QE: Furthering the habit of privatizing gains and socializing losses

“Privatizing gains and socializing losses” could be the motto for the neoliberal era. Alongside this and “there is no alternative”, few slogans better capture the ideology that has been so successfully diffused throughout the world over the past several decades.

Five years after latest financial crisis, this motto rings true as ever. To say that the losses stemming from the crisis were large is a heroic understatement; indeed, not only were they humongous, their exact size remains a tad fuzzy. Meanwhile, across the world in the aftermath of the crisis, stock markets have rebounded, wealth and income inequalities have grown and corporations and financial institutions have returned to making healthy profits. At the same time, many countries have seen both employment and median incomes either stagnate or fall.

In short, once again, losses were socialized, while gains privatized. Prominent among the means employed by governments to ensure that this be the case were various kinds of asset purchase programs. First, in the immediate aftermath of the crisis, came actions that transferred toxic financial assets into public hands either through direct buybacks (as in the US TARP program) or temporary nationalization/bailout. Since these short-term, more explicit socializations of private loss came to an end, the policy of quantitative easing (QE), through which central banks purchase vast amounts of long-term debt from financial markets, has been their implicit continuation. Unlike the earlier programs, QE is aimed instead at the other end of the equation, privatized gains. (more…)

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Canada’s profitability puzzle

Most developed economies continue to experience fall-out from the financial crisis of 2007-8. The Eurozone has been most ravaged, but the US and UK have not fared much better.  After the initial rebound from the most severe crisis, growth in many economies has been decelerating to the point that some are once again contracting in real terms.  At the same time, unemployment remains high – hitting record levels among youth in Europe for example – real incomes are flat for the vast majority, inequality is on the rise and austerity programs targeted at social services are eating further into living standards.

Canada has partly bucked these trends.  While the overall growth rate has not returned to pre-crisis levels, it has not done nearly as poorly as that in Europe or even the US.  Other measures of economic well-being do not suggest the level of alarm felt in harder-hit economies.  To give two examples, the Canadian unemployment rate has grown relatively modestly and the distribution of gains since the crisis has not been skewed towards the very top to the extreme that it has been in the US and elsewhere.  The financial press is increasingly optimistic – just this past week cheering newly-released above-forecast quarterly growth figures – and the Conservative government remains steadfast in touting our supposed economic prudence and resilience.

Finally, but not least, Canadian corporations also have had it relatively good since the crisis.  Other than a sharp dip around 2008, profits have remained high and growing.

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