Heiner Flassbeck and Patrick Kaczmarczyk write that amidst global political and economic fragility, the downturn in the Germany economy adds to the uncertainty in a world that, as Paul Krugman put it, has a “Germany problem”. It not only raises questions and doubts over the future of the largest European economy but, …More …
Many of us in the UK are sick of Brexit, and it hasn’t even happened yet. We have been living through the Brexit referendum and its aftermath, Brexit as process, for more than three years. Keen political observers and pundits may be among those who are fed up, though they keep a closer eye on matters, and some of them have reporter’s duties to uphold.
One of the aspects of this whole business which is not often examined, with regards to Brexit and politics more generally, is the use and abuse of political rhetoric. I have chosen a few terms that are over-used by our politicians and try to unpick them below. Since they generally pass without question, and are key to how we are persuaded, or otherwise, I thought it would be a helpful exercise. This is part politics and economics, part semantics.
When others are trying to persuade us using rhetoric, one must keep in mind that words are not the same thing as that to which they refer. Words are not reality. Words are symbols used in communication to convey meaning. While it is both inconvenient and practically impossible to contest every word as it is uttered, it should be remembered that ideas and concepts, however we name or describe them, miss out much of the related information that we can potentially perceive with our senses, as well as much that we cannot.
Our sensory experiences are mediated by our nervous system and the ways in which it is structured and has learned to process information. We tend to believe that what we perceive is equal to reality, whereas whatever reality might be, it has been filtered by our often biased and very human brain. Snakes can perceive heat waves, allowing them to “see” in the dark. Humans perceive things differently. This does not make either perception the “correct” reality, rather each one is partial.
Following this digression, I discuss some of the language games of Brexit below. Calling them games may rather trivialise the serious issues involved, so please forgive me for that. Continue reading
In the short video below, Richard Koo, originator of the idea of balance sheet recessions, argues that the current global economic stagnation is largely due to private sector firms as a whole in most of world’s largest economies acting as net savers rather than net borrowers and investors, despite very low interest rates. This is weakening aggregate demand and is compounded by the failure of the other sectors in the major economies, namely households and governments, to compensate by borrowing and spending to counter this weakness.
Of course, the US government is running a budget deficit, which has sustained moderate growth there, but for the largest economies taken together, private sector saving is proving to be a drag on continued recovery.
Koo doesn’t go into the reasons for this behaviour, although he has argued elsewhere that the private sector in many countries is attempting to save in order to pay down high levels of debt, producing a balance sheet recession, or stagnation at best. Fiscal policies that boost demand as well as policies that increase private investment opportunities in general would help to counter this.
He also touches on the US-China trade war as adding to global weakness, and notes that it is unlikely to end anytime soon, due to the job losses in the US which decades of current account deficits have reflected. As Koo puts it, free trade has created enough losers economically to make it a political problem in the US, and one that contributed to the election of Trump.
Aside from the trade war, it is quite likely that rising inequality has contributed to global weakness. With much of the income from economic growth accruing to the already wealthy, who save a larger proportion of it than poorer groups, significant increases in consumption in advance of the financial crisis relied on higher household debt since it is less able to be supported by rising wages for the majority.
In economies such as Germany and Japan, the result has been weaker growth, rising public debt in Japan, and a soaring current account surplus in Germany, while in the US and UK the result has been higher household debt and current account deficits. These trends sustained each other for some time, but the resolution of such imbalances may well be the source of much of the current global turmoil which has followed the crisis of more than a decade ago.
This interpretation suggests a need for policies which reduce inequality and increase wages, boosting consumption in a more sustainable fashion, and therefore increasing private investment opportunities. Greater public investment in infrastructure would also help. In a number of countries this has been constrained by policies focusing on austerity and reducing public debt, which have in many ways proved economically and socially damaging.
Here is a compelling interview with political economist Mark Blyth, author of Austerity: the History of a Dangerous Idea, discussing his top five books on how the world’s political economy works. He includes works by Keynes, Polanyi, Hirschman and Moore.
I admit that of the five I have only read Keynes’ General Theory. I have also dipped into some of Albert Hirschman’s writings, though not these two. Even if you don’t plan to read them, the interview with Blyth is worth a look, as he summarises what he sees as the key insights from each of the five books.
Below is an excerpt from the beginning of the interview:
“Well…[the world’s political economy]…doesn’t work according to the textbooks. If you look at economic textbooks, the whole world is meant to work according to the logic of differential calculus; there are these reciprocal relationships – one side goes up and one side goes down. But deep within it there’s a paradox. On the one side you have Adam Smith, where everyone is pursuing their own self-interest leading to an outcome which is better than any of them could have intended. On the other, you have John Maynard Keynes. Today Keynes is thought of as someone who just talks about deficit spending and so on, but that’s just complete rubbish. Keynes’s central message is that individual rational action can be collectively disastrous. So, if you have a series of economic models in a text book where everything balances out, it’s much more attuned to the world working the way that Smith would like to tell us.”
By Daniel Gay and Kevin Gallagher
Few would deny that the international system governing the environment and economy is under pressure. Globalisation itself is wobbling, to the chagrin of governments in rich and emerging economies. What’s less talked about is the effect on the world’s 47 least […]
An interesting piece by John Weeks, Professor Emeritus of economics at SOAS, with insights on environmentalism as well as the impacts of neo-liberalism on public policy. An excerpt and link to the full piece below:
A central characteristic of neo-liberal ideology is to render contentious public policy issues apolitical. As I show in my forthcoming book, Debt Delusion (Chapters 6 and 7), misrepresenting economic policies as apolitical was central to the construction of the reactionary neo-liberal agenda. While the neo-liberal grip has weakened, especially over economic policy in Britain, it remains powerful. An outstanding example is the UK debate over membership in the European Union, which the centre presents as a choice between civilization and chaos.
‘The Glorious Thirty’ was originally coined by the French demographer Jean Fourastié in 1979 to describe his country’s unprecedented economic boom between 1945 and 1975. Lasting from the end of World War Two to the first oil shock of the 1970s, it saw growth in output, productivity, wages and consumption faster than before or since, and significant structural change, as resources moved from the agricultural sector and luxury artisan products towards industry.
France rapidly closed the gap in living standards with the US over the period, more or less matched West Germany’s performance, and overtook the UK. It managed an average growth rate of 5.1% throughout the 1960s.
This was in many ways the heyday of state intervention in the major capitalist economies, and the use of various forms of industrial policy was widespread. Post-war France, as elsewhere in Europe, required a major rebuilding of infrastructure and industrial capacity after the damage wrought by conflict. These included transport, the utilities, capital goods and heavy industry.
Beyond this, the government felt that a high standard of living and strong national defence to preserve relative independence required industrialisation. It was decided that this could not be wholly left to the uncertain outcomes associated with market forces. After the experiences of economic planning in many countries during the war, state intervention was felt to be both necessary and effective for the purposes of accelerating recovery while preserving freedom, democratic institutions and private property as far as possible. Continue reading