Although I wouldn’t call myself a socialist, I often read the blog Socialist Economic Bulletin, published but not written by the former Mayor of London, Ken Livingstone. Livingstone is currently embroiled in a media storm over alleged racist comments, which are nothing to do with the blog. What I want to focus on in this post is the emphasis in the economics of the SEB and many other left wing economists on investment as of paramount importance in the achievement of economic progress for the majority. What seems to stand out in such arguments is the focus on the amount of investment, to the neglect of its allocation. By contrast the right focusses on the superiority of the private sector, and neglects public investment when both are important.
The SEB is currently making the case that the UK’s poor economic performance in recent years, with weak growth in output and productivity, is due to insufficient private and public sector investment. It makes the case that a big rise in public sector investment in infrastructure will ‘crowd-in’ private investment. Continue reading →
“In the long run we are all dead”. This was part of Keynes’s famous quote used as part of an argument for proactive economic policy-making on the part of governments to improve the social outcomes of capitalist development.
In the aftermath of the Great Depression and the Second World War, governments across the world accepted the need for greater intervention in economic life. The form this took varied across countries, from industrial policy and demand management to cooperation between the government, management and trades unions, known as tri-partism.
Keynes had come to the conclusion that, even if there were economic forces that restored some kind of equilibrium after a shock to the system, these would work too slowly to maintain social stability, and even then may not lead to satisfactory outcomes in a democratic society. Continue reading →
Economist Richard Koo has become well-known through his promotion of the idea of ‘balance sheet recessions’. These occur after the collapse of asset prices after a financial bubble, which leaves many firms technically insolvent and forces the private sector overall to use its earnings to pay down debt rather than borrow to invest. This will lead to a deep recession in the absence of a suitably ambitious fiscal policy from the government, which is the only actor in the economy which can borrow and spend the savings of the private sector in this situation. Continue reading →
A brief excerpt from Capital Vol 1, on the dynamism of capitalist growth (what Marx and the classical economists called accumulation), and the necessary creation of surplus labour, the famous ‘reserve army’ of the unemployed, to long run development. It is ideas such as this and their appearance in reality which make me reluctant to fully embrace the Keynesian notion that full employment under capitalism can be both created and sustained:
“The mass of social wealth, overflowing with the advance of accumulation and capable of being transformed into additional capital, thrusts itself frantically into old branches of production, whose market suddenly expands, or into newly formed branches, such as railways, etc., which now become necessary as a result of the further development of the old branches. In all such cases, there must be the possibility of suddenly throwing great masses of men into the decisive areas without doing any damage to the scale of production in other spheres. The surplus population supplies these masses. The path characteristically described by modern industry, which takes the form of a decennial cycle (interrupted by smaller oscillations) of periods of average activity, production at high pressure, crisis, and stagnation, depends on the constant formation, the greater or less absorption, and the re-formation of the industrial reserve army or surplus population. In their turn, the varying phases of the industrial cycle recruit the surplus population, and become one of the most energetic agencies for its reproduction.” (Chapter 25, p. 785).
The writing is certainly powerful in places, and this short paragraph covers plenty of ideas: growth and business cycles, technological and structural change, and employment and unemployment. Marx was certainly not right about everything, but his extensive yet largely unfinished project should not be ignored by those wanting to understand the modern world, where it came from and where it might be going.
John Maynard Keynes, writing in his General Theory, claims that his theory was
“adequate to explain the outstanding feature of our actual experience; namely, that we oscillate, avoiding the gravest extremes of fluctuation in employment and prices in both directions, round an intermediate position appreciably below full employment and appreciably above the minimum employment a decline below which would endanger life …[and that] we must not conclude that the mean position thus determined by ‘natural’ tendencies, namely by those tendencies which are likely to persist, failing measures expressly designed to correct them, is, therefore, established by laws of necessity. The unimpeded rule of the above conditions is a fact of observation concerning the world as it is or has been, and not a necessary principle which cannot be changed (1936, p254).”
Thus he outlined the potential for his theory of effective demand to lead to policies which could improve the operation of capitalism and lead to persistently higher levels of employment. Continue reading →
The book, simply entitled ‘Capitalism’, is Professor Anwar Shaikh’s magnum opus, published this year. Shaikh is an economist working in the classical tradition of Smith, Ricardo and Marx, although he draws on others including Keynes, Kalecki and Sraffa.
He uses the book to critique both mainstream neoclassical economics, as well as much of the heterodox tradition and to construct a thorough analysis of the political economy of capitalism. I am about halfway through so far and it makes hugely compelling and informative reading.
Here is an interview with Shaikh by Marshall Auerback of the Institute for New Economic Thinking (INET), which is well worth a look.
The book contains a wealth of empirical evidence which is used to back up the theoretical discussion. Once I have finished it, I will aim to post on some of the content.
There is a series of lectures on youtube, covering the ideas contained in Capitalism, delivered by the author at the New School for Social Research. I have found these to be a very helpful companion.
More economic output is not always a good thing. This will come as no surprise to many from the green wing of politics, but it is often easy to forget that increased private sector activity may not be associated with increased economic and social welfare. Under capitalism, many of us, including economists, can forget that continued economic growth, punctuated by booms and recessions, is a relatively recent phenomenon in world history. It has not always been with us, and who is to say that it always will be?
As an example of rising private sector output and income resulting from damage, a simple example, relevant to current drivers all over the UK, is the phenomenon of potholes. Continue reading →
The putative ‘National Living Wage’ was introduced in the UK last week. That it is so-called is purely political, since the National Minimum Wage was introduced by the last Labour government in 1999. This version is significantly higher than the NMW, and its introduction has by-passed the independent Low Pay Commission and taken the name of the higher still ‘Living Wage’ which campaigners claim is a truer reflection of the minimum cost of living in the UK. True to form, the Chancellor George Osborne has turned it in to something more intensely political. It is notable that the Conservatives opposed the introduction of the NMW when in opposition, amid claims that it would cost millions of jobs. It has been a remarkable turnaround!
The NLW will apply only to employees over 25. It is being introduced gradually and is expected to rise to around 60% of median earnings by 2020, or £9 an hour.
Will Hutton gets passionate about the failure of laissez-faire ideology in UK economic policy-making. He harks back to the heyday of interventionism during World War II and the post-war period. Of course, the right likes to think of this as the time when the UK economy was in decline. In fact, we had full employment, no major financial crises and prosperity was more widely shared than before or since. Growth in output and productivity was only poor relative to our competitors in Europe and Japan, many of whom were rebuilding after wartime destruction and ‘catching-up’ with the technological leader, the US.
State interventionism and industrial policy in particular can work, but not always. One can always pick and choose examples to back up one’s argument. Continue reading →
The No. 5 blast furnace at Port Talbot Works, South Wales.
Is steel a strategic industry with an occasional need for state intervention to preserve it? The industry made headline news in the UK again this week, with the government struggling to come up with a coherent response to the prospect of thousands of job losses amid factory closures across the country.
The Economist magazine, true to form, is against some form of industrial policy, instead favouring labour market policies to help displaced workers to find new employment. It is right to say that imposing tariffs, which would require EU permission, would lead to higher steel prices than otherwise. Nationalisation or some form of subsidy would ultimately require higher taxes or public borrowing. But it fails to address the issue raised by Jeremy Corbyn, the leader of the Labour Party, of whether or not steel is a ‘strategic’ industry and how this might shape any policy intervention. Continue reading →