The Future of an Illusion

Abstract

The pandemic caused by the SARS-CoV-2 virus brings to the scene a crisis never seen before, highlighting the incompetence of government activities in most countries. The pandemic is not an unexpected or inadvertent event; it is instead an event that we were warned about without paying attention. The neoliberal victory, which converts neoclassical economic theory into ideology; austerity, on the battle horse of those who tried to “starve the beast”; and the economizing of all the components of human sociability, which builds the assumption of the redundancy of democratic sociability and government intervention, coupled with the reduction to a minimum of the State and its powers, were the perfect broth to provide erratic and incomplete answers to the Great Recession, starting in 2007, and completed the ruin in the face of the SARS-CoV-2 emergency that, at the end of 2019, appeared as an emblem of the many things that the government does not solve. This article sheds light on the deliberate institutional anemia in which the pandemic emerges and the lessons that we could do well to consider.

1. Introduction

1.1 Presentation

“The conclusion that religious doctrines are nothing, but illusions lead us immediately to ask ourselves […] if the premises on which our state institutions are founded are not equally to be qualified as illusions”

(Freud, The Future of an Illusion, pp. 87 and 88, cited in [1], p. 194).

The effects of the pandemic caused by the SARS-CoV-2 virus, which stage “a crisis never seen before”, go through the global paralysis of the economy in a series of episodes in which most of the activity’s governments, especially in the West, seemed to have entered a contest of incompetence. While China and South Korea showed themselves capable of stopping the spread during March 2020, Europe, the United States, and Latin America, in the same month, were barely preparing to descend into hell.

Contrary to a general belief, the pandemic is not an unforeseen event of profound impact; it is not a “Black Swan”, but an event announced by the SARS that made an appearance in 2003 and 2009; it is the “extinction of the gray rhinoceros”. We were warned but underestimated the warning, as stated by Adam Tooze, in an extraordinary text on the pandemic ([2], p. 16).

Like climate change, the pandemic has begun to produce a kind of collective resignation, by means of which, rather than imagining the future of an illusion—as Sigmund Freud titled his essay—it would be convenient to think of the illusion of a future for the suffering species.

After the triumph of neoliberalism (and with the conversion into ideology of neoclassical economic theory ([3], p. 71)), austerity became the battle horse of those who wanted to “starve the beast (the State)”, not only by way of subordinating fiscal policy to monetary policy and, therefore, reducing collection and spending. The strategy also implied reducing or annulling the institutional powers of the government and building a new institutionality, particularly favorable to the market and reducing the State.

The economizing of all the components of human sociability, which establishes the search for profitability in the different areas of individual action ([4], p. 20), built the assumption of the redundancy of democratic sociability and the intervention of the government more beyond the protection of property rights and an elementary horizon of education and health. This assumption tried to become a self-fulfilling prophecy, through austerity, the high doctrine of fiscal balance, job insecurity, economic and commercial opening, the managerialization of public administration, and, above all, the magic of the market.

For this purpose, and with a veritable cascade of neoliberal reforms that, in obvious terms, privatized what was profitable and socialized and what was not, in the areas of health and education, the welfare state where it existed was disintegrated along with the hopes of having it in underdevelopment. The reduction to a minimum of the State and its powers provided erratic and incomplete responses to the Great Recession, starting in 2007, and completed the ruin in the face of the SARS-CoV-2 emergency that, at the end of 2019, appeared as an emblem of the many things that do not solve the market problems. This chapter deals with that history, with the deliberate institutional anemia in which the pandemic emerges, and with the lessons it offers.

2. Post-WWII mixed economy to neoliberal night

In the development of the most transcendental stages of capitalism since the 17th century, the second half of the 20th century –since the end of World War II— plays a relevant role in shaping the 30 glorious years of this mode of production with the creation of the mixed economy, indicative planning and the Welfare State. This, in addition to the effects of the nonsensical colonialist inertias among the allied countries against the axis, of the imprint of Stagflation and its devastating effects on the economic theory of the time (the neoclassical-Keynesian synthesis) that opened the door to a return of the neoclassical theory and to the long neoliberal night. The events that trigger the reactionary emergence in the economic, political and social spheres begin with the long-lasting Cold War (a true historical anomaly that takes an ideological course), continue with the Vietnam War and its surprising outcome; they proceed with the Revolution in the name of God in Iran, with reformism –not only economic, in China— with the rise to power of Margaret Thatcher and, a year later, of Ronald Reagan. And they carry onto the SARS-CoV-19 pandemic, global confinement, economic paralysis, ongoing structural inflation and the Russian invasion war in Ukraine.

