Is this Tautology valid where Capitalism will always succeed because Capitalism always fails?

Two years ago, Greece owed the world 40 billion Euros. They were "bailed out" twice, and now they owe 240 billion Euros which they still can’t pay back.

  1. Are recessions we have to have, really needed?
  2. Is maintaining democratic capitalism a flawed model as the only alternative to maintaining perpetual motion of human growth?
  3. Is the viability of capitalist economies again under enormous threat?

These questions are being asked with the precipitous Greece and Spain financial dilemmas threatening yet another global recession of unprecedented proportions.

A point of view post on Q&A a popular Australian Broadcasting Corporation website provocatively suggests Greece should be left to sink. Curiously it is captioned with the now infamous 1980’s Paul Keating statement “The recession we had to have”.

Keating in the downturn period after the 80’s boom said this when many politicking pundits predicted the boom was going to end badly. In fact it didn’t’ but his statement haunted him and eventually it cost him power after 20 years .

Putting emotive and political partisan views aside the Keating faux-pas clearly contains fundamentals that still cannot be ignored.

If corrections are inevitable, there is no doubt that ignoring them and by letting the law of the jungle prevail will returns us all to subsistence levels as the money flow stops.

To understand this more must go back to the latter half of the 20th century when globalisation brought about re-organizing of labour and social dynamics.

The result was fine-tuned business economics with highly efficient that were market incentive driven. Predicated on the natural momentum  the chicken and egg economics of global supply chain harnessed human energy to supply the un-ending demand from the natural development of civilization.

Nothing is new here, at least not since the Industrial revolution in the 18th century.

Even so called out-dated Keynesian economics theories of the of the 1930’s still get dusted off frequently to stabilize outputs of business cycles with active policy responses by the public sector, monetary controls by the central banks and fiscal policy actions by governments.

In the 30’s the global economy was slow and sluggish as nations were developing.

Then when global recession turned to depression after the October 1929 Wall Street Crash, it protracted for nearly a generation.

That depression was only broken by the outbreak of war that got nations back to work to supply their defences.

Breaking depressions with wars is no longer an option given the potential for total annihilation. Recessions we have to have are not an option either.

The 1930’s despair was devastatingly long as were supply lines. Now supply lines are short and more intensely global and hit fast and as hard when they slow down.

The good news is they can recover much quicker if sensible and cooperative fiscal policy in exercised governments. The lesson learned of the past now sees governments more alert to ensure things don’t close to makes it worse. Or do they?

The vital element here is ensuring vested interest influence in check so memories loss does not occur with economic leaders who come under pressure to stop the money flow when things get tough?

Understanding cyclical dynamics is vital as is the ebb and flow of a seemingly endless economic multiplier processes that keep us all fed and happy.

We know it can cause great pain when the supply chain slows and has potential for social failure that really can put us back to the Stone Age.

We also know it takes an eternity or catastrophes to jerk things us back to life and regain momentum again.

Globally nations have no choice, regardless of fault. Collaborating as a recourse to bail out the Geek stupidity is a no brainer so their economic cancer does not kill us all. Those who do will likely be in winner take all stories yet to come.

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Understanding Economics means understanding Paul Keating

“The Recession We Had to Have” comment was part of a speech Paul Keating gave as the Treasurer of Australia That saw his rapid ascent to the top job as Prime Minister of Australia in 1991.

As the new Party leader he replaced the failing incumbent, Bob Hawke, as its credible leader and then pulled off an upset victory in the "unwinnable" election of 1993.

Hawke had been losing points badly because many of the economic reforms that he had introduced in his near 8 year run, were evaporating. Ironically many of these were architected by Keating as treasurer during the Hawke regime.

When Keating deposed Hawke the 80s boom had ended and the recession that was all around him was expected to end badly.

Oddly for a Labor government, social focus took a back seat to monetary and fiscal policy while Keating set about reform to get the economy out of decline.

Keating’s understanding of economics and his ability to communicate this with razor sharp and often testy debating skill are indisputable. He was known publically for his notoriously barbarous ability to deal with the opposition but there was never a doubt he was the boss with the leader skills that were needed at the time .

Offsetting this anathema was his absolute empathy with the Treasury to do its job and a high respect for autonomy of the Central Reserve Bank. This accord meant agreement were reached more often on issues that ensured the recession did not become deep rooted before the economy up-turned in 1992.

Following on from this, to maintain a low and stable inflation, industrial reform in place Keating knew it was a vital to keep wages under control.

The then Union boss Bill Kelty worked closely with Keating to maintain the Wages Accords that John Button, the Industrial Relations Minister in the Hawke Government had set up in the 80’s.

The continuance was vital to ensure the economically cancerous “banana republic” path remained unburdened. (A term used in another of Keating’s 1980’s speeches.)

If this Government cannot get the adjustment, get manufacturing going again, and keep moderate wage outcomes and a sensible economic policy, then Australia is basically done for. We will end up being a third rate economy… a banana republic.

But the Reserve Bank role to maintain a low and stable inflation meant increasing interest rates in 1994 meant Keating would soon fall on his sword .

The Paradox was Keating’s “Must Have Recession” and his 1986 “Banana Pepublic” utterings did the job well but also did him his comments became millstones. 

These statements gave the opposition fuel to scare constituents that a Keating was extremist but the reality it also exposed was economic obesity and malaise that surfaced the recession as a fact so public opinion accepted their medicine so things could get better, which they did.

Yet as prosperity returned under Keating the opposition continued dripping tap reminders of his recession and banana panic mongering.

This was aided no less by right wing humourists, cartoonists and journalist who all bathed in the lampooning limelight of the destroy Keating fun.

Eventually the opposition, led by John Howard, who Keating had replaced as treasurer in 1983, toppled the Keating Government at the 1996 elections. The Howard Government then had a dream run with a decade of prosperity handed to them.

Keating however is now acclaimed internationally for his skill as the architect of the structural change that occurred to reset expectations in a downturn.

In December 22, 2011, in a London Daily Telegraph post by Bill Shorte entitled, “The living treasurer: How Paul Keating shaped modern Australia”, gave an account of how Keating left his indelible mark not only as one of the few leaders who used the Australian language better, but more importantly for his uniqueness in educating Australians and people everywhere, with his legacy on how an economy works.

Shorte also states “It was Paul Keating who wrote the 1990s chapter of the future of Australian with Asia.”

I wonder who can see the same things for Europe in 2012 and beyond with Greece and Spain in the financial hot seats.

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