People and Jobs? Or Wealth? The Government Has To Decide Which To Prioritise, and There Is Only One Right Answer

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Yves here. I wish I had written this must-read post. Richard Murphy lays out the case for whose interests need to be sacrificed for the economy to have any hope of surviving under the conditions being imposed on businesses to keep workers and customers safe. Unfortunately, his well-reasoned recommendation, that landlords, banks, and pensioners need to take hits to save jobs and businesses, is not likely to find support in official circles. But Murphy’s argument, in essence, is that these groups are toast under any scenario, and they can’t be allowed to weigh down the productive sectors of the economy.

By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an “anti-poverty campaigner and tax expert”. He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics. He is a member of the Progressive Economy Forum. Originally published at Tax Research UK


This blog post is, in effect, an essay of almost four thousand words. I did not intend that when I started to write it. If I had known it would be that long I might have used a different style. But as I wrote it just kept growing. That is because what I think it is about is vital, in the sense that the issues I address cannot be avoided.

What I am suggesting is that whatever we think or do we are heading for the most almighty economic crash. The things that we have treated as stores of value – which are mainly shares and both commercial and residential property – are massively overvalued now. And there is nothing we can do to prevent the value of them crashing because the Ponzi style financialisation that has gripped western economies – and those of the US and UK in particular – for the last forty years was always heading for a massive crash, and now it has arrived. The genie is out of the bottle and it will not go back in again.

But that is not to say that our government (and other governments) are left powerless in the face of this. They are not. They can still make a decision about which factor of production – labour, business (enterprise), banks (capital) or landlords they wish to favour in the crisis to come.

If they favour people and business and sacrifice landlords (whos assets will survive, come what may, albeit at considerably less worth) and banks (which will inevitably need to be nationalised) then more people and many more businesses might make it through the coming crisis. If they favour landlords and banks – as the UK government is at present – then the chance that much business at all will survive this is pretty remote. And in the end, nor will the banks or the landlords either. That’s my bleak prognosis. And either way, pension funds and pensioners are in deep trouble: most will now be dependent on the state, which means much more generous provision has to be thought about now than we have ever previously imagined.

I didn’t enjoy writing this post. I’m not suggesting it’s a fun read. It is not. And yet, I do see hope. Our economies have been blighted by the curse of financialisation. I would not have chosen to end it the way that it’s going to happen. But wise governments will realise that the end of financialisation is now nigh, and act accordingly.

And some won’t.

On that decision rests the fate of millions of people.

I wish I thought I could rely on our government to make the right choice. Time alone will tell if they will. 

The lockdown threat to business viability

At the beginning of May 2020 it is very apparent that life is not returning to normal. Plans to end lockdown do, according to the Financial Times, include staggered working hours; rules to require social distancing in the workplace and shops; a ban on workplace canteens; a requirement that employers provide extra car parks (seemingly overnight) so that employees need not share lifts to work; a reduction in the number of people allowed to share lifts and a great deal more that makes it apparent that whatever work might be like after lockdown it will be nothing like what it was before it.

It is easy for the government to say this. And the rules could, possibly, be enforced. But the consequences need to be thought through, because they are staggering.

Of course it is theoretically possible that some companies could actually survive the substantial new costs that this way of working will impose. But I stress that the word ‘theoretically’ is doing a lot of work in that sentence. That is because the reality is that in all likelihood almost none can, or will. Our economy is not geared to work in this way. And by geared I do not mean physically, where it is apparent that our capacity for adaptation is already quite phenomenal. Instead I refer to financial gearing, interpreted broadly.

The financial burden on business

Like many households, a great many businesses are massively debt-burdened. They have both significant financial borrowings and / or substantial rent payment commitments.  That is because they are both under-capitalised in many cases and do not own their own properties, with rent in that case pretty much representing interest on an expensive loan that they might have had to take if they were to have bought their property instead.

Importantly, these obligations are fixed at present. The government might have shrunk official interest rates to near enough zero, but the reality is that in the actual economy that is not the case. The burden on businesses to repay loans, interest on those loans, and rents, might have been subject to some minor concessions for strictly limited periods at present, and then only for some lucky businesses, but for many the obligations will be ongoing.  And there has been not a hint, so far, of long term support on these issues. Instead new government-backed loans under coronavirus schemes will just add to these debt mountains.

What this will mean is that companies working with reduced efficiency and increased costs in markets where demand will be reduced will be under enormous stress. They will, absolutely inevitably, suffer reduced profitability from their trading activities, but will nonetheless be facing fixed financial obligations created in an entirely different era and market and, quite crucially, legally these obligations are not re-negotiable in most cases.

It does not take a financial genius to realise that this is a situation that literally cannot work. The vast majority of businesses cannot now survive if they are to meet those financial obligations. We are seeing this on High Streets already, where refusal to pay rents is becoming commonplace, but the problem will now extend to every industrial estate, office block and workshop in the country.

The tiny minority of businesses with no borrowings and their own, paid for, freehold premises might make it through this crisis. In addition, micro-enterprises working at home and with almost no employees might also do so. But with the lockdown conditions that are going to be imposed, the rest cannot. It will be as simple as that. I cannot be more blunt: on this occasion comments based on the extrapolation of obvious heuristically derived conclusions that reduce analysis of a situation to its barest essentials are both necessary and true.

The choice the government has to make

In that case it is also true that in the economy to come some fairly stark decisions have to be made if it is the plan of the government that we survive this crisis. Of these the most important (as ever when the reality of these situations is faced) is whose interests are to be prioritised?

Is it labour, and the need to preserve jobs, that has the highest priority?

Or is it enterprise, meaning that the preservation of trading entities becomes the core goal?

Alternatively, assuming that this can be done, is banking to be pre-eminent to prevent a crash? In other words, is capital preserved?

Finally, might instead the interests of landlords feature most highly?

To go right back to this most basic of economic questions, which factor of production is to have priority? Unavoidably, that question does, of course, have implicit class connotations attached to it.

Right now it seems quite clear that the government is setting its priorities in the reverse ordering of the above list.

To be precise, landlords have not really been asked to make any sacrifices to date: their interests and income streams appear to have survived almost unscathed to date.

Banks on the other hand are already subject to massive support for which they did not pay and are also now enjoying significant effective additional funding for loans from which they will make money. Quantitative easing has also helped them, and it’s back on the agenda.

Business loans, most especially to larger companies are getting through, but as loan capital those funds simply defer the day of reckoning that is to come because, as yet, the government is quite unable to differentiate cash flow, liquidity and solvency, let alone loans from capital. As such the wrong support is being provided, and the stress is growing as a result.

And furlough just disguises the fact that more than 6 million people are now likely to be unemployed in the UK. When the self-employed whose businesses have failed are added in it could be much higher.

My point is that this ranking of priorities – so natural to a political party established to support the interests of unearned wealth – is fundamentally misjudged now.

The choices that have to be made

We need to be prioritising work at present.

And we need to keep trade alive.

At the same time we also need to preserve the operational aspects of banking, as best we are able, because we cannot survive without it: those systems are the plumbing on which the economy runs. And because we have done no real banking reforms since 2008 that may yet require nationalisation of the whole banking sector fails as the property market collapses, and with it all the collateral on which banks have relied for around 85% of their loan books.

But I stress, even if we are concerned that the property sector might collapse that is not a reason to priorities the interests of landlords. They have to be at the bottom of the pile for support right now. In other words, the government has everything the wrong way round.

The lack of any alternative

There are practical reasons for this. As I have said since this crisis began, even if every landlord fails now, the properties that they own will still be there: in other words, even if their financial capital disappears, their physical capital does not. What that means is that the economy can survive the failure of landlords more than it can survive anything else because whatever happens to the current owners of these properties they  will still exist. We cannot say that of any other part of the economy.

In that case what is required now are statutory rent holidays. The rest of this year should be required, at least. And thereafter rents should be reduced, drastically, and by law, and right across the board. Eighty per cent cuts may be appropriate. It may be more. Whatever is necessary to ensure business can survive must be done.

I stress though that I am not seeking to wipe out the rentier: I have also argued, and repeat that argument now, that if, as I think appropriate, there should be long-term statutorily enforced rent holidays and then mandatory rent reductions I would match that with a right to bank loan holidays, and a right to a statutory reduction in loan liabilities so that the sum secured on a property cannot exceed its market value, whatever that might be in the future. To be fair over time to all involved, this would have to be subject to periodic reviews. This is hardly a concept landlords are unfamiliar with. Rentier insolvency is not my aim: rent reduction is so that businesses and people might survive.

