Tuesday, August 7, 2012

Market-advocates demand state interventions: An ideological absurdity that is reality

End of July Mario Draghi, President of the European Central Bank (ECB) indicated quite vaguely the intervention that ECB will buy state bonds from crisis countries of the Eurozone. The stock market reacted promptly by increasing quotations. This is interesting because interventions from institutions close to the state normally are not what market-advocates (to which stock exchanges overall can be counted) put into a good mood.

But, since the sub-prime crises from 2008/09 and the following bail-out of many financial institutes by states all over the world, things have fundamentally have changed, one could mean. The state since was not only decent again, it was indispensable. The neo-liberal ideology of a pure self-regulating market solving (nearly) all economic problems and beyond as well as the ideology’s inherent state-critic was out of fashion suddenly. Draghi’s indication of a possible intervention by ECB shows that state related interventions today not only are accepted but even are demanded by market participants. If this is right or wrong or just a logical mechanism, is irrelevant. It is reality and that’s what’s relevant.

But how this new reality gets along with an ideology that sees things quite different? Already after the first shock of the sub-prime crisis the old apologists of the market ideology came back on stage. In their contributions in diverse newspapers, magazines and journals it was to read again what blessings a pure market-driven system would be able to perform, as long as there is no distortion through state interventions. In many contributions the new facts haven’t found any access to the thoughts of the authors. It seems that many want to preserve their ideology and its theoretical backgrounds as it is and defend it against the new realities. One of the latest of such market-purists seems to be the US presidential candidate of the Republicans Mitt Romney. Overall, he seems to believe that the less state intervention exist in the market-economy (taxes, regulations etc.) the better it performs. The state primarily handicaps economic freedom and is a threat in general. If things would be so easy we never had the sub-prime or other economic crises.

To stay ideologically fair, we can take a look to the ideologists on the other side of the continuum, the state-centrists. Indeed most of them learned at latest after the fall of the Berlin wall that a pure centrally planned economy does not lead to salvation and comprehensive well-being. But, there are still contemporaries who try to save as much as possible from this state-centric ideology by ignoring facts and reality. The latest example is the President of France, François Hollande, a Socialist. As soon as he was in power he reduces the retirement age back to 60 years although the public purse is nearly empty and the people’s life expectancy rises and rises.

Either market-purist or state-centrist both are ideologically conservative and therefore also structurally conservative: old and outdated structures (e.g. pension age 60 in France, the intention to prolong temporary tax reliefs for very wealthy citizens by Romney in the USA although also here the public purse is scarce) will be preserved with such bodies of thought. Ignored thereby is the reality. A reality in which capital investors demand state interventions. It is obvious: such realities need new and a more progressive and pragmatic political thinking and measures. It is very important to adapt the institutional structures to the new needs which are already here and recognizable in the daily life. Ideologies are principally ok as guidelines but they have to develop themselves by incorporating actual reality. The other way is fatal: to simply serve the ideological clients by trying to impose ideological purism in reality.

Claude Meier

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