Will spending spell end of capitalism?
Last week I met an old friend from my college after a gap of 18 years, here on a business trip from San Francisco.
At a Dubai hotel I could barely recognise the bulky, middle-aged management consultant in his business suit. The last image I had of him was of a guy in a red Che Guevara T-shirt who talked about revolution as a solution to every kind of issue, from the exploitation of the proletariat all over the world to the poor quality of tea in the college canteen.
He was a sort of hero among the leftist, student sympathisers because of his ability to find a dialectical connection to everything that happened around, and linked them to the ultimate collapse of capitalism.
During our conversation I enquired if he still believed that the end of capitalism was near, especially in the context of the current global financial turmoil.
"The current crisis has certainly damaged the confidence in capitalism, but the crisis on its own is not potent enough to kill it. However, some of the recent attempts by the US and Western governments to save the system from the crisis could do the job which the communists dreamt of for several decades," he said.
I could imagine his reasoning easily enough.
The US administration's attempt so far to counter the financial crisis has hinged primarily on intense deficit spending. It's estimated that the US budget deficit for the current fiscal year will be 12 per cent of gross domestic product (GDP). The Congressional Budget Office (CBO) said last week that this year's budget deficit is now nearly $1.7 trillion, more than $400 billion larger than it forecast two months ago. And that doesn't count President Obama's budget plans to cut taxes and increase spending.
Even the much-hailed John Maynard Keynes, who advocated government intervention and deficit spending as a recession antidote, would have been unlikely to approve of the type of deficit spending the US and UK are currently indulging in and advocating their Western counterparts to follow.
In his 'Economic Consequences of the Peace' (1919) Keynes wrote: "By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens ... Lenin was certainly right: there is no subtler, no surer means of over-turning the existing basis of society than to debauch the currency."
Wittingly or not, they even tried it in the 1960s and 1970s.
China, the biggest holder of US government debt, has already voiced its concern. People's Bank of China governor Zhou Xiaochuan said last week that the Special Drawing Rights (SDR) of the International Monetary Fund (IMF), should replace the dollar as the world's main currency. China certainly has a good argument for ditching the dollar.
While most world currencies don't look any more solid than the dollar, only the euro represents a source of relative stability, mainly due to the German and French reluctance to indulge in excessive public spending.
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