I should add that because such a programme of liability reduction would make no sense for landlords alone if not matched by a similar scheme for owner-occupiers, who I predict will see the value of their houses crash in the near future as it becomes apparent that there is no market for them at anything like recent prices, then they too must have a statutory right to owe no more on a mortgage than can reasonably exceed the market worth of their property. This might again be subject to periodic review, but the key point is that mortgage interest holidays (with waiver happening on sale) could be made available on sums owing in excess of this sum. Again, my aim is simply: it is to keep people in their homes, and solvent.

And there is no point putting off these essential adjustments. Businesses that must decide if they are solvent or not must know about such arrangements now. Nothing less will do.

Bank lending

Statutory bank (and other) loan deferral arrangements of two years, at least, have also to now be in the mix for survival now. Interest only arrangements must be allowed in the meantime. And even that must be subject to the right to roll it up as part of the balance if it is necessary for the borrower to get through this. Again, nothing less will do if the government wants people and business to survive.

I am well aware if the implications of what I am saying. No one need post here and say ‘you’re being so unfair to poor, honest landlords’. I am saying that such appeals count for nothing now. That is because unless something like this happens then landlords are going to face a disaster in any case. That is because, to reiterate a point already made, right now most businesses in the UK cannot be profitable unless major costs and cash flow outgoings are immediately removed from their overheads. And since very few have the capital to survive any significant losses the reality is that unless rents are firstly frozen and then cut, alongside bank loan payment deferrals, then most (and I mean, the majority) of UK businesses are going to fail.

In that case the 30% effective unemployment that we see today is both going to become permanent, and grow. That would be unavoidable. And I promise you, landlords and banks are both going to lose heavily, come what may whatever happens as a result.

Jobs and businesses have to be in the lifeboat – bankers and landlords have to be left behind

So, to return to my theme, the essential challenge facing government is to choose priorities. It can choose landlords and then banks as the priority and the result will be the real economy will almost completely fail, at catastrophic cost.

Or it can choose people and then business as the priority instead and as a result reduce the payments due to landlords and banks. In that case a great many businesses might survive the crisis as it unfolds, because the pressure on them will be greatly reduced. Effectively, if they could then just cover their marginal costs they might be in a vastly better position to survive, and many will. As a result the jobs that they provide will also be retained.  But that will be impossible if rent and bank obligations continue.

The choice appears to be between seeking to preserve the appearance of value and wealth that is implicit in our overinflated property values at present, which also underpin all UK banking, or seeking to preserve the ability of this country to make a living.

But, and I cannot stress the point enough, the choice is illusory. In reality, the value implicit in land has already disappeared. It is folly to pretend otherwise. The only reason no one has yet begun to realise this is that we have a completely frozen property market at present. When that reopens prices will, as a matter of fact, tumble. And so too will new rents. All I am saying is that old ones have to follow suit: if we want an economy that generates income in the future then the blunt fact is that we now have to trash our balance sheet. Or rather, we have to accept that it has already been trashed and now deal with the consequences.


So what will become of landlords? For small ones, I have argued for state support, just as I have other unemployed people. I can see no special case that might be made for such landlords now, especially since what I suggest will preserve some of their asset value, and an income stream, albeit a much reduced one.

For larger landlords, the suggested arrangement will massively reduce the balance sheet value of the enterprise. But because of the matching loan suggestions it does not guarantee insolvency. It is very likely that these landlords will survive, but with vastly smaller market worth, and with their focus in the future being upon service supply, rather than asset accumulation. In that case, again, I see little reason for special treatment.


The real issue is, then, not for landlords but for banking, without which we cannot survive. 85% of UK bank loans are supported by property collateral. Whatever happens (and I cannot stress this enough) property values are going to collapse across the board very soon. It may be worse for business property than private property because of changes in work patterns and the number of business failures that the UK is going to suffer come what may, but it is going to be universal.

And so bank balance sheets are going to collapse. It’s just a case of when, and not if. The value that underpinned them has gone. Let’s not pretend otherwise. That just puts off planning for the inevitable.

Let’s also be clear that banking cannot survive this in its current form. The losses are many, many times greater than any capital that they possess. They are greater too than GDP of the country in all likelihood, and by some way. This is not, then, a matter for the private sector to deal with. Every single bank in this country, and across the world in all likelihood, will be insolvent. No bank will survive without nationalisation. And the only way the losses can be managed is by wiping them out by the issue of perpetual bonds of the type that I have referred to on the blog today, which will then be subject to QE and thereafter be forgotten forever.

I stress that can be done. The balance sheets of the banks can be restructured. That is possible. But only by states willing to act, and who appreciate the need to do so now. The rearrangements will look to be drastic, but they can be managed.

There will, however, be real costs. First, it will not be possible to guarantee all bank deposits. Some amongst the wealthy will take a haircut (which refers to a writing off of value).

There should also be a refusal to settle claims against banks where the beneficial ownership it  arises from cannot be proven. And if the claim is from a tax haven there should also be a considerable haircut, come what may.


But it is not in banking where the biggest haircuts will occur. Those will be in pension funds. This is where the crisis will really be felt.

I have written, many times, on the economic stupidity of sending vast sums of cash to be saved in financial assets, month in and month out, creating an apparently never ending Ponzi style growth in value because the money coming in always exceeded the money going out when the stock of assets (shares and commercial land) is deliberately constrained. It was inevitable that one day the pretence that there was any value in this system would disappear, and the whole edifice would collapse. That day has arrived.

There is, supposedly, £6 trillion of pension wealth in the UK at present. I suspect that a very great deal of that will now disappear. I also stress that if what I suggest does not happen then it is likely that almost all of it will disappear: only the bank and land based assets need vanish into thin air if what I suggest is done. In either case, the haircut is going to be massive and is bound to be reflected in the pensions of current and future old people.

There is, quite literally, no way to avoid this. Yet again, the pretence of value on which the whole edifice financial capitalism has been built has been shattered: coronavirus will have killed it.

So what to do for pensioners? I am afraid that they, like so many who have until recently been in work, will have to fall back on the state: there is simply no alternative.  But, and I stress this, it cannot require that people be reduced to living on the basic state pension: that is an impossibly low sum which it is repugnant that we pay at present. But as for so many others, incomes of pensioners will fall in a great many cases. And the sums that they hoped to leave to next generations may collapse. But if (and I have to keep repeating that this is a massive ‘if’) the government acts to preserve jobs now pensioners have a hope of surviving. If the government does not act in that way pensioners will then be amongst the many whose literal risk of survival will be at risk.

Looking forward

Finally, let me be a little more forward looking to conclude. There will be a time to restore value after this crisis and the shockwaves it creates are dealt with.

The problem that this crisis will have eventually highlighted is the fact that we have focused our attention on what has, in effect, been the creation of balance sheet wealth during the course of the last 40 years. This has not been generated from work, or from the investment of resources in the creation of real value. It has instead been generated by encouraging the flow of ever-increasing sums of money for what has been called investment (but which has actually been saving) towards a limited range of financial and property assets whose availability has been shamelessly restricted in supply, so guaranteeing almost perpetual increases in value. That sham, for that is what it has been, has now been shattered. The genie cannot be put back in the bottle. And nor can anyone now seriously believe that value can be created in this way, ever again.

We have, then, to understand that value creation does not come from for financialisation, or balance sheet manipulation of the type we have got used to. It does, instead, come from work, which produces value as a consequence of the inherent worth of the activities undertaken. And, if (as most societies think desirable) one generation is to look after its predecessors when they reach old age then what I have long described as the fundamental pension contract must be respected. This contract, which is implicit within society, and not legal, is that one generation (the older one) will through its own efforts create capital assets and infrastructure in both the state and private sectors which the following younger generation can use in the course of their work. In exchange for their subsequent use of these assets for their own benefit that succeeding younger generation will, in effect, meet the income needs of the older generation when they are in retirement. Unless this fundamental compact that underpins all pensions is honoured any pension system will fail.

This fundamental pension contract does then also respect that value comes, not from financialisation, but from the creation of value through work which is not transferred between generations through the transfer of ownership of savings products, but is instead transferred through the creation of real added value resulting from actual investment activity.

