Wednesday, May 1, 2013

May Day!

It would be difficult to imagine a worse May Day for the world's Producing Classes.  Minimum wages world-wide are inadequate to sustain any sort of reasonable life.  Working conditions are becoming increasingly lethal.  With a very few exceptions, the economies are at near depression conditions.  Unemployment levels are reaching 1930s levels.  Worst of all, most governments have been pursuing economic policies that are known to be contractionary—which means that no matter how bad things are today, they will almost certainly be worse tomorrow.

The great Veblenian insight was not that the Leisure Classes make their living through force and fraud.  That observation has been with us since the beginning of recorded time.  What Veblen added was the observation that the coin of the Leisure Classes realm was the desire (and skills) to be utterly useless.  And because social status was accorded to the useless and status emulation was a most powerful human motivation, the ethic of uselessness would spread into the ranks of even people who could not afford such a lifestyle.  Veblen would note that professors spent a major part of their incomes on trinkets and activities that would enhance their Leisure Class status.

What this means in 2013 is that even "left" political parties and the overwhelming majority of central bankers have no way of even thinking about the global unemployment emergency.  There are no major jobs programs.  The Leisure Classes cannot understand that work needs doing because in their world, useful work is damn near unthinkable.  For them, useful work is assigned to classes of people so low, they are barely considered human (even if that useful work is being done by the most educated people in society.)  Hell, in the Leisure Class world, even mechanical servants are considered beneath consideration—a sure sign of committed members of the Leisure Class is if they brag they have never read an instruction manual.

So the bright spot on the horizon this May Day is that at least the contractionary austerian economic policies are coming under fire.  This isn't the same as a huge financial commitment to building the solar society, but at least it smells like a start.  But you watch, if we suddenly find ourselves handing out cash in an effort to restart the economy, much of it will go to the Leisure Class buddies of the government and bankster types who run things now.  You can just imagine the torrents of Powerpoint presentations (now that the professionally useless are aware of the hazards of using Excel.)

Austerity opposition goes mainstream

Bad data, dodgy assumptions and a basic inability to use Microsoft Excel may have doomed the economic movement 

Austerity is collecting a lot of high-flying enemies these days. In the past month the manager of PIMCO, the largest bond-buying firm in the world, top figures at Blackrock, one of the most influential investment banks in the world, the President of the European Commission, Jose Manuel Barroso, and Martin Wolf, world-renowned finance commentator for the Financial Times, have all come out vigorously against austerity.

Meanwhile, a recent IMF report shows (again) in painstaking econometric detail that some of the most influential European research purporting to show the merits of “expansionary austerity,” and which showed up in ECB reports, basically cooked its books. Most embarrassing of all, a famous paper by Ken Rogoff and Carmen Reinhart, quoted by austerians as diverse as the EC’s Olli Rehn and the US’ Paul Ryan, has been shown to be based on bad data, dodgy assumptions, and a basic inability to use Microsoft Excel. Suddenly the sado-monetarists look less like a counter-revolutionary fiscal vanguard and more like petty crewmen busily rearranging their intellectual deck chairs while the rest run for the anti-austerity lifeboats.

For anyone who wants to know the origins and intellectual foundations of the wavering austerity crowd, Mark Blyth’s devastating new book, Austerity: History of a Dangerous Idea, is one-stop shopping. Unlike most previous critics, Blyth’s angle of attack is not rapier thrusts into the heart of this or that pro-austerity paper, it is an all-out, search-and-destroy mission against every argument these latter-day financial terrorists have mustered.

In quickfire succession, he first reminds us how the austerians radically misrepresent the past five years as a tale of public sector profligacy, rather than as a crisis originating in a private sector banking collapse. He then shows that the longer-term historical claim that deficit-spending just leads to hyperinflation and social instability is also bogus. Those chapters are worth it for the story he tells of Japan in the 1920s and 30s alone. The Japanese attempt to stay on the gold standard – austerity avant la lettre – led to an all out assassination campaign by the increasingly squeezed military against its own Central Bank and chief politicians. In this case, somewhat unintentionally, Blyth also reminds us that not all deficit-spending is created equal – fascist, military-Keynesianism is not exactly an attractive counter-ideal.

Finally, and most originally, Blyth excavates the historical origins of the “expansionary austerity” argument, which he discovers in two generations of postwar Italian “ordoliberals.” Ordoliberalism was originally a German theory of economic liberalism, which argued that markets are not self-regulating. A strong managerial state is required to create the institutional framework, maintain the competitiveness, and preserve the social order that capitalism requires, while never getting directly involved in directing investment and production.

In the hands first of Luigi Einaudi, Governor of the Bank of Italy and then President of the Italian Republic from 1948-1955, and then his disciples at the Bocconi School of Public Finance, most famously Alberto Alesina – currently Machiavelli to Mario Draghi’s Prince – ordoliberalism became an assault on the welfare state. Their argument for austerity, or “expansionary fiscal consolidation,” was a recent form of liberalism that reacted against the modern welfare state and that has attempted to replace it with a reorganized, more punitive, but just as strong and coercive modern state. Blyth, like others, makes short work of their arguments that you can cut your way to growth during a slump. But the deeper point is that the argument for fiscal consolidation was never just a value-neutral economic theory. It was a political project, springing from a particular vision of state authority, and one whose most important function is to reassure creditors that their claims will remain senior relative to those of, say, Latvian pensioners or American teachers. Bailout the banks, fine, but nobody else will be made whole.