The methodology used is that of historicism-structuralist, in which history, so to speak, leads the rest of the human sciences by the hand.

3. Neoliberalism on the rise

The antecedents of the prevailing disorder, not only economic, start—paradoxically—with the beginning of the golden age of capitalism.¹

World War II had in its true victors the USA and the USSR, the actors nominally least interested in the preservation of the colonial order, unless that preservation served some Cold War purpose. In the abstract, the Americans would betray their own decolonization by allowing such an order to prevail after the Allied triumph and especially in the Allied world. For its part, the USSR claimed—long ago—that its marshal be the Father of All Peoples, through the socialist and revolutionary liberation of the Third World portion of the planet.

With enormous speed, it became clear that decolonization and liberation were not, and could not be, synonymous, due to the emergence of two events, from which three others derived: the death of President Roosevelt, his substitution by Harry Truman, and the dismissals of Henry Morgenthau II and Harry Dexter White from the defining spaces of the new international order and the presidential animosity toward “the reds”. With José Stalin in front, the Cold War was served² along with its consolidation as State policy derived from the constant disagreements between the powers that defeated Hitler.

With very relevant efforts on the part of the United Kingdom to agree on the peaceful independence of India and the apparent tolerance for the rise to power of Mohammed Mossadegh in Iran, even before supporting his overthrow, the historical champion of colonization adapted to the new times. The ally least willing to exercise a decolonizing policy was France, with different arguments: In Algeria, for many years, French citizens had settled, who coordinated the most dynamic economic activities and had established important population centers; to varying degrees, the situation was replicated in the rest of the areas colonized by France.

Southeast Asia had its peculiarities: it had already set itself apart by enduring military experience against colonization, Japanese occupation, and recovery attempts by declining European nations, now in collusion with the world’s leading military power, the United States; the communist militancy of important regional leaders and the defeat of the invaders from the east gave enormous singularity to the independence proposals. The anti-colonial appetite of the subordinate peoples aired within the framework of the historical anomaly of the ideological conflict that was the Cold War and that occupied the entire planet; the cases of Taiwan, South Korea, and Hong Kong, at least, are emblematic of the development that came from abroad, from the United States and the United Kingdom, to guarantee the political alignment of the spaces thus benefited.

The moral problem highlighted by Barbara Tuchman [7], in The United States Betrays Itself in Vietnam, is not only the paradox by which the government of a large society forgets its anti-colonial origin; it is also the libertarian anti-communist argument with which it was intended to justify that intervention, the disproportionately adverse cost in lives for the Vietnamese, the political and economic cost of the war adventure, and, in the end, its total redundancy. The hegemon of the world, the greatest military power in history, the total cultural dominator that internationalized the North American way of life, is participating in a war that is as costly and lasting as it is useless and cannot win it. The ending was misleading.

The Soviet reading of that result sinned optimistic. In a part of the undeveloped world, the dismantling of colonialism was proceeding successfully, and, incidentally, it was adding supporters to the USSR; Portugal’s encounter with democracy, through the carnation revolution, favored the independence because of its colonies, new spaces of confrontation (with the Cold War as a backdrop). The limits of Soviet expansion would not be set by an adversary in apparent decline; the real problems came from within an economic system that was dramatically inefficient, corrupt, and, except for the arms industry, mired in the most disturbing technological backwardness [8]. Invading Afghanistan, in December 1979, meant the creation of another source of great problems.

The Soviet conflict with China produced some hitherto unimaginable fruits: ping-pong diplomacy, the successful rapprochement with the US government [9], to cite an example, made the Chinese state the second to recognize the coup government of Augusto Pinochet, supported by the United States. With the death of Mao and the ruin of his supporters, economic easing took the place that had been given to criticism of Soviet revisionism, with results that have radically transformed the international economy. If the cultural revolution failed to satisfy the purposes of its animators, it did clear the political chessboard for the radical reformism of Deng Xiaoping ([10], pp. 791–968).

The return of Islamism to an international scenario subjected to strong disturbances became visible with the advent of the Iranian Revolution of 1979. The world was astonished by the outbreak of this vigorous political-religious movement, with a clear anti-American sentiment, in a space dominated by the interests of the major Anglo-Saxon oil companies, and placed under the control of Shah Mohammed Reza Pahlavi (member of a dynasty that, according to his own words, came from Persian greatness), placed in command since 1953 by the CIA during the Eisenhower administration in response to the nationalization of the oil industry promoted by Prime Minister M. Mossadegh ([11], pp. 417–420).

