*This article is inspired in this talk https://www.youtube.com/watch?v=CKCvf8E7V1g

In this crisis, Governments has decided to cut spending and to follow IMF’s rules (and Germany ones) and trust austerity. But Governments decided more things. One of them, is to not tax rich people. Today, I saw a video from Venture Capitalist Nick Hanauer who said that people believe that if taxes on the rich go up, job creation will go down. In fact, this is a nice topic to talk about. First, we consider that rich people are those who have a lot of money, but how much? Lets consider that rich people are the ones who appear in the Forbes’ list (Wikipedia says…). So, how important are the rich in the economy? First, we should say that I distinguish between two kinds of rich. First, we’ve those who’ve earned their wealthy with hard work; they had an idea and now they are experiencing the benefits of it. If we check the economic theory we learn that the entrepeuner risks his money in order to obtain a benefit in the long-term while the employee is the one who makes the product, sells it or even distribute it. This economic paragraph is on the books and everyone can look at it. (The Wealthy of Nations, Adam Smith is a good way to understand how the economy works today and what s capitalism about.) But we need to analyze that. Are rich people to important for the economy? Are they so essential for the foreign trade? Are they the cause of the benefit of middle-class-people? Do they really create jobs?

The entrepeuner has always been seen as if we were a “bad-person”. And, why? In 1760, the Industrial Revolution appeared. With it, many many companies started to hire people from the countryside. The working conditions of the workers were so bad that many of them died while they were working. People started to think that it was a problem of the entrepeuners. And so it was. They tried to earn as much money as possible even if that gain meant certain death for workers. They did not care at all. History is full of situations like this one. And people, believe them. They were true, of course. But as times passes, entrepeuners do too. And they are never the one they were. They still want to gain as much money as possible, but they do not trie to “kill their employers“.

This chart represents the urban index compared with the census one during the Industrial Revolution, 1850.

Rich people do not create jobs. Because they needn’t. Do a especulator create jobs? Absolutely not. They destroy them. (That’s why many economists ask for the Tobin Tax, a Tax that would tax especulators) But, do rich people with companies create jobs? They do sometimes. As they are big companies, they depend of external agents and of internal ones. Zara hires a saleswoman just if they know they are going to receive some benefit. If not, of course they won’t. But that’s not bad: that’s capitalism. They create jobs, but middle class do too. They create more companies than richer people, because they risk when they create a company, and the big-entrepeuner just when he created his company. So middle-class is essential for the economic prosperity. That’s on the books too. But I have always wondered why (considering that almost everything is on the books) we do not check books often. Could our economic activy improve? Sure it could. But sometimes, we do not want it to happen. That’s on the books too.

(Just a few lines to talk about one of the last papers of the IMF talking about austerity)

The Internation Monetary Fund has always said that fiscal multipliers do not exist, until now. A few weeks ago, they wrote an economic paper where they said that fiscal multipliers were substantially higher than implicitly assumed by forecasters (sic). Oliver Blanchard is the chief economist of the IMF since 2008. In this year, they said to emerging countries (such as SouthAfrica or Brasil) that austerity was the better option in their economic policies. And, as they say that, many countries trust them. (Who could be so mad to not trust the IMF?) They started with strict spending cuts. Later, Brasil changed his mind and decided to create their own economic policy. Dilma Roussef, the actual Prime Minister of Brasil, said that fiscal consolidation (spending cuts) are not the best option for actual economies [...] and that a high “grade” of spending cuts could led a country to a new recession (sic).

Later, many people began to write articles titled: “Why should we trust the IMF?” Here, in Spain, each euro the Government do not spend we lose 1,5€ of national wealthy (external analysts said). So, that means fiscal multipliers do exist. (Now, Prime Minister’s of Spain is beginning to cut spending.) Right, IMF?

A few months ago, Spain’s Prime Minister, Mariano Rajoy, said that Spain is not Uganda. He said that as if we wanted to desacredit Uganda’s citizens. And the truth is that yes, Spain is not Uganda. We can not compare both countries – and I should say this was the first error in Mariano Rajoy’s speech. Why? As I said yesterday in Twitter, it’s easier for a non-industrial country to have a bigger economic activity when global economy is depressed. So, the question isn’t if Spain is better than Uganda or not, but how is Africa doing during this crisis. On 2008, the “explosion” of Lehman Brothers was just the begining of a big global crisis. This crisis made many economies to fall in a big depression. And as the world was suffering, depressed countries did too. With all the information and with many analisis about similar situations, many economists started to say that the solutions was clear: more spending cuts and a several austerity was the solution. (A few days ago, the IMF published an economic paper saying that austerity was “quite bad”; saying they had underestimated the effectiveness of austerity in countries with depressed economies.) There are many differences between countries. And this differences, are part of what economists call “economic policies” (such as how many taxes has one country or the price of non-luxurious products in the market). In fact, many economic situations depends of this economic policies. Spain’s Economy Minister, Luis de Guindos, a former Lehman Brother executive, is the excutor-hand of economic policies in Spain that are leading our country to poverty. Uganda is not Spain.

