Memo to Tsipras: SYRIZA will have all the tools necessary to fix Greece’s crisis

by Jehu

icfNWXWz7v28If the polls hold up, it looks as if SYRIZA has emerged as the most likely party to form the next government in Greece and this is a good thing.

If the party can get its shit together, it has all the tools it needs to address the prolonged crisis imposed on Greece by the troika — the European Union, European Central Bank and International Monetary Fund — and chart a different path forward for all of Europe.

My optimism might seem utopian, since by all accounts SYRIZA will be dependent on the European Central Bank for much of policy required to extract Europe from its crisis. Essentially, it would appear the Left is dependent on the very people who created the crisis to fix it.

I will show in this post why this is not true.

The crisis and the crisis of fiscal policy

The policy problem SYRIZA will face once it has formed a government is often framed the way it is in a recent article by Blyth and Lonergan, “Why Central Banks Should Give Money Directly to the People”. The article, which appeared in, of all places, Foreign Affairs magazine, the propaganda organ of the Council on Foreign Relations, purports to explain how a central bank might facilitate the creation of a basic income scheme.

Like Billy Mitchell’s recent piece on his misconceived job guarantee apparently it never dawned on Blyth and Lonergan that having a central bank just hand out money to the citizens of a country implies that enormous political power has become concentrated in the hands of an unelected financial oligarchy.

If we assume for the sake of argument the respective plans suggested by the Mitchell and by Blyth and Lonergan are technically feasible, we still have to explain how this sort of political power has become so concentrated in the hands of private, unelected, banking cartels? Moreover, we have to ask ourselves what impact this concentration economic power will have on political relations if both the general management of economic cycles and ‘social entitlements’ like a jobs guarantee and a basic income scheme now appears within the purview of unelected financial oligarchy?

If these programs can work technically why can’t the central banks simply print up currency and fund education? NATO? Social Security? Infrastructure ‘investment’? In fact, why can’t we just turn all of the economic management functions of the state over to the banking cartel to manage it for us?

Ignore, for a moment, that the roots of Blyth and Lonergan’s basic income scheme are anchored deeply in the writings of some of the most notorious post-war fascists, like Friedman and Hayek, why is the Left so willing to overlook the enormous shift in political power into the hands of a financial oligarchy that their plan implies? Bill Mitchell, who touts himself as a Leftist, never appears to even notice that the European Central Bank is not an elected public authority. The central banks are private cartels that have been handed control of monetary policy in much the same way many other state military and police functions have been outsourced to Blackwater and G4S. Functions of the state have been outsourced piecemeal by Washington and other national governments to private interests in one after another sphere.

Blyth and Lonergan admit that government can boost spending through both its fiscal and monetary policies. However the writers explain fiscal power in the United States — the power of the state to tax and spend — has been crippled by party squabbles and lack of consensus. Meanwhile government has outsourced its monetary authority to a private cartel of banks. Thus, with fiscal policy tied up in knots, elected officials have come to rely almost exclusively on the monetary policy conducted by central banks:

“The shift has occurred for a number of reasons. Particularly in the United States, partisan divides over fiscal policy have grown too wide to bridge, as the left and the right have waged bitter fights over whether to increase government spending or cut tax rates. More generally, tax rebates and stimulus packages tend to face greater political hurdles than monetary policy shifts. Presidents and prime ministers need approval from their legislatures to pass a budget; that takes time, and the resulting tax breaks and government investments often benefit powerful constituencies rather than the economy as a whole.”

A suspiciously convenient explanation

There is something suspiciously convenient about this alleged explanation that bears closer examination. Permit me to argue that it is not the lack of consensus on fiscal policy; rather, the situation is the opposite: there is a consensus for a concerted effort to prevent fiscal policy from operating. Fiscal policy is not crippled because of party squabbles, but because national governments have no desire to use fiscal policy.

This fact is most clearly demonstrated by looking at the European Union.

As Mitchell has pointed out, the European Union was deliberately created without any facility for countercyclical fiscal policy. While in Washington or Tokyo the political conflict among elected officials over fiscal policy appears to  result from a lack of consensus, no such explanation can account for how the EU works. We have to account for the fact that the EU somehow was created without any facility for fiscal countercyclical policy.

Now, how was that possible? How did some of the best minds of Europe just forget crises happen? Clearly, no one just forgot to include the capacity to conduct countercyclical fiscal policy in the EU’s structure. A fiscal countercyclical mechanism was left out intentionally, so that all countercyclical policy would be conducted through an unelected monetary authority — the ECB.

When you look at the EU’s structure, the apparent political impasse over fiscal policy in the US and Japan becomes easier to understand. This is because there is no legacy institutional explanation for the lack of countercyclical fiscal policy in the EU in the present crisis. The EU, from its inception, was created without the capacity to implement countercyclical fiscal policy. Monetary policy was placed in the hands of the unelected European Central bank, which is characterized as “politically independent” — that is, not subject to democratic will — and able to implement policy, “with a single conference call”.