The coming to power of Ayatollah Ruhollah Khomeini, in January 1979, had the peculiar effect of taking faith to the top, even constitutional, of the Iranian State. The lament of John Stuart Mill, in the 1850s, became extremely topical; “If religious belief were as necessary for humanity as we are told, there is good reason to regret that its intellectual base has to be supported by a moral bribery of the understanding” ([12] [1986], p. 48).

On May 4, 1979, the Conservative Party of the United Kingdom won most seats and, incidentally, the obligation to form a government. In the words of Margaret Thatcher, neoliberalism obtained at the polls the triumph that it had only achieved the hard way in South America; the world watched another conservative revolution that would travel its borders, burying the welfare state, where it had existed, and the hopes of reaching it in underdevelopment. A 180-degree turn happened at the service of the market ([13], pp. 123–171).

“If it’s a definition you want, I’ll give you one. A recession is when your neighbor loses his job. A depression is when you lose yours. And recovery comes when Jimmy Carter loses his!”³ The overwhelming success achieved by Ronald Reagan’s presidential candidacy meant the legitimization of the magic of the market and the redundancy of the State; Thatcherism and Reaganomics set in motion fiscal dumping, the discrediting of the unions, the global economic opening, and the externalities that, together with the internalities, would end up liquidating the Soviet Union, the deregulation (among which the jewel in the crown was indiscriminate privatization), and the mind-boggling growth of inequality. Neoliberalism has also meant the extensive and profound defeat of the working class throughout the planet.

In the intellectual realm, there were not many efforts to imagine the future of the West and the world. The notable exception (in that order: the West and the world) came from the Collège de France and was personified by Michel Foucault: Birth of Biopolitics is the course he taught during 1979, in 12 classes, which covers the fundamental characteristics of liberalism and describes the emergence and development of neoliberalism, from the Lippmann Colloquium, highlighting the role of homo œconomicus and the generalization of the form “company” in the social field ([15], pp. 401). Despite its undeniable limitations, it is a visionary study of the change of era that neoliberal regulations mean ([4], pp. 57–152).

The next step, after the discreet collapse of the USSR and the worldwide success of state phobia, is that of neoliberal economistic globalization, hyper capitalism, in the words of a brilliant young economist ([16], pp. 753–831). The cascade of conservative reformism that globalized during the 1990s produced the autonomy of central banks, financialization, the managerialization of public administration, governance, the construction of a market society, human capital as a vital destiny, the promotion of Regional Integration Agreements (ARIs) especially between nations with notable economic asymmetries (strategic integration, baptized by the World Bank), the growing density of uncertainty, and the greater recurrence and deepening of crises (not only economic) in which the irresponsible market cicada hands over the baton to the anemic state ant.

4. Technological unemployment and its political impact

“In a 1993 study by the [United States] Department of Labor, it was exploited that only less than 20% of those who followed federal reeducation programs were able to find new jobs in which they would receive, at most, 80% of their old wages” ([17], p. 218).

J. Rifkin’s extraordinary text is a detailed and profound analysis of the dispute between new technologies and workers for jobs, throughout recent history. It has a pioneering character in research that will be continued by Jared Diamond (Weapons, Germs and Steel, 2007) and Y. Harari (From Animals to Gods, 2017); both books share the subtitle A Brief History of Humanity, and especially the second, perceives the combination of artificial intelligence (AI) and biotechnology high-end threats to the same species.

The explanatory variable for the reduction in the demand for human labor is technological change. The constant innovation of products and production processes has become the paradoxical condition of an increasingly imperfect competition, to achieve market power; competition to become a monopoly, as M. Kalecki foresaw and as a handful of transnational companies operate in the globalized world that has built, against the backdrop of economistic neoliberalism: “We will see that the greatest failure of globalization is the attempt to integrate markets on a global scale, without a State. This has produced a life in the market that is more insecure, more criminal, and less legitimate. Markets without states are mafias” ([18], p. 350; boldface text belong to me). The consequence of this search for increases in productivity transcends the strictly economic scenario and powerfully affects the political arena.

The economization of the totality of human existence is the neoliberal reconstruction of the State and the subject, in the qualified opinion of Wendy Brown [4]. It is not the interaction of two clearly differentiated spheres, but the penetration of the market economy in each one of the spheres of sociability, perverting political, social, and personal life, which is subjected to the search for profitability in its daily life in all your actions.

