Juan Márquez was, for years, in charge of the Economic section in the Spanish newspaper “El País”. In the past he had been a commentator on large market. He knew that the biggest problem with Economic journalism has, always, been the headlines; inevitable, one would come across “Investors settled”, “Waiting time”, “Money is hidden”, “Banks pull down the index” or, even the least palatable “Technological Miscellaneous”. What Juan did was to grant himself full freedom when he was crafting a headline. “The effects of light on the daisies”, for instance. The text spoke of neither light nor daisies, but readers appreciated the game. There were many who would skip the business pages fast, as if they smelt, but they would, everyday, stop to read Juan´s eccentric daily sentence. Good journalism, I guess.
Journalism has done something wrong if it´s the case that so many people skip the Economic section. I know otherwise well educated and well cultured people who proclaim, proudly, of their ignorance regarding basic economic concepts. It appears as if the crisis we are currently all living –not leaving– is increasing the general interest regarding these matters, but we still feel uncomfortable reading about it.
While economic does have a lot of numbers and mathematical formulas, it´s still far from being an exact science. Like football. It´s full of hooligans. Also as football. Finally, as with football, people without any specific knowledge can and do give opinions on it. Even me.
It´s said that economists are, mainly, used to predict the past. Even the predictions of the past, however, are inconsistent. If we simplify and reduce the “fans” into two groups, which we´d name liberals and Keynesians, they will neither agree how it came about nor something as basic as the origin of money.
Liberals will tend to argue that the rudimentary prehistoric exchange was overcome with the adoption of easily liquidated assets, i.e. those that everyone considered valuable at all times and were not perishable, like salt or eventually precious metals, and will explain that gold and other metals were then minted to coins. A Keynesian will say that barter was corrected in another way: the guy who wanted to change March peas for September grapes gave the grape grower the desired amount of pies and would receive from him a document that would work as acknowledgement of debt (something like “in September I´ll pay you back with six baskets of grapes”) that the peas grower could keep for himself, or could lease it in exchange for something to another person interested in obtaining grapes in September; Keynesians will opine that this acknowledge of the debt was the real origin of the money.
As by now I must be the only one who reads this, we can get to the crux of the matter: the goal of “homo economicus” –which we all are– is always to make another person pay. The intricacies of the European crisis comes down to that, just as the global crisis and the great debate about economic models.
Liberals, who spent almost the whole 20th century missing the old gold-standard, advocated a strong currency as the supreme value. They say that the strong currency doesn’t depreciate neither outside (devaluation) nor inside (inflation), facilitating international trade and creating a real wealthy system, without bubbles. This strong currency is inconsistent with the continued issuance of debt by the States, they say, because that debt, finally, gets paid just by creating more and more debt or printing more and more money, leading to inflation and devaluation.
When, as in the Spanish case, the economy stops growing, which increases the debt –the investors don’t trust the country and call for greater reward for buying bonds when the issuing country is no condition to offer any–, the “strong-currency-liberals” and the nostalgia for the time in which the bills could be exchanged for gold ounces propose to cut public spending and reduce debt. This entails the risk that the economy contracts, that people earn less money and –logically– would pay less taxes (thus, lowering State revenue), with further economic contraction, leading to further cuts should and population misery. As good hooligans, liberals should trust their prejudices and think that such a disaster would never happen.
What is the cynical point of the liberals? That to save the banks, likely to invest their money –by which I mean our money– in public debt and in bubbles, it seems good for them that the State will spend whatever it takes.
The important thing, as noted above, is to know who is paying: the one that doesn’t have money pays (the only strong value), because his wage in real terms is decreased in order for the companies to be more competitive. Also the prices go down, which screws the people that have a mortgage, but not those that have 100 apartments and money available, because they can take advantage of those sales by buying another 100 houses and waiting quietly for the economy and prices to rise again, thanks to the workers and the unemployed sacrifices.
When liberals, such as those currently governing Spain, are facing any debt problem, they turn to the ritual of sacrifice believing that money lenders will be sympathetic if they find that a government is willing to smuggle –and, in fact, kill– its population in order to pay their money back.
Keynesians, who dominated most of the 20th century, don´t consider that the currency constitutes an absolute value. They say that inflation, if it´s not excessive, works as a redistributive tax, and that devaluations allow competitiveness because the products can be sold cheaper abroad.
As economic crisis precipitate, they propose more public debt in order to finance projects that will provide jobs, which helps to maintain the purchasing power and the consumption capacity of people. Once the crisis is over, they say, economic growth will be seen in the fact that citizens will be able to earn more money, pay more taxes and therefore the State can pay most of the debts and clean up the total economic balance. In this case, the risk has been doubled: that the economy does not recover so fast and the State, overwhelmed by debt, would fall into insolvency and could not deal with creditors nor provide the services committed to citizenship; and once the recessionary cycle is over the faucet that makes the money easily flow would not be closed –often, politicians are tempted to keep that “money water” running because it allows them to do more with the State and people are happy with that–, which will lead to economic bubbles and the aggravation of boom and bust cycles that characterise the modern capitalism.
What is the cynical point of the Keynesians? That their debt issues have flooded the planet and have generated huge trading markets where those speculators –to whom they report– swim and grow. And that their solution is, basically, cover the debt with more debt.
In circumstances like those that are now afflicting Europe, Keynesians may attempt to bill the German State (the Eurobonos endorsement) or even to the creditors (with deferrals or waivers of part of the debt), but their structural payers will be the future generations: they leave the debt as trash inheritance, as the best hooligans, trusting that somehow debt will create wealth and that our grandchildren will be able to pay our bills and our pensions.
When Keynesians, who ruled Spain until few years ago, faced with a debt problem, they danced the “rain dance” (because praying wasn’t that well seen by the population) and accused the speculators. Then they do the same thing as liberals do and offer in sacrifice to the markets the most vulnerable sectors of the population.
As I knew the text was going to be a bit indigestible, I though it suited to create a “Headline in the style of Juan Márquez “. Hence the effects of light on the daisies.
