Covid-19 and creative destruction – Marx, Schumpeter and the role of the state

The impact of the uncertainty generated by Covid-19 and the subsequent lockdown in countries across the world has been devastating for economies and societies. There is more to come. The world economy was already struggling somewhat in 2019, with slowdowns in the US and China, the two largest economies. In fact, what was at best sluggish growth in output and productivity in many countries had been a feature of the decade or so which followed the financial crisis of 2008. The onset of the pandemic has hit already weak or fragile economies hard.

Keynes famously argued that the ‘animal spirits’, or waves of optimism and pessimism among businessmen potentially looking to invest, were a major factor in the determinant of growth and employment, and hence economic prosperity. Uncertainty about the future could lead to spending on new industrial capacity and jobs being postponed, driving the economy into stagnation or recession. It was the job of government, he said, to ‘socialise’ investment. In other words, through judicious policy choices, it should try to maintain optimistic expectations among businessmen and make sure that there were sufficient investment opportunities to keep spending, and therefore employment, at a socially optimum level. Continue reading

The political economy of the future: AI, Big Tech and humanity

Human-Intelligence-Can-Fix-AI-Shortcomings-1Peering into our technological future may seem a little inappropriate amidst the current global pandemic, but before Covid-19 had emerged, one of the major themes tackled by many scientists, economists and social theorists of both left and right had been the advance of technology, Artificial Intelligence (AI) in particular, and its potential impact on the worlds of business, the economy, politics and society.

The prospects of humankind given the inexorable march of technology typically range between a variety of utopias and dystopias. What will AI mean for productivity and living standards? Will it lead to a society of abundance with more leisure time than ever before for the majority? How about the distribution of income and wealth, the implications for democracy, and so on?

Four compelling books from 2019, written by, respectively, a computer scientist, two journalists and a maverick scientist and futurist, address some of these issues, from different perspectives, but with some overlap, particularly in terms of the necessary human response to the advance of AI. Continue reading

Coronavirus need not kill globalisation

599px-The_Blue_MarbleJack Gao writes on the Economic Questions blog here that coronavirus need not spell the end of globalisation. Indeed, as he concludes:

“a balkanized and disintegrated world is neither feasible nor desirable. The coronavirus does not have to kill globalization, instead, it is our chance to rebalance the world economy to better serve collective social goals and tackle future challenges as a coordinated global community.”

He hopes that the responses to the pandemic and its aftermath will lead to a more balanced form of globalisation which no longer prioritises “economic integration over public health, environmental, and climate concerns”.

Whatever the outcome, the global political economy will surely look very different. The pandemic has forced dramatic changes in social priorities across the world in record time, and ensuring better preparedness to respond next time (for there surely will be one, many even) will make this so.

There is a parallel here with Hyman Minsky’s quip which neatly summarised his theories, that ‘stability is destabilising’. He meant that the behaviour of private firms or households would respond to periods of seeming economic tranquility by taking on riskier financial positions, making balance sheets increasingly fragile, and setting up the economy for the next crisis.

This can also be applied in more general terms to governments as well as the private sector, putting a lack of preparedness for a crisis down to rising complacency as memories of the last one fade and new generations with no experience of severe crisis, of whatever form, take up influential positions in the economy and society. This will need to be applied to public health which, as we are discovering with renewed urgency, is a global public good requiring global cooperation as much as narrowly national responses. While national governments’ priority is to protect their citizens, this can only be achieved fully with substantial measures of global cooperation.

Historically, global cooperation in the absence of a hegemonic power, or at the very least, a crisis common to all, has been difficult. We have been living in recent decades with the rise of China as an economic superpower, even as the US under Trump is both reluctant to let this continue, and has in some ways been turning away from relatively consistent cooperation with traditional allies.

Each nation may plot a different path through this crisis, but with ever greater availability of information in many countries, governments and citizens have the opportunity to share and learn from each other more than ever before. Despite this, we also experience the scourge of misinformation, and uncertainty over which sources we can trust. At the same time, we are all subject to partiality, bias and particular beliefs which distort our vision of the world and prevent us from achieving a healthier understanding, in spite of information abundance.

