HOW TO OVERCOME THE CURRENT WORLD ECONOMIC CRISIS OF NEOLIBERAL CAPITALISM

Fernando Alcoforado*

This article aims to present the solution that would make it possible to obtain economic stability and the full use of factors of production in each country of the world and eliminate the global economic chaos that currently prevails as a result of the adoption of neoliberal capitalism in all parts of the planet since 1990. The level of indebtedness worldwide never seen since World War II threatens to inoculate the poison of the next crisis. The world is sitting on a mountain of public and private debt. The total invoice amounts to an incredible 255 trillion dollars, an amount equivalent to 322% of world GDP. The process of neoliberal globalization has increased world debt and most countries are losing control over national debts. The growing world debt has been an obstacle to the return to the economic growth rates of the pre-crisis times of 2008.

There are clear signs that the world is experiencing a credit bubble that has caused the uncontrolled financialization of the world economy at the service of the rich. There are many signs of an upcoming financial crisis and a new collapse in the world economy that may begin in the United States. The rise in higher-risk corporate debt securities will lead to a new financial crisis in the United States and, later, worldwide. The solution to overcome the world crisis of world capitalism would be neoKeynesianism, which means the adoption of Keynesianism in every country in the world and at the planetary level in order to ensure economic stability and the full use of factors globally. This solution is imposed at the moment by the worsening of the world economic crisis due to the spread of the pandemic of the new Coronavirus that is accelerating the debacle of the world economy.

Keynesianism is the economic theory formulated by the English economist John Maynard Keynes in his book General theory of employment, interest and money (published in 1936) that considers the State as an indispensable agent of stability and control of the economy in order to lead to an economic system of full use of the factors of production unlike the classical and neoclassical liberal conceptions. Before the emergence of Keynesian Theory, much was discussed about what to do during a recession. From the 19th century to the middle of the 20th century, the dominant thought in practically all of the West was that of classical or neoclassical liberalism that advocated that the economy should recover alone in periods of crisis, known for the principle of laissez-faire. On the contrary, the Keynesian school of economic thought is based on the principle that it is not possible to self-regulate the economic cycle as advocated by classical and neoclassical liberalism.

With the crash of the New York Stock Exchange in 1929, the whole world experienced a serious crisis. Keynes was one of the first economists to realize that the free market based on liberal conceptions could not solve that problem. Economic policies based on state intervention in the economy were inaugurated by President Franklin Roosevelt with the New Deal in the early 1930s with the aim of reversing economic depression and a major social crisis with mass unemployment at the same time that identical policy was adopted in Nazi Germany. About 3 years later, in 1936, these economic policies were theorized and rationalized by Keynes in his classic work mentioned above. These policies were successful because they contributed to overcoming the economic crisis in the United States and Nazi Germany. European countries, whose economies were devastated at the end of World War II, also used the fundamentals of Keynesianism to pull their economies out of the crisis. In this situation, the State's intervention in promoting economic and social development was of fundamental importance. Keynesianism, or Keynesian School, is a political-economic doctrine that defends the State as an active agent against the recession and high unemployment.

Keynes formulated his macroeconomic model explaining how an increase in government spending would lessen the risks of the recession. To do this, he observed how the GDP (Gross Domestic Product) of an economy should be measured. Keynes stated that Aggregate Supply (Y) must be equal to Aggregate Demand (PA) to achieve the necessary balance to achieve economic stability. In these circumstances, GDP would be expressed as follows:

Y = PA

 Being, PA = C + I + G + (X - M)

 C - Household consumption

I - Private investment

G - Government spending

X - Revenue from Exports

M - Expenses on imports

According to Keynes, the beginning of a crisis occurs when the supply of products and services in the economy is higher than the demand, that is, when Y is greater than PA in the formula above. When this happens, companies are able to sell less and accumulate product stocks. According to the Keynes model, the government should increase its expenses, "G" in the formula, being an active agent in the economy, while the other expenses (C - Household consumption and I - Private investment) are being reduced. By increasing government expenditures, G, your additional expenditures would provide for the creation of new jobs to increase household consumption (C) and private investment (I) related to projects associated with government spending (G). This would again generate an increase in aggregate demand (PA). This theory revolutionized the way of thinking within the economy with the advent of the so-called Macroeconomics.