This new economistic determinism, being based on neoclassical theory turned into ideology, strips away the most important Keynesian warnings about the defects of the market economy: Economic storms are part of the normal functioning of the market system; crisis-hit economies cannot solve their situation by themselves, and the search for efficiency is not tolerable at any cost ([19], Preface). The counterpart of rigidities frequently takes the form of devastating criticism and takes its place in the political and ideological alternative.

In his speech on the centenary of Malthus’s death, Keynes refers to the way in which Shelley (the poet of spiritual revolution) and Coleridge (the poet of spiritual conservatism) agreed to perceive Malthus as the symbol of sophistries of the economists. He said:

Thus, two different poets, but both possessing the highest quality of intellectual insight, interpreted what was being said to them. Not a single accusation of this kind leveled at nineteenth-century economists is entirely without foundation, nor can we economists today entirely shy away from it. In fact, the work begun by Malthus and completed by Ricardo provided a very solid intellectual basis for justifying the status quo, for stopping experiments, for quelling enthusiasms, for keeping us all in order; and it was a just reward that they gave birth, as illegitimate progeny, to Karl Marx.

Making the analogy with the rigidity contained in the powerful neoliberal message, in the words of Margaret Thatcher, in There Is Not Alternative (TINA), the just reward takes the form of populism, in the sense of democratic radicalism, as analyzed by P. Rosanvallon [20]. The perception of populism, not only or fundamentally, as discontent with globalization and its effects, but rather as a vigorous ideology that has historical and theoretical foundations, places the level of discussion in the high place it deserves. For the reference author, and hence the title of the text, populism is the rising ideology of the 21st century. In a twilight time for almost all ideologies, it is no small thing; not enough either:

The populist vision registers the fact that the classes no longer fulfill the structuring role that characterized them, but it does so in terms that exempt themselves from the problem of analyzing the new emerging social world, contenting itself with a people of the 99%, whose contours are necessarily diffuse, protagonist of the emancipation and new figure of the democratic master. While the conflict with the 1% that constitutes it negatively shows nothing more than an impoverished understanding of the tensions, divisions, and solidarities that must be addressed in order to constitute an effective political community and a society of equals ([20], p. 226).

While the Marxist prophecy about the concentration of capital was fully fulfilled, the one that announced the growing proletarianization did not reach its birth.

5. Consumption as a function of income or credit?

The consolidation of neoliberalism in the Anglo-Saxon world showed, among its first effects, the stagnation and subsequent reduction of real wages, in an environment of progressive lack of employment protection. The indirect income from public spending plus the effectiveness of the automatic stabilizer represented by unemployment insurance became history and the available resource was the indebtedness that has reached levels of impossibility of payment, at a global level.

The mechanics followed is that the reduction of taxes and public spending in the United States provided a fiscal dumping that became paradigmatic and, thus, globalized. No developed nation tried to maintain an expensive Welfare State, when the most powerful power on the planet made it expendable.

The relevant issue is that this scheme is not sustainable, among other reasons, because around 70% of world’s GDP depends on consumption and recoveries from crises, since the Great Depression, are developed in accordance with demand management. The pandemic has been no exception. Under these conditions and when debt is greater than income, solvency disappears; that ability to repay debt and maintain the volume of consumption has left the scene, and the table is set for a near and deep crisis of underconsumption.

6. The Western polycrisis or the six effects of Chen Yixin?

Pandemic, economy, racial injustice, and climate were the 4 converging or overlapping crises addressed insistently during Joe Biden’s presidential campaign. The frivolity, to use an indulgent term, with which his predecessor approached the first months of Covid required a change in the strategy that failed to be radical: The new government decidedly applied itself to the purchase of vaccines and their distribution, but it did in the logic of America first; that is, first for the Americans and, later, to try to become, without the expected success, the “global vaccine arsenal”. Regarding the economy, the disagreement with the Republicans has been withering each of the flowers with which the recovery was imagined: neither the minimum wage at 15 dollars an hour nor care for the elderly and children. The external front of the economic problems, China in obvious terms, has begun to be treated as erratically as Trump did and obtaining results as adverse as those achieved by him. The reduction of racial injustice in the United States, the greatest moral problem of that nation, coexists badly and little with a growing white supremacism, which has an old history, and the monumental climate problem requires a body of transcendent understandings on the internal fronts and external. As can be seen, and adding the Russian attack on Ukraine, the West faces daunting problems, old and new, bad and worse.

