The BIS Annual Report and the Empire of the Rentier
I think the most important ideological underpinning of capitalism is its success in separating the “economic” from the “political”. Capitalism has always been a global system but in no objective sense can it be considered simply “economic”; its social order and underlying distribution of power is as fundamentally political as any socio-economic system that’s ever existed.
Rising technology now permits a far more globalized capitalism and its international basis has become more obvious. While much of the world lives within formally democratic national systems, the power that ultimately rules the most important aspects of material well being are everywhere outside the reach of “politics”. It’s easy to lament the lack of real democracy, but it’s much harder to point the finger at the villain. That’s because there’s not a personalized dictator who’s somehow usurped democracy. Instead, we find a cold, alien system which operates only under the logics of profit, wealth, and concentrated power. Justin Rosenberg called it the “Empire of Civil Society” but that seems a bit too “civil” for such a barbaric system. “Empire of the Rentier” might better convey the true nature.
Regardless, it’s a thoroughly undemocratic and ruthless empire. We can clearly see its nature in all national and supra-national “economic” institutions that exist today. From the “independent” central banks throughout the world, to mainstream economic education, to the “business” press, to the IMF, to the World Bank, to the OECD, to the European Union, and to the WTO. They all speak with the same voice promoting only the interests of concentrated wealth. The latest contribution comes from the annual report of the Bank for International Settlements (BIS) – an international organization of central bankers, a self described “bank for central banks”. Here’s a few excerpts from this obscenity of a document.
(Current account mismatches indicate) that “domestic demand is too high in some countries and too low in others.”
How can anyone outside the temple of the rentier take this proposition seriously? Demand, i.e. living standards, is too high for the average worker in the US, Spain, Portugal, Ireland, and other deficit nations despite high levels of unemployment, ever advancing technological capacity, and vast pools of hoarded cash? The clear truth is that living standards for average workers everywhere are too low given the state of technology.
But the BIS wants to reduce living standards even further.
“… with the arrival of sharper price increases for food, energy and other commodities, inflation has become a global concern. The logical conclusion is that, at the global level, current monetary policy settings are inconsistent with price stability.”
“Central banks may have to be prepared to raise policy rates at a faster pace than in previous tightening episodes.”
“As spare capacity dwindles, food and energy price increases are more likely to have second-round effects on inflation.”
The BIS claims the answer to high food prices is to slow the demand for food! There’ve been very few dictators in human history to tread such terrain! If there’s insufficient food production, why not redirect resources to increase it? In what kind of world is there any priority more important than sufficient food?
But the vast hoards of wealth owned by the top strata aren’t often used for expanding production; “investment” only occurs if it maximizes profit. Expanding production is always a dangerous game since it inevitably produces a “glut” that reduces profit. “Investment”, instead, increasingly takes the form of mergers and acquisitions and speculation. Here’s the BIS equating arbitrage speculation in carry trades on currency instruments with “investment” as if it were some gravity-like force of nature:
“With interest rates rising in emerging markets and at or close to record lows in advanced economies, investors shifted their portfolios towards the assets with higher returns. They did that in part by increasing their carry trade positions in emerging market fixed income instruments. Funded at very low interest rates in currencies such as the US dollar and Swiss franc, these positions are bets that the high interest rate differential will more than compensate for possible countervailing moves in exchange rates.”
That investment funds are directed to such trivial games in the global casino rather than fulfilling legitimate demand is nothing other than a crime against humanity. The BIS, though, totally incapable of noticing this travesty, observes just two technical defects that apply only to the sustainability of profits or, to use their preferred term, “financial stability”.
“The shift of funding has two potentially damaging effects. First, by exerting upward pressure on exchange rates in the emerging market economies receiving the capital flows, it makes their exports less competitive and puts a brake on their growth. For economies that are overheating, this currency appreciation is part of the natural equilibrating process. Second, large gross cross-border financial flows can fuel unsustainable credit expansions and asset price booms. What begins as a response to strong fundamentals can become a serious threat to financial stability.”
Increasing the supply of commodities like food, limiting speculation, and assuring maximum levels of productive investment would be the sensible approach to limiting inflation but such ideas are never considered. The only tool is high interest rates which, of course, is of great benefit to the rentier class.
“Central banks must guard against even the hint that they are using monetary easing as an excuse to monetise public debt. Markets and the public must remain confident that central bank balance sheet policies are a means of maintaining price stability and that, with inflation threats growing, policy will be normalised very soon.”
The BIS claims a God-like power to assess the “usefulness” of physical and “human capital” investment.
“Some of the (physical and human) capital put in place during the boom years is less useful than originally thought. A sizeable part of investment in the construction and financial sectors probably falls into this category. The unsustainability of pre-crisis growth also has to be reflected in measures of potential output, which are important inputs in policy discussions. In order to be useful, such measures, above all those that rely on estimates of the stocks of physical and human capital, have to be adjusted to take into account this obsolescence.”
Criticizing the level of investment in finance and construction has a great deal of merit but, as usual with these institutions, the BIS can suggest no alternative that would provide full employment.
“Other sectors will have to take over from construction and financial intermediation as the engines of growth. Which sectors will do so is difficult to say, since past performance is not necessarily a good guide to the future. Nonetheless, the likely (relative or absolute) stagnation of construction and finance could liberate resources for use in other sectors – so long as authorities do not prevent such a reallocation through subsidies or other measures that preserve the status quo.”
While taking note of “persistently high unemployment in some countries”, the BIS takes the outlandish position there’s not a great level of “unused economic capacity”. With high unemployment and massive levels of idle cash held by the rentier class, the BIS has the temerity to suggest there’s little unused economic capacity!
And, finally, in a nod to maintaining the undemocratic rule of the rentier, the BIS claims the inherent right to be free from political control.
“… the independence of central banks is the basis for their credibility and provides the best defence against incipient inflation threats.”
“In order to conduct monetary policy successfully, decisions affecting monetary conditions should be made independently by the central bank, which also means that it should have control over its balance sheet.”
The “economic” rulers of our world represent an inhuman and alien vision incompatible with democracy and mass prosperity. Their only guiding principle is assuring steady profits with price stability, a condition they term “financial stability”; only by accident is it ever coincidental with human need. It is critical that we expand our view of politics to incorporate the “economic” nature of this global tyranny.