Posts Tagged ‘darling’

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Peering into the gloom

January 25, 2010

Alex Callinicos has provided a brief summary of the state of the world economy, as revealed in recent statistics:

The National Institute for Economic and Social Research (NIESR) released its estimate for Britain’s Gross Domestic Product (GDP). It noted, “GDP fell by 4.8 percent in 2009. This is a bigger fall than in any year of the Great Depression and is Britain’s biggest contraction since 1921…

“The broader picture of the depression is that output fell sharply for 12 months until March and has not changed very much since then, although evidence of a recovery is starting to emerge.”

In other words, the British economy shrank more last year than it did in any one year of the Great Depression of the 1930s.

Callinicos also notes, however, that the future courses of the British and world economies are ‘shrouded in obscurity’.

He’s right to point out the uncertainties. What has happened in the recent past is, by itself, no guide to the future – as Gordon ‘no return to boom and bust’ Brown has discovered. The red faces in the economics mainstream tell their own story.

Nonetheless, stepping back from the statistical picture, it is possible to discern some shapes.

The most obvious is the pressure on the British economy from the vast costs of bailing out the financial system. Any attempt to substantially repay this borrowing within either the four years that Alastair Darling has offered, or the shorter timescale favoured by the Tories, will drag down the rest of the economy.

It represents a huge transfer from those spending money – either us as taxpayers, or the government through services – to those who save money: from those keeping the economy moving, to those hoarding cash.

Both the main parties are committed to repayment, squeezing workers and public services to please the financial markets. But repaying the debt does not necessarily benefit British capitalism in general. Other sections of capital need a robust domestic market to sell their products to – especially if markets overseas remain depressed, and competitive. Most UK companies do not export. If their domestic market is squashed by rising taxes or public spending cuts, they are in trouble.

So whilst all sections of British capital have a belief in the general necessity of keeping the financial markets sweet, the rate at which that debt should be repaid is a different matter.

Too fast, and domestic demand is squashed. Too slow, and the financial markets get jumpy. No-one can know for sure the best rate. And the different sections of British capital all have their own idea.

As the crisis revealed, no major part of British capitalism is prepared to countenance radical steps to overcome this dilemma – Adair Turner’s remarks notwithstanding. When the City of London was on its knees, the priority on all sides was to help it to its feet, through bailouts. No effort was made to seize the economic reins from the City.

Because the banks and the financial institutions were bailed out, and because there has been no real international agreement on how to discipline them in the future, they are liable to behave in exactly the same way as before: taking risks that could undermine the whole economy.

Combine this with the uncertain rate of debt repayment, and you have the potential for major instability. That’s even before considering the potential for resistance to major cuts. Whichever government is in place could run into a brick wall of opposition.

There is a way out of this bind. But it would mean posing a serious economic alternative to the domination of the City. It would mean building a movement able to do this.

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A Very British self-pity

June 29, 2009

Chris Mullin, MP for Sunderland South, author of A Very British Coup, writing in the London Review of Books, myopically unable to conceive any (Labour) MP had done anything much wrong in the expenses scandal:

The damage is incalculable. Not just to us, but to the entire parliamentary system. We are sinking in a great swamp of derision and loathing. No matter that the guardians of public morality at the Telegraph appear to have paid a large – and so far undisclosed – sum of money for discs that seem to have been stolen, open season has been declared on we wretched, despised servants of the people.

Self-pitying whinging aside, the sheer blinkeredness of Mullin – and close to every other MP asked to comment on the issue – reminds me of the standard Labour Party reaction to the Iraq protests.

Opposition to the war on Iraq, we were told, was just a problem of communication on this one issue; that voters were otherwise happy; that the Parliamentary system was fundamentally sound. New Labour loyalists either could not or would not grasp that the ferocity of the opposition to the invasion was the bubbling to the surface of many, other, much deeper-rooted discontents: with Labour’s steady abandonment of its core support; with the ill-concealed contempt Westminster held for opinions in the rest of the country; and with the casual, blase attitude to the truth Blair and Campbell evinced, in particular. All these separate complaints and irritations fuelled the anger. Underneath it all was a withering of political legitimacy in this country – as noted by the unjustly (if predictably) ignored Power Inquiry.

That withering has become a near-collapse, in the wake of economic crisis. Scarcely an institution exists  that has not been damaged in the last eight months: the police, the City of London, Parliament, the Treasury: either directly, or indirectly, the economic crisis has had extraordinary political effects.

(The last of the above, for many reasons, interests me especially: from secretly running the country under Brown, the Treasury  has been pushed into a  position of  what must be almost unprecedented weakness – certainly nothing like this has been seen since the war. Take Mervyn King’s continued insubordination, for example, unthinkable even a few years ago, “independent” central bank or not; whilst Darling and his mandarins have been wholly unable to prevent Mandelson creating a new super-department overseeing key economic functions.)

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The rift reopens

June 24, 2009

This is, in passing, another indicator that the economic crisis is far from resolved – and continues to produce sharp political disagreements:

Appearing before MPs at the Treasury select committee this afternoon, King rejected the chancellor’s budget forecasts, laid out in April, as too unambitious, saying that if the economy recovers as rapidly as Darling expects, the Treasury should act more urgently to bring borrowing down.

“We are confronted with a situation where the scale of deficits is truly extraordinary. This reflects the scale of the global downturn, but it also reflects the fact that we came into this crisis with fiscal policy on a path that wasn’t sustainable and a correction was needed,” he said.

Now King and Darling have squabbled before: the Treasury taking a broadly “Keynesian” line  (maintain spending, print  money) and the Bank, true to form, sticking to its 1930s role as keeper of the Fiscal Orthodoxy: hammer spending, avoid printing money. Last time round, the Treasury won out: Darling pushed King and co back into their box, borrowing continued to rise, and the Bank of England was pushed into “quantitative easing”.

Given all the recent – and basically hopelessly optimistic – talk of “green shoots”, you might expect this political row would be contained. Far from it. It’s a measure of how severely screwed the British economy is, and how little anyone running the thing has a clue how to deal with it, that once more King is taking up  cudgels against the Government. (Of course, the risk with having a much-proclaimed “independent” Bank of England is that they may display some independence on occasion… but presumably Brown knew that, back in 1997.)

But the nearest available political alternative – George Osborne in No.11, a truly awesome thought – is hardly likely to inspire confidence, as S&P’s re-rating of the UK’s creditworthiness made horribly clear.

No, we’re screwed; shit creek minus paddle, with two different captains squabbling over the tiller. Time, perhaps, for a mutiny?