“Strong and stable” seems of a world so far, far away. The recent Daily Mail headline “PM slaps treacherous Chancellor down” portrays a government in political chaos. Thanks to open, unresolved intra-Brexiteer warfare, ministers are unable to agree the basics of how to exit the European Union. This state of uncertainty intensifies just as the risks to British jobs and living standards are becoming starker and more potent. Ironically, just as we teeter towards the cliff, ONS data reveals that exports of goods to the EU grew over the last three months, while those to the rest of world fell back, a fact not devoid of dark humour.
There is no doubt that the current institutional architecture of the Eurozone and the austerity policies implemented in recent years are irrational - leading to very significant increases in unemployment, waves of business failures, a drop in the growth rate and increases in the public debt/GDP ratio, not only in Italy.
The question, however, is whether or not it is advantageous for a single country to go back to its own currency and, more generally, whether the question of a potential return to the lira is actually relevant.
The shadow money banking system in its use of continuously repriced collateral is reliant on opacity, leverage and global interconnectedness. It is therefore highly pro-cyclical. Will the next systemic crisis occur when markets lose confidence in the 'fair valuation' of collateral used in shadow banking?
We know that the UK economy has remained in a rut, plagued by foolish austerity and declining real wages, since the great financial crisis.
So I thought it might be interesting to look, in a simple way, at the performance of a set of mainly developed economies, in Europe and a few from other parts of the world, and compare their progress – or lack of it - over the 10 year period 2007 to 2016. And then see where the UK sits in comparison with others.
This time, I want to talk more about the political economy.
I think the headline mostly gets at what I am going to say. We are only seven months into Donald Trump’s presidency. And I think we can call it a failure. I’ll have a lot more to say on that momentarily. But I want to flag this as not being a dealbreaker for the US or global economy.
The major point I was trying to make in my article was that the real improvements in poverty reduction, as well as in life expectancy and many other fields, do not depend wholly on economic policies, but also on the role of fossil fuels, and on scientific, medical and other advances, which, other things being equal, should accelerate in impact across time and space. Hence the fact that the rate of improvement is in the form of a curve, not a purely linear effect. These improvements have taken place under different economic systems, and are not a function of neoliberalism or “global markets”.
Disillusionment with democracy is fuelled by the belief that social democratic politicians could not, and would not protect populations from the catastrophic impact of market forces after the 2007-9 financial crises. The political class appeared unwilling to restrain or tackle (through regulation) the sustained rise, and then implosion, of excessive private debt-creation by bankers and financiers, which in turn was used for reckless property speculation.
Neoliberalism’s finance-driven model, beset by rising crises since the 1970s, properly derailed in the crash of 2007 – 08. Then, the greatest exponent, Alan Greenspan, chairman of the US Federal Reserve, had a brief moment of enlightenment and appeared to renounce his faith in the invisible hand of self-interest, saying he’d, ‘discovered a flaw in the model that I perceived is the critical functioning structure that defines how the world works.’ Private finance was revealed as a froth that sat on the foundations of public guarantee. I tell this story and the tale of alternatives in a new collaboration with the playwright, Sarah Woods, in Neoliberalism - the Break-Up Tour.
PRIME (working with the New Weather Institute) organised an event at the TUC to commemorate the day - 9th August, 2007 - that inter-bank lending froze, central banks came to the rescue, and the Global Financial Crisis began in earnest. We will be publishing transcripts and notes from that event, chaired by Ann Pettifor and with contributions by Frances Coppola, Professor Daniela Gabor and Andrew Simms of the New Weather Institute. We will shortly publish articles written before August, 2007 that warned of the forthcoming crisis. To begin the series, we are posting a longer version of an article written by Ann Pettifor and published in Red Pepper on 8 August, 2017 - The economic crash, ten years on.
On 30th June 2016, just one week after the EU Referendum, I wrote this:
It has swiftly become clear, if it were not already so, that neither the government nor the leaders of the Brexit campaigns had anything resembling a plan for what to do if the people voted in favour of leaving the EU.
Alas, over a year later, there is still no plan – and awareness that the Conservative government has simply dumped us here without any idea what to do next is becoming overwhelming.
So we badly need a transitional deal - but what kind?
Total global debt has increased, growth has been slowing down since the onset of the global financial crisis in 2007 and has been rapidly decelerating after 2012. This may be a sign that the world has arrived at its debt carrying capacity or has even crossed it, meaning that capitalism is probably already insolvent.
Publication this week of the Taylor Review of Modern Working Practices was followed on Wednesday by the latest monthly employment stats from the Office for National Statistics (ONS). These tell us that the number of those in work continues to rise significantly, but that real wages are falling at their fastest rate for nearly 3 years. Yet the CBI claimed in its submission to Taylor that over decades, the UK's flexible labour market has given rise to strong growth in real wages. In fact, the opposite is true.
In June, the Bank of England dictated to the banks in its jurisdiction that they must hold more capital - £11.4 billion more – in reserve in preparation for the anticipated bursting of the growing consumer credit bubble that is undoubtedly forming. In light of this, this post seeks to answer a question posed in the British media recently – can the Bank get Britain to kick its cheap credit habit? – by discussing the societal issues that are affecting the expansion of the bubble.
Britain's total public debt has risen under George Osborne. Does this mean that the British government cannot borrow any more? That increased spending financed by the issuance of government bonds or gilts, will worsen the public finances?
My answer to that is No, No, No. Here is why:
If all five million public sector workers were granted a pay rise of 3%, the EXTRA cost to the Treasury - over and above the government's already-promised 1% - would be just over £3 billion a year. This is not a generous pay rise. It would enable public sector workers to just keep up with inflation. In other words, it would prevent inflation eating into the real value of their pay rise. It would not compensate for years of cuts in real wages.
Last week a cross-party group of MPs tabled an amendment to the Queen’s Speech calling on the government to commit to staying in the EU single market. As a result of their support for the unsuccessful amendment, three Labour shadow cabinet members were forced to resign.
The amendment revealed a possible confusion by its supporters about the nature of the single market and the European Union.
The EU’s hugely complex banking resolution framework is generally supposed to have one key goal – to ensure that failing banks are ‘resolved’ without recourse to public bail-outs, thereby breaking the link between banks and sovereigns… The reality, we have seen today, is quite different – and, it seems, legal.
The EU can just about argue that technically, the rules have not been broken - but overall, the appearance is of a policy in logical disarray once again.
What has the horror at Grenfell Tower to do with economists? And what have the lives lost at Grenfell Tower to do with the government’s budget deficit? A great deal, I will argue here. When on Twitter a few days ago I raised the issue of the shared responsibility that economists have for this ghastly tragedy, I was attacked. So let me explain.
Labour’s shock success in the “snap” general election left poll takers more than slightly embarrassed (except YouGov and Survation), and political commentators scrambling to cover their backsides. In their struggle to adjust to a resurgent Labour Party led by the “unelectable” Jeremy Corbyn, the nominal progressives among the pundits provided a textbook guide to the difference between centrist neoliberalism and social democracy.
The agenda of austerity economics is supplemented with the sale of public assets via privatisation programmes. Neoliberal dogma argues that this ‘structural reform’ aims at ‘reducing the government’s deficit and debt’ and to induce ‘competitiveness’. Orwell would have been impressed by this exercise of doublespeak.