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Debating the stimulus and the rights of the needy

By Tristan Ewins - posted Thursday, 12 March 2009


Fred Mosely, writing for the American economics journal Dollars and Sense supposes a role for “tax-payer friendly bank nationalisation”. Socialised banks could then be run “according to public policy objectives” rather than private profit maximisation. In this he includes affordable housing and green energy.

Furthermore: unbound from the short term imperative of maximising profit, Mosely holds that nationalised banks would invest responsibly - rather than feeding speculative debt-induced bubbles.

An Australian response could be to promote a “mixed” banking sector. Such a sector could include a public banking enterprise which would provide real competition along the lines of the former Commonwealth Bank. Such developments might also mitigate tendencies towards oligopoly and collusion. And profits could be re-invested to benefit customers and workers.

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Furthermore, deep tax breaks and assistance could be provided for democratic credit unions. Such enterprises could provide substantial relief from fees for members. In tandem with socialised banking, over time, they could come to cover a dominant portion of the overall sector.

Despite the current crisis, though, in a new economy there will still be a need for financial markets: to “mobilise savings”, “allocate capital” and “manage risk”.

But risk, here, needs to be transferred to those most able to afford it.

In the United States, vulnerable poor and working class American families were the victims of predatory and irresponsible lending practices.

Where “the market” did not provide for such people, this is no fair rationale for exclusion. Instead, social housing ought to have “filled the gap” which was not bridged by the markets. In Australia, such an increase in supply would also have provided a counterbalance to any speculative property bubble.

In Australia, and elsewhere, housing markets were characterised by over-valuations which were destined to end in bust. As Australian interest rates rose, scores of mortgagees experienced extreme stress in servicing their debts. This also impacted upon consumer confidence.

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On top of the current catastrophe, Walden Bello supposes there are about 4 million US “sub-prime” mortgages that will go into default over the next two years. These are the people the Obama-led US government must assist as a matter of moral urgency.

Regardless of any legitimate role, it is clear that the finance sector has become “decoupled” from the “real economy” and has a largely wasteful, parasitical function.

As Ramas Vasudevan notes in Dollars and Sense: “The profits of the financial sector” (in the US) grew from “14 per cent of total corporate profits in 1981 [to] nearly 50 per cent” in 2001-02. This growth of the finance sector was also matched by an explosion of debt, in private households, businesses, and in government, which “rose from about 1.6 times the United States’ GDP in 1973 to over 3.5 times GDP by 2007”.

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About the Author

Tristan Ewins has a PhD and is a freelance writer, qualified teacher and social commentator based in Melbourne, Australia. He is also a long-time member of the Socialist Left of the Australian Labor Party (ALP). He blogs at Left Focus, ALP Socialist Left Forum and the Movement for a Democratic Mixed Economy.
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