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Politics Serving Free Financial Markets Creates False Incentives

by Stephan Schulmeister Thursday, Sep. 05, 2013 at 4:28 PM

Stable exchange rates, a strict regulation of (financial-) capital transactions, a transactions tax and low interest rates should make financial speculation so unattractive (“euthanasia of the profiteer”) that real investments would quickly expand to maintain full employment.


By Stephan Schulmeister

[This guest commentary is translated from the German on the Internet, Stephan Schulmeister is an economic researcher in Vienna.]

Your money is in danger. Everything you have built is in danger. Here is your way out.

Hurrah, the EU heads of state have agreed on a budget. The EU must now save like its individual states. In other regions, saving was not declared the highest goal. There the economy did not slip again into a recession. The reason is that saving is “doing nothing.” When I go to eat every day, my spending creates an income for others. If I decide to save, I take income from others. The economy shrivels where “doing nothing” becomes the guideline of politics. The state deprives businesses and households of income; thus they also save. The economic cycle begins to suffer in blockage. The diagnosis is clear: the more radical the austerity policy, the more strongly the economy shrivels – from Greece to Italy – and the more intensely state indebtedness climbs. State finances cannot be consolidated with ever higher unemployment. This is very clear in the worldwide economic crisis. The economic experts could not see these connections. They apply politics with that navigation map whose guidelines – “If unemployment increases, cut wages and unemployment benefits” or “If the state deficit rises, save more” – lead us deeper and deeper into crisis. A change for the better will first occur when this navigation map is discarded. Economists will not do this (the map is their baby) but rather politicians who have the courage to think independently – like President Roosevelt at the all-time low of the worldwide economic crisis. There would not have been a “New Deal” if he had not sent the economists home and reflected himself.


By Stephan Schulmeister

[This article published on May 27, 2013 is translated from the German on the Internet, Stephan Schulmeister is an economic researcher in Vienna.]

The criticism of Keynes aiming only at the effects of anti-cyclical budget strategies ignores his basic systemic message. Politics that surrenders unreservedly to the free financial markets creates false incentives and must suffer shipwreck.

In the EU, the economy is shriveling again. Southern Europe is already in a depression. At the same time stock prices climb from one all-time high to the next. Is that a match or a contradiction? How that matches results from the guidelines of the dominant navigation map.

1st Guideline: Freedom to all markets. The financial markets were deregulated at the beginning of the 1970s. Dollar devaluations led to oil price shocks and the first recessions. The high interest policy pushed the interest level above the level of the growth rate. Businesses shifted their pursuit of gain from real- to financial investments. Financial derivatives facilitated the self-serving multiplication of money. Unemployment and state indebtedness increased.

2nd Guideline: The state disturbs the free market and is cu9lpable in its indebtedness. In 1992 the Maastricht criteria were resolved. The social state was weakened. Despite millions of new precarious employees, unemployment climbed higher and higher and the economy hardly grew any more. The financial markets boomed.

A miracle followed the “{earthquake” in the form of the 2000/2003 fall in prices. Raw material- and housing prices boomed, not only the stocks, and the Euro doubled its value. Enormous wealth was created – and destroyed again in 2008 when these prices fell again. This main cause of the great crisis remained hidden from the elites according to the 1st guideline. Thus the state was made the rescuer of the banks, wealth and the economy. The economy recovered again but that was expensive for the state.

Now the elites reflected again on the 2nd guideline. The state must save and the “southern EU states” must save the most. As a result, businesses and households also began to save. From Greece to Italy, there was a downward spiral into depression. To prevent the worst, the European Central Bank drastically loosened monetary policy. In the US, a “Keynesian” course was followed since 2008: constant printing of money by the Federal Reserve, extremely low interests and high budget deficits. This is not a viable alternative. There is nothing right in the false finance capitalist system.

Over decades this system created countless possibilities of self-serving money multiplication. One could speculate withy cheap money against member countries of a monetary union and then buy high interest state bonds. The Euro has been a striking example of something true in the false. It must break down when financial acrobats play off member states against each other, that is merely replacing currency speculation with interest speculation.

In conclusion in a false incentive system “Keynesian” measures stimulate financial speculation more intensely than the real economy, currently the stock market. Neoliberal economists bring this “bubble formation” as an argument against the theory of Keynes.

Part 1 of a “Catch the Thief” farce: The “master minds” like Friedman, Hayek and Co. demanded the liberation of the financial markets more than 50 years ago!

Part 2 of the farce: What neoliberal economists attack as “Keynesianism,” the anti-cyclical budget- and interest policy, was not the essential message of Keynes. That message referred to the system as a whole. Stable exchange rates, a strict regulation of (financial-) capital transactions, a transactions tax and low interest rates should make financial speculation so unattractive (“euthanasia of the profiteer”) that real investments would quickly expand to maintain full employment.

The state should compensate for a temporary weakness of private demand through “deficit spending” and conversely put a damper on an over-heated economy through “surplus saving.” Both would seldom be necessary under the system conditions that he proposed. This was even tr5ue in the postwar era – up to the deregulation of the financial markets 40 years ago.

Economics has never accepted Keynes’ “systemic” basic message. In its place, economics made the essence of “Keynesianism” out of his “secondary message” of anti-cyclical policy. Accordingly economists like Friedman in the 1950s could promise: free exchange rates would hardly fluctuate but would increase the autonomy of national economic policy. The “southern EU states” are now promised the blessings of devaluation as though they did not practice that between 1973 and 1999 with the greatest failure. In 1971 with the abandonment of stable exchange rates, the way began into the crisis of today and the depression of tomorrow.

