“Is Adam Smith’s Invisible Hand a Pickpocket?”
2. “There is an Alternative to Neoliberal Monetary Austerity
And contrary to popular belief, the stock market has ceased to be a source of such financing. Textbook diagrams still depict it as raising money for new capital investment. Unfortunately, it has been turned into a vehicle to buy out companies on credit (e.g., with high interest junk bonds), replacing equity with debt (“taking a company private” from its stockholders). Inasmuch as interest payments are tax-deductible – on the pretense that they are a necessary cost of doing business – corporate income-tax payments are lowered. And what the tax collector relinquishes is available to be paid out to the bankers and bondholders who get rich by loading the economy down with debt.
The upshot is that the flow of corporate earnings is not used for productive investment, but is diverted to the financial sector – not only to pay interest and penalties to banks, but for stock buybacks intended to support stock prices and hence the value of stock options that managers of today’s financialized companies give themselves.
Welcome to the post-industrial economy, financial style. Industrial capitalism has passed through a series of stages of finance capitalism, from Pension-Fund capitalism via Globalized Dollarization and the Bubble Economy to the Negative Equity stage, foreclosure time, debt deflation, and austerity – and now what looks like debt peonage in Europe, above all for the PIIGS: Portugal, Ireland, Italy, Greece and Spain. (The Baltic countries of Latvia, Estonia and Lithuania have been plunged so deeply into debt that their populations are emigrating to find work and flee debt-burdened real estate. The same has plagued Iceland since its bank rip-offs collapsed in 2008.)
Why aren’t economists describing these phenomena? The answer is a combination of political ideology and analytic blinders.”