The Keynesian proposal has as a fundamental point to abandon the configurations assumed by the capitalist economy based on the classical liberalism, neoclassical liberalism formulated by the Austrian school and neoliberalism. According to Keynesian thinking, the fundamental premise for understanding an economy was found in the simple observation of the levels of consumption and investment of the government and companies and the consumption of families or consumers. Based on this principle, the Keynesian doctrine points out that at a time when companies tend to invest less, a whole process of economic retraction begins that opens the door to the existence of a crisis. For a crisis situation to be avoided, Keynesianism defends the need for the State to seek ways to contain the imbalance of the economy not admitted by the theories classical liberal, neoclassical liberal formulated by the Austrian school and neoliberal. Among other measures, governments should increase public spending by making investments that would warm the economy in general. At the same time, it was of fundamental importance that the government also granted low-cost credit lines, guaranteeing investments by the private sector. By promoting such incentive measures, employment levels would increase and, consequently, guarantee that the consumer market would provide real support to all this application of resources. In this way, the thinking proposed by Keynes radically transformed the role of the State vis-à-vis the economy, putting the old prospects of liberal and neoliberal "laissez-faire" in total disrepute.

It is worth noting that Keynes never defended the nationalization of the economy as it was done in the former Soviet Union. What Keynes defended was an active participation of the State in the economy in sectors that are necessary for the development of a country and that are not of interest or cannot be served by private initiative. It is not a matter of promoting competition between the State and the market, but of obtaining an adequate complement to the market, which, acting alone, is not able to solve all the problems in search of greater general efficiency in the Economy. Keynes's ideas advanced mainly after the Second World War when several countries began to adopt political systems with more state intervention, the creation of state-owned companies and public jobs, in an attempt to promote economic and social development and not suffer the consequences of an upcoming major crisis. The social democracy practiced in the Scandinavian countries (Sweden, Denmark, Norway, Finland and Iceland) is an excellent example of the successful application of Keynesianism whose countries are the ones that present the greatest political, economic and social progress on the planet.

The main characteristics of Keynesianism are, therefore, the following:

- Defense of state intervention in the economy, especially in areas where the private sector lacks capacity or does not wish to act.

 - Defense of political actions aimed at economic protectionism.

 - Action against economic liberalism.

 - Defense of economic measures of the State aimed at guaranteeing full employment. This would be achieved with a balance between demand and production capacity.

 - The State has a fundamental role in stimulating economies in times of crisis and economic recession.

 - State intervention must be carried out through the fulfillment of a fiscal policy so that there is no growth and uncontrolled inflation.

Most countries in the world that adopted the Keynesian model of economy started to face problems related to the doubling of the price of oil in the international market in the 1970s, the excessive elevation of the interest rates of the countries' external debt in the 1980s and the fall in economic growth, when Keynesianism came to be questioned. This situation has led several countries to insolvency, many of which have had to resort to the IMF to heal their economies. From this episode, Keynesianism should not be held responsible for the insolvency of national states. It happened because it was impacted by factors external to national economic systems, such as the steep rise in oil prices and interest rates.

The absence of global economic regulation contributed to the fact that the national Keynesian economies have suffered uncontrollable external impacts. These events demonstrate that Keynesianism in each country is not enough to ensure economic stability and obtain full use of the factors of production. Keynesianism needs to be applied globally to enable regulation of the world economy. Of course, there was also an excessive increase in public spending in some countries that contributed to one of the biggest criticisms against Keynesianism being related to the increase in the public debt of the countries due to the increase in the public deficit that was growing. In addition to public debt, the increasing intervention of governments with the execution of public works in an attempt to reduce unemployment has caused prices to rise with the consequent increase in inflation and a reduction in the purchasing power of workers.

