CHAPTER 1 – NEOLIBERALISM IS BROKEN
The Zombie System
Paul concludes this chapter by setting out a scenario for an escape for capitalism. Central banks withdraw from QE, and promise to raise interest rates, in the face of any future bubbles. I'm not sure what he means by the private market for government bonds having been suppressed, because one of the effects of QE was to also stimulate private sector demand for these bonds, given that QE made them a one-way bet. He goes on to describe the consequence being that the speculative bubbles burst, and finance flows towards productive investment, which is the scenario I have described many times.
I don't accept the need for pegged exchange rates, as Paul sets out on page 26, but its his scenario not mine. I don't see the removal of global imbalances that Paul then says would follow, as being a bad thing. Moreover, its wrong to think that China is dependent upon low wages. As I've written before, the road to development for Singapore and others ran though moving up the value chain, and encouragement of higher wages. The Chinese leaders seem to be pursuing a similar course. Higher wages promote innovation and higher productivity, as well as creating the basis for a domestic market. A higher currency reduces import prices to help constrain domestic inflation.
Paul says it makes a reversal of financialisation, and a move away from the banks and the politicians who support them. More importantly, it involves a move away from shareholders and the politicians who support them.
The problem is, Paul says, it would involve a huge write down of debt, and important vested interests would suffer significant losses. That's true, and its why central banks are being stretched on the rack. But, the reality is that either way interest rates will rise, as economic growth picks up, and it will. Governments cannot hold back growth further by yet more austerity. And, as rates rise, financial and property markets will crash with an explosion like Krakatoa. The question is to what extent the central banks can get ahead of the pyroclastic flow, by now getting as much of a head start as possible.
Nor do I agree with Paul that the implication of this is a breakdown of globalisation. This is not the 1930's. Trump, Orban, Farage et al, are a death spasm of Neoliberalism. In the 1930's, their fascist and nationalist equivalents were playing in to conditions of economic collapse. The opposite conditions exist today. The US already has labour shortages, Trump's import tariffs have already caused the price of US washing machines and other domestic appliances to rise by 19%! The US faces not stagflation, but Trumpflation, as the economy overheats in conditions of labour shortages, huge excess liquidity, and Voodoo Economics, creating Twin Deficits Crisis 2.0.
The UK has hidden unemployment, and underemployment, but it is suffering from decades of lack of investment in education and skills, as it focussed on building a low wage/low skill/high private debt economy. Brexit has already led to the appearance of huge staff shortages in the NHS, in the construction industry and so on.
The immediate impact of over 1 million refugees entering Germany has been to cause German GDP to rise sharply, as they all added to aggregate demand in Germany for goods and services. The EU economy is set to grow rapidly. If social-democrats across the EU and Britain get their act together, and stop pandering to bigots, these conditions can quickly undermine the proto fascists, and economic nationalists. It opens up the door for workers across the EU to refashion it as a federal state, returning also to some of those progressive social-democratic principles upon which it was founded. It would also, of course, be better if UK workers were also part of that struggle alongside them.
The UK has hidden unemployment, and underemployment, but it is suffering from decades of lack of investment in education and skills, as it focussed on building a low wage/low skill/high private debt economy. Brexit has already led to the appearance of huge staff shortages in the NHS, in the construction industry and so on.
The immediate impact of over 1 million refugees entering Germany has been to cause German GDP to rise sharply, as they all added to aggregate demand in Germany for goods and services. The EU economy is set to grow rapidly. If social-democrats across the EU and Britain get their act together, and stop pandering to bigots, these conditions can quickly undermine the proto fascists, and economic nationalists. It opens up the door for workers across the EU to refashion it as a federal state, returning also to some of those progressive social-democratic principles upon which it was founded. It would also, of course, be better if UK workers were also part of that struggle alongside them.
Paul repeats some of the forecasts of stagnation for the global economy up to 2060. But, as I said earlier, even now, those projections are out of date, and global growth is accelerating, employment is at high levels, wages are starting to rise, and new regions of the globe, such as Africa, are joining in. We have as I predicted, seen a cyclical slow down from the end of 2017, but that will end in the third quarter of 2018, leading to a much stronger period of global growth. Along with it will also disappear the conservative message and solutions being touted by all those stuck in the ideology of the last thirty years. The real flexibility and productivity miracle will come from the growth of industrial democracy, of workers taking back control of the means of production, and developing them on the basis of their endless ingenuity.
This post was well timed given Mason’s “brutal” embrace of social imperialism in his Open Democracy piece the other day, in which he bravely sacrifices the lives of people in ‘Bombay’ to the cause.
ReplyDeleteGiven also the social democracy in one country attitudes of Corbyn’s media allies like Bastani and co., the protectionism favoured by McCluskey, the drift against FOM, it looks like the leadership are heading in a grim direction.
We could do with a coordinated movement within Labour to Corbyn’s left that challenges this nationalist agenda and, as you’ve argued many times, calls for the reversal of Brexit. I was a bit slow to realise the rancid political logic flowing from a left anti EU stance.