[OPE] More on current account deficits

Hi Patrick,

A few drafty thoughts: well in the medium term the prospects for SA exports
look good, insofar as global commodity prices will very likely rise. But as
you point out, this is really less significant, if you export more and more
for less and less local return; even so, it is more likely, that more people
will be able to get a job anyway.

I think the general global effect of the slump is to condemn a extra
fraction of the labour force durably to the unemployment scrapheap, i.e.
unemployment rates will be durably higher. They will come down somewhat, but
they will be higher for the long term than in the past. The victory of the
cadres is that they dumped the people they wanted to get rid of anyway.

According to the figures I have seen, and you may correct me here, the
discrepancy between SA GDP and GNI is not very significant. The SA current
account deficit was $3.5 billion in the first quarter of 2010, it's not very
significant I feel.

The BOP manual (section 27, p. 8) states "A transactor (economic entity)
provides an economic value to another transactor and receives in return an
equal value." http://www.imf.org/external/np/sta/bop/bopman.pdf (I am not
taking about Bophuthatswana here).

Correct in accounting terms, false in economic terms. To verify the
international transfer of profit, interest and rent, however, I'd have to
dig deeper into the data and I haven't got it online at this stage.

Of course, 99% of Marxists have never mastered the BOP system (I'm not sure
about parts of it myself), you would have to talk to Laurence Harris
http://www.soas.ac.uk/staff/staff31067.php or John Weeks http://jweeks.org/
people like that. Randy Wray http://www.cfeps.org/people/wraylr/ is
published a new textbook but I don't know if he deals with it in any depth.

Qua position in the world economy, structurally, South Africa is pretty well
placed really, I mean it has everything. With good land management and
financial management, infrastructural development and improved public
services, there's the potential to prosper there. It's not primarily a
problem of economics but of habits and customs.

About 1 in 4 workers are officially unemployed in SA, which is admittedly an
awful lot - somehow the country manages to sustain this. But also look at
how quickly production started to bounce back from the 2009 slump - if SA
industry took a extra hit because of the value chains linking it to the
world market (a quarter of the - statistically measured - value of what SA
produces is exported, slightly more is imported), then as the world market
recovers, SA can also recover.

However, the Rabo bank states: "Main factors accounting for the 2008-2009
recession were domestic. Domestic private consumption fell as household
debts to disposable income ratios reached such high levels (80%), that
consumers became hesitant to spend. Private fixed investment growth was also
negative and the public fixed capital growth could not counterbalance this
decline."
http://overons.rabobank.com/content/images/South%20Africa-201004_tcm64-85847.pdf
As far as I can see, this is correct.

It seems to me the SA government macro policy was really not so bad. It's
just that the old Keynes's prescriptions were tailored to national
economies, not internationalized economies dominated by the vagaries of
finance capital. Gernot Kohler has made a case for a global Keynesianism,
but it's unlikely to happen - it's is just that profligate banks are bailed
out, and workers get austerity. We cannot expect much else from the powers
that be, I would think. It's a game of "pass the burden to those that cannot
avoid carrying it".

The overall problem with the debt business has been that, to put it in a
quirky way, it is so profitable to manage liabilities. Employing relatively
few people, it was possible to gain large pickings for the equity that you
have. Because it is profitable, there is a financial incentive to
proliferate debts globally, quite irrespective of what happens in the real
economy. Businesses begin to act and behave like banks, even although they
aren't really banks. They sought to claim more income, on the strength of
borrowed funds for which incidentally they often didn't pay tax.

Effectively, neoliberal ideology indeed taught ordinary people to behave
like bankers, which is to say they incurred extra liabilities with the
expectation of future profit. Debt was argued to be a good thing, because it
made available resources to do things now, and pay later. And people did.
Whatever they do in Wall Street, sooner or later it will be mimicked in Main
Street, literally or culturally. (this is also incidentally why Mr Obama has
placed a lot of emphasis on renewing "esprit de corps" in the elite).

Of course, structural global debt growth is in part also inevitable - you
cannot have ever-increasing, across-the-board global inequality in incomes,
without an increase in debt levels. It takes credit to stay on the ladder
and not fall off it. If people don't have the money, they're going to have
to borrow whatever they need, to improve their position, insofar as they're
stuck in a cash economy. Point is that even if the production sector of the
economy is pretty robust, as it is in SA, then the debt business can drain
off a lot of its income. This also happened in New Zealand where I lived.

The meaning of modern-day austerity is essentially, that if you don't own
the equity or human capital, you should not be granted extra funds to use. I
have mentioned this before on OPE-L - it is a debate about who is
credit-worthy, and who shall be the judge of credit-worthiness.

I regret to say though that the world is now being drowned in macroeconomic
statistics which are pretty much propagandistic nonsense, and to excavate
the real story and gets things in true proportion is a lot of hard work.

Jurriaan

PS - in Afrikaans, the word "debt" is "skuld" which also means "guilt".

Did you slip the noose when the beast broke loose
The elephants graveyard ain't the place to be
And white turns black, dies of heart attack
The elephants graveyard needs the change of scene
You got the money, but who needs the tension
And fear's no cheaper on the old age pension
There's just one thing that I forgot to mention
What have you got to lose when you know

That you're guilty 'till proven guilty
Isn't that the law
Guilty 'till proven guilty
That's what we all saw

You do the blue rinse shuffle with the beach boy muscle
The elephants graveyard ain't the place to be
Waiting all your life for this golf cart life
The elephants graveyard needs the change of scene
You see the judge and then you check the jury
She does her hair and calls the lawyer cutie
It's Disneyland under martial law
Switch on the TV tell me what you saw

They were guilty 'till proven guilty
Isn't that the law
Guilty 'till proven guilty
That's what we all saw

Justice isn't blind
It just looks the other way
Not from want of trying
I have nothing left to say

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Received on Wed Dec 29 14:35:12 2010