Germany needs to lead the Eurozone in a different direction
The Eurozone is mired in economic stagnation. While overall growth is positive, it remains too weak, at under 2%, to reduce unemployment to satisfactory levels, particularly in countries such as Greece and Spain. A lack of widely shared prosperity is undermining the legitimacy of the EU political institutions, but there seems to be no appetite in the ‘core’ Northern countries to change course. What to do?
Two weeks ago I discussed the apparently different cultural attitudes to saving and consuming in the UK and Germany in recent years, and drew the conclusion that these attitudes were driven by economic factors. It would benefit both nations if their economies ‘rebalanced’, and in opposite directions. This would involve Germans becoming more ‘profligate’ by reducing net national savings and the British becoming more ‘prudent’ by increasing net national savings. Continue reading →
In an often cynical world, standard ﬁnancial and macroeconomic quantitative models give people the beneﬁt of the doubt. Fundamental economic theory assumes the best of us, supposing that human beings are perfectly rational, know all the facts of a given situation, understand the risks, and optimize our behavior and portfolios accordingly. Reality, of course, […]
Robert Anton Wilson’s Prometheus Rising is a book which tries to make sense of how the human mind works, how to make it work better, and the implications for human development, from the past through the present to the future. It is in part a work of social philosophy, and is truly enlightening about humanity, containing plenty of thought-provoking insights. Here is one which I think is relevant to this blog:
“Welfare-ism, socialism, totalitarianism, etc. represent attempts, in varying degrees of rationality and hysteria, to re-create the tribal bond by making the State stand-in for the gene pool. Conservatives who claim that no form of Welfare is tolerable to them are asking that people live with total bio-survival anxiety and anomie combined with terror. The conservatives, of course, vaguely recognize this and ask for “local charity” to replace State Welfare – ie.,, they ask for the gene-pool to be restored by magic, among people (denizens of a typical city) who are not genetically related at all.”
This is surely right, but for me there is no alternative to some form of welfare state under capitalism, if some of its worst aspects are to be mitigated. Some sort of middle way is preferable to political extremes which have historically been associated with repression and a widespread disregard for human life in the pursuit of ideological purity. Continue reading →
An interesting post (link below) from Marxist economist Michael Roberts on the ‘zombie’ companies holding back economic growth across the rich world since the financial crisis. In short, many that would otherwise go bust are struggling on, just able to meet interest payments on their debt, since rates are so low, but unwilling to invest due to a low prospective return on their capital.
Roberts argues that for the average rate of profit for the whole economy to recover, the weakest and least productive firms need to fail, and resources (capital and labour) need to be reallocated to firms with brighter growth prospects.
If this happens, there is likely be some considerable short term pain in the form of rising unemployment in the midst of bankruptcy as economic restructuring takes place to restore average profitability across the economy.
Where I disagree with Roberts is in his solution to these kinds of problems under capitalism: socialist revolution and widespread central planning.
There are alternatives to this, which can mitigate some of the social pain of economic restructuring without necessitating socialism. Continue reading →
A letter from economist Steve Keen, and a brief discussion by Lars P. Syll, drawing attention to the importance of absolute advantage in international trade, rather than the traditional theory of comparative advantage which students are taught at school and university.
Dear President Trump, Plenty of people will try to convince you that globalization and free trade could benefit everyone, if only the gains were more fairly shared … This belief is shared by almost all politicians in both parties, and it’s an article of faith for the economics profession. You are right to reject it […]
Some more clear words of inspiration about the potential directions for capitalism from institutionalist economist Geoffrey Hodgson:
“Thatcherism was seen by many Marxists as the only rational response by the capitalists to the crises of the 1970s. Hence the viable choices were either Thatcherism or a workers’ revolution to overthrow capitalism.
This view was profoundly anti-institutionalist. An institutionalist would argue that there is no reason to presume that Thatcherism is (or was in Britain at that time) the only viable version of capitalism. There are other versions of capitalism, and these can begin to develop at any point in time. After all, there are manifest varieties of capitalism throughout the world. The consequence is that we do face very real choices, even within capitalism. We are not confined to these rather narrow political alternatives proposed by many Marxists: either socialist revolution or accept an extreme and exploitative version of capitalism.
In contrast, there is the possibility of a politics that engages with the present more directly. It talks about real, immediate alternatives and opens up areas for discussion. These areas would include, for example, about different kinds of market, different degrees to which the market may operate, different kinds of planning, the role and limits of the state, different planning agencies, a pluralism of structures and agencies operating at the economic level, different types of mixed economy and so on. This debate becomes possible once you escape from the false dichotomy of accepting either the most rapacious version of capitalism or socialist revolution. This dichotomy disables serious discussion and analysis about what is possible in the present.”
Geoffrey M. Hodgson (2006), Economics in the Shadows of Darwin and Marx
Nation states borrow to provide public capital: For example, rail networks, road systems, airports and bridges. These are examples of large expenditure items that are more efficiently provided by government than by private companies. The benefits of public capital expenditures are enjoyed not only by the current generation of people, who must sacrifice consumption to pay […]