This graphic is about the inflation in some countries of Africa. Spain’s inflation is of 2,929% (World Bank says). Economic activity in Africa is high during the crisis because many investors decide to trust them.  South Korea has decided to invest more in Africa, in African countries because they believe that this investment will produce a large long-term benefit. And, with that, many countries and investors are coming to Africa. Many countries there are rising because they are starting to have a new “industrial revolution”. England, for example, growth a lot during the first industrial revolution. Why? Because this means a lot: new works, new way of work and new methods of production. In many African countries, inflation rose due to stress caused by heavy social inequalities (see Egypt or Tunisia).

But even with this, Africa is doing well. They are growing fast. (Spain grew by 0.4% while Uganda did with almost 7%.) Spain is not Uganda. Not anymore.

I published this article on 28th december on my principal blog, Economía Plus (Spanish). The first chart compares the number of citizens (blue) with the number of houses (pink). The second one, compares the rate of interest (red) and the price of each m2 (blue). I can be reached at Twitter @JaimeMAD or via email jbravo2015[at]gmail[dot]com

Lately, the controversy has awakened by a documentary about the Spanish situation. This documentary, made by the BBC, has provoked different sensations. Spanish people said that this documentary “attacks” Spanish image. They call it “Marca España” (Spanish brand). However, the situation is completelly real. The Spain’s property bubble has condemned us. Why? Because when it explodes it derived in a situation of poverty. The sector that created more employment in our country, began to dissapear. Aproximately an 18% of our GDP (PIB in spanish) was based in the construction.That means that a possible fall of this industry could have terrible consequences. So, what was the effect of the bubble?

 We can not talk about “an effect” because there is not just one. Neither “effect” is the word. We should speak about repercussion or consequence. Let’s say that them were negative too because what was provoked by the huge amount of houses built, has only brought us poverty, misery, and many debts. We saw it in four ways: people affected directly, people affected non – directly, people non related with the construction sector and banks. All of them, all of us, are suffering the effects of a bubble created by the liberalization of the floor.

 This graphic represents the poblation of Spain (blue) and the number of houses built (pink). All of us know about the “loss-decade” in Japan fostered by a house and a market bubble. Both, promoted by parties with neoliberals ideas. In Spain, happened something similar. With the new law of the floor, many places could decide where they could and could not build. It led to corruption and, of course, to the creation of the bubble. (The mayors of the towns were “persuaded” to be corrupt because the companies that were triying to build houses would do everything for make contracts possible.) It’s not a secret that everyone always want to have the better. Because of that, many banks began to play the “game” of massive – build of houses.

 Banks participated either a direct way and an indirect way in the creation of our bubble. They started to give mortgages and loans to everyone. Why? Because they always wanted to habe a big benefit; as the economy was well, the benefits of the people should be good. (In capitalism we know that banks are a essential part of our system. And that’s right. But as Krugman said, they are good when the economy is well. Here we could ask ourselves about why society often hates banks to much: because they “help” the economy to fall. And if we speak about our property bubble, they helped speculating with houses and giving loans (as we said before). When the bubble explode, banks started to evict and to cim the money they borrowed a few years before. Social drama and inequality appeared. As the sales of the houses went down, banks decided to cut prices. And as independent ellers can not compete with banks, they were (indirectly) obligated to cut them too.

 In this case, this chart shows us the rate interest (red) and the price of the square meter (blue). In 1998, the Partido Popular (a conservative political group in Spain) signed the Ley del suelo that liberalized the construction industry. Check (in the chart) the rise of the price in the blue line. When a sector is booming usually the benefits are not represented only in it, but in others: it causef an effect in many other sectors (such as house-sellers etc.). Al those sectorse began to get in debts because they wanted to offer more and better services. If we check the principal theories of capitalism we read: the entrepeuners get in debts risking their capital to offer a new service or improve an existing. The problem is that the indebtdness ocurred but not the benefit. The ones directly relationed went to bankruptcy faster. The companies did not have enough money to finish their ambitious works. This was one of the reasons for the collapse of our economy in 2008.

And now, here we’re: at the top of the cliff. The Partido Popular has choosen austerity and they’re starting to cut spendings in sectors like public education or public healthcare. This, is the Spain we have now. But, is the Spain we deserve?

 Jaime Bravo – Student 16 years old.