For its part, in China an attempt was made to shed more light on the combination of risks. In an essay by Chen Yixin, a protégé of Xi Jinping, published during 2019, the author drew attention to the “six crucial points”:

1. China should protect itself against the “reflux” of interactions with the outside world;

2. China had to be aware of the possibility of a “convergence” in a single new threat from what at first glance could be considered as a set of different superficial threats (the differences between internal and external, old and new, could be easily smudged);

3. We must deal with the effect of “stratification”, in which the requests and demands of interest groups from different communities overlap each other and come to generate stratified social problems: current problems with historical problems, problems of tangible interest with ideological problems, and political problems with non-political problems. They all mingle and interfere with each other;

4. Care had to be taken with the effects of “linkage”, communities communicate with each other across great distances and mutually reinforce each other;

5. Do not forget the “magnifying” effect, the sudden amplification of a piece of news: any small thing can become a whirlpool; a few rumors can produce a “storm in a teacup”; and.

6. The last one is the “induction” effect, by virtue of which the problems of a region indirectly caused a reaction of identification or imitation in another region, feeding on unresolved problems ([2], pp. 19–20).

There is no doubt that calm and equanimity build the best environment for defining problems and possible solutions, strategies, and tactics, and, in this environment, Chinese reflection shows itself to be far superior to Western pragmatism, which, once again, seems bent on finding new routes to failure.

7. The oracle of inflation

Inflation is not a monetary phenomenon; it is the result of imbalances of a real nature that manifest themselves in the form of increases in the general level of prices. This real character of the inflationary process is much more noticeable in underdeveloped countries than in industrial countries. ([21], p. 275).

When analyzing the complications faced by the quantitative theory of money (QTM) when attempting to apply it to reality, Keynes found it to be represented by “bottlenecks” in the backward linkage of a productive activity ([22], p. 285); the concrete expression of this complication is the imperfect inelasticity of supply [ez = ΛZ/ΛDs < 1], which became the focus of Noyola’s analysis—an extraordinary (and forgotten) Mexican economist⁴—on inflation in Latin America. Milton Friedman’s influential statement—inflation is always and at any time a monetary phenomenon—derived from the old quantitative theory of currency, intuited by Fray Tomás de Mercado during the 16th century, based on the effect that the plundering of precious metals of México and Perú and especially its transfer, first to Spain and later to all of Western Europe, had on prices in that continent and finally formalized by Irving Fischer faced an alternative, structural analysis, in which productive inefficiency becomes the explanatory variable for inflation [23, 24, 25].

In reality, both explanations are complementary, depending on the origin of the inflationary spiral that is intended to be analyzed. Unfortunately, for the followers of TQM (all autonomous central banks), the inflation that is ongoing in the wake of the pandemic is structural and represents the great stumble of globalization. The unique degree of interdependence achieved by the world economy, relocating production processes with the compass of lower labor, fiscal, social, and environmental costs that resulted in abundant and cheap production, at the time of the pandemic ran into the paralysis of supply chains, supplies, with new “bottlenecks” and with new in elasticities of countless offers that are expressed in the sustained rise in prices, when meeting with a demand that was deferred during the imprint of the virus and that is fully expressed after the pandemic.

If the cause of inflation is not monetary, the way to deal with it should not be either. The way in which the most important central banks on the planet contravened their creed, during the pandemic, by financing the public spending of their respective governments through the purchase of official bonds, meant violating the strongest prohibition established in the declaration of their autonomies; the field of action of the monetary authority is restricted to fighting the type of inflation that has no structural roots.

The increase in the interest rate, which is reflected in the immediate increase in the cost of credit, may be plausible when facing an inflation originated in the demand; when the predominant factor in an inflationary spiral is placed on the supply side, as is the case, an increase in interest rates becomes the invocation of the double misfortune known as stagflation and suffered strongly during the 1970s. Stagnation with inflation was an experience impossible to conceive, much less overcome, in the dominant scheme of the neoclassical-Keynesian synthesis, the well-known (and fortunately retired) IS-LM model, in whose graphic expression there is no possibility of locating in a single point to both economic tares.

The eventual solution, although structural, lies in the possibility of making supply elastic, of increasing production and providing the appropriate incentives to the different links in the production chains. It is, or should be, evident that such a boost to supply requires abundant and cheap credit, and not the rise in the cost of money. The rationality of our species seems to find limits closer each day.