We can rebuild society. It can be sustainable if we respect the constraints that our planet puts upon us. We can transfer value within it. We can sustain populations. But we can only do these things if we simultaneously recognise that there is no magic way to do so: financialisation as a source of value creation was, and always will be, a myth. It is work, and work alone, that generates value, and even then it can only do so if we respect the constraints that nature imposes upon us.

The crisis that coronavirus can has created will be fundamental, and could be existential, quite literally. But it need not be the latter if we take action now. What it does require is that we accept that it is not a few working in financial markets that create value in our society, letting them claim that they are the masters of the universe. That is not true. Instead what we have already learned from the coronavirus crisis is that it is care that  is the most valuable commodity that we can create, whilst friendship and community are the things that we value most. Each requires effort and so too does all value creation. Nothing can shortcut this, but we’ve been sold the myth that there was a fast-track, and that has proved to be untrue.

To survive our government now have to make a choice. They can seek to preserve the myth. They can pretend that the asset values that the myth created are still real and seeks to preserve them. Alternatively, they can face reality. They can give up the pretence that there are assets of worth left within very large parts of the financial system. They can take the necessary steps to deal with the consequences. And they can, as a result, seek to preserve jobs and the businesses that help create them whilst building an entirely new basis for banking and pension provision.

Alternatively, they can crash what remains of the economy that provides us with work in a vain attempt to preserve the interests of the rentiers who have dominated our economy for decades. That attempt would, however, be in vain: there is now nothing left to save.

The only difference between the two routes is that one preserves some value, and the other preserves none at all. Whatever we do we face the most staggeringly difficult economic decisions, but some at least have good outcomes, and others have none.

What will our government do? Who knows……

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  1. Larry

    This goes along with much of what Michael Hudson has written over the years, debt jubilee resets and an industrial instead of financial capitalism. Given what has happened over the last 40 years and the fact that in the US our sclerotic leadership derives much of it’s personal wealth from inflated assets (Pelosi, Trump, etc) I see no change of course to an obvious crash of the whole economy. They’ll do what they can to bleed to populace. But in short this article is correct that debts that cannot be paid, will not be repaid.

    Look to the lack of leadership on the initial and continuing response to the crisis. There is no hope in the short term. One can only hope for a new wave of leadership to steer us towards a better course.

      1. Samuel Conner

        This is a thought that recurs frequently. Thankfully my rest periods are not yet afflicted with nightmares of what that might be like; perhaps I’ll have to actually witness such things for that to happen.

        The “live and let die” attitude of the US administration suggests that we could be moving toward Quadrant IV/”exterminism”, with the expendable “essential workers” of the current human workforce sacrificed to get things ready for a system that relies less on the poor for the consumption of output — sort of a nightmare flesh-and-blood permutation of the thought of using the remaining “carbon budget” to power the transition to a post-carbon energy system.

        We are ruled by sociopaths.

        1. MBLG

          When Trump toured Honeywell yesterday, 5/5/20, (N95 factory mask inspection), the song playing in the factory (instrumental) was “LIVE AND LET DIE”. No joke.

            1. periol

              When you were young
              and your heart was an open book
              You used to say live and let live
              you know you did
              you know you did
              you know you did
              But if this ever changing world
              in which we live in
              Makes you give in and cry
              Say live and let die
              Live and let die

              What does it matter to ya
              When ya got a job to do
              Ya got to do it well
              You got to give the other fella hell

              You used to say live and let live
              you know you did
              you know you did
              you know you did
              But if this ever changing world
              in which we live in
              Makes you give in and cry
              Say live and let die
              Live and let die

      2. SAKMAN

        Wow – exterminism. I think people would fight that. Its more of a recipe for social unrest and change. Our overlords dont have robot armies just yet.

        Regardless, I just cant take this apocalyptic type of writing seriously. There is much middle ground left to use, and our overlords have been in the business of stimulating productivity and creating markets for a very long time. Suggesting that “its over man, its over!” is better left to the movies.

        I might take a break from this site for a while. I gave up on zero hedge long ago. . . way too negative and borderline unrealistic.

        1. Wukchumni

          The thing is, we take our real life cues from the movies, a good many of which are chock full of CGI violence, often requiring suspension of disbelief for the sake of entertainment.

          Our ongoing plot requires suspension of disbelief for the sake of sanity.

        2. Ian Ollmann

          Although I think the article is essentially correct about the Inevitable bankruptcy of financialization, because the activity produces nothing of value but parasitism, I agree we can easily extend and pretend another 20 years about this. MMT seems like the perfect vehicle to enable that, too. Although MMT as envisioned was to used the money to support worthy causes, it may have been excessively naive to think that is where the money would go. Where will the money go? A: Where it usually goes. We always could have spent our money on worthy causes. We just didn’t. Why would that change now? So, in my opinion, we will continue to play games until it absolutely doesn’t work anymore, and then some time beyond that, until the chickens have well come home to roost.

          I find it quite depressing, because the irrationality about global warming has been going on much too long. I can cut my CO2 production in half if I spend a lot of money. This was solar, 2 cars, solar battery, at a cost of maybe $130k all in less some subsidies. Done. I could possibly do a bit more with geothermal heat for another $30-40k. But really at this point, the vast majority of it is either consumer products or air travel, and I would do well to bring the carbon down far more than just geothermal would allow. These are problems that need to be solved by other people. I can no more build my own green factories than I can buy non-existent electric 747s to fly in. Whose butt do I kick?

          If it was up to me, further bailouts would be predicated on substantial progress towards going carbon neutral. The weak ass nearly bankrupt businesses that complain about the cost of it can go under. The ones who want to go forward and do it right, since the public dollar is financing it, can survive. We should replace non-essential jobs with essential green jobs putting in green infrastructure. We must ask more of those we give free money.

          What will we really do? Race bait and make insane statements about getting the Mexican government to pay for it instead. Meanwhile, the Federal Reserve Bank will use its monopoly to prop up a very small fraction of the 1%.

          1. Ian Ollmann

            A fun thought experiment is how your outlook would change if you were paid in both dollars and carbon bucks. Carbon bucks have to be used to pay for the current and future lifetime estimated carbon content of a product at time of purchase. You get carbon bucks for free from the government. Everyone gets the same amount. Spend as you like. Maybe you could even sell some for dollars.

            I’ll tell you it would immediately put the brakes on consumption by the 1% in a major way. They would have way more $$ than they could hope to spend because C$ are the limiting asset. Companies like Apple that work hard on producing low carbon products would suddenly find That for these customers, their products are in in effect free. Ferrari on the other hand would introduce EVs in a hurry.

      3. Jeremy Grimm

        If nothing is done businesses will fail, and individuals, and small property holders, and small banks. But the CARES Act, and the ongoing concerns of Government appear slanted to favor shoring up the Big Money Cartels and Big Money Banks and Big Money Investment Firms. They can buy up the real remains of the economy for a song and that song will be lent-given to them by their Government. Big Money grabbed up the gains of our economy since the 1980s and squeezed labor, and small and medium enterprise, and their Government helped them do it.

        The minute Corona came along Big Money had the plans ready for their big squeeze and consolidations. Unemployment is just a number their Government can fudge — so why should they care if the real unemployment rate goes up if they can keep the numbers where they like them. High rates of real unemployment are good for them because it assures a supply of cheap labor if they happen to need it. Unrest in the population is not the problem it was before this new age of surveillance and mass incarceration. The physical forces of control have long served and protected Big Money and now they are better equipped and trained for their role.

        I wonder whether the bubbling bullish stock market doesn’t represent the dreams of wealthy speculators. The speculators believe this economic crisis is the same and will be handled the same as the 2008 Crisis. If the real economy starts crashing as it probably will the Big Money Interests know what actions their Government will take and they will have a good idea when. Perhaps they will skin the wealthy — except for a very few truly Big Money individuals who will be in the know with the other Big Money Interests — along with the rest of us.

        I could have believed it were possible the US Government might act responsibly for the Good of our Country and Society before the CARES Act suddenly appeared and suddenly passed without even a whimper. I might have believed several elections ago before it became plain than nobody I might want to control the Government, at any level, seemed to win. And if by chance a candidate I favored did win, they did little or nothing they promised and continued doing more of the same. So, I fear “Quadrant IV draws nigh”.

    1. The Historian

      I sincerely hope your comment was a snark.

      Sadly, in this next election, there are no right answers. We are going to face four more years of the same old, same old and things are going to get worse because TINA.

