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Edric O

May Day!

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This year's International Workers' Day (May Day) seems to have been marked by particularly large and militant rallies, demonstrations, and strikes around the world. In Asia, there were huge workers' marches in the Philippines, Malaysia, Indonesia (I heard these were the largest May Day demonstrations in Indonesia's history), India, Pakistan, Nepal and even Hong Kong. In Europe, people took to the streets in unprecedented numbers in Spain, there were 3 rival marches in Moscow, the unions showed their strength in France ahead of the elections, and of course there were protests in Greece. The main rallying cry was opposition to austerity. Even in the United States, where May 1st is not usually a big deal despite it being the country of origin of International Workers' Day, this year the Occupy movement organized large protest actions in a number of cities.

Here is the BBC reporting on some of this:

http://www.bbc.co.uk/news/world-17918179

The events across the world yesterday are just one relatively small symptom of a bigger trend: Capitalism has been in crisis for about 4 years now, the ruling classes of the world don't seem to have any clue how to bring it out of stagnation, and working people are getting increasingly angry.

We are living in very interesting times. Of course, I am hoping that we are witnessing the beginning of a period of rising class struggle that will eventually lead to a successful communist revolution somewhere in the world. Then again, it might not lead to that. But it will certainly lead to something new. Going back to business as usual and picking up where we left off in 2008 isn't really an option. Some things will change. The question is, which things?

Where do you think the world is heading? Where would you like it to be heading?

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The demonstrations and the general reception of May Day was stronger than in previous years. But it's not that strong, and in Prague, for example, the social moment of protests was marginalized (aside from some demagogy from the communist leader) for clashes between anarchists and nazis.

Perhaps if it would create a coherent movement capable of finding solutions, then it has a chance. Now it's only a PR-event for left-wing parties. Mainstream economic discourse will keep consider the workers to be the real cause of crisis for their high demands from both state and the company...

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"Mainstream economic discourse" has degenerated to being little more than a servile mouthpiece for right-wing ideology since the 1980s. The demands of the workers today are very modest compared to the past (remember, for example, that in the 1970s even center-left parties were under pressure from the workers to start nationalizing most of the economy).

However, you are right that the working class needs a strong, coherent movement instead of what we have now: a collection of many small independent groups that organize separate protests and events. The revolutionary left is crippled by decentralization.

And, of course, we need to move beyond simple opposition to austerity and create a positive plan for what to do next - the solutions you are talking about. But these solutions will necessarily involve, at an absolute minimum, the cancellation of debts and the nationalization of the banking sector. Capitalism has put us in a situation where there is no middle way. Either we continue with austerity and the destruction of living standards for the vast majority, or we attack the institutions of capitalism (starting with financial markets).

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Isn't cancellation of debts and nationalization of banks quite a lot for "absolute minimum"? Whose debts and how should countries take control of banks which are paying them? Debts (and banks who give them) are the engine of economy, so you would need to discover something more effective.

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No, banks are definitely not the engine of the economy. Work - human labour - is the engine of the economy. It is through work that we actually produce things. Banks do not produce things. Their sole function is to allocate money to various purposes; in other words, they are purely a decision-making mechanism. By deciding what loans to offer, and who gets those loans, banks control most of the investment that happens in a capitalist economy. Therefore they get to decide which companies and industries can grow.

So, really, if you are looking for a metaphor to describe banks, they are more like a compass or like the rudder or the steering wheel of the capitalist economy. They are not the engine.

Now it is clear that this compass is broken - in fact, it has always been broken - and it is leading us off a cliff. The banking system that exists today is not even good for capitalism (let alone for the people). It has become entirely concerned with short-term profits for itself, rather than any sort of long-term growth or prosperity. And it is utterly unwilling to compromise: notice how banks demand that governments obey their orders in matters of austerity and fiscal policy. Notice how governments have become afraid of making "the markets" (i.e. the financial markets) upset. Banks are supposed to serve the capitalist economy; but they have grown so big and powerful that the capitalist economy serves them.

The nationalization of banks and the cancelling of debts is not a radical demand. It was put forward by John Maynard Keynes himself - the father of centre-left policies - who considered it the best strategy for ending the Great Depression and preventing future depressions. Financial markets and stock markets are the most irrational and counter-productive part of the capitalist economy (I can explain the reasons for this at length, if you wish). Even people who want to save capitalism should agree with the nationalization of banks and the cancelling of debts at this point in time.

