According to Tom O’Leary the underlying aim of austerity has been to restore business profits, by putting downward pressure on wages, and reducing taxes on business and the rich. But while wages have stagnated, profits have not recovered significantly. As profits lead investment, growth in the latter has been weak, and the basis for an improved growth performance and living standards has so far failed to materialize.
Those on the right would respond to this by engaging in deregulation and further austerity, which might include reducing workers’ rights and environmental protections, and deepening cuts in public spending and taxes. Such policies would be short-sighted and damaging. Those on the left would favour a large increase in public investment in order to ‘crowd in’ private investment. This could be far more beneficial, as growth in public investment has been weak for years, while the burden of regulation remains relatively low internationally. But at the moment the UK has an unassailable right wing government too distracted by Brexit to engage in such a progressive agenda. Continue reading →
“The outstanding fact is the extreme precariousness of the basis of knowledge on which our estimates of prospective yield have to be made. Our knowledge of the factors which will govern the yield of an investment some years hence is usually very slight and often negligible. If we speak frankly, we have to admit that our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner, a building in the City of London amounts to little and sometimes to nothing; or even five years hence. In fact, those who seriously attempt to make any such estimate are often so much in the minority that their behaviour does not govern the market.”
John Maynard Keynes (1936), The General Theory of Employment, Interest and Money, Ch.12, p.149
A useful piece by Geoff Tily, senior economist at the UK’s Trades Union Congress, on the persistent imbalances in the economy. In brief, growth remains too reliant on debt-fueled consumer spending, and private investment has been very weak, and even declined overall in 2016. If these trends continue, productivity growth will also continue to be weak, as it is productive investment that drives it.
While the employment performance has been impressive since the end of the recession, wages have largely stagnated. The prospects for a growing economy seem to rest on rising employment, and since the employment rate is already high, this will ultimately require continued substantial net immigration. Continue reading →
Economist Michael Kitson dispels some myths about public and private debt and discusses the importance of public investment in new technologies. This video is especially relevant to today’s world of largely sluggish growth in output and productivity. Some of these ideas might help the world economy, and particularly the UK, to do a little better.
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 →
“[W]hen organised effectively, the State’s hand is firm but not heavy, providing the vision and the dynamic push (as well as some ‘nudges’ – though nudges don’t get you the IT revolution of the past, nor the green revolution today) to make things happen that otherwise would not have. Such actions are meant to increase the courage of private business. This requires understanding the State as neither a ‘meddler’ nor a simple ‘facilitator’ of economic growth. It is a key partner of the private sector – and often a more daring one, willing to take the risks that business won’t. The State cannot and should not bow down easily to interest groups who approach it to seek handouts, rents and unnecessary privileges like tax cuts. It should seek instead for those interest groups to work dynamically with it in its search for growth and technological change.”
Mariana Mazzucato (2013), The Entrepreneurial State
Yanis Varoufakis is a well known left wing economist who had a brief and frustrating stint as finance minister of Greece last year. In these short videos he talks about the prospects of reforming global capitalism from below, and how to bring back prosperity to the European economy.