Leaving the EU and Dani Rodrik’s ‘inescapable trilemma’

Rodrik-Unholy-Trinity-Political-Trilemma-World-EconomyThe deed is done. I have not posted much on the UK’s EU referendum in this blog, as despite casting my vote for us to remain in the EU, I feel that the latter is a deeply imperfect set of institutions and, within that, the structure and evolution of the eurozone have been very damaging to many of its members, not least economically, and in ways that have yet to be resolved.

I am posting a link here to a blog post from Professor Dani Rodrik of Harvard on what he calls the Political Trilemma of the World Economy. Although the post is from 2007, it offers a useful way to think about the relationships between globalization, democracy and the nation state. This of course applies to EU member states, who have pooled sovereignty upon the altar of deeper economic and political integration. It is worth a read.

To sum up, Rodrik says that we can choose two of three from (1) deep economic integration, (2) democratic politics and (3) national sovereignty. In the case of EU membership, we have (1) and (2) but have given up (3) to some degree. Continue reading

The tragedy of poverty in the US

screen_shot_2015-03-20_at_5.37.29_pmThe largest economy in the world. A technological leader in many industries. Land of the free. Despite all this, poverty in the US remains widespread, affecting about one in seven people, according to the International Monetary Fund (IMF) and as reported by the BBC here.

Growth by itself is not enough. If it is not more equitable and accompanied by rising productivity, then there is no scope for wages to rise even as profits are maintained. Without rising wages for the majority alongside continued strong employment growth, the most vulnerable will continue to face exclusion. No wonder populism and the rejection of some of the elements of globalization (free movement of goods, services, capital and labour) have been on the increase.

Reflections on ethics and the good society

599px-The_Blue_MarbleTony Lawson, a professor of economics and philosophy at Cambridge University, has researched and championed the role of social ontology, that is, the study of the basic subject matter and constitution of social reality, in economics. From a paper of his discussing the role of ethics, in which I found much of interest and inspiration, here are a few choice quotes, which are implicitly critical of mainstream economics and supportive of a different approach to economics as a truly social science:

“Generalised flourishing is…the basis of ethical thinking, the referent of the ethically good.”

“Human interests, the bases of our conditions for flourishing, that allow each to flourish, do not reduce to our preferences. Rather, each human being is a bundle of needs including those of realising various capacities, capabilities and so forth, where flourishing depends on the fulfilment of those needs…[these are] developed in specific historical and socio-cultural contexts. And all are in some ways subject to continuous transformation.”

“Human beings have evolved in communities where the survival and flourishing of each depends on the survival and flourishing of the community, and so ultimately of all others. Thus we are essentially, as a result of evolutionary development, beings whose ability to flourish is bound up with the ability of all others to do so. It is in the interests of each of us that others around us, and ultimately everyone, flourishes; this is so regardless of similarities and differences, so long as the necessary conditions of flourishing of any one is not necessarily undermining of the flourishing of others.”

“The ultimate ethical good is generalised human flourishing…the ethical goal of generalised flourishing will be of a form in which we flourish in our own very different ways; a situation in which the flourishing of each and any of us is a condition of the flourishing of all others…this…can be called the good society or eudemonia.”

“Given that there are obstacles blocking the achievement of any such good society…then action that can be considered derivatively as morally good or right is action oriented to removing such obstacles.”

“In the context of modern economics specifically, it seems especially urgent that we more clearly recognise and embrace the insight that rationality itself is not about adopting a narrow self-oriented individualism of the sort that populates modern texts but about acting as far as possible in ways that facilitate the flourishing of us all.”

Some limits to Keynesian policy

9780199390632Can Keynesian policies create full employment under capitalism? And what are the limits to such policies? Many economists in the Keynesian tradition, from Paul Krugman on the mainstream wing, to Wynne Godley and Marc Lavoie on the more left-wing heterodox one, have persistently argued that some mixture of monetary and fiscal policy should be used to manage aggregate demand and achieve and maintain full employment under capitalism. What this means in practice is subject to some debate: full employment is a more abstract idea than simply arguing over whether 3% or 5% unemployment represents what is ‘full’.