The past 40 years have confirmed the experiences since the beginning of the modern age. Free financial markets of all kinds systematically produce false prices, namely trends upward or downward over several years. These are results of “fast” speculation. Price fluctuations in minutes-, hours- and days accumulate into “bull- and bear-markets.”


The elites could not see this according to the guideline. Rather “the market” as judge should punish the culpable like the “southern EU states” with high interests. “The market6” should reward the “northern EU states.” As wealth-multiplier, “the market” should ensure a fine income to (future) pensioners through rising stock prices and as an “invisible hand” guides everything to the best.

Shipwreck is on the horizon – the end of navigation with a false map – when politics puts its fate and our fate in the hand of an authority that suffers in manic-depressive insane existence in the long-term and in serious Parkinson’s in the short-term.

Concretely the final phase of the crisis begins if the current stock boom (inevitably) capsizes in a price collapse and the pension capital of hundreds of millions of people is devalued. The existence of many people will be ruined but not the existence of the navigators or cartographs.


By Ron

[This blog entry published on April 3, 2013 is translated from the German on the Internet.]

In his current “Doubts on the Left” column, Jacob Augstein presents a short version of the Blochian social utopia. The utopian hope with its eschatology oriented to justice is understood as a Christian inheritance. Changing society is a necessary stage and condition in the historical process of the conversion of an end-time hope. Jurgen Moltmann developed his idea of truth following Bloch: Truth is what does not agree with reality.

The Christian culture in its nature is a utopian culture, Augstein explains, Murmuring can always be heard in the background of Christianity. With this term, Luther described the raging longing for a better world. The prophet Amos was outraged “that they sell the just for money and the poor for a pair of sandals.” His colleague Isaiah prophesied: “Then the tyrants and mockers will be no more and all those intent on wreaking disaster will be destroyed.”

Christianity is the religion of the oppressed. Jesus was the first communard or commune partner. In the Acts of the Apostles we read: “They that believed were of one heart and one soul. No one said his property was his own. Everything was common to them.”

This is still alive but is subject to recall at any time. When a new pope “adopts” the name of Saint Francis, the name of a man who shared everything he owned with the poor, the whole world understands this message in the era of the misanthropic inhuman greed of finance capitalism. The church cannot be so corrupt and no priest can be so depraved to bury that. We contemporaries start with a man who speaks with animals. The doctors knew a solution: three weeks in a self-contained hospital ward and 25 mg Zyprexa daily. That would be the end of the whole saintliness.

In a famous passage in “The Principle Hope,” Ernst Bloch wrote: “The person lives in a prehistory. Everything and everyone stands before the creation of a just world. The real genesis is at the end, not at the beginning. That genesis begins when society and existence become radical and go to the root.



We live in the era of the inhuman greed of individual persons, the state and obviously some individuals in high positions in firms. Law-and-order liberalism emphasizes: the framing orders must be set so the individual when he acts rationally (that is, wants to maximize his own profit) automatically acts for the well-being of the whole. The pursuit of gain is in no way approved. However assuming a better view of the person would be simply unrealistic. Not all “striving in self-interest” is sin. If there were the same grades for all persons in school, there would simply be no motivation any more. Enjoying the fruits of one’s labor is normal…


Moltmann refers to Bloch again and again from the Theology of Hope (1964) to the Ethic of Hope (2010).


In Theology of Hope, truth for Moltmann is a promissory truth. “Promise announces a reality from the future of truth which is not yet. Promise stands in a specific inadaequatio re et intellectus to the existing reality” (p.75).


When everything is only promise and future music (ie. Up in the air or a long way off), that is a “total eschatologization.”

In a certain way, that is even logical since gospel, revelation and God’s reign merge in a nebulous eschaton. Truth according to Moltmann would be where we speak truth, compassion and liberation in the distress, suffering and lies of this world.

Ron: Truth is what is not yet. In our changing the world, the world gains a share in the truth of the promise.

Roderich: Be careful not to stylize yourself in the victim role. Be on guard against spiritual arrogance (!!!). “Pressure” etc does not automatically lead to growth. It can also lead to bitterness, withdrawal in isolation etc.

Be careful not to spiritualize human things too much. Do not lose contact with the ground. An”overly strong spirituality” with simultaneous isolation is dangerous. The question is how you convert your principles on the job, in dealing with fellow per5sons and in caring for your family. Reality is the touchstone.

A hope for an “improved world” is not always utopian. Read Francis Schaeffer’s “How Should We Live?” about the effects of the Reformation. The world improved through a return to the Bible. This can happen again. On the other side, a persecution of Christians could also occur soon.

Christians must be prepared with apologetics, knowledge of the Bible, love of God, knowledge about the significance of suffering etc. so we are ready for the possible persecution which can also have positive effects. God uses persecutions to awaken his sleeping people. When the people sleep too much, the persecution must be even stronger. The stronger the persecution, the more (lukewarm) Christians will fall away if they are not prepared. That is a problem.

But if we are spiritually prepared, then a persecution cannot worry us but will even strengthen us.

In a culture becoming orientationless, persons who have a vision and can best justify their worldview are always sought. Despite persecution, there can be a conversion and return to God – as happened in the Roman Empire. Our views should not be too focused on the individual, too pessimistic and too ignorant of church history.

Open Doors offers seminars for Christians in Islamic-. Hinduist- and communist-governed countries to prepare them for persecution. It is time for Open Doors to offer similar seminars for lukewarm western Christendom.

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