Jim Stanford Economist, CAW Kingston, February 2009

1. The Financial Crisis,The REAL Economy,and Our Jobs:What Happened? Why?And What Can We Do About It? Jim Stanford Economist, CAW Kingston, February 2009

2. A Moment to ChallengeOld Ways of Thinking • People want to understand what is happening • People are hungry for an alternative vision • Need to start at the basics: • Demystify the economy • Demystify this crisis • Demystify our goals, demands • Economic literacy training should be a priority for unions, community groups

3. MY GOAL: To Demystify & Reclaim Economics… www.economicsforeveryone.ca • Excerpts • Lesson plans • Resources • Glossary • Blog • Feedback

5. Where Did This CrisisCome From, Anyway?

6. Where Did This CrisisCome From, Anyway?

7. Where Did This CrisisCome From, Anyway?

8. Where Did This CrisisCome From, Anyway?

9. Where Did This CrisisCome From, Anyway?

10. Where Did This CrisisCome From, Anyway? “Repricing of risk” “Better rating agencies” “More transparency” “Get the incentives right” “National securities regulator”

11. What is the Economy? W O R K

12. Demystifying the Crisis • The economy is the sum total of the work we perform to meet human needs • We are just as capable of doing that work today as we were last year • In fact, more capable (technology, skills) • There is no material reason for this crisis! • Focus attention on real work, production • Cut through other mumbo-jumbo • Demand our right to work & produce

13. The “Real” Economyand the “Paper” Economy

14. The Real Economyand the Paper Economy • Real Economy: the work we all do to meet our material needs & wants • Paper Economy: financial sector; plays a different, unique role • Not directly productive • Trades in paper assets • Theory: Paper economy facilitates, lubricates real investment & production • Practice: For every $1 of productive lending & finance, the paper economy spends $100 on speculation (buying/selling existing assets)

15. Off the Rails • Paper economy is supposed to serve the real economy • In practice, paper economy ends up serving itself • Fundamental sources of the problem: • Profit motive in private credit • Speculative impulse • Deregulation / leveraging / globalization • Paper economy exhibits a repeating, predictable cycle of crisis

16. 1. Profit Motive in Finance • Credit is essential to our economy • We’ve “outsourced” the job to banks • They literally have a license to “print money” (ie. create credit) • They create credit in order to maximize their own profit • Too much some times • Too little some times (bankers’ cycle) • Must hold banking system to account to meet society’s need for steady credit • And if need be, step in to do it ourselves • We can “print money,” too!

17. 2. Speculation vs. Production • Productive Profit: • Invest, hire workers, organize production, sell product for more than it cost, keep profit • Results in production and employment • Speculative Profit: • Buy an asset, sell it for more than you paid for it (“buy low, sell high”) • Results in no production • Irrelevant to production at best, diverts attention and disrupts production at worst

18. Speculative Bubbles • Something gets positive momentum • Could be anything • Helps that the story is plausible • Greed for profit pulls in more speculators • And that drives up the price • Self-fulfilling prophecy • Mass psychology, competition, leveraging push price up far beyond where it deserved to be • No “real” underpinnings, price inevitably falls • Only question is exactly when and why • Then speculators sell because they expect the price to fall: self-fulfilling again  collapse

19. 3. Making Matters Worse • Deregulation: Private financiers given more leeway to create, sell debt • Securitization: Conversion of debt into tradeable assets breaks link between lender and borrower • Complex derivatives that even the designers didn’t understand • Massive leveraging (80:1) to expand bets • Globalization: Capital mobility, global competition exported the crisis quickly around the world

20. Wha’ Happened? • Speculative bubble (again): • Centred in U.S. housing • Aggressive, irresponsible lending • U.S. mortgage practices • Securitization, globalization of assets • More aggressive leveraging • U.S. housing prices began falling in 2006 • Cascading losses, “de-leveraging” • Impact on wealth, confidence, lending, investment, spending  REAL RECESSION

21. Been There, Done That, Got the T-Shirt • 1978-1981: Neoliberalism is born • Mid-1980s: U.S. savings and loans crisis • 1994: Peso crisis • 1997-98: Asian financial crisis / Russian bond crisis • 2000-01: Internet stock market bubble collapse • 2007-08: U.S. subprime meltdown There’s nothing fundamentally unique about this crisis. It’s a pattern that will repeat itself.

22. A Bigger Failure • Crisis dramatically refutes many key components of the neoliberal vision • Monetary / financial policy • Deregulation • Fiscal policy • Globalization • Real capital accumulation

23. The “Fundamentals” “Canada’s economic fundamentals are in great shape.”

24. Capitalism’s Investment Slowdown (p.149)

25. Canada’s Productivity Slowdown Source: CSLS.

26. Canada’s StagnantLiving Standards $20.75 $20.25 $8.50

27. Digging Our Way Out:What’s Needed? • Re-regulate finance • Socialize credit creation • Address the real slowdown • We want REAL stimulus! • Protect key industries & firms • Protect pensions • In future, priorize the real economy • We need a NEW GROWTH MODEL • More emphasis on meeting our actual human needs • Workers: Why should we bear the cost? We didn’t create this problem!

28. How Ordinary People Can Reclaim Economics… …and Make it Work FOR Us Instead of AGAINST Us! www.economicsforeveryone.ca