      But, sadly, yes, I will vote for Biden if it comes to that, ONLY because what I’ve seen of Trump during this crisis is far too scary to deal with for four more years. And while many of his policies may not hurt most of you, most of my extended family is down there at the bottom of the economic ladder and Trump has already done considerable damage to them – before Covid-19 – and now it is getting worse. It’s MY family members who will die on Trump’s alter to Wall Street. Biden has at least a tiny amount of compassion in his body – Trump does not.

      But I do respect your wishes to vote for whomever you choose, because like me, you have your own personal reasons for your choices. Allow me the same respect.

      1. DanB

        I accept your reasoning but I’ve come to a different conclusion. Biden encouraged people to vote during a pandemic…

        1. Dickeylee

          You don’t think November won’t be a pandemic? Look for the Republicans to move for state houses to pick the EC…and bing bang boom, they somehow retain power, Trump gets two more appointments to the SC and another 100 or so federal judges! We won’t have to bother to vote ever again. More time to work for the masters!

        2. Ian Ollmann

          I can’t argue about whether Biden should encourage people to vote in a pandemic or not. It is a question.

          However, I am VERY sure it is my patriotic duty to vote even when there is a pandemic, alien invasion, or zombie apocalypse. I just would very much prefer to vote by mail if that could be allowed.

          As I learned the hard way this fall, there is no terrorist organization so effective as your own governing institutions and utilities, if they so set their mind to it. Terrorists need a fancy plan, a bomb, and people willing to die for their cause to make even the tiniest dent in our way of life. PG&E can throw us into the stone ages any time they like with merely a 10 cent word like “excessive liability”.

          Elections have consequences. Those who wish to bring down our government so that it can be drowned in a bath tub are mad.

      2. Yeti

        I was being snark. My wishes are with you. If you can emigrate I would thoroughly advise you to do so. Your fellow countrymen don’t care about you and many others in your situation. That’s why they voted for Biden when Sanders was an obviously better choice. No point living in a country like this. Your American passport will be very useful to find a job abroad. In fact I would advocate mass emigration from the USA into other countries.

      3. False Solace

        Biden worships at the same altar — he made it almost impossible for commoners to declare bankruptcy and totally impossible for students. Therefore I have no idea on what basis you constructed this belief:

        > Biden has at least a tiny amount of compassion in his body

        Note I didn’t say Trump is better. I’m saying they’re both garbage. To think we’ll get a different result from either is delusion. They serve the ownership class identically.

        1. Ian Ollmann


          Biden will do nothing.
          Trump will make it worse.

          Apalling, but it is what it is.

      4. CarlH

        Trump’s alter to Wall Street? I seem to recall that Obama’s cabinet was largely chosen for him by Citibank. I also seem to recall him letting millions of people lose their homes due to Wall Street greed and fraud and letting the bankers not only stay free men instead of jailing them, he also told them he was there to protect them from the pitchforks after the ’08 crash and then stood by and watched as they gave themselves record bonuses that same year. Don’t let TDS get to you too.

        1. SAKMAN

          But he was the first of his kind, and a democrat. So. . . free pass! After Obama anyone could have been elected that wasnt a democrat. Now anyone can be elected that isnt Trump. Funny thing is, neither of them actually mattered. They arent the deciders. They just say yes sir, how high sir?

      5. Grayce

        Hippocrates wrote an intention for doctors: “first, do no harm.” [Of the Epidemics, 400 BC]
        In a contest of Biden v Trump, Biden is the most likely to do nothing without advisors. In this case, it takes in more stakeholders than simply investors. It is a good thing.

    2. Don Scott

      If the Democrats and Biden were smart, he would step aside (he looks like he’s on death’s door anyway) and have someone, perhaps Gov Andrew Cuomo as he’s performed and communicated better than virtually anyone else in the USA during COVID-19) move in to fill the void. Bernie would be better as far as understanding what is happening and what our priorities should be, but perhaps he could come in as a key leader in the Senate, to ensure that post Trump government does not continue his policies to serve the 1%.

  2. PlutoniumKun

    Thank you for this. Sadly, I see no evidence whatever that these issues are being talked about at a policy level. Some seem to get it (see, for example, Warren Buffets open admission that he can’t find anything worth buying), but it seems clear from stockmarket and even some commodity valuations (iron ore prices are strong) that ‘the market’ in general is still surprisingly bullish.

    I had a work online meeting this morning when I casually mentioned that the property market is dead for at least 5 years. I thought it was kind of obvious, but I was surprised at…. the fact that none of my colleagues seemed to agree. The consensus was ‘oh, its certainly a blow, but I think investment will start to flow back in before the end of the year….’. I kept silent. I hope the property industry is similarly clueless, because at least this will keep construction workers in a job for the rest of the year at least.

    Just to take one narrow sector, commercial property. Even if all goes to plan with controlling the virus, nearly every business will be seeking to cut its rent costs severely. There is simply no way that retail or restaurants/bars can pay rents at 2019 levels for the foreseeable future. Even those companies that are doing well (and there are plenty of them) this year will be trying to cut back on office space as so many workers are based at home. Warehouse space is maybe the only sector that might – might – be ok. This will lead to huge pressure to reduce rents, and this, as Murphy points out, will massively undermine the balance sheets of pretty much every bank, financial institution and pension fund throughout the world. This issue alone will be enormously difficult to address.

    1. rd

      I keep going back to the 1918-1923 period which is the closest analogy I can think of for today. The market had peaked in 1915-16 and then dropped 40% for a variety of reasons by late 1918. It dropped a total of 60% from the peak in mid-1921 and then rose to the 1929 peak.

      I think each county/state in the US is going to have a series of rolling depressions for the next two years as cases mount locally and people flee indoors until cases drop again. At some point, the herd should have significant immunity (even if you can get it a second time, it probably won’t be as bad), or a vaccine, or it mutates to be less debilitating and lethal (common cold).

      Government has been doing a better job than in 1918-1921 despite the horror show that is the Trump Administration response. At least there are veterans of the GFC in the states, the Fed, Congress, and even Mnuchin in his own way.So there have been fiscal and financial responses way faster than in 1918 or 2008. But all of these measures are really just going to be giving the patient some IV antibiotics until the patient can survive.

      Real estate, entertainment, sports, restaurants, bars, airlines, tourism all have to figure out how to survive the next 3 years. There is a lot more support for them instead of just defaulting and going bankrupt like in 1918-21, but securitization and compatmentalization have made the field much more difficult to navigate than when it was just stocks, bonds, and bank loans.

      I am assuming that my family needs to figure out how to survive on every front (health, financial, social) until 2022.As other people figure that out, people with income will save more and tighten their belts in the coming months. That will slow things down by itself. Continued government support will be the key to keep cash moving through the system and generate jobs, income, taxes, and prevent insolvencies of otherwise solvent people and companies. Otherwise, the recovery will be delayed and it will be another Great Depression.

      1. OpenThePodBayDoorsHAL

        Yes but recall what the central bank did in the very deep 1919-1923 crisis: nothing. Many firms failed. But the contraction was very short, and was quickly followed by a huge boom.

        The central banks, governments, and the investors who own them these days are desperately afraid of capitalism. Of course they are, because they have been enjoying a “Heads I Win, Tails You Lose” situation for decades. No “creative destruction” for them, private gain and public loss are the order of the day. What’s not to like.

        The author states: “The things that we have treated as stores of value – which are mainly shares and both commercial and residential property – are massively overvalued now. And there is nothing we can do to prevent the value of them crashing”

        But this is false, the major central banks have shown they can support the price of an asset by buying it at par value and quarantining it on their books. Starting with “The Greenspan Put” investors have gone along with the ruse. Where it gets dicey is where the issuer of an asset (say a 10-year Japanese government bond) is also the only “buyer” of that same asset. What happens if the marks clue in to that confidence game? The answer has been to create new mechanisms with obscure acronyms (TARP, TALF etc, 16 of them at latest count) and give them opaque names like “quantitative easing” so that even sophisticated investors (let alone the man on the street) have no inkling of what is being done to them. The other game is to distract with something shiny at the front like TARP (“Congress must vote on $700B!”) while shovelling unimaginable largess to your favorites behind the scenes (GAO says banks got $29 trillion post-2009, 2/3rds of which went to non-US banks).

        And the fly in the ointment of course is the value of the scrip, in the crazy post-Bretton Woods world where everything somehow floats against everything else though it’s not required to outrun the bear, you just need to stay ahead of your hiking companion (yen, euro, yuan etc). So long as all are debasing wildly and you’re in the peloton your comparative situation seems OK, woe betide the slower hikers however like India, Brazil, Indonesia or more extremely Venezuela, Lebanon or Zimbabwe.

