I don't understand how any sensible person, least of all an economist or a policy maker, can justify this paradox. The US economy is in crisis and many businesses are sitting with record levels of cash on their balance sheets. "Amid a lackluster earning season that have featured many companies missing sales expectations, cash balances have swelled 14 per cent and are on track toward $1.5 trillion for the Standard & Poor's 500, according to JP Morgan. Both levels would be historic highs "(CNBC.com Oct 23, 2012.). Apple alone sits at over $117 billion.
What's the situation in Europe? According to Ernst & Young "In the Eurozone, corporates overall hold around Euro 2 trillion, in the UK the FTSE 100 are holding 750 billion pound sterling, and US corporates hold more than US$ 2 trillion."
US President Barack Obama, entering his second term, had talked consistently about the "rich paying their share" to prop up the sagging economy. Many believe he won because he spoke the language of the majority, the 99 per cent. But no sooner had the election results come out, when I see the mainline economists launching a tirade against his election promise of imposing higher taxes on the rich. You can watch them articulating their flawed hypothesis on CNN, you can read them in The Economist, and of course their voice resonates in the corporate-controlled media across the globe.
The "fiscal cliff' argument is so strong and so well entrenched in the political thinking that the European governments too have been blindly adopting it to overcome the euro zone's debt crisis. No government however is launching any assault to curb corruption, which could easily wipe out the fiscal deficit. So it is the poor who have to suffer to keep the rich in the saddle.
Far away in India, at a time when GDP is on a downhill path, newspaper reports say: "At the end of last fiscal, India Inc was sitting on cash and cash equivalents — liquid investments that can easily be converted to cash — of over Rs 9.3 lakh-crore or $166 billion." (Economic Times, Aug 20, 2012.) And still, the Indian government is Gung-ho over the move to open up for FDI in retail, expecting just $3 billion in the next five years!
At a time when so much money is in the hands of few corporations, I don't see any justification for the term 'fiscal cliff' to be flaunted all around. Ensuring austerity means reducing the fiscal deficit. That's what the IMF/World Bank prescribes when they lend monies for bailouts. But for some strange reason, austerity does not mean providing tax concessions to the rich and powerful. At the time when the world provided economic bailout packages (after 2008-09 economic meltdown) of roughly $20 trillion, no economist warned of a "fiscal cliff". No economist told us not to use the public tax-payers money to bail out the banks and the corporations.
In simple words, $20 trillion has gone to shore up the bottom line of Big Business, insurance, banks and industry. It provided more wealth in the hands of the wealthy. In such difficult times, when the bailout packages should have been for providing more employment, health, education and food to the needy, it went into the pockets of the rich. The trickle down did not happen, in fact it never happens. The entire economic system therefore works on the underlying but utterly flawed principle: "Privatisation of profits, and socialisation of costs.”
In the US, despite the public rhetoric of President Obama, the fact remains as the New York Times states: "the White House agreed to cut at least $ 250 billion from Medicare in the next 10 years and another $800 billion in the decade after that, in part by raising the eligibility age. The administration had endorsed another $110 billion or so in cuts to Medicaid and other health care programmes, with $250 billion more in the second decade. And in a move certain to provoke rebellion in the Democratic ranks, Obama was willing to apply a new, less generous formula for calculating Social Security benefits, which would start in 2015." Even for the much-needed Supplemental Nutrition Assistance Programme, the proposal is to cut spending by $127 billion.
In Europe, as Reuters reports (on Nov 15,2012): "In Portugal and Greece — both rescued with European funds and under strict austerity programmes — the economic downturn sharpened in the third quarter, data showed. Portuguese unemployment jumped to a record 15.8 per cent while next door, in Spain, one in four of the workforce is jobless. Greece’s economic output shrank by 7.2 per cent on an annual basis in the third quarter as the debt-laden country staggers towards its sixth year of depression. Close to 26 million people are unemployed in the European Union while governments take aim at spending on treasured universal health care and public schools. Spain, Portugal and Greece have all slashed spending on pensions, public sector wages, hospitals and schools. But frustration has mounted as the cuts aggravate the downturn. In Spain, most of the savings have been gobbled up to meet higher interest payments on the national debt, swollen by the cost of rescuing banks after a real estate bubble burst."
With millions of workers thronging the streets across Europe in protest against spending cuts which have aggravated recession and led to mass unemployment, the frustration is growing. Whether it is the US, Europe or India, the average citizen is angry at the policies that are cutting into social security funding making it more difficult for them at times of an economic recession. But is this a sacrifice that the poor have to entail? How long can the ordinary people be made to suffer while the rich sit pretty over tons of hoarded cash? How long can the economic system allow concentration of wealth into the hands of a few while the world struggles for a decent livelihood?
Knowing that John Maynard Keynes had said: "The boom, not the slump, is the right time for austerity", I turned to Paul Krugman to see whether he prescribes any other solution. Here he goes:
"Back in 2010, self-styled hawks — better described as deficit scolds — took over much of our political discourse. At a time of mass unemployment and record low-borrowing costs, a time when economic theory said we needed more, not less, deficit spending, the scolds convinced most of our political class that deficits rather than jobs should be our top economic priority. And now that election is over, they are trying to pick up where they left. They should be told to go away."(Deficit Hawks and Hypocrites. New York Times).
Reading Paul Krugman, and seeing the mass protests around the world, it is quite clear that a few corporations are holding the economy for ransom. Look at the Indian Prime Minister Manmohan Singh. To overcome the difficult prevailing economic situation, he is asking the cash-rich 25 public sector undertakings to invest Rs 2.5 lakh crore ($46 billion) surplus they hold 'to reignite the economy'. But no such appeal is made to the private sector companies which are sitting on massive hoarded cash estimated to be more than 9-lakh crore or $166 billion. Is he afraid of annoying the corporations? Yes, he is. And so is President Obama, unless of course he walks the walk. Let us wait and watch for January 2013 when he reaches the ‘fiscal cliff’.
It seems unlikely that governments across the world are going to make any concerted effort to force Big Business to cough up the cash they are sitting on. This is because as Paul Krugman says we have allowed the deficit hawks to hijack the economic agenda. It is because we keep quiet as the hawks take over. The fault is as much ours as theirs.
(Devinder Sharma is a well-known researcher and analyst on international development and economics, based in India. Contact: [email protected])