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Capital and the Pitfall
of State Intervention
Chapter 5

The uncertainty of the economic prognosis. The deflation has not come to an end as of 2009! The future dangers of a deflationary price tendency. Inflation and deflation as symptoms of an economic immune system deficiency. Misinterpretations of the term ‘social’. The state and misunderstood justice. About the upcoming super-inflation. The need for a dynamic mediation between Homo Oeconomicus (Economic Man) and Homo Oexchangicus (Stockexchange Man).

The question currently most frequently asked by people in relation to the economy has to do with prognosis. The anxious question: “Where does it go from here?” occupies the media without end. Through the failure of the scientists, as already explained in § 1, it is obvious that no reliable prognosis can be given. No surprise, then, that new predictions have been published time and time again since last year. Some institutes have completely stopped predicting results, giving as their reason that the consequences of this unparalleled economic crisis could no longer be predicted.
Politics is similarly uncertain: the German chancellor, Mrs Merkel, currently contents herself to applying “strength and courage”. In fairy tales it is befitting to demand strength and courage from the hero; where the economy is concerned, however, we require somewhat more. But we cannot expect an appropriate therapy, however, when we have no appropriate diagnosis.
It is possible, however, based on the implications laid out in this text, to offer a rough prognosis. The probable prognosis should sound something like this:
First, there will be a powerful deflation, whose high point will not be reached in this year, but much later. Afterwards follows a super-inflation.
During the deflation, we will see a price trend that is the reverse of inflation of goods and services. While in the latter, prices spiral ever higher, and goods become ever more expensive, a deflation entails exactly the opposite. The previous generations saw only an inflationary movement of prices, which is why scientists have paid little or no attention to deflation for decades, a fact I have already criticized in my work on the structure of global capitalism published in 2006.
At the time of writing this work, those in official positions are not yet talking about deflation, as the usual calculation of statistics still shows minimal inflation between 0–1 percent. However, the consumer will already have noticed that many consumer goods have become cheaper in the course of the first months of 2009, and that the newspaper title pages occasionally report a “price slump”. This is the beginning of a trend that will, by no means, end as quickly as the voices attempting to calm the population would have us believe. The downward price spiral will continue into next year and it will not be long before the announcement of an official deflation.
Why do we fear deflation more than inflation? The answer is obvious. During inflation, consumers spend money quickly, because they know that the longer the money stays in their pockets, the less they will be able to purchase in the future. Certain countries did, in fact, see particularly accelerated inflationary price spirals within the last few decades. I remember the 80s in Brazil, when I had to exchange some of my dollar reserves for the local currency on a daily basis in order to shop for my daily consumption, as even the price of the bus tickets, calculated in local currency, rose by 7% from one day to the next.
Generally, it can be said that inflationary tendencies motivate the money holder to spend money as fast as possible, thanks to the permanent threat of depreciation. In this way, inflation encourages the flow of money, and, if the inflation rate is not too high, also production and the economy.
Conversely, there is nothing worse for the economy then consumers losing their desire to buy and beginning ‘to sit on their money’. If you can compare inflation bodily to diarrhea, then we can easily compare deflation to constipation. People become closefisted, part only reluctantly with their money and buy only necessities. Why? Because hoarding money in such an economic period has the advantage of promising added value. Why buy something today when the downward price spiral promises consumers the chance to purchase the goods even cheaper if they just wait a little? The economy is lamed by deflation, which can lead to anything from a significant rise in unemployment figures all the way up to mass dismissals. The higher rate of unemployment brings with it a cumulative downwards effect for the deflationary price spiral. The unemployed spend less money than the people who still have work. In this way, money is increasingly removed from the economy. On top of this, mass dismissals can lead to social unrest. A social environment burdened by violence and insecurity further destabilizes the economy and slows down production.
Even back in 2005 I found the topic of inflation and deflation so important that in my work titled: “The Structure of Global Capitalism” I dedicated an entire section to the topic from the perspective of “Opportunities and Limits of Immunization”.
I pointed out an original definition by the sociologist Niklas Luhmann: “Deflation and Inflation are in certain ways immune responses of the economic system, with which it reacts to an overly high risk load.” My position in regards to this immune response did differ from that of N. Luhmann, however. In his system theory we have to be responsible for developing a concept of the whole and with it a concept of holistic connections. His theory runs into the dead end of one-sided differentiation. This hazard can also be viewed in the mindset of natural scientists of medicine. Ever since the outbreak of the AIDS virus, medicine has grappled with the question of immunology.
