Austerity versus welfare, 20 essays on the world economy in the 21st century

In 2008 the economic crisis erupted in the United States, following the collapse of major financial institutions, crisis immediately reflected on Europe and the rest of the world.

Governments were forced to pick up the tab for bankers, giving them money, but the real solution chosen to remedy the crisis was the adoption of austerity measures that hit, not the bankers or the banks, but the rest of the population by reducing public spending on vital sectors like health, education and public employment. In other words, they took the money for the payment of the services of the population to give the money to the bankers and banks.

Why austerity in public spending and not austerity in banks?

That's the key question; however, has no clear response from politicians.

Banks did not practice healthy financial policies and therefore went to bankruptcy.

The 2008 financial crisis revealed a fact already well known: the public finance deficit of nations.

And, despite the deficit, governments were left with no choice but to give money to failing banks to prevent the collapse of economies, because some institutions had a major role in the overall financial structure of countries.

Instead than focus on how the financial institutions are managed, the attention of institutions like the International Monetary Fund and the European Central Bank, politicians and media shifted to the deficit of public finances, giving rise to programs cut in public spending that have diminished services and caused unemployment to millions of people.

The public finance deficit has basically an origin: the growth of the population, that every day has more material needs. This forces the state to meet those needs.

In the Western, welfare policy inspired in the Keynesian idea was primarily aimed at ensuring citizens social security: pension rights, unemployment insurance, the right to health and education, and ran from the end of World War II until the 80 when the English Prime minister, Margaret Thatcher, adopted the neoliberal model promoted by the Chicago School, seeking, inter alia, the elimination of the deficit of public finances. The model was also adopted by President Ronald Regan of the United States, the International Monetary Fund, the World Bank and governments in Latin America in the 80s and 90s of the twentieth century. But it is necessary to underline that none of the goals of neoliberalism including reducing or eliminating the deficit of public finances was achieved in those years. On the contrary, the deficit in England and the United States during the President Ronald Regan period increased exponentially. The same neoliberal scheme of the 80s and 90s is now imposed on Europe, especially to the southern countries of the continent, Greece, Portugal, Spain and Italy by the International Monetary Fund and the European Central Bank, led by Germany and France.

In the essays I've gathered in this paper, it is demonstrated why austerity is not the appropriate way to achieve the welfare of people.  On the contrary, the way is the expansion of money to meet the needs of the growing population without causing inflation.

Monetary expansion must be related to the growth of the population and its needs and cannot be considered as the main cause of inflation. The main cause of inflation is human selfishness that has no limits to the accumulation of wealth and the trend to the robbery.

The following are links to the essays:

Giving financial assistance direct to the consumers

http://pablorafaelgonzalez.blogspot.com/2008/11/giving-financial-assistance-direct-to.html

How to recover an economy after a financial disaster

http://pablorafaelgonzalez.blogspot.com/2008/11/how-to-recover-economy-after-financial.html

Was the 2008 recession provoked with a deliberate objective?

http://pablorafaelgonzalez.blogspot.com/2008/12/was-2008-recession-provoked-with.html

Banks in bankruptcy but rich bankers, Theory of the coercive deficit

http://pablorafaelgonzalez.blogspot.com/2008/12/banks-in-bankruptcy-but-rich-bankers.html

The mortgages are not the main cause of the financial fallout

http://pablorafaelgonzalez.blogspot.com/2008/12/mortgages-are-not-main-cause-of.html

Effects of the economic crisis on the world stability

http://pablorafaelgonzalez.blogspot.com/2009/11/effects-of-economic-crisis-on-world.html

What true wealth is? The monetary illusion

http://pablorafaelgonzalez.blogspot.com/2009/12/what-true-wealth-is-monetary-illusion.html

Abstract ideas, economic reality and philosophy of science

http://pablorafaelgonzalez.blogspot.com/2010/06/abstract-ideas-economic-reality-and.html

Money is only metal and paper without intrinsic value, philosophy of money

http://pablorafaelgonzalez.blogspot.com/2011/06/money-is-only-metal-and-paper-without.html

Economic crisis 2011: the solution is to realize that the economy operates in a new scale and not reducing the public spending

http://pablorafaelgonzalez.blogspot.com/2011/08/economic-crisis-2011-solution-is-to.html

Fiscal deficit and size of the economy

http://pablorafaelgonzalez.blogspot.com/2011/09/fiscal-deficit-and-size-of-economy_18.html

Financial crisis: the solution is to issue more money and not reducing the public spending

http://pablorafaelgonzalez.blogspot.com/2011/10/financial-crisis-solution-is-to-issue.html

Bank of England recognizes that to issue more money is the solution

http://pablorafaelgonzalez.blogspot.com/2011/10/bank-of-england-recognizes-that-to.html

Austerity generates unemployment, poverty and political instability

http://pablorafaelgonzalez.blogspot.com/2011/11/austerity-generates-unemployment.html

