Every day that passes, I’m getting more aware that we will be living another economic crisis. I still remember how the Deutsche Bank case had notoriety some months ago, which showed the German financial market’s weakness, and which also generated few troubles recently.
Now I wonder:
Are we able to keep an economic system like this?
Let’s be honest. We aren’t considering thousands of euros; we are talking about billions or even trillions. Let’s have a look at the following chart:
It’s a chart from 2014, obtained via ZeroHedge, and it makes a contrast between 3 main indicators:
- German GDP.
- Eurozone GDP.
- Deutsche Bank’s Total Financial Derivatives Exposure at that time.
And those amounts are displayed in trillions of euros. So, watching that plot, we could say that the DB had like 25x the German GDP in derivatives or 6x the Eurozone GDP. Fine. And where is all that money?
That’s such a hard question to answer. Considering various factors, such as the IT improvement, the constant desire of neverending growth of the capitalism, or even the human lack of scruples, the countries are becoming more and more ‘financialized’. And someone could even ask:
Is financializing a bad practice?
Not really, but I think we should always consider where do we come from, to know where can we reach and set some boundaries to this activity.
I will use an example now to explain what the financialization is. Let’s consider a Guy A that wants to make a start-up, but it requires some money to begin with the investment and everything else. In a nutshell, it has 2 options:
- Use its own money. Not an option for the vast majority of us.
- Ask for loans to different entities (banks, friends, family, etc.).
Let’s imagine that Guy A carries its brilliant idea to The Bank, and after lots of efforts and negotiations, it manages to obtain the loan. We could say: Oh! Guy A will be able to obtain whatever it wished now!” Idyllic, but it won’t end there. The Bank, which isn’t really certain of having that money, talks with the other banks, asking for financing because it has a really profitable project. And so on, we build a huge net of lenders and borrowers which negotiates bunches of loans, having lost the whole sense of the loan itself.
With this net and all the transactions and aggregated interests, we eventually forget what the real economy means; the economy of the Guy A that wanted to create something tangible. It leads to generate a market full of computer bots and brokers that basically speculate with the assets they obtain, believing their own story and saying that they ‘assist the markets pumping more liquidity into them’, when the aim of some of these programmed entities is just to obtain a small comission for each successful deal. And this is what we know nowadays as ‘The Wolves of The Wall Street’.
Regarding this situation, I still cannot believe how the financial markets can survive so long, but, having a look at the historical progression, since the ‘Dot-com bubble’ happened, we tend to suffer a crisis each 7-8 years. So, another crisis should be coming sooner or later. But… Are we ready to endure another ‘turbulent phase’?
If this crisis happened because of the lack of the production, I would say: No. But if there is something I tend to try in this life is to be realistic with an optimistic point, so I think there might be an interesting solution: to share. But not sharing for the pride’s sake. I mean sharing for living.
Analyzing the history, we can tell that the productivity of people has shown an increasing trend because of:
- Technical and health improvements for the workers.
- A better education of the workers.
- An optimization of the working processes.
- The know-how acaquired when knowing different cultures and working methods.
So now, the question that might seem obvious to some people is the following one:
Well, if everything is improving, why are we poorer in real terms?
Basically, because we allow and promote the inequality:
- The rich is afraid of living with a 5,000 EUR/month salary, instead of living with 500,000, thus removing the chance for other 99 people of living with 5,000 EUR/month.
- Because the differences are getting bigger.
Indeed; differences are widening; the improvements “poor people” are obtaining isn’t comparable to the benefits “rich people” are getting. To measure this reality, the Gini coefficient is used. This coefficient shows the inequality in the distribution of the wealth in a country. Considering Gini’s scale, 0 implies total equality; 1 or 100% means total inequality. As we can see in this link, the Gini coefficient in Spain is about 35%, with low decreases in economic crisis booms, and low increases in stable intervals. It seems that a neverending welfare situation (which is the main concept underlying the ideal capitalism) fosters the inequality.
And well, we could wonder why should we keep with this system that harms the majority of the society. To be honest, I cannot justify that. In fact, as I mentioned before, this crisis won’t be tagged as a crisis created by the lack of production. So, in my point of view, we have 2 available choices:
- Continue with the statu quo; humans tend to be quite scary of changes. D-_;
- Try a different model; a model that tends to the sustainability (something that is being gradually improved with our current technology) and that manages to supply everyone. A model that considers an UBI (Universal Basic Income).
I guess that any reader might be wondering if I’m drunk or I’m a communist that cannot remember it was somehow applied some years ago. First of all, I don’t consider myself no visionary at all, and I already know this was mentioned in the past. But, I think that we are living a different context nowadays. A context where we are “suffering” because the producers cannot earn profit from everything they actually produce; using other words, an excess of supply.
To conclude, I’d like to underline that this UBI concept has been applied in different places in various years, and it seemed to be quite helpful. However, not many experiments have been done in this subject to obtain precise conclusions. Despite that fact, we should be ready to change our mindset and think:
Do we really want to build a better world? Or a better personal situation?
I added a TEDXTalk by Federico Pistono (an italian economist) here that discusses this topic, in my point of view, with an interesting approach.
[Originally written at May 8th, 2016]