However, one can see that there, too, the epistemological will to understand unity and difference in context, and not to put one or the other in the foreground, is missing. A misinformed understanding of immunology characterizes both medicinal and economic scientists. Characteristic of both disciplines are a scapegoat strategy (“The virus has to be fought!”, “The greed of the banker must be limited!” etc.) as well as distorted theories on the possible combinations of data and facts. A different mindset is required to strengthen the immune system, however. An adequate understanding of immunity is not possible unless we develop a sense of society.
On the political stage of the Federal Republic of Germany, the SPD and the CDU, even the FDP claim the term “social market economy” as one of the central features of their party politics. Of course, the parties are using completely different definitions of the same term. This causes the ‘social’, and whichever definition you choose to give it, to degenerate into a party slogan and become the victim of the propaganda of the respective parties. “Social!” – that is pretty good, the masses think, and are quickly satisfied. But for how long? Until the impotence of the misunderstood term and all the resulting consequences catch up to those same masses. On the second of May 2009, the Munich edition of the newspaper “Bild” read: “Hooligan alarm! Police nowadays permanently stressed!” Now form your own opinion! As long as science allows such chaotic conceptions, and politicians – for lack of an alternative (?) – then fervently use them, there will be permanent stress not just in the economy and in politics, but also on the streets! The anti-viral medication (used for AIDS), financial rescue packages from the state (e.g. the scrap bonus) or police measures against rioters at demonstrations may, at a high price, repeal the symptoms, but they are no solution for the disruptions to the immune system.
We can find a similar term in the same realm as the slogan “social market economy”: that of “social justice”. The constitutional state can bear the responsibility for judicial justice, but this should not be confused with social justice. One third of the children in Berlin live under the official poverty line. With which court can we file a suit protesting this fact?
The term “social” can only become a reality in a community setting. Community and society today should no longer, however, be seen as congruent. Part of the pitfall of state intervention lies in the ignorance of the fact that the legislation in the organs of the state wants to add social justice to it’s characteristics.
After the deflation will come inflation. I want to stress once again that we have not even come close to the height of deflation in July 2009. We are, at this point in time and for a little while afterwards, in a ‘bubble of anticipation’. Most people who have some involvement in the economy hope that the massive government investments have already solved the crisis. What a disappointment is to emerge from this economic policy, whose most prominent author is without doubt the current president of the United States, Barack Obama. Marketing is not everything, and it does not protect from the pitfall into which the capital will fall. When the stock market prices slip once more into the basement, into a basement that is significantly deeper than previously thought, then people will ask how we in the Wachstumstrend Research Institute were able to predict this trend. I can already give you the answer: It has to do with our mindset. For a forward thinking prognosis, you need a lively, dynamic thought process, not intellectualism.
Once the super-deflation has run it’s course, than the second expression of immune deficiency in the economy, super-inflation, will follow. It will rob the poor of every chance they might have had to take advantage of the loss of value, with it’s boom in the value of material goods (shares, property, etc.) as, as is known, they cannot hope to afford such goods. They will be victims of the declared ‘social’ agitation of the state and the blown-up rescue buoys of millions of tax dollars given to individual beneficiaries by the economy.

From the viewpoint of super-inflation, it seems naive or hypocritical to calculate how the accruing super-debts can be paid off with tax dollars. They cannot be! The inflation has already ensured that all debts will quickly disappear again – this is the most damaging but also most refined form of debt discharge.

And the moral of the story? The role of the state has to be thought out anew. The current market dynamics cannot be satisfactorily regulated using only the indolent effect of the law. New institutions are required, as well as the courage to recreate economic regulation. We have to find dynamic mediation between Homo Oeconomicus and Homo Oexchangius. Homo Oeconomicus lives via rationality and wherever economists use it as their model, they err in the one-sided assumption that people are always driven by rational criteria. Homo Oexchangius is often driven by irrationality, as though the onesided rationality is continuously followed by it’s own shadow. The two extremes require mediation. In the human body, the heart takes on the function of mediating between the nerves and the metabolism. It is not without coincidence that most people wish that we could construct an economy with “more heart.”

 

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