Bruno Colmant - Economic Insights

History does no repeat itself, yet sometimes it falters.

This is why, for a very long time, I believed that the best historical reference to the economic crisis was situated in between the years 1978-1982. Three decades ago, these four years were those of the political bemusement. The economy mutated from industrial logistics towards a service society and the creaking of this societal hinge was deafening. However, governments back then confused a structural mutation of our communities with a conjectural choc, shamefully plunging the States into deficits, provoking two-digit inflation and public debts of which we are the faraway debtors. Belgium came out greatly impoverished from the decolonisation, two petrol chocks were responsible for the disappearing of numerous energy consuming enterprises and knowledge centres progressively migrated towards other climes. Nevertheless, some saw fit considering public debts as a source of wealth, whereas debts always represent a payment on future taxes.

In the eighties, Belgium struggled along in a Keynesian marsh, fed by massive social transfers and public support to moribund enterprises. Yet, back then the majority of economic levers, amongst which currencies, were controlled by public authorities. This is how Belgium, thanks to the devaluation of 1982, was able to partially extract itself from Leo Tindeman’s disastrous judgements.

Today, we have to admit that the tags of history are probably even more distant. We are no longer in 1982 but take a temporal leap back to 1932, on the edge of a terrible depression. In four years of economic and political distraction, we toppled over half a century. That is a lot. And more particularly, it shows that history lessons are badly remembered. .

Why this leap back into the dark years? For, beyond the muffled figures supplied by the official bodies, our economy is truly collapsing. Surely, the majority of the enterprises are out of debt and extracted from the 2008 stock market crash.  Yet, at the same time, while examining basic industrial economics statistics, i.e. cement production, real estate, vehicle sales, transports, etc everything is collapsing with staggering proportions. It’s a flood of bankruptcies. Order books are drying up with several dozens of percents. We no longer speak of some negative wrinkles on a growing trend, yet of an authentic economic fall which carries the germs of a profound unemployment wave.

We are equally in 1932 for the euro is henceforth assimilated in a gold standard system, the rigidity of which prevents Member States from adjusting their foreign competitiveness. In reality, the euro represents a danger that is worse than a gold reference, of which we can dissociate at any time. This is for that matter what the Europeans did in the thirties. It is thus much worse: our economic situation is worse than that of 1932, for the monetary reference has become…the money itself and no longer a flexible parity with gold.

The evidence is right in front of us: the euro is a failure for money is the only parameter that stays fixed, while all fundamental data of the participating countries diverge: deficits and public debts, competitiveness, unemployment, inflation, growth rates, etc. Moreover, based on the economies’ fundamental data, not anybody would consider today that the European countries could contemplate a common currency. We are facing a staggering period in which money is postulated like an intangible outcome while its bases are cracking heavily. What is more, the euro is no longer adapted, for we are returning to stagflation, i.e. a mix between domestic recession and rampant inflation, while our leaders want to impose austerity and monetary rigidity, namely the opposite of what they taught us in the thirties.

We have thus arrived in 1932, in the aftershock of the 1929 crash. Yet, after 1929, there came 1933. Within just a couple of months, the question would be asked whether we belong to Berlin or to Washington.

To Berlin, situated in Germany that was defeated in 1914, ruined by Weimar’s hyperinflation in 1923 and facing high unemployment rates caused by Chancellor’s Brüning’s irrational wage deflation schemes, with the aid of German employers, a man that murdered the twentieth century? 

Or to Washington, situated in the country of predatory capitalism, where the democratic President Roosevelt with difficulty tried to convince that the austerity politics of its predecessor Hoover, full of old-fashioned monetary certainties and saving austerity virtues, were empty? 

Eight years later, Berlin and Washington would be in the middle of the years of ashes and nails. The history report is moreover disenchanted and merciless: it was the war that put an end to the deflation and recession of the thirties on both sides of the Atlantic. 

In 1933, all could have been different if some political leaders would have understood that monetary constraints and austerity budgets are subordinate to the reality of productive economy, namely labour.

Today, all could be different if only we would recognize that we are trapped by State providence logic in unbearable public debts that consisted of anticipating consumption on production. All could be different if we would leave behind ideological reflexes that lead us to not admit that the running order is the natural state of economy and the world was struck by capitalism. All could also be different if some would understand that the worst choice is to try to reduce public deficits whereas we are plunging in the most profound economic air pocket of nearly the last century.

2013 will not be 1933 if political leaders admit their mistakes with respect to the austerity budgets imposed on countries collapsing under unemployment and depression and if monetary authorities would understand that the euro has become an inflexible trap of which we can only escape by more lax and inflationist politics.

2013 will not be 1933 if intuition recognises that social chocks are imminent and that unemployment rates of 50% - attained by the youth in the Southern European countries - could, if necessary, mutate from resigned contestation to destabilising, even insurrectional factors

2013 will not be 1933 if we recall how during these dark years and on both sides of the Atlantic, rows of unemployed could be seen waiting in the streets, in front of soup kitchens or in immigration waiting rooms.

Those who today advocate austerity, taxation and rigidity so as to get out of a deflationist situation, are committing a serious mistake; a historical but also an assessment mistake. From the moment that public debts reach heights that the economic growth cannot longer erode, it is purely by money value loss, i.e. inflation, that an economy can recover its marks and prevent suffocation by public debt taxes and interest rates. The judgement error risk of rigidity prophets is that social order at some point becomes disrupted and leads to political discontinuity. Finally, Germany should fear 1933’s recession demon rather than 1923’s spectre of hyperinflation.