John Weeks on the politics of environmental action

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 Politics of Environmental Action (full article) – via Brave New Europe


Industrial policy and the UK – the keys to success

An excerpt from a chapter by my old tutor at SOAS, Mushtaq Khan, who has written extensively on industrial policy in a range of late-industrialising countries, analysing case-studies with a range of outcomes in terms of development, successful or otherwise. Here he considers both the differences and the similarities with an industrial policy in the UK, which needs to innovate, rather than simply emulate already existing technologies and catch-up with the richest countries:

“For an advanced country like the UK, industrial policy clearly has to support both innovation and the development of competitive production capabilities that can convert ideas and knowledge into marketable products. There is no question therefore that industrial policy must have a focus on supporting innovation and the development of new knowledge. This involves investment in public bodies such as universities as well as in networks linking public and private players engaged in innovation. Countries such as the UK still have a lead over most emerging Asian countries in the organization of innovation, though there may be particular strategies of financing or organizing innovation that may be worth looking at. However, the second plank of any effective industrial policy has to be the development of competitive manufacturing capabilities so that good ideas and technologies can be converted into competitive products. Here the UK can learn a lot about the types of problems countries can face when they try to acquire (or, in the case of the UK, re-acquire) firm-level competitive capabilities. Britain’s gradual loss of manufacturing competitiveness after the Second World War was exacerbated after the 1980s in the context of rapid de-industrialization. The country lost much of the tacit knowledge embedded in the organizational routines of manufacturing firms, and as a result fell even further behind in terms of its capacity to regain a broad base of competitive firms. The experience of Asian industrial policy shows that the achievement of competitiveness in new sectors and technologies can be a difficult problem to crack. The two planks of industrial policy are closely connected because without a broad base of firms that can organize production competitively, a successful innovation strategy will simply result in the offshoring of manufacturing somewhere else.”

Mushtaq Khan (2015), The Role of Industrial Policy- Lessons from Asia, in David Bailey, Keith Cowling, and Philip R. Tomlinson, New Perspectives on Industrial Policy for a Modern Britain, Oxford University Press, p.80.

Invention, innovation and evolution

JamesLovelockJames Lovelock is a radical scientist and the originator of the Gaia hypothesis, the idea that Earth and its living, and non-living, inhabitants need to be viewed as a complex, holistic, self-regulating system. In his most recent book, A Rough Ride to the Future, he discusses such issues as his latest views on the evolution of humanity as part of Gaia, climate change, urbanisation, environmentalism and scientific progress.

Significantly, he is critical of the green movement and renewable energy, accepting the idea of climate change while arguing that many scientists’ models of it are flawed and potentially misleading.

He remains optimistic about the future of human life on Earth, while cautioning that we are unlikely to be able to stabilise the climate and prevent it changing. Continue reading

Michael Hudson on government

Another extract from the iconoclastic Michael Hudson’s J is for Junk Economics (p.109-110), in this occasional series:

Government: From the Greek root cyber, meaning “to steer,” this social control function historically has been provided by public institutions at least ostensibly for the general welfare. Sovereign states are traditionally defined as having the powers to levy taxes, make and enforce laws, and regulate the economy. These planning functions are now in danger of passing to financial centers as governments become captive of the vested interests. The FIRE (Finance, Insurance and Real Estate) sector and its neoliberal supporters seek to prevent the public from regulating monopoly rent, and also aim to shift the tax burden onto labor and industry.

The recently proposed Trans-Pacific Partnership (TPP) agreement and its European counterpart, the Trans-Atlantic Trade and Investment Partnership (TTIP), would compel governments to relinquish these powers to corporate lawyers and referees appointed by Wall Street, the City of London, Frankfurt and other financial centers. The non-governmental court would oblige governments to pay compensation fines for enacting new taxes or applying environmental protection regulations or penalties. The fines would reflect what companies would have been able to make on rent extraction, pollution of the environment and other behavior usually coming under sovereign government regulations. Making governments buy these rights by fully compensating mineral and other rent-extracting businesses would effectively end the traditional role of the state.”

The School of Life on capitalism

Another short video from The School of Life, this time on capitalism. I like this series, partly because their main focus is not so much on the pure economics of each subject, but instead covers some of the historical, political, social and philosophical aspects.

The video concludes by describing the mixed blessings of capitalism: its extraordinary productive capabilities on the one hand, and its frequent neglect of workers and provision of goods based on what is profitable rather on human need. But it ignores any kind of discussion on the solution to these dilemmas: should we reform the system, or encourage its replacement?

Finance, inequality, ecology – an interview with Steve Keen

A nice interview with post-Keynesian Professor Steve Keen, in which he discusses what are (or should be) some of the most important issues in modern economics.

He covers the role of finance and private debt in generating inequality and what can be done to reduce it; the idea and feasibility of a universal basic income; economics and planetary ecology; and the incorporation of energy into economic models.

Conventional economics: a severe form of brain damage – via Lars P. Syll

I’m extremely fond of scientists like David Suzuki. With razor-sharp intellects they immediately go for the essentials. They have no time for bullshit. And neither should we.

via Conventional economics — a severe form of brain damage — LARS P. SYLL