Keynesian economic doctrine has been greatly weakened since 1990 with the advance of neoliberalism. The process of neoliberal economic globalization imposed, to a certain extent, on countries to adopt measures aimed at opening up the economy and little state interference. This meant the restoration of liberalism applied to the world economy and not just to each National State. Most countries in the world follow neoliberalism with its specificities in an attempt to recover their economies from the crisis they faced in the 1970s and 1980s by adhering to globalization and the free market economy. The result of neoliberal globalization has been devastating in the vast majority of countries in the world due to the increase in social inequalities, low economic growth and deindustrialization and, worldwide, the increase in the global imbalance in trade, savings and investment and excessive concentration of wealth. The world financial system is collapsing with the inevitable end of the dollar as a world reserve currency that is also driven by the possibility of the explosion of the United States public debt bubble and world debt.

Thomas Piketty claims in his book Capital in the twenty-first century (Cambridge: The Belknap Press of Harvard University Press, 2014) that social and wealth inequality have reached alarming levels around the world. Piketty demonstrated that there has been a steady growth in wealth inequality since the 1970s, contrary to the trend of the previous 60 years and much more pronounced and socially relevant than income inequality. From 1970 to 2010, the richest 1% (ruling classes) held half of all the world's wealth, while the poorest 50% (popular classes) held a mere 5%. The number of billionaires, according to Piketty, increased from 1,011 with a total wealth of US $ 3.6 trillion in 1970 to 1,826 with an aggregate value of US $ 7.05 trillion in 2010. In 2010, this group had almost the same as the poorest half of humanity. Five years later, it hoops more than triple. Social and wealth inequality around the world make neoliberal globalization unsustainable.

The failure of neoliberal globalization was materialized with the outbreak of the 2008 global crisis that occurred in the United States in the mortgage lending sector, which immediately spread to other parts of the global financial system, with a speed and breadth that surprised the market. The Asian Development Bank estimated that financial assets worldwide may have fallen by more than US$ 50 trillion - a figure equivalent to annual global production. The financial system has suffered losses on a scale that no one has ever predicted. The global financial system is collapsing with the inevitable end of the dollar as a world currency. In the international financial system led by the US dollar, the accelerated loss of confidence in this currency begins to happen. Data on foreign exchange reserves show a decrease in the role of the dollar. In 2018, the dollar's share of international reserves fell to 61.7%, which is the minimum level for the past 20 years. The prospects for the future are of accelerated monetary inflation in the United States, followed by an international monetary collapse.

The abandonment of the dollar as a world reserve currency is also driven by the possibility of the explosion of the United States public debt bubble that will reach 140% of GDP by 2024. The forecast of the United States Congressional Budget Department is that the deficit this year's fiscal year is US $ 897 billion and, in 2022, exceeds the trillion mark. According to the report by the Institute of International Finance, the global debt has increased to US$ 255 trillion. This is a record amount more than three times the world GDP. When this multi-trillion dollar bomb planted under the world economy explodes, the crisis will be worse than that of 2008. If the global economy is unable to digest this huge debt, the subsequent crisis will lead the world to economic depression, poverty en masse, geopolitical instability, political unrest and wars.

In the face of the chaos that already dominates the world economy, which tends to worsen, the time has come for each country and humanity to equip themselves as urgently as possible with the necessary instruments to control their destiny. The solutions to problems related to the ruin of the world economy basically consist of: 1) establishing a stable international financial system not subordinated to financial capital; 2) replace the dollar as a world currency; 3) avoid the explosion of world debt; and 4) abandon the neoliberal economic model.

The establishment of a stable international financial system that is not subordinated to financial capital, the replacement of the dollar as a world currency and the effort to prevent the explosion of the world debt will only be possible with economic ordering at the world level based on neo-Keynesianism, which, in addition, would eliminate global economic chaos. Neo-Keynesianism, a term coined by Paul Samuelson in 1997, is alternative economic thought to neoliberalism. Joseph Stiglitz, Nobel Prize in Economics, is a neoKeynesian economist in contributing to the emergence of a current of thought that has been called new developmentalists. Paul Krugman, another Nobel Prize in Economics, is also neo-Keynesian. In general, the Neo-keynesian school defends the market economy where there is minimal regulation of the economy by state-controlled regulatory bodies and agents to correct market failures, in order to maximize the benefits for society, in addition to aligning a state welfare policy based on the bias of social liberalism.