In the EU, there is no facility for fiscal policy, while monetary policy has been removed from democratic control altogether and placed in the hands of an unelected financial oligarchy.

Fiscal policy has been deliberately crippled

When Bill Mitchell and Blyth and Lonergan advocate for their pet projects — a jobs guarantee for Mitchell, basic income for Blyth and Lonergan — each bases their proposal on the explicit assumption governments have, for whatever reason, no capacity to implement any fiscal policy, while an unelected central bank controls monetary policy. But, leaving the eurozone aside, it is not as if the writers are unaware of the fiscal power of national governments, rather they simply assume this power is effectively dysfunctional and unable to be employed for their policy purposes.

However, the experience of the EU suggests something else is at work: a deliberate effort to constrain or prevent national governments from conducting fiscal policy. And this is set against the backdrop of the outsourcing of monetary policy — inconvertible state issued fiat — to a private cartel. First, monetary policy was outsourced, then fiscal policy was crippled.

Okay, so now I am beginning to sound like a gold bug conspiracy theorist, right? Well, that is not likely to convince anyone, so let’s broaden the discussion beyond the outsourcing of monetary policy and the crippling of fiscal policy to another, broader, conflict at the heart of state economic policy.

No one in power want to end unemployment and poverty

Why was fiscal policy crippled? Why was monetary policy outsourced? According to the writers, fiscal policy was crippled because of the lack of political consensus. And, again, according to the writers, monetary policy was outsourced to insulate monetary policy from (democratic) political pressure. In both cases the conduct of fiscal and monetary policy has been influenced by a consistent political aim: to prevent economic policy from reflecting democratic will.

The problem is not that government cannot conduct its own fiscal and monetary policy; rather it seems that no one in Washington wants this. Yes, the Fed could, in theory, print up some fiat and hand it out in the form of a basic income, but so could the elected government in Washington. Since the Fed has been delegated the power to conduct monetary policy by elected officials in Washington, it has no power not that is not already in the hands of the elected officials.

Thus, if the aim of the elected officials was to eliminate unemployment and poverty, the officials could do this directly and get all the credit. In the next election, they could run on their accomplishments: Yay! We ended poverty and unemployment! Re-elect us!”

Which is to say, the Left needs to consider the possibility that monetary policy didn’t end up as the function of a private cartel to fix poverty and unemployment; it ended up there in order to NOT fix them. And fiscal policy was crippled in order to NOT fix them as well. If you don’t want to fix unemployment and poverty, you cripple fiscal policy and outsource monetary policy to a private cartel. You try, in other words, to insulate policy tools from democratic political pressure to address unemployment and poverty.

Further, fiscal and monetary policy only exist to avoid directly tackling the problems of unemployment and poverty in the first place. There is, for instance, nothing that prevents Washington, Tokyo or Athens from tackling unemployment and poverty — all they have to do is reduce labor time until no one is unemployed and raising the minimum wage until no one who is working is in poverty.

If people are unemployed, you just cut hours until no one is unemployed; if people are in poverty, you just raise the minimum wage until no one working full time is in poverty. Between these two policies, everyone has a job and no one is in poverty. It does not require any fiscal or monetary policy tools to accomplish this.

Which means, politicans rely on fiscal and monetary tools only because they DON’T want to eliminate unemployment and poverty.

Fiscal and monetary policy began in order to relieve pressure for reduction of hours of labor in the 1930s — that was the sole purpose. After the depression of the 1970s, fiscal policy itself was discarded in order to relieve pressure for increase spending to employ people.

This was the whole purpose, for instance, behind the 1978 Humphrey–Hawkins Full Employment Act. The purpose of that act was to make “full employment” completely dependent on Federal Reserve monetary policy, i.e., to insulate the management of the economy from democratic political pressure. The 1978 act did not just insulate monetary policy from political pressure; more important, it insulated employment and wages from political pressure.

The fiscal and monetary policy debate is a distraction

The monetary power of the central bank is a distraction, since every government already has the power to address unemployment directly. What remains to be explained is why the Left has not made use of this capacity in the hands of the state in its agitation since the 1930s. Why does the Left not only ignore this capacity, but repeatedly dismisses it whenever they are confronted with the idea of reducing hours of labor?

This, I believe, cannot be explained by stupidity — although I often use this excuse. There is something deeper and more sinister at work on the Left than mere stupidity. It comes to the surface here in a particular way — evidence of a basic despotism on the Left — that the aim of emancipation is not to free society from labor but to regulate its activity.

SYRIZA has the opportunity to break with this despotic tendency on the Left and redirect the Left’s energy in the direction of a genuine social emancipation of society from labor. The tool will be in their hand, but will they use it?