The debts that should be cancelled are all sovereign debts (all debts owed by governments). This would immediately end the need for austerity measures. It would also cause a financial collapse if nothing else is done. And that is why the financial system must be nationalized at the same time, to prevent such a collapse. Private banks would go bankrupt if sovereign debt is cancelled, but if those banks are nationalized then they can just wipe the slate clean and start over.

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The debts that should be cancelled are all sovereign debts (all debts owed by governments). This would immediately end the need for austerity measures. It would also cause a financial collapse if nothing else is done. And that is why the financial system must be nationalized at the same time, to prevent such a collapse. Private banks would go bankrupt if sovereign debt is cancelled, but if those banks are nationalized then they can just wipe the slate clean and start over.

I am not so sure that cancellation of soveriegn debt would remove need for austerity measures. The reason why the money was borrowed in the first place is not addressed by cancelleing the sovereign debt and nationalising the banks. Countries borrowed money because they did not have the money in the first place and they stayed in debt because they did not have any instruments to generate enought tax revenue to repay the debt.

It is basically same as with regular people and regular companies. Let's demonstrate through the following example:

Example 1: Average person

Let's say I want to take courses to obtain an accounting designation (ex. Chartered Accountant in many Commonwealth countries or CPA in USA, or CGA or CMA in Canada), but I don't have the several thousand dollars that those courses cost. I go and get a loan at the bank and promise to repay it because with accounting designation I can make more money and so repay the loan. If I could generate the necessary money through my usual revenue source then I would not have needed the loan. Now 4 scenarios can happen:

Scenario A: I pass the courses and get the designation and get a better job and I am able to repay the loan. Notice that in this case the bank contributed to improvement in the economy, as the person with accouting designation has more knowledge and his work is of higher quality and better then of the person without one.

Scenario B: I pass the courses and get the designation, but I don't get a better job. I made a bad decision there are lots and lots of people with accounting designation and there is more of them then there is a demand. (This scenario is less likely in corporate and sovereign lending as the banks tend to evaluate the feasibility of the proposed projects and also the feasibility of repayment if the projects fails). This means, I am back at my job and I have to pay back the loan, ussually means that I maybe have to work more hours or reduce my spendings (Austerity measures).

Scenario C: I don't pass the courses and don't get designation because I don't try hard enough.(This is the reason why some soveriegn loans and corporate loans are given in tier system with extra funds released when certain milestone is reached). I have to repay back the loan. This means, I am back at my job and I have to pay back the loan, usually means that I maybe have to work more hours or reduce my spendings (Austerity measures).

Scenario D: I just blow the money on fancy car. The result I still owe the loan and I would have to pay it back. The only way to do that is again I have to work more hours or reduce my spendings (Austerity measures).

The problem with countries with high debt is that they did not have the money to finance their government programs, because they did not have enough tax revenue. They borrowed on the premise that their new programs will benefit the economic growth and therefore their tax revenue will expand. The problems with social programs that is not always the case. Emperically the social programs so far showed that often they fail to generate the economics growth that would create the necessary tax revenue to finance them. The result is that even if the sovereign debt are removed the fact that there are no tax revenue to sustain all government programs without new borrowing stays.

The reason the countries now as you say afraid of the "market's" opinion is that financial institutions have began to treat the governments same way they treated the corporate and personal lending clients. The banks and the government of different countries want to be assured that they will be repayed. The reason this change of thinking came about is the realisation that the premise that government debt is safe because if necessary government can raie taxes or cut programs to repay it turned out to be untrue even for developed economies. Governments find it very easy to lower taxes and increase spendings and have very hard time increasing taxes and lowering spendings.

Therefore I would require my government to do a strong assessment of the capabilities of repayment by the country it is lending to, because it is my tax money being lent that could otherwise go towards something else here at home. Same with the banks, I expect the bank that I use to do a strong assessment of the capabilities of repayment by the country, because if my bank folds because of that bad decision, I will lose the money I deposited in that bank.

In addition, I also think that cancellation of the sovereign debt and the nationalisation of financial system will cause inflation.

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