There are not true reasons for the financial crisis in Europe

http://pablorafaelgonzalez.blogspot.com/2012/01/there-are-not-true-reasons-for.html

How rationalist ideas based in the mathematical logic affect the life of millions of people, the European crisis

http://pablorafaelgonzalez.blogspot.com/2012/07/how-rationalist-ideas-based-in.html

Why is it necessary to build a new balanced economic model without ideological prejudices?

http://pablorafaelgonzalez.blogspot.com/2012/08/why-is-it-necessary-to-build-new.html

Is there a limit to the amount of money that an economy can to issue? A reflection on the U.S. fiscal cliff

http://pablorafaelgonzalez.blogspot.com/2012/11/is-there-limit-to-amount-of-money-that.html

The lack of money should not be the cause of the poverty of nations

http://pablorafaelgonzalez.blogspot.com/2013/02/the-lack-of-money-should-not-be-cause.html

The austerity policy is not necessary, a thesis different from traditional concepts of monetary policy

http://pablorafaelgonzalez.blogspot.com/2013/04/the-austerity-policy-is-not-necessary.html

The backing of money

http://pablorafaelgonzalez.blogspot.com/2013/10/the-backing-of-currencies.html

There are not true reasons for the financial crisis in Europe

The explanation is very simple:

It is because the governments have the sovereign faculty to issue all the money that their economies need. There are neither political nor technical limits to issue money. 

There is a big difference between the things that man can decide autonomously and the things that not; for example, man can create money autonomously but man cannot create natural resources like water and petroleum.

Money has not an intrinsic value neither back in gold.

http://pablorafaelgonzalez.blogspot.com/2011_06_01_archive.html

Which is the backrest of the dollar?

Which is the support of the euro?

The unique back of those currencies is the faith of the people that accept them like international mean of payment, nothing else.

All the gold that exists in the world is not sufficient to backing the trillions of dollars, euro and other currencies that circulate in the world. Therefore the back in gold of the currencies is a lie.

There is other key question:

Which is the true value of gold?

The answer is none. You cannot eat neither drink gold.

Gold has a restricted use: a) like instrument of reserve of the central banks of the countries and b) in jewelry and too few industrial processes.

So that the support of the currencies is a fallacy; the currencies do not have any true material support.

In consequence, man, in this case the governments do not have limitations to issuing their own currencies.

Like Germany and France dominate the European Central Bank, they impose fiscal and financial conditions that the rest of the Eurozone countries cannot comply and, moreover, they limit the emission of new money; so they dominate the situation.

But they cannot dominate England because this country keep the sovereign domain of its currency, the sterling pound and can to issue all the money that need. Three months ago the Bank of England recognized that the austerity is a mistake and issued thousands of millions of sterling pounds to increase the liquidity of the country and so avoid the recession.

The other European countries that depend of the euro are prisoners of the European Central Bank, in other words, prisoners of  Germany’s and France’s governments.

The European financial crisis is an artificial crisis provoked by the European Central Bank, the International Monetary Fund and the governments of Germany and France, nothing else.

Austerity generates unemployment, poverty and political instability

Austerity is a big mistake. The big damage is for the middle class and the workers. Austerity leads to recession; orthodox politicians and economists are responsible of that big error. They developed a theorist conception that attributes at money the cause of inflation; but this is not true. The true cause of inflation is the human egoism; the unlimited desire of wealth of speculators.

Money is only metal and paper without intrinsic value. Nations can issue without limitations all the amount of national money ---their own currencies--- that their economies need. Money is only a mean of interchange, nothing else. Observe what happen when people have more money; when people have more money is happy; buy more food, clothes, cars, travel, etc; also observe the opposite phenomenon and you will obtain the right answer about what is good and what no.

If you give more money to people ---by the increase of salaries, pensions, more and best public services--- you improve the quality of life of people, because this stimulate production and the goods and services supply increase. If, on the contrary, you restrict the amount of money in circulation you lead people to poverty and stop the economy.

The economies of Greece, Italy, Spain and Portugal do not need to restrict their public spending; if the governments of those countries insist in imposing the program of austerity, it is very likely a deep political change in those countries, because of the population pressure. Perhaps new actors will appear. New actors that are unknown in this moment but that might provoke a complete political change in those nations. A similar phenomenon happened in Latin America in the 90s years as a consequence of the economic and political impositions of the International Monetary Fund, IMF and the World Bank.

The European Central Bank, the International Monetary Fund, IMF and the authorities of the European Union are the big obstacles for the European recovery.

Soon it might come a moment when Greece, Italy, Portugal and Spain have not other option than to abandon the euro and comeback to their national currencies. It will depend of the European Central Bank, the IMF and EU attitude.

