Is it necessary to grow during periods of recession?

Published 19.09.2019 00:07

After entering the first week of September with reactions from the economic slowdown experienced in Argentina, Germany and the United Kingdom, a difficult period awaits G20 countries in the next three months.

As is known, with the depreciation of the peso, the Argentine government made export companies bring their foreign currencies into Argentina, while restricting foreign exchange purchases by local companies and banks.

When we look at the populist promises of Argentina's presidential candidates ahead of the general election on Oct., I predict that the country will go through a serious contraction in the next 18-month period.

It's quite interesting that these candidates make promises such as reducing the amount of income tax deducted from employees' salaries, increasing public assistance and not raising gasoline prices for 90 days with expansionist Keynesian policies, but don't make a single statement about how they will close the budget deficit.

The U.K. case

For the United Kingdom, which continues to go round in circles because of this Brexit corkscrew, it looks like this may be the last turning point. The impact of a global recession will be more severe for the British, who have somehow managed to survive for the past 12 months by leveraging financial markets, than for other developed countries.

As we can recall, London bankers were almost closing up shop back in the day, especially between 2008 and 2010 when expansionist policies were popular and central banks lent at near-zero, approaching negative interest rates.

In addition, after the U.K. loses the European Union's investment tax advantages and is left to fight against inflation caused by the customs union, seriously difficult times will be awaiting the Bank of England. The picture that has emerged is not pleasant at all for economists, who saw the first signs of this after the U.K. economy shrank for the first time in seven years.

Remarks by Alpesh Paleja, lead economist at the Confederation of British Industry (CBI), who said: "Underlying momentum remains lukewarm, choked by a combination of slower global growth and Brexit uncertainty; as a result, business sentiment is dire," indicating that the situation might be worse than thought.

As for the British labor market, we see that the negative winds continue. The U.K. Recruitment and Employment Confederation (REC) said that the need for qualified workers, especially in the public sector, was great, and if the British government scrapped the free movement of EU employees in the event of a disagreement, it could leave employers in a difficult situation. Meanwhile, European Union officials' compensation rhetoric in this congested period has been the cherry on the cake.

Moreover, British Prime Minister Boris Johnson's statement confirming an official who quoted European Commission spokeswoman Mina Andreeva as saying that the British had to pay the 39 billion pound ($48.6 billion) Brexit "divorce bill" in the case of a "no-deal" Brexit, further showed that Britain was at a serious breaking point.

Only time will tell how reliable a U.S. with Trump will be when the U.K. approaches this separation or breaking point, especially since the British will not want to entrust its domestic market to China and Russia. I believe Trump and his team will want to take advantage of the current situation in Britain, as they seek the opportunity to clutch the throat of almost every country, in an economic sense.

Burden for Trump?

For Trump, who intends to carry this financial market leverage from the coasts of Western Europe to the streets of Wall Street, Brexit means shooting two birds with one stone. This could not be a better opportunity for Trump, especially after giving the Pentagon an opportunity to expand in efforts to gain more from Europe under the pretext of NATO, and this whole Brexit situation prepares the ground for the disintegration of the union in the long term.

In a period when support for those who say that crises are the standard and not the exception in the history of modern capitalism is increasing, we need to analyze whether there is really a need to save elements that constantly cause systematic risks in the market.

But according to Marx, Keynes, Schumpeter and post-Keynesians, the real and monetary sectors cannot be separated from each other in capitalist economies. The most ironic thing is that those who caused the financial crisis also managed to slow down the real economy after a period of time and somehow got away with this by distributing to the base the financial burden they caused.

Today, the reason why Greece, Italy and Portugal have fallen off the map in economics or in world politics is that these structures left their financial burden on these countries in the 2008 crisis.

Now we need to re-explain and position the crisis both as economists and official market makers. If we think like American economist Frederic Mishkin and believe that financial crises are caused by those with efficient investment opportunities who immorally endanger financial markets and make them worse due to adverse selections, we could perhaps avoid these standardized crisis adventures.

Otherwise, the burdens we place on taxpayers' will become too heavy, and perhaps that threshold has already been exceeded.

If our planet, made up of more than 190 countries, is going to enter a recession just because China has slowed down or if developing economies need the interest rate cuts the Federal Reserve has been putting on hold so that U.S. brokers earn a little more, we will realize that Keynesian policies are actually implemented for the continuity of the imperialist system.

The aim of this article is not to disparage globalization and imperialism as everyone else does. But we need to see that temporarily correcting similar errors with similar solutions only leads to a deeper crisis.

The Royal Bank of Scotland (RBS) went bankrupt in 2009, after announcing $69 billion in losses due to the wrong corporate strategies, bad credit management and greedy treasury policies. In a Treasury Committee meeting investigating the crisis in the sector, RBS executives, who were rescued from bankruptcy with public resources in the U.K., apologized to the public about the developments that put the institutions they managed in the past in difficult situations and said that the premium system in their banks should be changed. Today, the same top-level financiers that did these actions are still at the helm, and some of them have even transferred to the Treasury.

Key matter

As one can see, we give the keys of management back to crisis-makers on the grounds of expansionary policy, and in a way we set our eyes on the savings of people who do their job properly, trust their country and produce. With every global stimulus and debt, growth strategy brings the people who do their job properly and those who don't closer.

By not encouraging people to do the right thing, we are actually testing the concept of entropy. Today, it is possible to observe that all areas of social life, especially economy, education and health, are getting worse, or in other words entering an entropy process. People are trying to survive amid social crises, and we should not be a burden on them economically on top of all of that.

Every tangible capital and saving has a bad ending story. Just like the thesis of all those from French statesman Sadi Carnot, who tried to understand how the steam engine worked in 1827, to Horace of Rome:

"Matter–energy can only change state in one direction; that is, from a usable to a non-usable state. This is the understanding that everything is finite, that it prepares for its own destruction and is exhausted over time."

* Ph.D. researcher in the Private Company Economic Research Department MENA at Swiss Business School

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