        The other fly of course has to do with how our current money is created in the first place: it must be borrowed into existence. This means that no matter how much debt a borrower already has, and no matter whether the business supporting their interest payments is extinct, they must still borrow more. The Fed took bank reserves to $1.5 trillion quick-smart, increasing the banks’ ability to lend, but bank reserves are not money flowing around the economy. And having secured the funds for their constituencies and priorities (banks, hedge funds, monopoly mega-corporations, pet projects like Lincoln Center) the government on both sides is now making noises about “austerity”. What that means in practice is unlimited money for an electronic rail gun that can kill goat herders from space or a trillion-dollar fighter jet that can’t fly but absolute evisceration of the former middle class.

        By battling back capitalism with everything they had post-2008 and by the criminal malpractice of keeping the price of money at zero in the face of 3% unemployment the current state of affairs has well and truly come home to roost at the feet of the central banks. And if people understood that, as Henry Ford stated, “there would be a revolution overnight”.

        (One last note: in the two decades after the 1918 sovereign debt crisis the world’s six largest nations’ currencies lost between 75-100% of their value against gold).

        1. Yves Smith Post author

          The JCB most assuredly has not been able to control the price of assets. The value of Japanese commercial and residential real estate, which was vastly larger than ANY asset class in Japan pre bust, is a tiny fraction of what it was before. Residential RE is literally <20% of its former price level. The fall in the value of commercial land has to be at least as high.

          1. OpenThePodBayDoorsHAL

            Thanks for the reply. But shouldn’t one also ask what the price of Japanese real estate was doing in the upper stratosphere in the first place? Where the value of the real estate of the Tokyo Imperial Palace was equal to the real estate value of the entire state of California? The film “The Princes of the Yen” provides some pretty well-balanced history:


            Stewards of national currencies of course try to manage to their national interests, with resulting values interpreted by perceived investor preferences and thus prices. The perception was that Japan was an unstoppable economic juggernaut. But I’d prefer to indict a system where the price of a currency, and therefore the assets that are denominated in it, are at the whim of such perceptions, rather than being a long-term indicator of a nation’s ability to satisfy its obligations, be productive, and feed its citizens. Especially when the guardians of said system remain adamant that one of their most important objectives is that their national currency must lose more and more of its buying power every year. It’s an old saw and the economic priesthood will squeal but remind me why again this is true despite common sense, the experts (BIS), and the data screaming otherwise? Mish’s question (linked below) goes unanswered, and we all pay the price. Central bankers used to think that maintaining the integrity (read:value) of their national scrip was their highest possible duty to the people required to use it. Alas, no longer.


            Money is a shared hallucination and I’d be all for a new order where the state issues it according to the needs of the people and the economy. I guess that’s broadly called MMT. But we’re stuck half-pregnant, and either need to terminate or else give birth to that new order. Now would be a perfect time, we had a very close near-miss but instead Treasury is simply handing collateral to the usual suspects to continue their confidence game rather than allowing some rough new beast to slouch toward Bethlehem to be born.

      2. Jeremy Grimm

        As I recall the virus that caused the Spanish flu went through two cycles of infection and disappeared. We may not be so fortunate with the Corona virus — and there is no post war demand coming from Europe to stoke US industry. We don’t have much industry to speak of.

    2. False Solace

      Agreed. As insightful as Richard Murphy’s post is his suggestions don’t stand a chance. The current political class and an entire generation of their slimy swamp creature understudies would need to vanish first. Unless SARS-CoV-2 suddenly targets people with Cayman Islands P.O. Boxes, $24,000 refrigerators and gills, that’s not going to happen.

      The primary idea I take away from Murphy’s post is that the economy is cratered for the medium term, with 30% unemployment for 3 years. So much for the V- or U-shaped recovery the media is clapping for. 30% is too high — it would lead to a nuclear scale political implosion — labor is too precarious to survive that and I just don’t think it’s likely for a 3 year period. Let’s go with ~15%.

      If unemployment remains elevated I think we can expect UI benefits to be extended by a number of weeks, as happened during the GFC. In the US, the GFC led to unemployment at about 9.5% for a 2 year period. Many people faced lengthy and grueling periods of joblessness. Unemployment benefits were extended to a maximum of 99 weeks. Today, we have unemployment benefits “topped up” an additional $600 per week whichends July 31. The CARES Act also extends unemployment insurance by 13 weeks and grants benefits to those who don’t typically pay in to unemployment. However, that’s only if your work was reduced because of the public health emergency. Republicans are already grousing about lazy workers, as is their wont, so we can expect them to get rid of the $600 top up ASAP. However, so many workers today are not eligible for UI that we’d likely see serious unrest if benefits are removed from them completely. So, some sort of income support will remain. Conclusion: Labor on life support.

      People who can barely survive are less able to vote, but in terms of politics I’d expect further divergence from the fossil parties — meaning charismatic non-traditional celebri-politicians, scapegoating, nationalism, direct rule by billionaires interceding in politics, self-destructive acts of violence directed at powerless minorities and third world countries, and at least small scale wars against Iran and China within the next 10 years. The Chinese leadership has every reason to want to distract their populace as well, which means some sort of conflict is conducive to both sides. Additionally it will be harder and harder to hide the catastrophic effects of climate change. In the US, the ownership class has always worked very hard to ensure the left fails on every level, therefore right-wing fascism is the direction the anger will go — ever stronger — longing for “traditional” values and lashing out at imagined enemies. I hope if we’re lucky we can avoid a nuclear exchange.

      Alternatively — if we could somehow erase the current political class like shaking an Etch-a-Sketch — we’d simply write checks to whoever needs money to get them through this, have the Fed buy up all the loans and forgive the repayments, and maybe get on with the task of ensuring human survival on an increasingly hostile world.

      1. ChrisPacific

        Yes, this is what concerns me as well. I think countries that have successfully managed a suppression/elimination response to COVID-19 will be at the top of the list for imagined enemies. Once community transmission of COVID-19 is the norm in the USA, there will be little reason for them to keep the borders closed, which naturally means they will expect other countries to open theirs as well – even (especially!) the ones that have successfully remained virus-free or mostly so. I wouldn’t be surprised to see a lot more rounds of punitive tariffs and trade bans for countries that refuse to do their part to ‘restart the global economy.’

    3. Grayce

      Present market optimism is a bull with wings. That is, whoever is bullish is full of remembered hope, “the thing with feathers that perches in the soul” as described by the Emily Dickinson. Poetic, tooth fairy dust.
      The inherent error is that the remembered marketplace for speculators will return, and that the bullish hoper will exit at the top. But that marketplace is gone for a while and needs rebuilding. Like cave men who did not understand over-thinning the wild herd, or early planters not understanding the consequence of eating the seed corn during a harsh winter, people have hard held beliefs about the stability of collecting rent and profit. As you noted, what was “there” in 2019 will not be “here” in 2020.

  3. K teh


    Amazon, like the other government-backed monopolies, does not require real operational leverage, eliminating any possibility of leverage on the side of labor. That’s the whole point of securitization, and the HR function.

    The idea that any government is going to help labor defies all of history. I belonged to 7 unions and each time I was told how to vote and that I would require a government certification to continue.

    Labor is on its own. That’s the point of marriage, not a civil contract.

    Increasing demographic disequalibrium and debt to gdp is the only possibility for fascism, which merely consumes. The Cardinals did keep the Roman Empire on life support for quite some time, however.

    The virus is an excuse, not a cause.

  4. Anthony K Wikrent

    I prefer using Veblen’s distinction between industry and business, which would break down Murphy’s sectors into productive and nonproductive enterprises, to use his word. Clearly priority should be given to an enterprise that produces medical protective equipment, compared to one that produces oil field drilling equipment.

    Which of course, raises the question of “government picking winners and losers.” When you actually look at what Roosevelt’s New Deal physically built, you have to wonder at the sheer idiocy of the conservative/libertarian denigration of FDR and the New Deal. The Living New Deal has compiled a list and links of 16,174 buildings, parks, roads and other projects build by Roosevelt’s New Deal agencies. Just look at a partial and very small list of the airports built by the New Deal (using their contemporary names): Hartsfield–Jackson Atlanta International Airport; Los Angeles International Airport; Chicago Midway International Airport; Honolulu International Airport; New York LaGuardia; Philadelphia International Airport; Ronald Reagan Washington National Airport; San Francisco International Airport; Tampa International Airport.