If there is a lesson for the Left to draw from the book it is that it will no longer do simply to be anti-austerity. Austerity cannot go on forever, it is already failing economically, flagging politically, and Blyth’s book sounds its death knell. Of course, zombie economics and its theories can live a long afterlife, and it might seem premature to declare any kind of victory. But an anti-austerity position is increasingly becoming a mainstream position.

Bhaskar Sunkara’s recent suggestion that a reorganized Left can start with a strong anti-austerity program is an opportunity to clarify just how it differs from PIMCO and Barroso. Blyth’s book reminds us of at least a few points of entry for Left thinking. For one, the left-Keynesian argument is largely a story about a crisis in financial markets and the collapse of the Great Moderation. The appropriate response is seen to be a form of crisis-management – state spending to fill the gaps left by a balance-sheet recession, and a central bank policy of financial repression and monetary easing to inflate away all the bad debt. At some point, “things will get back to normal.”

But the singular focus on financial crisis does not adequately explain why there was so much “bubbliness” in the economy in the first place, why there was so much savings sloshing around in financial markets and could find no other sources of profit than currency, bond, and real estate speculation. In the mainstream literature, this is sometimes called the global savings glut. If there is a structural problem in capitalism as whole, which was concentrated and exacerbated by the growth of a shadow-banking system, complex interconnections of financial capital, and an intercontinental asset bubble, then crisis-management won’t bring us back to normal. It will create a new normal of very limited desirability.

Finally, it’s worth noting that the Keynesian approach is about one set of liberals saving capitalism from the pseudo-Leninist, things-must-get-worse-before-they-get-better, ordoliberals. Not only is it less well suited to deal with the underlying problem of structural reform, but it is not a fundamental challenge to control over production and investment. Here too, a left-wing anti-austerity project should have something different to say, but it hasn’t quite said it yet. Of course, these days, just arguing for full employment sounds radical, practically utopian.

But whatever mixture of reform and transformation the Left ultimately comes up with, the terrain of the ideological struggle is shifting. It is moving from pro- and anti-austerity to control over the terms of anti-austerity itself.  more

The Story of Our Time

By PAUL KRUGMAN  April 28, 2013

Those of us who have spent years arguing against premature fiscal austerity have just had a good two weeks. Academic studies that supposedly justified austerity have lost credibility; hard-liners in the European Commission and elsewhere have softened their rhetoric. The tone of the conversation has definitely changed.

My sense, however, is that many people still don’t understand what this is all about. So this seems like a good time to offer a sort of refresher on the nature of our economic woes, and why this remains a very bad time for spending cuts.

Let’s start with what may be the most crucial thing to understand: the economy is not like an individual family.

Families earn what they can, and spend as much as they think prudent; spending and earning opportunities are two different things. In the economy as a whole, however, income and spending are interdependent: my spending is your income, and your spending is my income. If both of us slash spending at the same time, both of our incomes will fall too.

And that’s what happened after the financial crisis of 2008. Many people suddenly cut spending, either because they chose to or because their creditors forced them to; meanwhile, not many people were able or willing to spend more. The result was a plunge in incomes that also caused a plunge in employment, creating the depression that persists to this day.

Why did spending plunge? Mainly because of a burst housing bubble and an overhang of private-sector debt — but if you ask me, people talk too much about what went wrong during the boom years and not enough about what we should be doing now. For no matter how lurid the excesses of the past, there’s no good reason that we should pay for them with year after year of mass unemployment.

So what could we do to reduce unemployment? The answer is, this is a time for above-normal government spending, to sustain the economy until the private sector is willing to spend again. The crucial point is that under current conditions, the government is not, repeat not, in competition with the private sector. Government spending doesn’t divert resources away from private uses; it puts unemployed resources to work. Government borrowing doesn’t crowd out private investment; it mobilizes funds that would otherwise go unused.

Now, just to be clear, this is not a case for more government spending and larger budget deficits under all circumstances — and the claim that people like me always want bigger deficits is just false. For the economy isn’t always like this — in fact, situations like the one we’re in are fairly rare. By all means let’s try to reduce deficits and bring down government indebtedness once normal conditions return and the economy is no longer depressed. But right now we’re still dealing with the aftermath of a once-in-three-generations financial crisis. This is no time for austerity.

O.K., I’ve just given you a story, but why should you believe it? There are, after all, people who insist that the real problem is on the economy’s supply side: that workers lack the skills they need, or that unemployment insurance has destroyed the incentive to work, or that the looming menace of universal health care is preventing hiring, or whatever. How do we know that they’re wrong?

Well, I could go on at length on this topic, but just look at the predictions the two sides in this debate have made. People like me predicted right from the start that large budget deficits would have little effect on interest rates, that large-scale “money printing” by the Fed (not a good description of actual Fed policy, but never mind) wouldn’t be inflationary, that austerity policies would lead to terrible economic downturns. The other side jeered, insisting that interest rates would skyrocket and that austerity would actually lead to economic expansion. Ask bond traders, or the suffering populations of Spain, Portugal and so on, how it actually turned out.

Is the story really that simple, and would it really be that easy to end the scourge of unemployment? Yes — but powerful people don’t want to believe it. Some of them have a visceral sense that suffering is good, that we must pay a price for past sins (even if the sinners then and the sufferers now are very different groups of people). Some of them see the crisis as an opportunity to dismantle the social safety net. And just about everyone in the policy elite takes cues from a wealthy minority that isn’t actually feeling much pain.

What has happened now, however, is that the drive for austerity has lost its intellectual fig leaf, and stands exposed as the expression of prejudice, opportunism and class interest it always was. And maybe, just maybe, that sudden exposure will give us a chance to start doing something about the depression we’re in. more

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