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Arabica Robusta's List: economic crisis

    • In recent years, Venezuela, Ecuador, and Bolivia have withdrawn from the ICSID Convention, all for similar reasons. These governments cling to the quaint notion that their societies’ resources ought to belong to the people who live there, and they view the ICSID as a way to grease the skids for the continued pillaging of said resources (which is usually accompanied, of course, by environmental degradation).
    • In any case, a withdrawal from the ICSID is not a shield from claims by private interests, and states like Venezuela and Ecuador are still staring at billions of dollars in potential compensatory payments stemming from a number of cases over the last decade. States cannot simply ignore these judgments, as it would be viewed like a sovereign default, with all the economic risk that entails.

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    • As those spread, what began as protests over insecurity were overshadowed by cryptic calls for La Salida—The Exit—spearheaded by radical sectors of the opposition that have long been involved in efforts to oust the government, constitutionally or otherwise. In response, the government of Nicolás Maduro, whose leadership after edging a narrow victory last April remains unsteady amid worsening social and economic conditions, responded aggressively against what it saw as an attempt at destabilization at a time of fragility in the heart of the Bolivarian Revolution. 
    • But it would be a mistake to see the latest unrest as another blip in a now-longstanding pattern of tense stalemate punctuated by periods of violent upheaval. Instead, two intersecting elements should raise alarms about Venezuela’s near-term political future. 
       
       
       
      The first is a weak government confronting major social and economic crises that even officials and supporters acknowledge. Fifty six percent inflation, worsening shortages, a sinking currency, and insecurity rates that are by all accounts severe—even if the precise figures are a matter of debate—have plagued Nicolás Maduro’s fledging administration. Accounts of course vary on their depth and causes. Opponents blame mismanagement, corruption, and too great an emphasis on social spending over investments in the productive apparatus. Government officials point to speculation, hoarding, and currency manipulation—part of a broader program of economic warfare by saboteurs at home and abroad. Analysts have instead drawn attention to the distortions of a mixed socialist and capitalist economy where, despite strategic expropriations and increased social spending by the state, most industry and business remains in private sector hands.

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    • Most of these problems can be traced to the country’s dysfunctional exchange rate system. Yet polls show that a vast majority of the public—in some recent polls as much as 80 percent—does not want a devaluation that could fix this system. And it appears to be this pressure from the electorate—not from special interests—that is preventing the changes necessary to restore economic health.
    • the dollar shortage is a result of the government giving away most of the dollars that it gets from oil revenue at a fraction of their value.

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    • But Piketty advances such an argument without breaking completely with the architecture of neoclassical economics. His theory thus suffers from the same kind of internal incoherence and incompleteness as that of Keynes, whose break with neoclassical economics was also partial. Deeply concerned with issues of inequality, just as Keynes was with unemployment, Piketty demonstrates the empirical inapplicability over the course of capitalist development of the main conclusions of neoclassical marginal productivity theory. His work has thus served to highlight the near-complete unraveling of orthodox economics—even while staying analytically within the fold.28
    • This overall incoherence, as we shall see, ultimately overwhelms Piketty’s argument. He is unable to explain why capitalist economies tend to grow so slowly as to generate such a divergence between wealth and income (and between capital and labor). Hence, while his analysis sees slow growth or relative stagnation as endemic to this system, he neither explains this nor is concerned directly with it. Significantly, he replaces more traditional notions of capital as a social and physical phenomenon with one that equates it with all wealth.29

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    • We Make Our Own History rethinks humanist Marxism as a theory of collective action, including the ways in which social movements from below can develop from localised struggles over individual issues to far-reaching projects for social change (a welfare state, an end to patriarchy, an ecologically sustainable society). It also looks at the history of movements from above – those which can draw on the resources of capital, the state or cultural power to impose themselves.
    • If the ideologists of neoliberalism want to present it as the natural order of humanity, a more sober historical assessment points out that it has lasted about as long as Keynesianism did before it – a few decades – and is just as vulnerable to the collapse of the alliances which sustain it.

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    • This event raises several political questions for progressives: what type of ‘bank’ do the BRICS leaders propose; why is it needed; are these the appropriate leaders to organise and control the new institution; and is it something progressives should view favourably?
    • An international ‘development’ bank is a non-profit, cross-country, public sector institution that makes loans to governments for long-term projects, either directly productive ones (e.g., a hydro-electric dam) or supportive of productive activities (e.g., roads and highways).  A development bank's sine qua non lies in offering loans at more favourable terms than private banks.