    So we’re fortunate that Keynes was relatively unknown to the New Dealers: we got airports and stuff instead of just holes in the ground.

      1. grayce

        Do you think Donald Trump understands the operational role of the WPA in the nation’s economic health? Does Biden? If they are the only candidates who could win, which one could bring in leadership that does understand the role of central decision-making for the greatest number of stakeholders or, the future of the union?

    1. ChrisPacific

      If Keynes were alive today I bet he would be regretting the holes in the ground example. He was attempting a transitivity argument (If B is provably better than A, and C is provably better than B, then it follows that C must be better than A). He chose a ridiculous example for B in order to demonstrate how clear-cut the eventual conclusion was (obviously C, employing workers for anything remotely productive, would be better than the digging-and-filling-holes strategy). But the holes example was pithy and memorable while the rest of the book was opaque and written for academia, so that’s the part that everyone remembers. The end result is Krugman’s “blow up a lot of houses and rebuild them” argument, and other absurdities.

      1. John Anthony La Pietra

        The ultimate absurd transitivity argument:

        * Nothing is better than complete happiness.

        * A ham sandwich is better than nothing.

        * So . . . well, filling in the conclusion is left as an exercise for the student.

  5. Thuto

    I wonder if people hewing close to Murphy’s thinking have a seat around the table when governments are planning their response. As PK alludes to, the evidence is very thin that these ideas are being considered by those tasked with crafting effective responses to this crisis. The solutions being considered seem to have an overarching goal of restoring normalcy (as existed pre-covid) and the people in charge are not ready to accept that the world has changed. I also suspect that lobbyists for various sectors, banking and real estate chief amongst them, who have the ear of governments during the best of times, are devoting significant resources to guaranteeing that their clients are prioritized above all other factors of production during this worst of times.

    Lest we forget, money infiltrates politics to a significant degree and the people in charge have been put in charge by those who Murphy suggests must be denied space in the lifeboat. How likely is this to happen hen the rank and file have much less representation and therefore less of a voice to influence the direction things take from here on. In addition to this, public intellectuals steeped in market fundamentalist propaganda are conducting their own versions of “maximum pressure” campaigns, using the public platform of the msm to write open letters and opinion pieces aimed at pressuring governments to prioritize the various factors of production in exactly the order Murphy decries. It will take more pain for the rentiers to eschew selfishness and greed as standard operating procedures and embrace civic mindedness and solidarity with the common people.

    1. Thuto

      It’s reasonable to assume that any president with ambitions of a second term is having it quietly whispered in their ear to remember whose “support” was instrumental in them being handed the keys to the kingdom. I imagine the exchange goes something like this: “the deplorables can be brought around to voting for you through a well resourced propaganda campaign but if we the donors lose faith in you as “our man” then well, it’s curtains for you, no pressure of course but do consider this when you put together response packages to this covid thing”.

      1. Susan the other

        This “covid thing” is fate. RM’s premise that we have no choice left but to live by our ideals is solid. It only frustrates us because we abandoned them. We have evolved from the Romans who destroyed themselves to the European princelings who did likewise to an “industrial revolution” that served to solve a few problems. It was a false stabilization – with a use-by-date that has now expired. The only reason the industrial revolution solved problems is because we humans were eating better and we had better knowledge about political survival in general. So we had a greater population. That very population translated into power, and value. Until we exhausted the planet. We’ve been making deals for a long time. Now is the time to make another new-deal for our survival, rich and poor alike, because nobody is getting out of this one.

  6. Tom Doak

    Even if I try to imagine a reset on the order suggested, it seems like it would have to be a series of steps down.

    If instead we just give all rents and mortgages a 50% or 80% haircut, would not the same “usual suspects” quickly start buying up everything of value at fire sale prices, to start the process all over again?

    The promise of likely further reductions would stop that. And yes, it would also stop the property market dead in its tracks, which is why the whole idea will be blocked from discussion by the FIRE sector. Just look at the Democrats, and it’s clear that the status quo intends to go down with the ship.

  7. Richard Murphy

    I am familiar with Veblen’s categorisation

    I am working on a paper on refining the corporate entity after this building on the idea of essential and n0n-essential companies, taking the idea of the essential worker into the corporate sector and re-establishing corporate purpose

    1. Susan the other

      hard for modern society to admit it has abused workers so much and brought us to this heart-breaking realization…

  8. Tom Stone

    The odds that the US will place the needs of the general populace ahead of the desires of Capitalists and Bankers is not zero, but it is close enough for government work.
    If the proles get restless, there’s the Patriot Act, Total Information Awareness and the 1033 program.
    Given the reality of how things work ( Or don’t) in the USA it seems unlikely that it will exist in its current form much longer, five years would be optimistic.
    Go local, things can be accomplished at a local level that will help our communities to survive, if no more.

    1. Rod

      I agree totally

      Go local, things can be accomplished at a local level that will help our communities to survive, if no more.

      and we have the political infrastructure in place already–city/county councils responsible to same State District Reps responsible to same Fed Reps, etc. Organized and responsive micro economies.

    2. Amfortas the hippie

      “Go local, things can be accomplished at a local level that will help our communities to survive, if no more.”

      Amen, and at long last.
      I’ve sung that song around here for 20 years,to just about anyone with any political or business power… and have gotten either polite nods and fake smiles…or raised eyebrows and wondering whether engaging me is worth their time.
      the poorer the person, and the less power they have, the more they get it…
      I start by talking about my place: i treat our 20 acres like a country…one that has a balance of trade problem…we export our $$, and import everything we need and want. Since i’ve been here, I’ve been trying to amend that balance of trade in our favor: if i grow a tomato, i don’t have to buy one…and further, i don’t have to make the $2(or whatever) to buy a tomato in the first place.
      Extend this as far as possible, and you get Autarky/”Self Reliance”
      The latter phrase, due to Emerson, has better traction with ordinary people. The former engenders hostility from anyone in positions of power, even locally…given that “Trade is Always Good”, and other articles of faith.

  9. Colonel Smithers

    Thank you, Yves.

    Further to comments from PK and Thuto, readers may find this of interest, Some of the authors advised the Corbyn leadership, but are being frozen out by Starmer and his Blairite leadership team. Starmer and his front bench are certainly living up to being “Her Majesty’s Loyal Opposition”, the official phrase recently and often resurrected by health spokesman Jonathan Ashworth.

  10. Rod

    imo–Great display of the cards on the table.

    And, of course, within the context of an on going and increasing Climate Crises, I thought this resonated:

    We have, then, to understand that value creation does not come from for financialisation, or balance sheet manipulation of the type we have got used to. It does, instead, come from work, which produces value as a consequence of the inherent worth of the activities undertaken.

    Inherent Work needs a Universally Accepted definition within the context of the Climate Change.

    1. John Wright

      Here is another relevant quote from Kevin Phillips’ “Bad Money” (2008) book

      “America’s recent economic folly, for example, is neatly summarized in a remark that the British colonial secretary, Joseph Chamberlain, made in 1904 to a smug group of his country’s financiers: “Granted that you are the clearinghouse of the world, [but] are you entirely beyond anxiety as to the permanence of your great position? . . . Banking is not the creator of our prosperity but is the creation of it. It is not the cause of our wealth, but it is the consequence of our wealth.””

      Note, the quote is from 1904..

      Given that financialization was already well established in the UK in 1904, perhaps its intertwining with power and government makes it extraordinarily difficult to effect change.

      The USA may have been introduced to big finance later than the UK, but it now has a large voice in America’s politics as evidenced by the recent CARES rescues.

      Where are the USA politicians that will effect change?

  11. Bsoder

    Well given everything that’s been posted and discussed @NC, this post leaves me somewhat baffled. What will government do? The real question is what will citizens do? Government as it exists has been captured by the Billionaire class for its own purpose which is to make money on finance, by way of neoliberalism. That and the PMC/DNC types making sure by definition that nothing ever gets done on their part. Choices – to live is to choose.

