Money Runners for Marx
On Bloomberg today is a piece by George Magnus, senior economic advisor at UBS, on the relevance of Marxian ideas.
Policy makers struggling to understand the barrage of financial panics, protests and other ills afflicting the world would do well to study the works of a long-dead economist: Karl Marx. The sooner they recognize weâ€™re facing a once-in-a-lifetime crisis of capitalism, the better equipped they will be to manage a way out of it …
Consider, for example, Marxâ€™s prediction of how the inherent conflict between capital and labor would manifest itself. As he wrote in â€œDas Kapital,â€ companiesâ€™ pursuit of profits and productivity would naturally lead them to need fewer and fewer workers, creating an â€œindustrial reserve armyâ€ of the poor and unemployed: â€œAccumulation of wealth at one pole is, therefore, at the same time accumulation of misery.â€
… To put Marxâ€™s spirit back in the box, policy makers have to place jobs at the top of the economic agenda, and consider other unorthodox measures. The crisis isnâ€™t temporary, and it certainly wonâ€™t be cured by the ideological passion for government austerity.
Here are five major planks of a strategy whose time, sadly, has not yet come.
First, we have to sustain aggregate demand and income growth, or else we could fall into a debt trap along with serious social consequences. Governments that donâ€™t face an imminent debt crisis — including the U.S., Germany and the U.K. — must make employment creation the litmus test of policy. In the U.S., the employment-to-population ratio is now as low as in the 1980s. Measures of underemployment almost everywhere are at record highs. Cutting employer payroll taxes and creating fiscal incentives to encourage companies to hire people and invest would do for a start.
Second, to lighten the household debt burden, new steps should allow eligible households to restructure mortgage debt, or swap some debt forgiveness for future payments to lenders out of any home price appreciation.
Third, to improve the functionality of the credit system, well-capitalized and well-structured banks should be allowed some temporary capital adequacy relief to try to get new credit flowing to small companies, especially. Governments and central banks could engage in direct spending on or indirect financing of national investment or infrastructure programs.
Fourth, to ease the sovereign debt burden in the euro zone, European creditors have to extend the lower interest rates and longer payment terms recently proposed for Greece. If jointly guaranteed euro bonds are a bridge too far, Germany has to champion an urgent recapitalization of banks to help absorb inevitable losses through a vastly enlarged European Financial Stability Facility — a sine qua non to solve the bond market crisis at least.
Fifth, to build defenses against the risk of falling into deflation and stagnation, central banks should look beyond bond- buying programs, and instead target a growth rate of nominal economic output. This would allow a temporary period of moderately higher inflation that could push inflation-adjusted interest rates well below zero and facilitate a lowering of debt burdens.