There have been periods during the history of capitalism across different countries and at different times when full employment has been achieved. The so-called Golden Age of Capitalism in the 1950s and 60s saw very low unemployment in much of Western Europe. Continue reading

The IMF changes its tune on neoliberalism (a little)

International_Monetary_Fund_logo.svgHere is a link to a recent article by IMF researchers which backtracks on some of the tenets of that institution’s policy during what could be called the neoliberal era. It makes for interesting reading.

In particular, they make the case for capital controls to stabilize financial flows in certain circumstances; for reductions in inequality through ‘predistribution’ or redistribution in order to promote more sustainable economic growth; and they cast doubt on the wisdom of austerity which aims to reduce public debt as a share of GDP through tax rises and spending reductions instead of simply through policies to promote growth.

The piece does not wholeheartedly reject neoliberalism. In fact the authors praise certain aspects of it, such as the role of the expansion of international trade in reducing poverty. But this seems like a small step in the right direction.

Paul Mason’s ‘postcapitalist’ future?

A short video of Paul Mason sharing some of his thoughts on the future of capitalism or what he calls in his 2015 book Postcapitalism. Mason was formerly economics editor for the UK’s Channel 4 News and before that the BBC’s Newsnight and now works freelance. He styles himself as a ‘radical social democrat’ and is definitely anti-neoliberalism. He predicts (or hopes) that the abundance of information in the modern world is unleashing a ‘third industrial revolution’. I have just started reading the book, and will share my thoughts on it soon.

Keynes speculating on economic and social possibilities

Economist John Maynard KeynesThe great man wrote a short essay, published in 1930, entitled Economic Possibilities for our Grandchildren, which can be found in the book Essays in Persuasion. In it he speculated on a time 100 years in the future (not so far from today) when the ‘economic problem’ had been solved, and the changes that this might bring about in human behaviour and society. Here is a short extract:

“When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues. We shall be able to afford to dare to assess the money motive at its true value. The love of money as a possession – as distinguished from the love of money as a means to the enjoyments and realities of life – will be recognised for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease. All kinds of social customs and economic practices, affecting the distribution of wealth and of economic rewards and penalties, which we now maintain at all costs, however distasteful and unjust they may be in themselves, because they are tremendously useful in promoting the accumulation of capital, we shall then be free, at last, to discard.”

Predicting the future is a difficult business, the moreso the further ahead we try and look. It seems that Keynes would have been disappointed with the world as it is today, in terms of the solving and transcending of the material or economic problem. In many already rich countries, overwork exists alongside unemployment and inequality. Some countries, few in number, have in recent decades made great strides in development and have joined the elite club of the richest. But poverty is still a major problem globally. It is not clear that the current orthodoxy and its influence on economic policy-making is sufficient to solve this in a sustainable fashion, in which the environment is protected even as humanity advances.

Workers’ rights and the European Union

workersA nice piece by Labour MP Hilary Benn, son of the late Tony Benn, on why ordinary workers, men and women, part-timers and full-timers alike, benefit from EU membership. Many Tories see labour market regulation as ‘red tape’ and a burden, and would happily sweep away workers’ rights and protections.

The claim is sometimes made that such regulation destroys jobs, but the UK already has one of the least regulated economies in the advanced world, whether one looks at labour or product markets. Despite that our productivity level remains relatively poor when compared with a number of EU member states, with little sign that we are catching up. Employment levels may be high and unemployment reasonably low, but in the longer term, it is productivity which determines living standards. Continue reading

Optimal investment and growth: why institutions matter

CentralKigaliHow much investment is optimal for sustained economic growth? Two recent blog posts present contrasting views on the answer to this question. The first, from Michael Burke on the Socialist Economic Bulletin, puts forward a simple theory: the greater the share of investment in GDP, the faster is economic growth, within certain limits. Furthermore, he argues that widespread economic stagnation in the growth of output and productivity among the richest countries today can be remedied by a large increase in public investment. In other words, the state can lead a recovery.

The second, by Michael Pettis on his blog China Financial Markets, discusses the role of what he calls ‘social capital’, or economic, social and political institutions in a broad sense. For Pettis, it is not enough for governments to enact policies which raise the investment share in output, if the institutional framework leads to it not being utilized effectively. If there is a high level of social capital, which might include levels of education, government competence, a lack of corruption, law and order, property rights etc, then policies which increase investment should have a better chance of increasing productivity and output. If these institutions are lacking, then more investment is not enough, and it will be used unproductively. Continue reading