    Well desperate people (citizens) will do desperate things, and the idea of anything being “sacrificed for the economy” strikes me as bizarre. Can the economy actually become infected with Covid-19 and die. No because it is simply an idea, an abstraction and instance of how to encapsulate certain actions between people. Our current economy is mostly a myth in that it is not about producing goods or services. It is about one obscure financial instrument being used to procure others, leveraging them all, and betting that it will all go badly. We are going to have some kind of ‘economy’ one way or the other, the question is what kind. It’s not about choosing Bankers v. Landlords (love the ‘lord’ part), v. Pensions. The real fight is going to be the ‘restoration’ of the way things were per-CV19, v. half assed liberal attempts to ‘reform’, or the radical course of actually dealing with the problems we have now. The rest all falls out from that. And here @NC we know both what is so toxic in the existing economy and what to do about it. Further Lambert has complied quite the manifesto on how to do it. I’m amazed NC exists and thank god every day it does.

    1. The Historian

      I think it is important to remember that there are actually two economies in this country that have become dissociated from each other. There is the economy of goods and labor v. the economy of financialization, and I think that the powers that be have thought for too long that the economy of financialization has no dependence of the economy of goods and labor. Covid-19 is proving that is not true, but it takes a long time for reality to sink into the minds of the powers that be. Hence they are still not listening to people like Richard Murphy or Michael Hudson, among others. I am pretty sure they will go to their, and our, destruction, before they give up on thinking they can still hold their own financial economy together by playing what amounts to casino games.

  12. Mikerw0

    This says it all, and much better than I have been saying for the last 4 or 5 months.

    First, it strikes me as fully consistent with many of the core tenets of MMT. In particular, the failure to use taxes to remove excess cash from the system led to massive inflation of financial assets. In fact, we did just the opposite, we cut taxes on the wealthy so they had cash to use that could only buy financial assets. D’oh!

    Second, just like 1930 / 31 we are doing the wrong things. We are trying to protect the wealthy, can’t imagine that economic collapse is a possibility as there are no leaders living who will recall the depression, and wishing the tooth fairy will arrive and this will all go away. It won’t.

    As I read this post I was reminded of critical passages in the book “Lords of Finance” a marvelous history of what brought on the Depression. There will be a catalyst that will cause the financial system to collapse. When that happens no support from central banks will be able to stop it.

    The stock market rallying is not helping as it is providing a false sense of comfort.

    I also think that we will have a new new deal, and it will likely be a green new deal. This will take time.

  13. The Rev Kev

    At this point in the game, it is blatantly obvious that the world’s economy needs not only a major overhaul but a major restructuring as well. Certainly financialization has to be shrunk to the size that it was traditionally when it was only a niche service. Mind you, I don’t want to abolish financialization. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub. Of course the 1% will resist with absolute fury to any change in the status quo. You could even say that they themselves are the status quo. But there are far too many fracture points in the world economy and trying to patch them over or ignore them will only lead to a build up in tension in those fracture points. How this plays out as governments attempt to sacrifice their citizens to make the 1% whole on any loses is anybody’s guess. But if they were them, I would keep those private jets at their private runways fueled up and ready to leave at short notice.

  14. Gordon

    The New Zealand PM, Jacinta Ardern, summed the choice up rather neatly a few days ago, “We MUST save the people. If we try to save the economy we will save neither it nor the people. The economy is the people.”

    That’s from memory so not an exact quote but near enough.

    1. John Anthony La Pietra

      Or to blend this with a paraphrase of Ben Franklin: “Those who would sacrifice the people’s essential life and liberty to preserve their own security (and secure their own properties) deserve neither life, liberty, security, or property.”

  15. Socal Rhino

    Great post. But I think events between January and now highlight the enormous challenge in asking for sacrifices to prevent a future event. The reaction to the ban on flights from China is just one example. This is the same logic that plays out in the corporate work place on a regular basis. So I’ll be shocked if the logic laid out in this post is actually applied before the crash. May be helpful to think in terms of a plan to have in hand to how to pick up the pieces in the aftermath, short of a Mad Max scenario.

  16. xkeyscored

    Who wants these jobs? Most people I know hate them. Murphy mentions the need to preserve them, without explaining why, so far as I can see. If we’re talking about restructuring our economies, why can’t we talk about moving beyond selling our labour to capital for whatever malign uses it has in mind?

    1. lyman alpha blob

      My guess is he’s implying we need to keep the non-bullshit jobs, but we still need the basics to survive.

      The entire marketing industry for example, could be reverse-raptured straight to H -E -Double hockey sticks and the world would be better for it immediately.

      My hope is that this crisis persists long enough so that governments are forced to provide money to everyone on a monthly. Then the question arises – if we can do it now to keep people whole, why not all the time?

      There is also talk of having people return to offices in shifts as the pandemic declines, which I think is a terrible idea. But post-pandemic, that ideas could be a game changer. What if instead of being required to work all year round with limited vacation if you’re lucky, just to make ends meet, we required work only 4 or 6 months per year, with the government providing an income for the rest? And you could choose what jobs to sign up for – maybe farm work for a few months and engine repair for a couple more, or teaching, or whatever, and vacation for the rest.

      Anyway, just spitballing, but that is the type of structural change I’d like to see. Treating all work as more or less equal in value, with less of it required. The fact that billionaires exist is an obscenity.

      1. Rod

        As to your last part, I agree now is not the time the step back from the bold use of imagination.

  17. Kurtismayfield

    Wolf has something posted on his blog Wolf street about rents and negotiations behind the scenes. The main problem is.. who is going to take the cut?

    Is the landlord going to take the huge cut in rent?
    Is the bank going to eat the huge cut in valuations and mortgage payments?
    Is the government going to take a cut in property taxes?

    All three would have to take a hit.. who is going to blink?

  18. SteveW

    There are too many interrelated moving parts to deal with — how to retain production factors while financially deleveraging given reduced and changing demands. Bear in mind that economic activities do not equate to well being. But if we go by the capitalist ways, just let the free market takes charge and everything will be good. I don’t think so. This crisis and lockdown have changed the consumption behaviour and going forward attitude of many, even among those that are not financially affected. Many of my friends have noted that reduced consumption and economic activity have not affected their well-being. So perhaps there may be enough changes in certain consumer behavior to shift some activities from consumer sectors (particularly the luxury sectors) to other sectors such as environmental revitalization, health/well-being, useful infrastructures, etc. However, given the political leadership and the control by the 0.01%, one cannot be optimistic.

    1. lyman alpha blob

      …how to retain production factors while financially deleveraging…

      That’s why the rentiers and C-suiters take the big haircut first- they may lose their wealth but the factory is still there and perfectly usable. There have been recent examples in Latin America IIRC where the owners shut down factories for financial reasons but the people who worked in them basically appropriated the property and kept on producing goods. Not only did things still get made, now there wasn’t a whole management class expecting to take away all the profits for themselves.

      I remember reading about the Seattle general strike from 1919 (which I believe took place during a pandemic as well – not 100% sure the duration of the 1918 Spanish Flu) and workers got organized to make sure everyone’s basic necessities were met during the course of the strike. One of the reasons the elites were so adamant about breaking this strike was that it was showing the whole country that people could get along just fine without them.

      As you say, the political leadership isn’t going to do this on their own. They will need to be swept out of the way. I just hope that if the economic situation does become dire, people take aim at the political leadership rather than each other.

  19. Synoia

    The is plenty for a few, from the city state down to hunter-gatherer groups. Climate will determine which group becomes extant in any locale.

    N America’s history is one of hunter gatherers. Europe city states, China a nation of some form.

    The future consists only of the few. There are not enough resources on this planet for the many, and any though of colonizing space or another planet is the stuff of dreams.

    The few who survive will not include many of the wealthy, because the wealthy have few skills for survival.

    1. Bad Robot

      I would disagree, there is plenty of food to feed all of humanity. There is enough materials to put everyone in shelter.
      Just not enough to give everyone a new car, phone, TV etc every year.

      1. Synoia

        The current food industry, crop to table, uses much chemicals energy and machinery,

        What would it produce if scaled back to the 1950s level of technology?

        Or the 1920s?

        1. HotFlash

          I think we could be just fine. Much of corn production, for example, goes to produce ethanol, which goes into gasoline and plastics. Which we don’t need. Much of our corn and soyabean production goes into animal feed, and we don’t need all that much meat. Much of our arable land goes to non-foodish uses — roads, parking lots, roofs, golf courses, boulevards, beef production, lawns, ffs! Much of our food is meat, which we don’t really need so much of. Parks should have food forests and every neighbourhood should have community gardens in walkable/bikeable distance. And a community herd of tiny cows. Maybe some sheep and/or goats. And community beehives. Community chickens. With only having to work 20 hours, we would need much less in the way of convenience foods and have way more time to grow our own, cook our own, sew our own, knit our own, mend our own.