It is convenient to place the inflationary problem in its true dimension. Historically, the oracle of inflation has been the favorite argument of liberal and neoliberal economic thought against the distortions that, according to that lofty doctrine, markets suffer from government interference (Table 1):

Century	Author/school	Argument
16th	Fray Tomás de Mercado; Late Scholastic and School of Salamanca and Juan Bodino	Quantitative Currency Theory: M x V = W x P (Q.T.)
17th	John Locke. English Empiricism (EE)	Radical liberalism
18th	David Hume. Continuer and Critic of the EE	Deepening of the Q.T.
17th	Adam Smith. Classical Political Economy (CPE)	Invisible Hand
19th	David Ricardo. CPE	Equivalence Principle
19th	John Stuart Mill	Limits of the market and functions of the State
19th–20th	Karl Menger, Eugene Böhm-Bawerk y Friedrich von Wiser. Austrian	Complete distribution theory
20th	Alfred Marshall; neoclassical	The metamorphosis of Political Economy in just Economy
20th	Disseminators of the Austrian School. Ludwig von Mises, Friedrich Hayek, and Joseph Schumpeter	The Omnipotence of the Market, the Redundancy of the State and the Creative Destruction during the Economic Cycle
20th	Alfred Müller-Armack. Ordoliberalism	Social Market Economy
20th	Luigi Einaudi. School of Economics, Bocconi University, Milan	Autonomy of the Central Bank. Europe and Christian Democracy
20th–21st	Milton Friedman.; Monetarism	“Inflation is, always and at any time, a monetary problem”
20th–21st	Robert Lucas	Rational expectations
20th–21st	Ben Bernanke	Economic Cycle Dominated
20th–21st	Alberto Alersina et al.; University of Bocconi	Expansive Austerity. The Neo Liquidationism

Table 1.

Authors and schools of economic thought opposed to state intervention.

Source: Authors’ own elaboration with support in Blyth [26], Tamames [27], Schumpeter [28], and Skidelsky [19].

With Fray Tomás de Mercado (Salamanca school), the role of money in determining prices begins to be examined; The Quantity Theory of Currency has stated that, when the money supply increases and the production of goods grows less than proportionally to the demand thus increased, the economic system will undergo an inflationary spiral. The arrival in Europe of the gold plundered from the colonies of Spain led to an increase in purchasing power in an Old World in which the supply of goods could not respond with elasticity; the visible result was the increase in prices. The matter refers us to the scholastics, and, from there, this story begins.

Going to the 16th century and recovering the contributions of a priest who died at sea, traveling (back, where he did his university studies) to Mexico, is something that only makes sense in the light of the causal relationships between money and prices, privileged—at present—as the only explanation of the inflationary process.

“[W]e will remember for future reference that some of the doctors—the most important in this sense is Mercado—guessed more or less clearly what could be called the quantity theory of money, at least in the sense in which it can be affirmed that Bodin he has been a proponent of it” ([29], p. 140). The term “guessed”, to a certain extent, corresponds to the importance that Keynes would give to intuition, as the greatest quality an economist could have. In the case of the Salamanca school, this intuition was put at the service of understanding the effects that the arrival of large volumes of precious metals would have on the prices of primary and manufactured goods that were produced in a notably more rigid structure than that shown by the increase in the money supply. As for Juan Bodino, he explains the rise in prices for five reasons, in the order of priority:

1. The abundance of gold and silver.

2. The practice of monopolies.

3. Scarcity caused in part by export.

4. The luxury of the king and the great lords (public waste), and

5. Currency adulteration ([30], p. 54).

John Locke actively participated in the debates regarding the relationship between low interest rates and prosperity, stating that it is the latter that causes the former. Another issue that he addressed in his elaborations is that of private property, which he perceives as a natural right of man and not instituted contractually: “In private property he no longer sees something static, but something dynamic, no longer something given once for all, or established by men in common agreement, but rather something that is the fruit of the effort and economic activity of man. This is an opinion that is very well adapted to the new bourgeois, landowners and mercantile sectors that were experiencing a rapid ascent in English society in the 17th century” ([31]: 50 et seq., cited in [32], p. 120) (Figure 1).

Figure 1.

The Laffer curve.

“A premise of the theory is that the speed of circulation of money is a fairly stable parameter. Consequently, any increase in the quantity of money should translate into a corresponding increase in the general level of prices, if in the short run the quantity of available goods also remains constant. In other words, given the availability of goods, the level of their prices would come to depend exclusively on the amount of money in circulation. If the general level of prices rises (inflation), the cause would be attributable to the increase in monetary circulation; on the contrary, deflation would occur as a consequence of a contraction in the money supply, and for nothing else. The standard-bearer of the neo quantitative school or Chicago school, M. Friedman, has been able to write: ‘Perhaps no other empirical relationship in economics has been seen to reappear so uniformly, under such a wide variety of circumstances, as the relationship between substantial changes in the short-term money stock and price changes; One and the other are infallibly linked and go in the same direction: I would say that this uniformity is of the same order as those that form the basis of the physical sciences’. The mechanism through which monetary circulation influences”.⁵

