Posts Tagged ‘economy’


Keynes, “Keynes”, and Keynes

October 9, 2012

This was my reply to Tad Tietze’s note on the left and Keynesianism, over on Facebook, which followed a discussion about Syriza and its programme for Greece. It’s been suggested that it’s quite a useful summary of the left’s various confusions about Keynes, so I’m reposting it here – I think it can stand by itself:

The “confusion” Tad mentions is the one that, unfortunately, exists across the left and into wider society. It falls into at least three parts: first, over what anyone understands by “Keynesianism”; second, over what Keynesians themselves say; third, over what Keynes himself actually said or thought. The last, by itself, is of largely academic interest, but it tends to end up creeping into – and informing – the other two.

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No mass support for neoliberalism: the British Social Attitudes survey

January 27, 2010

Liam Mac Uaid has a downbeat post on the just-published 2009 British Social Attitudes (BSA) survey results. The BSA attempts, every year, to capture the British public’s feelings on a huge range of issues. Here’s Liam:

…neo-liberal values are gaining a real grip on mass consciousness. The authors say ”only two in five people (39%) now support increased taxes and spending on health and education,the lowest level since 1984 and down from 62% in 1997.” They add that “support for redistribution from the better off to those who are less well off has dropped markedly. Fewer than two in five (38%) now think the government should redistribute income from the better off to those who are less well off, down from half (51%) in 1994.” In a nasty Thatcherite echo[, a] minority of one in five (21%) think unemployment benefits are too low and cause hardship, compared with over half (53%) in 1994.

I think he’s got the wrong intepretation of the results. That shift on public spending has been taking place for nearly a decade, from a peak in 2002 when 63 per cent supported increased expendiute. But it’s not flipped over into support for axing public services. People want, instead, to maintain what they’ve got.

There is no mass support for Thatcherite spending cuts. Here’s what the report’s authors say:

Public support for increasing taxation and public spending is now at its lowest level since the early 1980s. 39% support this, down from 62% in 1997. Only 8% support cuts. The most popular view, held by 50%, is that spending and taxation levels should stay as they are.

Only 8 per cent of the population support cuts. That’s hardly compelling evidence of ‘neoliberal values’ gaining popular support. And it leaves 89 per cent wanting either the same spending levels, or an increase.

Set these broad-brush figures against more detailed work that finds over 70 per cent believing the gap between rich and poor is too large, or the 80 per cent wanting caps on corporate pay, and the situation is – at least – more complex than Liam suggests.

There’s no reason for complacency. Attitudes can shift. The Right is looking more organised. But the whiff of battles ahead should not mean conceding defeat now.


Financial Times uncovers anticapitalist mood

January 26, 2010

Opinon poll, Financial Times yesterday:

Three in four people want the government to go further in its crackdown on bankers’ pay and impose a cap on salaries, according to the results of the latest Financial Times/Harris poll.

Almost four in five said they agreed with the supertax on bankers’ bonuses announced by Alistair Darling, the chancellor, last month. But three-quarters of those polled said there should be an additional ceiling on pay.

Perhaps no great surprises, there. Investment bankers rank somewhere around bubonic plague and anthrax in the public’s affections at present. And it’s good to see such widespread aversion to fat corporate paycheques. Making a few pips squeak in a few bloated lemons with a new, higher rate of income tax would be both fair, and popular.

It’s the result the FT doesn’t comment on that is most interesting, however. From the graphic, thirteen per cent don’t just blame bankers for the crisis – the ‘economic system as a whole’ is at fault. That’s nearly six million voters nationally.

That doesn’t mean they’re all about to rush into the Left’s arms – blaming the ‘economic system as a whole’ is open to wide interpretation, left or right. But it does mean that an extraordinarily large number of people are open to the sort of system-wide critique an organised, effective Left can provide.


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.


Blip, blip, beeeeeeep

January 20, 2010

David Blanchflower, right again on the Bank of England’s ‘independence’:

The claim was that [central bank independence] would help bring macroeconomic stability and it seemed to have worked for a while, because inflation remained low for most of the next decade. But that was driven by cheap imports from China. When Tony Blair was asked recently in an interview at Columbia University what had driven the Great Moderation [ie the decade-long boom] he replied, “Luck”, and that seems about right.

It turns out that countries without an inflation target did just as well as those with one. And it didn’t protect us from the greatest economic shock of our lifetimes.