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    • Contrary to rumour, the Brazil-Russia-India-China-South Africa alliance confirmed it would avoid challenging the unfair, chaotic world financial system at the Fortaleza summit on July 15.
    • During the 1997–98 Asian financial crisis, when middle-income countries were hard hit by big capital outflows, there was an effort by China, Japan, Taiwan and other countries to put together an Asian Monetary Fund to offer balance of payments support. Washington vetoed the idea, insisting that all assistance had to go through the International Monetary Fund. The result was a mess, including an unnecessarily deep regional recession, as the IMF failed to act as a lender of last resort and then attached all kinds of harmful and unnecessary conditions to its lending.
    • Western media coverage of these developments has been mostly dismissive, but that primarily reflects the concerns of Washington and its allies. They have had unchallenged sway over the decision-making institutions of global financial governance for 70 years, and the last thing they want to see is competition. But competition is exactly what the world needs here.

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    • Parts of our economies, societies, and states in Europe are being stripped bare by an extreme form of predatory capitalism.[1] And this stripping can coexist with growth in much of our economies. The majority of workers and economic operations keep functioning, even if at reduced levels.
    • The unemployed who lose everything—jobs, homes, medical insurance—easily fall off the edge of what is defined as 'the economy' and counted as such. So do small shop and factory owners who lose everything and commit suicide. And so do the weakened and ill newly poor who can no longer access basic medical services. All are stripped from what gets measured as 'the economy.'

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    • Piketty wants to recover the scope of political economy without forfeiting the quantitative rigour of contemporary economics. He has hitched his orthodox training to a Marxian research programme: to explain the course of capitalism since the French and Industrial Revolutions, no less, and to glimpse its future itinerary, with special reference to inequalities of income and wealth.
    • Although he declines to say what distinguishes capitalism proper from its predecessors, Piketty proposes that two fundamental laws govern it. The first co-ordinates ‘the three most important concepts for analysing the capitalist system’. The capital/income ratio is society’s total capital as a multiple of total annual income; the rate of return – not quite the same as the rate of profit, as we will see – is the annual income from capital as a percentage of its size; and the share of capital income is the portion of total output flowing to owners relative to the trickle, in per capita terms, irrigating the lives of workers.

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    • How has this mess been created? The mismanagement of the crisis by the coalition government means it has to bear significant blame, but the main cause lies in the nature of the economic model that the UK has pursued for three decades.
    • However, the underlying economic model remained intact; the New Labour thinking was that we should let the City maximise its profits by minimising regulation, and then help the poor with the taxes on those profits. There was no realisation that the financial system itself may be a problem.

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    • There is one criticism of austerity politics that is both true and, simultaneously, flatly false: that it is ideological. This claim is ambiguous and needs to be unpacked.
    • Yet Labour’s cuts, though slower and a little less deep, would in any other circumstances be considered a scandal. During George Osborne’s emergency budget in 2010, the chancellor was able to remark that he had inherited from Labour plans for cuts averaging 19 per cent across all departments. (Osborne had ‘merely’ increased the planned cuts to an average of 25 per cent across all departments). This was why canny Labour right-wingers had urged colleagues to calm down the anti-cuts talk, knowing that a Labour government would implement similar policies.

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    • austerity dogma trumps – simultaneously – good economics, good domestic politics in the U.S. and the Ukraine, and U.S. national security.  That’s how insanely powerful the failed dogma of austerity has become.  The CEOs who run the banks that loan money to the Ukraine are more powerful than the Pentagon and our State Department.
    • The IMF claims to have limited its conditions to critical reforms agreed by recipient governments. However, the worrying findings of this research suggest that the IMF is going backwards – increasing the number of structural conditions that mandate policy changes per loan, and remaining heavily engaged in highly sensitive and political policy areas.
    • The biggest IMF facilities in terms of loan totals have the heaviest conditionality. This rise is driven by exceptionally high numbers of conditions in Cyprus, Greece and Jamaica, which together accounted for 87% of the total value of loans, with an average of 35 structural conditions per programme.

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