The Neo-Keynesianism that I defend would operate not only at the national level to obtain economic stability and the full use of factors in each country, but also at the world level to eliminate the global economic chaos that currently prevails with neoliberalism. Neo-Keynesianism means the adoption of Keynesianism at the planetary level in order to ensure economic stability and the full use of factors globally. Neo-Keynesianism would be the result of the coordination of Keynesian economic policies on a planetary level that would only be achieved with the existence of a world government. This would be the way to regulate the world economy to eliminate the chaos that characterizes neoliberal globalization. This would be the way to avoid a repetition of what happened in the 1970s and 1980s when the absence of global economic regulation contributed for the national Keynesian economies to suffer uncontrollable external impacts. These events demonstrate that Keynesianism in each country is not enough to ensure economic stability and obtain full use of the factors of production. Keynesianism must be applied globally. The elimination of chaos or mitigation of instability and uncertainty with its turbulence and risks in the world economy will only be achieved with the existence of a world government that would act to ensure coordination between the Keynesian economic policies adopted in each country. In the contemporary economic environment, it has become commonplace to speak of market turbulence and instability, such as what happened in 2008 with the crisis of the world capitalist system that affected all countries and companies. In order to be effective, the world government must adopt the Keynesian planning process of the economy that contributes to eliminate instability and uncertainty with its turbulence and risks.

The abandonment of the neoliberal economic model should happen in each country with its replacement by social democracy in Scandinavian molds because it is the most successful model of society in the world that is characterized by the combination of a broad Social Welfare State with strict regulatory mechanisms of market forces based on Keynesianism capable of putting the economy on a dynamic path. The Nordic or Scandinavian model of social democracy could best be described as a kind of compromise between capitalism and socialism, the attempt being to merge the most desirable elements of both into a "hybrid" system. The choice of Scandinavian social democracy as a model of society to be adopted is due to the fact that the UN World Happiness Report 2013 shows that the happiest nations in the world are concentrated in Northern Europe, with Norway at the top of the list among the Scandinavian countries.

* Fernando Alcoforado, 80, awarded the medal of Engineering Merit of the CONFEA / CREA System, member of the Bahia Academy of Education, engineer and doctor in Territorial Planning and Regional Development by the University of Barcelona, university professor and consultant in the areas of strategic planning, business planning, regional planning and planning of energy systems, is author of the books Globaliza??o (Editora Nobel, S?o Paulo, 1997), De Collor a FHC- O Brasil e a Nova (Des)ordem Mundial (Editora Nobel, S?o Paulo, 1998), Um Projeto para o Brasil (Editora Nobel, S?o Paulo, 2000), Os condicionantes do desenvolvimento do Estado da Bahia (Tese de doutorado. Universidade de Barcelona,https://www.tesisenred.net/handle/10803/1944, 2003), Globaliza??o e Desenvolvimento (Editora Nobel, S?o Paulo, 2006), Bahia- Desenvolvimento do Século XVI ao Século XX e Objetivos Estratégicos na Era Contemporanea (EGBA, Salvador, 2008), The Necessary Conditions of the Economic and Social Development- The Case of the State of Bahia (VDM Verlag Dr. Müller Aktiengesellschaft & Co. KG, Saarbrücken, Germany, 2010), Aquecimento Global e Catástrofe Planetária (Viena- Editora e Gráfica, Santa Cruz do Rio Pardo, S?o Paulo, 2010), Amaz?nia Sustentável- Para o progresso do Brasil e combate ao aquecimento global (Viena- Editora e Gráfica, Santa Cruz do Rio Pardo, S?o Paulo, 2011), Os Fatores Condicionantes do Desenvolvimento Econ?mico e Social (Editora CRV, Curitiba, 2012), Energia no Mundo e no Brasil- Energia e Mudan?a Climática Catastrófica no Século XXI (Editora CRV, Curitiba, 2015), As Grandes Revolu??es Científicas, Econ?micas e Sociais que Mudaram o Mundo (Editora CRV, Curitiba, 2016), A Inven??o de um novo Brasil (Editora CRV, Curitiba, 2017), Esquerda x Direita e a sua convergência (Associa??o Baiana de Imprensa, Salvador, 2018, em co-autoria) and Como inventar o futuro para mudar o mundo (Editora CRV, Curitiba, 2019).