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

The economic conjuncture is dominated by two facts: the possibility of war in the Middle East and the European crisis

Extract

An attack to Iran might set the oil prices over $500, while the intensification of the pressure on the economies of Greece, Portugal, Spain and Italy might provoke unsuspected political changes in the political map of Europe. The base for this hypothesis is explained in the followings paragraphs.

1. Projection of the oil prices

Nobody can predict the future. The future is unknown. However, the historic experience is an important source of knowledge. In the past, as a consequence of the conflicts at the Middle East the oil prices reached its highest level. This happened after the War of Yom Kippur in the year 1973 and later, in 1979, in occasion of the Sha of Iran, Reza Pahlevi fall and the Iran-Iraq war in 1980.

For the year 1970 the oil price was $1.25. By effect of the Yom Kippur war in 1973, the oil prices reached $10.7. By effect of the Sha fall and the Iran-Irak war the oil prices reached $40 for the year 1980. This represented an increase of 3,200 % between 1970 and 1980.

In the book Running Out, How Global Shortages Change the Economic Paradigm, page 36, Algora Publishing, New York, year 2008, was made a projection on the future of oil prices as a consequence of its scarcity  by depletion or scarcity because of political conflicts. The estimated projection of price was $512 for the year 2012. (1) (2)

2. Projection of the European economic crisis

The application, in the 90s years, in Latino America of the same economic program that is developed now to Europe provoked a deep political change in the region. As a consequence of that program leftist and/or nationalists parties won the elections in 14 countries of Latin America.

What might happen in Europe?

3. Conclusions

-          The natural resources scarcity, especially water and oil is something real. The current drought in the United States is a clear proof. Something similar happen regarding the oil. Therefore, a restriction in the supply as a consequence of geological causes or political causes would rocket the prices to unsuspected levels. This fact might produce a severe world recession.

-          The European crisis has been created by Germany to guarantee its supremacy in Europe and the market for its exports.

-          Germany needs the European free market for their exports but other members of the community might consider the advantages of to stay or not in the Union.

-          A mistake in the rigid application of the norms by the European Central Bank, the International Monetary and the authorities of the Union might provoke the collapse of the euro and a global financial crisis.

-          If the energetic crisis, by a conflict in the Middle East coincide with the financial crisis in Europe, then the world situation might be no easy at medium term.

(1)    Running Out, How Global Shortages Change the Economic Paradigm, Algora Publishing, New York, 2008.

(2)    http://pablorafaelgonzalez.blogspot.com/2009/05/oil-price-might-surpass-500-for-year.html

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

Index

1. Extract
2. Relativity of the economic concepts, a reflection on the mathematical logic applied to the economy
3. Usefulness of the mathematical abstractions, the infinitesimal calculus
4. Conclusions

1.      Extract

The mathematical logic is employed to justify some behaviors in the real life; for example, the mathematical logic is used in economy to demonstrate why it is necessary a balance between income and spending of the states. That mathematical premise is employed currently by the European Central Bank and the International Monetary Fund to maintain its economic policy in Europe.

In the first part of this work it is demonstrated that the mathematical logic is not always the right way. In the second part it is developed a concrete example which prove how the mathematical abstractions sometimes neither can be used effectively in the real world.

2.      Relativity of the economic concepts, a reflection on the mathematical logic applied to the economy

European countries like Spain, Italy, Portugal, Ireland and Greece suffer severe economic restrictions that are affecting the life of millions of people. The cause of those restrictions is the wrong belief that austerity is the right way that the economies must follow. The desideratum of that belief is that balanced budgets are the ideal objective for the construction of healthy economies. But that rational and logic concept is not truth in all the cases. The fiscal and financial deficit is not always something bad. For a people or for a private enterprise the lack of financial resources is a sign of weakness or peril of insolvency but for the governments no. The fiscal and financial deficit of the states reveals that the economy as a whole is growing and therefore the resources are insufficient.  It demonstrate also that the private investment is not enough and that it is necessary the help of the state for assuring the normal economic development of the countries. The states, the governments, moreover, have an advantage that does not have the personas neither the private enterprises: the governments have the sovereign capacity to print money; therefore they can solve their internal financial necessities printing more money. What the governments cannot do is to print the money of other countries, in this case, international means of payment, like the U.S. dollar or the euro. The unique institutions that can issue U.S. dollars and euro are the U.S. government and the European Central Bank, respectively.   All this is a proof of the economic concepts relativity: the scarcity of financial resources is not ever something bad, it depends on who is the actor; if the actor is the public sector the financial deficit is different than if the actor is a person or a private enterprise.

The European economic crisis has its origin in the fact that the states members of the European Union resigned to its sovereign capacity to issue its own national currencies to create a new common currency, the euro. But now they are trapped in the hands of the European Central Bank and the International Monetary Fund, which impose their criteria of austerity. How much time more will resist those countries the impositions?

