From the (always indefinitely) beginning of the unfavorable current economic conjuncture, among all that is written and spoken, the comparison of the crisis of 2008 with that of 1929 is a constant position. Of course, this is perfectly expected and fair, as a comparison between two phenomena are the basis for explaining their special characteristics, thus forming the corresponding road maps for solving the problems presented . This extremely rational methodology starts from the most accurate and objective measurement and depiction of the physiognomy of the historical event, on the basis of which the compared, namely the current, will be placed. It should be noted that this current event is constantly evolving and even part of its mutation may also be due to the comparative process. Therefore, the accuracy with which we compare, then lead to conclusions and finally propose solutions, is of paramount importance. In our case, slavery starts from the 1929 crisis profile.
The economic crisis of 1929, for a number of objective reasons, I think it will always be a point of reference in the discussion of relevant facts. The reasons are not so technical, but mostly historical and psychological: The collapse of New York’s money market in the famous “Black Thursday” of October 24 could be regarded as the most precious prelude to the subsequent advance of totalitarianism whose historical and an inevitable clash with the already liberal Democratic Republic already in the West, came to the bloody fields of the battles that humanity had ever known. Well or wrongly, the First World War had left huge unresolved issues, and by almost half , they were related to trade and the overall International Economic Process. That Thursday triggered the mechanisms that would eventually settle for almost 15 years after all these gaps. Moreover, no one can overlook the rush of this collapse: It took only a few days to crush the world as it had been built from the middle of the eighteenth century onwards.
Regarding the causes that led to the precipitation , in my opinion, the famous Austrian School has already given the answer: it should be sought in the insufferable credit expansion that the US Central Bank has been doing . Everything has a value. Obviously the money. When this (money) is offered faster than the performance of each unit, it is inflationary. The result is losing part of its value. The loss of this value reaches the market in the form of a revaluation of goods and services . The offer becomes more expensive. Demand to meet it needs to meet higher costs. But that is not possible. As a result, supply remains unrecorded, production decreases dramatically and thus releases pores. These resources are mainly identified by the reduction of the workforce: Unemployment.
The conclusion of the experience of 1929 was just that: the system, as theoretically was built from training through the writings of theorists Classical and Neoclassical School, stated that there was equilibrium, as centrobaric the factor was the demand: the offer was a dependent variable depending on demand. And work as a productive factor has always been in full-time employment . So, a small offer was needed in conditions of limited demand to balance the counterweight. The “sickness” of 1929, then – unemployment – was addressed by the Fiscal Expansion: Public Expenditure increased steeply with the aim of absorbing as much as possible the labor force surplus. Besides, there was a possibility for the budget. The macroeconomic features of the American Economy allowed the application of such a policy type. Also, the reform of key aspects at the Monetary level has streamlined the supply of money, offering the necessary support in the overall context.
If one wished to attribute a particular but complete characterization to the 1929 Crisis, the epithet that would cover it as much as possible would be “linear”. That is, an equation of an unknown (see unemployment) .
Today’s Conjuncture is definitely not linear. In addition, the State itself has been bankrupt financially and institutionally, unable to consume “fat” in expanding public spending. Also, the dystocia in dealing with it is based on structural features of European economic philosophy and culture. And it certainly is not the result of a malfunctioning of the (Economic) System itself. I have taken the view that this is a situation that has fed two very important parameters:
The first component is historical. It is the fundamental weakness of the European Political System to realize that the choice of the path of European Unification (let alone the Idea of European Integration) goes through the abandonment of the notion of nation-state, at least by its definition the first post-war years. Space is now fluid. But it has the character of a dependent variable. Space is (politically) fully manageable. It is enough for the Germans, in particular, to realize that Community solidarity can not depend on the commitment to the hard euro. It is not possible to transform the Monetary Union into Political Unification, without accepting the primates of Europeanism, against any “Germanism” or (wider) “Anglo-Saxonism”. This void is extremely problematic. And nature (or life if you prefer), loathing the gaps, can take its own initiatives, by preventing EU leadership. .
The second component is dynamic. It is modeled on the ability of Capital to move lightning fast within the Area (States), easily surpassing border controls. In our model it is shaped in the sense of Time. And here’s the problem: Time is an independent variable. He does not expect any. He defined himself. Can it be shaken? Maybe. But, a key prerequisite for time management is the definition of Space.
In two simple words: The speed of capital movement is inversely proportional to the ability to manage it with a key tool of the mechanisms of one (or any) National Economy.
F ( x ) = x / y
Where x = Space (the scope of economic activity as a problem management tool – imposing National Financial Policy vs. Single European Budget Policy) . Definition field of x = [0,1] where 0 = action without any single Fiscal Policy and 1 = single European Fiscal Policy .
Where y = Time (Capital movement of the capital) . Definition field of y = [0,1] where 0 = idle blocked capital and 1 = fully released capital. Essentially, the prevailing economic conditions state that y ≈ 1 .
Equation F ( x ) is also defined in a space of [0,1]. Where F ( x ) = 0, then the economy acts locally (tends to have a closed character). If it tends to 1, it means that the Financial range in the application reduces the speed of capital movement as this, wherever located, finds similar conditions. The following two conclusions are therefore produced:
- If we accept that capital is moving at great speed due to the collapse of all the restrictions on its movement (at least within the European Union, that is certain), then the only way to capture the distortions that this speed causes is to form a single framework of fiscal policy not only at the level of the Eurozone, but at the level of the European Union of 27. In practice our index will tend to the unit.
- If the above condition is not filled, the pointer will be zeroed.So the capital will “decide” on a case-by-case basis and therefore it will yield. This policy will create heterogeneous and unbalanced growth.
Finally, it should be noted that the implementation of a single Fiscal Policy does not in any way mean that a commonly accepted Keynesianism will prevail over Europe, with benefits and an increase in public spending. The Eurobond as the most typical tool for pursuing such a policy, in the context of the current economic reality, is linked to the transfer of the drafting and implementation of the national budget to Brussels, with further labor market deregulation, the abolition of regulatory frameworks and a discrete reduction of tax rates. However, because economic policy will be exercised at EU level, the political balances in the European Parliament will regulate co-operation with the necessary conditions. Unemployment is certainly a huge enemy in the body of society and the economy. But inflation generates unemployment. As a result, close monitoring ensures future economic continuity, in conditions of prosperity. The Germans, as economic leaders of Europe, should accept that the National Public Debts are the parts of the total European (within the EU). On the other hand, the economies struck by Equinox (especially the South), should accept that paternalistic and regulatory policies have been irreversibly lost from the horizon. In this context , a peculiar laisser-faire , the future looks really better.