In the middle of 2022, we found ourselves on the verge of a new world economic recession; today, when we continue to suffer the effects of the one that, to begin with, buried Lehman Brothers, the propensity of capitalism to fall into critical situations constitutes a kind of normality that it has acquired greater prominence since the 1970s; after the modest euphoria provided by the so-called Great Moderation (Bernanke, dixit), the magnitude, depth, and lasting ravages of the Great Recession have made any discussion of the recurrence of crises redundant. The relevant issue lies elsewhere: in the system’s ability to turn its cycles into useful lessons for a future full of uncertainty.

The calm waters in which the dreams of Luigi Eunaudi and Milton Friedman came true, with the independence of central banks as an emblem that aligned these banks twice (in the sole purpose of fighting inflation and in the high doctrine) that perceives it always and at any time as a monetary phenomenon (M. Friedman, 1970, The Counter-Revolution in Monetary Theory, London, Institute of Economic Affairs, p. 24). They were also the years of radical deregulation and privatization, those of the emerging dominance of shadow banking and financialization. The backdrop, the evidence of the success of neoclassical theory and its ideological expression, neoliberalism, is globalization with its slim line of winners and its huge list of those who have not been so great.

These days, the announcements of economic stagnation have a new order and rhythm. Before, they began with investment, production, employment, income, consumption, and savings, with a later reflection on trade. The redundancy of bulky inventories, the notable role of sales and purchases in the global market, the levity of domestic markets, and the international adoption of austerity measures—as a more-than-deserved self-administered punishment by governments that spent excessively to save the bankers and banks that caused the Great Recession—are circumstances that favor the simultaneous appearance of all the unemployed males who, moreover, move fast.

The most dreadful lesson delivered to believers in market self-adjustment, the Great Depression, resulted in the first death of neoclassical theory and the emergence of Keynesian theory and policy; stagflation (inflation and unemployment at the same time) resulted in the first death of Keynesianism and the first resurrection of neoclassical theory. Harsh experiences are capable of retiring and enabling paradigms. The Great Recession, whose severity moved more than one ruler to propose the refounding of capitalism, resulted in austerity, a very convenient and interesting change of subject, just when the recovery of investment, employment, and income levels should be the global priority. In those, we are at the moment of arrival of a new and very threatening crisis.

The reencounter with the recession grabs us without visible learning from the previous shock: owners of the purity and joy that only full ignorance of recent and ongoing events can provide. If austerity has any merit, it is time to start looking for it. Otherwise, let us look for the action of the State, the greatest of public goods. Active taxation is not a luxury today, nothing less than an emergency.

The first myth on which austerity is based perceives debt and public finance as strictly domestic matters; the second, presented by the horny heads of Kenneth Rogoff and Carmen Reinhart, establishes the maximum threshold of the debt and the deficit, with respect to the National Product (90 and 3%), after which it hinders growth; the third myth suggests the convenience of competing internationally through lower taxes, to attract FDI; the fourth states that privatization reduces the fiscal burden, while the fifth states that spending cuts solve fiscal problems and encourage investment. The sixth myth establishes the priority of reducing the deficit through fiscal consolidation; the seventh affirms that excessive sovereign debt produced the euro crisis (another scratch on the Greek tiger). The eighth myth affirms the benefits of the private and the harm of the public, while the ninth suggests that the State rely only on its own means; the tenth makes the apologetic generalization of the benefits of domestic savings in the German style, while the eleventh builds the world that produces austerity: activation and economic incentives (the best possible). Finally, the twelfth myth perceives austerity as a mechanism for strengthening democracy ([33], p. 85). Since it was threatened, due to its visible complicity in the outbreak of the Great Recession, the dominant economic thought proposed to change the subject. The issue should not focus on a paradigm shift, which would lead neoliberal policy to a well-deserved retirement, but on the huge deficit that resulted from the government bailout of the financial system; a little history about it:

In the decades prior to the crisis, the idea of the pre-eminence of the market and the reduction of state interventionism had prevailed. Naturally, government and regulation continued, but they were delegated to “independent” bodies, symbolically to “central banks”, whose function was to guarantee discipline, stability, and security. Discretionary policies and measures were the enemies of good governance. The balance of power was incorporated into the normality of the new regime of deflationary globalization, which Ben Bernanke euphemistically called “the great moderation”. The question that he planned about the management of neoliberalism was whether the same rules were applied to everyone or if in reality there were rules for some and discretion for others. The events of 2008 substantially confirmed the suspicion raised by selective US interventions in the emerging market crises of the 1990s and following the dot-com crash of the early 2000s. Neoliberalism worked with one caveat. Faced with a serious financial crisis that threatened “systemic” interests, it was discovered that we lived in an era of large unrestricted governments, of large-scale executive action, of interventionism that had more in common with military operations or urgencies than with governance subject to law. This revealed an essential but puzzling truth, the denial of which had determined all economic policy development since the 1970s. The foundations of the modern monetary system are irreducibly political. ([34], p. 22).