      2. Copeland

        But the biodiversity of that type of scenario would be drastically different. There would be no place for life forms other than humans, and of course the life forms that humans like to eat or use.

        I suppose things that like to eat humans would also do quite well: Mosquitoes, ticks, COVID-19…

        Sound like a fun future?

    2. JBird4049

      >>N America’s history is one of hunter gatherers.

      I don’t know about that. :-)

      I don’t want to embarrass anyone as I only bring this up to counteract the “Indian Savages” meme that has been so popular for five hundred and twenty-eight years.

      Cahokia, the Mound Builders, the Anasazi, the Olmecs, the Aztecs, the Navajo, the Zuni, the Hopi, the Pueblos, the Iroquois Confederacy, and the Mandan among many others would have been insulted by that. They were all farming communities and when animals were introduced like horses, they readily adopted them.

      Before 1492 most of the Eastern and Southern parts, along with some coastal areas of what is now Oregon and Washington states, of the United States were dominated by what could be called city-states and even some leagues or confederacies composed of city-states.

      Much of North America was heavily populated especially in the Southeast, but also in the Northwest as well, and along the Mississippi and its various tributaries, before the various epidemics were inadvertently introduced by the initial European explorers; the Southeast, aka “the South” was only ethnically cleansed of its “civilized tribes” by the Federal government after 1830, if I remember right. So, the various tribes/nations were only completely flattened over almost a four hundred year process.

  20. Bad Robot

    The ‘world’ will wait until it’s really dark, before looking for the light switch.

  21. David in Santa Cruz

    Thoughtful comments, but the main post is very UK-centric and fails to address the dichotomy pointed-out in The Historian‘s comment, of the parallel economies of goods/labor vs financialization prevalent in the USA. We have already seen that the Washington consensus intends to pump further money-printing into propping-up the economy of financialization.

    I suspect that the American economy has entered into a cycle of mini-depressions, and will lurch toward collapse rather than enter immediate free-fall. Unlike the UK, the USA has a robust Military-Industrial Complex closely tied to the financialization economy, which will continue to arbitrarily juice certain regions and sectors until mid-century.

    The globalization/climate bomb driven by over-population is a slow-burner, not a cataclysmic eruption. This is unfortunate, because the American leadership suffer from a “frog in the pot” resistance to helping anyone outside the MIC and their courtesans.

    Quality of life for most of us will suffer as small businesses collapse, but the elites couldn’t care less.

  22. Worm wood

    All of this is hot air in the absence of a political movement capable of implementing such priorities.
    As Hudson and Steven Keen have made clear the MMT money flow has been captured by military/intelligence/ private finance and Federal Reserve priorities.

    In addition the social democratic route to power has also failed–see Sanders campaign.

    Now what?

  23. Susan the other

    The empire created by “financialized” wealth is so fragile it doesn’t even know it. To continue giving life support to the banks and investment-in-nothing houses is not going to work. It defeats itself. The clever trick finance has used up until now is that they have cobbled together a system of “money” that runs faster than real time, faster than business time, and certainly faster than labor time. And eons faster than environmental time. That’s the varied rate of wealth extraction whereby “value” is sucked out of the earth and the productive population and given to the investors and banksters. Not to anyone’s surprise, the environment which has no political voice at all with any power to protect it, has been sacrificed – wealth has been sucked up into the financial “system” leaving no place else to invest – leaving only devastation. First and foremost to the “investors”.

  24. Chauncey Gardiner

    Thank you for posting this brilliant summation by Richard Murphy. I agree with his prioritization of various competing economic interests, and the interventions and adjustments that are necessary based on overall public health, social and economic priorities against the backdrop of now unsupportable levels of debt leverage.

    As with the lives of too many, debt-based Money is being destroyed by the pandemic. Other than over short-term periods, I think it is as Dr. Anthony Fauci and others have said: the virus is in charge of the outcome, not the politicians and economic interests behind them. However, the overall social and economic damage can be sufficiently reduced that we collectively preserve an adequate economic base from which to recover. Richard Murphy has pointed toward a balanced pathway through the thickets of public health, massive job losses, capital preservation, and business survival that could lead to resilience.

  25. Sound of the Suburbs

    We need a firm base to get orientated correctly.
    Let’s go back to those classical economists who observed the world of small state unregulated capitalism as it existed in the beginning.

    William White (BIS, OECD) talks about how economics really changed over one hundred years ago as classical economics was replaced by neoclassical economics.
    He thinks we have been on the wrong path for one hundred years.
    Small state, unregulated capitalism was where it all started and it’s rather different to today’s expectations.

    Everything had been going well for 5,000 years and then the classical economists turned up.
    Those at the top had been living in luxury and leisure, while other people did all the work. The last thing they needed was “The Enlightenment” as people would work out what was really going on.
    The European aristocracy were just the same, they lived in luxury and leisure while other people did all the work. The Classical Economists realised they were being maintained by the hard work of everyone else.

    The Classical economist, Adam Smith:
    “The labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full fruits of his own labours; there are no landlords, no usurers and no tax gatherers.”

    Economics was always far too dangerous to be allowed to reveal the truth about the economy.
    How can we protect those powerful vested interests at the top of society?
    The early neoclassical economists hid the problems of rentier activity in the economy by removing the difference between “earned” and “unearned” income and they conflated “land” with “capital”.
    They took the focus off the cost of living that had been so important to the Classical Economists to hide the effects of rentier activity in the economy.
    The landowners, landlords and usurers were now just productive members of society again.

    It took one of today’s Nobel Prize winners to see what has been hidden for so long.
    “Income inequality is not killing capitalism in the United States, but rent-seekers like the banking and the health-care sectors just might” Angus Deaton, Nobel prize winner
    It got really bad because no one was aware of the problem anymore, until he spotted it.

    Today’s capitalism looks like rentier capitalism because it is.
    Economics really changed over 100 years ago, leaving today’s economists unaware of the problems of rentier activity in the economy.

    1. Sound of the Suburbs

      Some bits from classical economics get through into neoclassical economics, like Ricardo’s Law of Comparative Advantage.
      Anything that was known about rentier activity in the economy went missing.

      Ricardo was an expert on the small state, unregulated capitalism he observed in the world around him. He was part of the new capitalist class and the old landowning class were a huge problem with their rents that had to be paid both directly and through wages.
      “The interest of the landlords is always opposed to the interest of every other class in the community” Ricardo 1815 / Classical Economist.

      What does our man on free trade mean?
      Disposable income = wages – (taxes + the cost of living)
      Employees get their money from wages and the employer pays through wages.
      Employees get less disposable income after the landlords rent has gone.
      Employers have to cover the landlord’s rents in wages reducing profit.
      Ricardo is just talking about housing costs, employees all rented in those days.
      Employers and employees both win with low housing costs and a low cost of living.

      There were three groups in the capitalist system in Ricardo’s world (and there still are).
      Workers / Employees
      Capitalists / Employers
      Rentiers / Landowners / Landlords / other skimmers, who are just skimming out of the system, not contributing to its success

      From Ricardo:
      The labourers had before 25
      The landlords 25
      And the capitalists 50
      ……….. 100

      He looked at how the pie got divided between the three groups.

      Ricardo supported free trade and knew it required a low cost of living so employers could pay internationally competitive wages and this is why he supported the Repeal of the Corn Laws to get the price of bread down. They housed workers in slums to get housing costs down.
      Employers could then pay internationally competitive wages and were ready to compete in a free trade world.

      The West’s high cost of living meant it was at a huge disadvantage in a world of free trade and Western companies off-shored to where they could pay internationally competitive wages.

  26. Grayce

    You have touched upon a business fallacy: that everyone getting the same percentage (raise, vacation, health coverage, whatever) is equitable. What looks equivalent in numerical form–50 or 80–is applied to an existing base. Therefore, the 50% of highly compensated is a greater value than 50% of a minimum salary, and so forth. Per centum is fair only as the ingoing situation is on level ground.
    Jumping to the present situation, the haircut is a starter, but not by the percent of the status quo. As mentioned earlier in the discussion, someone has to decide on the pecking order.

  27. ROC

    Great post. Very informative! I’m wondering how bailing out asset holders at the expense of Main Street will necessarily lead to an eventual reduction in asset values. What if the fed just keeps propping them up? Also, couldn’t the supply of real estate just be monopolized by rentiers?

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