Money is only metal and paper without intrinsic value

http://pablorafaelgonzalez.blogspot.com/2011_06_01_archive.html

The unique solution for Greece, Spain, Portugal and Italy is to abandon the euro

These countries do not have other option if they want to keep their political systems and avoid a social shock. The International Monetary Fund, the European Central Bank and the European Community impose their decisions to the countries members of the Union. Some measures are reducing the pensions and the salaries of the public workers, diminishing the public spending in health and education, the privatization of the public enterprises and the public services and the increase of the public services tariffs.


It is obvious that the world population is beginning a rebellion. The protests worldwide are undoubted evidence. Occupy Wall Street ---which began on September 15 2011--- is already a big movement in the United States. In Spain ---where occurred the first manifestations of the indignant--- the protests are every day most; the same happen in Greece, Italy, Portugal, England and Iceland. For example, on October Saturday 15 2011, big protests also happened in Rome, Madrid, Barcelona, London, Berlin, Frankfurt, Brussels, Sidney, Japan and New Zeeland, among other places.

The protests are against the bankers and their unlimited desires of wealth; also against the indulgent attitude of the politicians and governments that give to the bankers trillions of dollars in bailout but deny basic resources to the majority of the population, by mean of the restriction of the public spending. All the money is for the bankers and the breadcrumbs, the remains for the rest of the people. That is the basic reason because the people are angry worldwide.

1. The solution

For overcoming the current crisis some European nations do not have other option than to abandon the euro and come back to their previous national currencies. The reason is very simple: because when those countries adopted the euro they resigned to its sovereign capacity to decide its monetary policy. In the past, Spain, Portugal, Greece and Italy were able to issue the amount of national currency that they required for their economies, with enough independence. But now no; now they must require the approval of the European Central Bank, the European Community and of the International Monetary Fund. That is the cause of the current crisis, because the first priority for those institutions is to recovery the loans given by the banks to those countries. Therefore they require strict measures of austerity to the nations; they want that the nations employ their resources ---in first instance--- to pay the debt acquired with the banks.

If Greece, Italy, Portugal and Spain abandon the euro and come back to their national currencies, their central banks will be able ---autonomously--- to issue the money for paying the salaries of the police, the teachers, the firefighters, the doctors, the nurses, etc; and will be able of to pay the national public financial commitments. They are industrial societies with an important autarkic capacity; they can survive with their own national resources because they are self-sufficient in agriculture, industry and services. Of course, those countries need to maintain and to increase its international commerce because through it they obtain their international mean of payment; and currently they have a part of that international commerce.

2. What would happen if Greece does not pay? A hypothetical scenario


If Greece abandons the euro the problem for Greece would be how to pay the external debt, in this case, the debt acquired in euro and/or dollars with the banks. An important question is: What would happen, really, in the true practice, if Greece does not pay its debt? Well, in this moment, because of the dependence of the euro it would be a chaos for the population because the government would be not able of paying the salaries to the people and to guarantee the movement of the economy; but if Greece comeback to its national currency the situation would be different, because the government would be able of issuing the necessary money to guarantee the economic movement. If Greece has an adequate level of internal supply of goods and services it might overcome the first stage of the situation and advancing to a best position. The same is applicable to the other countries.

If Greece abandon the euro, at the beginning, the financial international consequences for Greece would be hard; first of all, it would not get, for the moment none loan from the financial system; this mean that the country would not be able of to pay its external debt during a time. But this situation cannot be for much time, for a simple reason: when you are a big debtor of a bank you, in the practice, become in a partner of the bank; if you broke the bank also will broke. That is the big problem for the banks currently: their debtors are, in the practice, their partners.

The unique form that Greece pays its external debt is getting more international means of payment, this mean dollars or euro and for that is necessary that the country increase its participation in the international commerce. The other form is refinancing their debt at a convenient period. A combination of the two solutions might be possible. The international financing system knows that there is not other option than refinancing the Greek debt and giving fresh money because if they do not do this very soon the banks will broke.

3. A big show

All this situation is a big show of the bankers and some politicians for obtaining more benefits: a) more bailouts, b) more interest rates, and c) more benefits regarding the debt, because the sovereign papers that in this moment does not has none value will be sold to a good price in the future.

The sovereign debt never is paid completely; it is an eternal debt and this is the big business of the bankers; they simply change papers by other papers at a new term. For example, Greece will not pay its debt in euro or dollars; Greece only will change their expired papers for new papers to be collected supposedly at mid or long term. Meanwhile, the banks obtain the best part.

4. Conclusion

The international financial system will resolve the problem refinancing the debt of all the countries involved in the situation. The banks will impose their conditions; that is the objective of the current crisis that was provoked by the same banks for obtaining more and more money. That is all. But it is also very likely that some European countries like Greece, Portugal, Spain and Italy will reconsider the benefits and disadvantages of to stay in the euro sphere…The pressure of their populations perhaps will compel to the leaders of these countries to adopt a decision regarding the comeback to their previous national currencies. Germany and France, which obtain the most advantages from the euro, might keep the Union.