It’s not been clear, over the last year or so, that the Bank has exercised any meaningful ‘independence’ in any case. The Bank, and the Monetary Policy Committee, certainly gave the impression of being brought under the Treasury’s thumb. Not in itself a bad thing: the monomaniacal inflation-hunters on the MPC needed a sharp kick up the backside. It’s pity it had to be the nice people at HMT to do it; well, them and a recession so big that even the most myopic of latter-day monetarists managed to spot something was up.

The merest whiff of a glimmer of a faint hope of a recovery has, however, given at least one Committee member the excuse he needed to get straight back onto the inflation mainline, threatening interest rate hikes ahead of any meaningful improvement in the state of the economy. It’s not just as if the Great Depression never happened. It’s as if the last two years never happened.

The blip in prices upwards this month is likely to be nothing more than that: a blip, caused particularly by the reversal of the VAT cut. The biggest single risk to the UK economy remains that of deflation, with falling prices dragging down economic activity and pushing up the real burden of debts. But at least some of the MPC remain oblivious. Markets panic about inflation. And the MPC follows the markets.

Time to clip their wings. Close down the MPC, and put the Bank of England under democratic control; and, whilst you’re at it, why not do the same for the other nationalised banks?


Chasing inflationary ghosts?

January 15, 2010

Andrew Sentance, of what his former Monetary Policy Committee colleague Danny Blanchflower rather cruelly referred to as the ‘feeble six’ of MPC members, appears to have learned very little from the last 18 months:

A Bank of England policy maker has said that Threadneedle Street has done enough to lift Britain out of its deepest post-war slump and will need to consider raising interest rates this year if a recovering economy poses a threat to inflation.

…he warned that while the early stages of the recovery would feel “fragile and uncertain”, the MPC needed to be vigilant about the risks of igniting inflation.

“There will be quite a lot of spare capacity and slack to take up [as the economy recovers] but that is not the only influence on inflation. There are global influences such as oil and commodity prices and the impact of the exchange rate which can lead to speed limits for the rate of growth. The inflation outlook is not entirely driven by the level of the output gap.”

Formally, he is correct: the ‘inflation outlook’ is not entirely driven by the amount of spare capacity in the economy. It can be imported through a falling value of the pound, pushing up the price of imports. Or it could come in through rising prices of raw materials, like gas, oil and steel.

This is all true. But it severely understates three factors: first, the truly colossal, global scale of the deflationary pressures unleashed by the credit crunch. The losses for the banks were so huge that, even with the eye-watering dimensions of the government bailouts offered, they couldn’t have anything other than a major depressive effect on the economy. It is simply too optimistic to assume that this drag on the economy has now been overcome; banks are still essentially sitting on their bailouts, with US lending depressed and liable to choke off further in the UK.

Second, whilst there has been much hurrahing of late about an improvement in UK manufacturing orders from their depressed level, and some return, in some places, to growth in the housing market, the services sector – accounting for over 80 per cent of UK employment – remains depressed. The picture, at best, is too murky to make chirpy pronouncements like Sentance’s.

Third, and perhaps most fundamentally, the characteristic monetary feature of the last decade has been – away from asset prices, like the housing market, and some raw materials – not inflationary pressures on economies, but deflationary, as a transport and communications costs slumped, and the price of manufactured goods crashed through the floor. Central bankers, like Sentance, have persistently underestimated this, chasing inflationary chimeras – until, as in Sentance’s case, the debacle was upon them.

Inflation may yet return: we are in uncharted economic waters; the twin effects (amongst others) of quantitative easing and the appearance of China as an economic superpower are deeply uncertain. But a rerun of the bad old days, of central banks paranoiacally lurching after the ghosts of past inflation, will do little to help.


Basel, and spoiled brats

January 7, 2010

This from the FT:

The Bank for International Settlements will gather top central bankers and financiers for a meeting in Basel this weekend amid rising concern about a resurgence of the “excessive risk-taking” that sparked the financial crisis.

In its invitation, the BIS cited concerns that “financial firms are returning to the aggressive behaviour that prevailed during the pre-crisis period”.

This should surprise precisely no-one. To all intents and purposes, the bankers got away with it: they’ve been bailed out, and if the bonuses symbolise one thing – other, I suppose, than a breathtaking indifference to public hatred – it’s a return to normality. The status quo ante has been restored, at great expense.

The finance industry won’t learn any lessons from any of this; worse yet, the incentives to take exactly the same ‘excessive risks’ that forced the crisis last time have all been reinforced: like the proverbial spoiled brat, if you think  your doting parents will clean up after your mess, why would you do anything other than make yourself thoroughly obnoxious? Why not behave even more outrageously? The bankers can, and they probably will.