasing in the
layers of population that are traditionally poor, and spreading to
sectors of the middle class.
In fact, the increase of financial mass entails an increase in absolute
terms of interest that is paid on this mass, seeing as money is
basically only issued via the mechanism of money creation from the
banks. In other words, the more is produced with work, the more we
are in debt towards the financial system, which, instead of being a
stimulus for productive activities, has become a dead weight for the
economic system because of the dimensions it has reached. This is
why those who don’t own financial instruments and simply live off
their work necessarily become poorer, whereas those who own
financial instruments get richer at the same time.
An illuminating example of the cul de sac the system has gotten itself
into can be found in the peculiar way in which debt instruments are
issued in public deficit.
Basically, public deficit consists in the amount of money that is
necessary to cover the expenses of the State, which aren’t covered by
the profits of taxation.
Issues into public deficit have to be balanced according to the gross
domestic product. According to the Maastricht treaty, the essential
prerequisite to access the single currency is to keep public deficit
within the annual margin of 3% of the GDP. Over the past years, this
percentage has been even higher, up to over 12% of the GDP when
the Italian State was in great difficulty.
The perversion consists in the fact that these instruments are
calculated on the basis of how much citizens actually produce, but
they are not used in favor of those who allow them to be issued thanks
to their work.
On the contrary, they’re the ones that foot the bill. In fact, the issue of
public deficit ends up weighing in on public debt, and will sooner or
later be covered by ordinary taxation.
This all leads to this absurd consequence: in absolute terms, the more
we produce, the more we are in debt. In fact, public debt in the State
of Italy reached the respectable amount of 2,500,000 billion in 2000.
To cover this horrific amount, Italians should work for over ten years
without keeping anything for themselves, meaning no food, no drink,
no free time, no children...and taking great care with the air they
breathe.
Do you realize how absurd this is? That a group of gentlemen, who
aren’t even that anonymous and that hold the majority of this
financial wealth, not only have free access to diabolical luxury, but,
thanks to debt, above all they have to power to decide on the life and
death of entire populations.
Notes