As a result of the Great Recession, which began in 2007, the convergence of crisis, bank bailout, and increase in sovereign debt, just to finance that bailout, produced an explosive formula that derailed the recovery and gave birth to a devastating figure: austerity.

The unlimited capacity of the human species to produce cures that are more painful than the disease itself is fully demonstrated by the austerity imprint which, among other things, showcases the relevance of considering the cyclical nature of the economic system during the construction and implementation of economic policy measures; if austerity can take a place in the functioning of the economy, it must be implemented during the expansionary phase and never in the depressive one of the economic cycle.

Bad management of the Great Recession, austerity, pandemic, and war are the new faces of the four horsemen of the Apocalypse, those that force us to ask ourselves if a future, any future for humanity, is not an illusion.

8. Conclusion

“The universe and human stupidity are infinite.

Of the universe, I am not sure”

Albert Einstein.

The recurring blunders that the leaders of the species have perpetrated, against both the host space and the species itself, causing an alarming environmental change with consequences that are already shown, also reache the stormy waters of the economy, of politics, and of social relations.

The economic paralysis that accompanied the pandemic during its first 4 waves, coupled with the decision of the Chinese Communist Party to reach the goal of zero covid, produced the unfortunate progeny of inflation due to bottlenecks in the provision structure that rests on global distribution of the different links of the most dynamic production chains.

The overflowing optimism with a globalization centered on neoliberal economism, with a financialization that separates the productive economy from the nominal, and with a deregulation of economic systems as contagious as SARS-CoV-2, are circumstances that prevented the construction of forecasts in the face of a pandemic that had already announced its appearance since the threats experienced during 2003 and 2009. The geographical separation of inputs and production factors made it difficult for the most diverse manufactures to link backward when there was a failure in any supply center.

The fact that inflation is defined as an imbalance in which demand exceeds supply, D > Z, tends to produce confusion that reaches the institutional design. The confusion consists in supposing that this imbalance always originates in the growth of demand, which is attempted to be reduced by making credit more expensive, by raising interest rates; the inelasticity of supply, characteristic of backward economies, is not part of the conventional conceptualization of inflation, much less of the policy to overcome it.

During the most intense period of neoliberal reformism, in the 1990s, most central banks were given autonomy and, in addition to many prohibitions, a single mandate: to maintain price stability. It is obvious that by assigning this task to the monetary authority, the executive and legislative branches subscribed to a single, monetarist perception of inflation and ignored the possibility of finding the origin of these spirals of rising prices in the productive economy.

If the ongoing inflationary process is carefully analyzed, the explanation that rests on the growth of the monetary stock is irrelevant, and the conventional measures of making money more expensive are ineffective. By trying to give visibility to their efforts to comply with the anti-inflationary mandate, the monetary authorities have decided to raise interest rates, hindering the post-pandemic economic recovery.

The lessons are varied and begin by showing us the enormous vulnerability of the human species and the degree of irrationality that accompanies not a few decisions, today evident in the discipline that—charged with arrogance—perceives itself as a science. The concern produced by this first lesson is magnified by the fundamental nature of uncertainty, which has been trickily identified with risk, actuarially measurable and preventable. In the heart of the Great Recession, which started in 2007, this deception took center stage, and they do not want to expel it from the stage. Knowing that we do not know and cannot know what the future will be like is a useful guide to acting with more intellectual humility and much greater prudence.

The pandemic (and the war) gave us a structural and lasting inflationary spiral; our own clumsiness is working hard to gift us with a new recession. It is worth asking, who benefits?

Through public policies, mainly through education, it is essential to become aware of the fallibility of our perceptions, the irrationality of many of our decisions, and the inescapable presence of a dense uncertainty. On the threshold of a hell that will be expressed in the struggle for natural resources, history will take its course again, although the species faces new, complicated, and great problems. You will have to do it with a talent that you have not shown and with a reflection about your own limitations.