[Ever since COVID-19 collided with the enormous bubble governments
have been using to re-float the financial sector since 2008, booming
equity markets became compatible with wholesale economic implosion.
That became clear on August 12 ] [[link removed]]

THE POST-CAPITALIST HIT OF THE SUMMER  
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Yanis Varoufakis
August 31, 2020
Project Syndicate
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_ Ever since COVID-19 collided with the enormous bubble governments
have been using to re-float the financial sector since 2008, booming
equity markets became compatible with wholesale economic implosion.
That became clear on August 12 _

People pass by The New York Stock Exchange (NYSE) on August 3, 2020
at Wall Street in New York City. , Angela Weiss/AFP via Getty Images)

 

On August 12, something extraordinary happened. The news broke that,
in the first seven months of 2020, the United Kingdom’s economy had
suffered its largest contraction ever (a drop in national income
exceeding 20%). The London Stock Exchange reacted with a rise in the
FTSE 100 by more than 2%. On the same day, when the United States was
beginning to resemble a failed state, not merely a troubled economy,
the S&P 500 hit a record high.

To be sure, financial markets have long rewarded misery-enhancing
outcomes. Bad news for a firm’s workers—planned layoffs, for
example—is often good news for its shareholders. But when the bad
news engulfed most workers simultaneously, equity markets always fell,
owing to the reasonable expectation that, as the population tightened
its belt, all income, and thus average profits and dividends, would be
squeezed. The logic of capitalism was not pretty, but it was
comprehensible.

Not anymore. There is no capitalist logic to the developments that
culminated on August 12. For the first time, a widespread expectation
of diminished revenues and profits led to—or at least did not
impede—a sustained buying frenzy in London and New York. And this is
not because speculators are betting that the UK or the US economies
have hit bottom, making this a great time to buy shares.

No, for the first time in history, financiers actually don’t give a
damn about the real economy. They can see that COVID-19 has put
capitalism in suspended animation. They can see the disappearing
profit margins. They can see the tsunami of poverty and its long-term
effects on aggregate demand. And they can see how the pandemic is
revealing and reinforcing deep pre-existing class and racial
divisions.

"For the first time in history, financiers actually don’t give a
damn about the real economy. "

Speculators see all this but deem it irrelevant. And they are not
wrong. Ever since COVID-19 collided with the enormous bubble
governments have been using to re-float the financial sector since
2008, booming equity markets became compatible with wholesale economic
implosion. It was a historically significant moment, marking a subtle
but discernible transition from capitalism to a peculiar type of
post-capitalism.

But let us begin at the beginning.

Before capitalism, debt appeared at the very end of the economic
cycle. Under feudalism, production came first. Peasants toiled in the
lord’s fields, and distribution followed the harvest, with the
sheriff collecting the lord’s share. Part of this share was then
monetized when the lord sold it. Only then did debt emerge, when the
lord would lend money to borrowers (often including the king).

Capitalism reversed the order. Once labor and land had been
commodified, debt was necessary before production even began. Landless
capitalists had to borrow to lease land, workers, and machines. The
terms of these leases determined income distribution. Only then could
production begin, yielding revenues whose residual was the
capitalists’ profit. Thus, debt powered capitalism’s early
promise. But it was not until the Second Industrial Revolution that
capitalism could re-shape the world in its image.

Electromagnetism gave rise to the first networked companies, producing
everything from power generation stations and the electricity grid to
light bulbs for every room. These companies’ gargantuan funding
needs begat the megabank, along with a remarkable capacity to create
money out of thin air. The agglomeration of megafirms and megabanks
created a Technostructure that usurped markets, democratic
institutions, and the mass media, leading first to the Roaring
Twenties, and then to the crash of 1929.

From 1933 to 1971, global capitalism was centrally planned under
different iterations of the New Deal governance framework, including
the war economy and the Bretton Woods system. As that framework was
swept away in the mid-1970s, the Technostructure, cloaked in
neoliberalism, recovered its powers. A 1920s-like spate of
“irrational exuberance” followed, culminating in the 2008 global
financial crisis. 

To re-float the financial system, central banks channeled waves of
dirt-cheap liquidity to the financial sector, in exchange for
universal fiscal austerity that limited spending by lower- and
middle-income households. Unable to profit from austerity-hit
consumers, investors became dependent on central banks’ constant
liquidity injections—an addiction with serious side effects for
capitalism itself.

Consider the following chain reaction: The European Central Bank
extends new liquidity to Deutsche Bank at almost zero interest. To
profit from it, Deutsche Bank must lend it on, though not to the
“little people” whose diminished circumstances have weakened their
repayment ability. So, it lends to, say, Volkswagen, which is already
awash with savings because its executives, fearing insufficient demand
for new, high-quality electric cars, postponed crucial investments in
new technologies and well-paying jobs. Even though Volkswagen’s
bosses do not need the extra cash, Deutsche Bank offers them such a
low interest rate that they take it and immediately use it to buy
Volkswagen shares. Naturally, the share price skyrockets and, with it,
the Volkswagen executives’ bonuses (which are linked to the
company’s market capitalization). 

From 2009 to 2020, such practices helped prize stock prices away from
the real economy, resulting in widespread corporate zombification.
This was the state capitalism was in when COVID-19 arrived. By hitting
consumption and production simultaneously, the pandemic forced
governments to replace incomes at a time when the real economy had the
least capacity adequately to invest in the generation of non-financial
wealth. As a result, central banks were called upon to boost even more
magnificently the debt bubble that had already zombified the
corporations.

The pandemic has reinforced that which has been undermining the
foundation of capitalism since 2008: the link between profit and
capital accumulation. The current crisis has revealed a
post-capitalist economy in which the markets for real goods and
services no longer coordinate economic decision-making, the current
Technostructure (comprising Big Tech and Wall Street) manipulates
behavior at an industrial scale, and the demos is ostracized from our
democracies.

YANIS VAROUFAKIS
[[link removed]], who resigned as
Finance Minister for Greece's Syriza-led government on Monday, July 6,
2015, is the author of _The Global Minotaur_
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and a visiting professor at the University of Texas at Austin. Follow
him on Twitter: @yanisvaroufakis [[link removed]]

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