The problem is that some economists have employed mathematics for intending to give a character of exact science to the economy, but in some cases that pretension of the economists has generated more damages than benefits, like demonstrate the application of rigid and logic mathematical concepts of austerity in Europe.

3.      Usefulness of the mathematical abstractions, the infinitesimal calculus

In this part of the work it is developed a reflection on one of the most important mathematical issues, the infinitesimal calculus. So I want to ratify that the mathematical exactitude not always is exact; it is relative. Therefore, the application of mathematical concepts in the economy is not always a warranty of success.

Begin:

Is it possible the infinite division of the numbers?

Isaac Newton and Gottfried Leibniz taught that it is possible the infinite division of the numbers through the infinitesimal calculus.

But what is the infinitesimal numbers?

The infinitesimal numbers are considered the most reduced amount that the human mind can conceive; it means the numbers nearest to cero. This answer reveals the abstraction of some mathematical concepts.  The infinitesimal numbers should be the most reduced amount that can be measured in the real world and not an abstract conception on the infinite division of the numbers. Numbers are representation of the amounts of matter; numbers do not exist like entities with own life. What exists is the unit. The essence of one thing is different to the essence of other thing and this is the cause of the diversity of things in nature. Therefore the unique number that exists is the number one, which represents the essence and diversity of the things; the other numbers that we know are only additions or fractions of one. For example, two is two times one; nine is nine times one. One half or a quarter is too in essence one unit.

Matter is also one unity. Matter has the same properties of the numbers; this means that matter can be added, subtracted, multiplied and divided. The atomic fission is the proof of this assertion. If numbers are a representation of matter then we can to make the following question:

What is the most reduced amount of matter?

According to the concepts accepted by science molecule is the lesser amount of matter; in turn, molecule is integrated by atoms and these are composed by subatomic particles, neutrons, protons and electrons; each one of them is a different unit.

If this is truth, then the infinite division of matter in the real world has a limit; the limit of the division of matter is the atom and their components; if the former idea is truth then the infinitesimal calculus is an abstraction that can be only partially verified in the reality.

The most reduced infinitesimal particle is always one unit and, on the contrary, the biggest amount of matter is always one unit integrated by an addition of unities. But, in the real world, we arrive ever to a point when we cannot to reduce or to divide more the matter. So far, that point is when we arrive to the molecule, the atom and their components.

Nanotechnology is a new discipline that intends to manipulate the molecular and atomic composition of matter.

Is it possible for nanotechnology to create new unites of measures different to molecule and atoms?

In other words, would be possible to divide more the components of atom?

That is an important question because if new unit of measure different to molecule and atoms are created then the limit of measures of the matter would also change.

The speed of light is the other limited measure that exists in nature hitherto.

Would be possible for science to discover that the speed of light is other and not the measure that has been reveled until now?

If this is so, then a new door toward the infinitude of the numbers division might be opened.

But while the molecule and atom remain like the most reduced amount of matter and the speed of light remain like the maximum speed that man knows, the possibility of infinite division of the numbers will be restricted. Atoms are the limits of the division of matter and the speed of light the limit of the speed in nature; in consequence, that is the lesser amount of matter that exists in the real world and the maximum amount of speed by man known. If this is so, then the philosophic concept of the infinitesimal calculus like infinite division of the numbers would be only one abstraction. The division of the numbers in the real world has a limit and that limit is the lesser amount of matter and the speed of light; in any case that number is one; the lesser amount of matter, the lesser infinitesimal fraction is itself one unit.

The ideas expressed in this epigraph reveals that not always the mathematical abstractions are absolute truths and that, in consequence, not ever may be considered indisputable truths.

The infinite does not end; only God, space and time are infinite and eternal; but the material things always can be measured. The numbers, which are a representation of the material things, also have a limit.

4.      Conclusions

-          The application of rationalist mathematical conceptions has caused a big damage to millions of people in the entire world. In Latin America, during the decade of the ninety years of the 20^th century was applied the same economic program that is being developed now in Europe. The philosophical inspiration of that program is the austerity which main base is the logical assumption of the balance between income and spending. In Latin America the results of that policy was the instauration of leftists and/or nationalists governments in 12 countries, including the big economies like Argentina and Brazil and in nations like Venezuela, Ecuador, Uruguay, Bolivia, Nicaragua, Honduras, El Salvador, Jamaica, Peru and the strengthening of the leftist movement in Mexico. 

-          Mathematics is relative, it is not an exact science; it is a result of the imagination, of the capacity of abstraction of man; therefore in many cases do not have true base in the real world.

-          Mathematics is a hermetic discipline, incomprehensible for the most people. The mathematicians maintain its discipline closed, inaccessible to the majorities. The day that mathematics is simplified and the most people understand their fundaments, that day mathematics will not be more a knowledge exclusive for erudite.

-          The application of the mathematical logic is not a warranty of success in the economic practice.

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.