Martin Wolf has an interesting article in the FT this morning. In it he argues that:
The persistent fealty to so much of the pre-crisis conventional wisdom is astonishing. The failure of Keynesianism in the 1970s was significant but certainly no greater than the combination of slow economic growth with macroeconomic instability produced by the pre-crisis orthodoxy. What makes this even more shocking is that there is so little confidence that we could (or would) deal effectively with another big recession, let alone yet another big crisis.
What explains the complacency? One reason might be the absence of good ideas. The economist Nicholas Gruen argues just that in a provocative article.
Gruen's article is also worth reading.
But what's surprising is Wolf's next comment, which is to suggest that there are some good ideas, such as:
Some have argued for a shift from debt to equity finance of house purchases. Others have called for the elimination of the tax deductibility of debt interest. Some note the perverse impact of executive incentives. Some argue convincingly for higher equity requirements on banks, rejecting the argument that this would halt growth. Others ask why only banks have accounts at central banks. Why should every citizen not be able to do so? Some wonder why we cannot use central banks to escape dependence on debt-fuelled growth.
There are links in the original. And I can't argue with many of the ideas in themselves. But are they the big ideas? The ones that will really rock the world? That will reorientate it on its axis so that 2007 is never on the agenda again, just as 1939 was no one's desire come 1945? I don't think so.
Wolf is right that there is a poverty of thinking. So was the anti-Corbyn MP who was noted in the Guardian yesterday saying that the reason Corbyn had done so well was that Labour's right-wing ‘were shit' at offering new thinking.
But isn't the reason obvious? Since 1979 we have lived in a world where simplistic thinking has prevailed. So, the market is good and state intervention is bad. The West is good; the East was bad. Growth is good. By implication, constraint for the sake of the future is bad, even if not stated. Choice is a virtue. Single best solutions are bad then, even when better. And so on.
This is the depth to which our poverty of thinking has fallen. Supported by economics so crassly simplified that it has no relationship to the real world, this polarised pattern of thought, which would be the clearest sign of potentially severe mental ill health if it was not so ingrained in the collective psyche to have been normalised, is what has destroyed our capacity to think our way out of where we are now.
And I mean that: polarity, where the answer is ‘either / or” with only one preferred option acceptable for anyone to supposedly choose, is an indication of an era when thinking ceased.
It's not just that we need new ideas in that case. We do need those ideas, of course. But we need a new lens through which to view them. Right now we are only presented with the lens of the market. Even Corbyn is doing that with his and John McDonnell's dedication to balanced government budgets Worse, we're only presented with the lens of a market that cannot, does not and never will exist because it's virtues can only ever be a theory never capable of translation to reality, even if that was desirable.
We have suffered from an era of Platonic thinking, where the illusion of a supposedly perfect, unreachable, form has led us down a very dark alley.
What we now need is a revival of Aristotelian ethics. We need to find the new Golden Mean.
The challenge we face is as philosophically basic as that.
And what would that mean look like?
It would search for economic truth based on observation, not abstract theory.
It would recognise what is good, including much of what the state does, and much of what business does too.
It would ask where the boundaries between state, market, communities, individuals and planet should be.
It would recognise our finite capacities.
It would recognise the dependency we all have on others, without exception.
It would value each other.
It would ensure each could tend in their own lives towards the mean so that they could be fully integrated into the society of which they are a member.
And it would view compromise as the greatest virtue.
That is the thinking we need.
Martin Wolf and centrist MPs aren't there yet. But nor are the left or right.
And that's why we're in a mess.
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Another idea or thing needed is for observations, or data collection if you like, to be taken away from the neoliberal elite. We have the highest tax burden as a % of GDP based on standard measurements, so the argument that since 1979 that markets have prevailed appears false. It is in fact the State that has been consistently nudging ahead, not every year, but most years since then, in the amount it spends and the degree of interference in our freedoms.
Or the health service which at the Nationalised level has record spending based on the data provided to us by the elites at the ONS etc.
The narrative then is that the State is winning the battle of the decades, and a start is needed on bringing in some restraint and letting markets have a few decades of incremental catch up. This is clearly wrong, but the data says otherwise.
A Cowperthwaitian dismantling of data collection is called for, as everything being gathered is only turned around and used against you.
How weird that the workers of many private enterprises rely on state welfare top-ups for a living income but hardly anybody in consequence views these businesses as quasi-state enterprises because horror of horrors the state’s involvement in free market capitalism is regarded as the kiss of death! It is sad to say that many accept this nostrum because they have the reasoning capacity of a gnat and that is perhaps being unfair to gnats!
Unfortunately nobody within any of the corridors of power is ‘there yet’. That’s the core of the problem, isn’t it. If we wait for the ‘thinking classes’ to have some kind of Pauline conversion then we’re well and truly stuffed. ‘Time and tide wait for no man’ – and the waters are rising exponentially fast. It’s crisis time but the general public seems blissfully unaware, or so it seems. Yet hope still springs eternal. But, as Chris Hedges says, to have hope first you have to get angry and not enough people are yet angry enough. However, if there’s no radical change within the foreseeable future they will. By which time the socio-economic-environmental problems will have worsened. Maybe it’s already too late: New Climate Study Warns of Dangerous ‘Hothouse Earth’ Scenario – https://www.youtube.com/watch?v=tXQrMPcsdQ8.
If only there was a glimmer of light …… Coffee time. Happy Tuesday!
I need coffee
MartinW emailed me with this when I queried him about MMT: “As to
MMT, I think that what they have got from Abba Lerner (functional
finance) is clearly correct. But they are, I think, too insouciant about
the manageability of the demand for money.”
Wow
That’s the exact opposite of the reality
He’s past his sell-by – has been for a long time.
Yes. Does he think that private banks are really good at managing this?
Martin Wolf talks about the manageability of UK money creation! He’s a hypocrite and needs to go! Since the early 1970’s there has been on and off hyper-inflation of house prices. This is a direct consequence of the slashing of social housing programme investment by corrupt/immoral Conservative and Labour governments together with a failure to keep private sector bankers on a tight home mortgage under-writing leash or indeed recognition government could take the punch bowl away and provide home mortgages directly.
http://www.theguardian.com/money/2016/mar/14/tony-cherie-blair-property-empire-worth-estimated-27m-pounds
I think you are spot on in that it is not an either/or choice. I guess I prefer pluralist thinking to Golden Mean thinking.
The market is very good at some things – my favourite example is real ale 😉
But very bad at others – health and education.
Which is pretty much the point that you make later on:
“It would recognise what is good, including much of what the state does, and much of what business does too.”
The major mistake that most politicians make is to think that the market solution is appropriate in areas that they have greatest potential to do some good.
Agreed
@ Charles Adams
The market is very good at some things — my favourite example is real ale But very bad at others — health and education.””
Strangely enough Deng Xiaoping thought the same. Which is why China passed the United States in 2014 in terms of being the world’s largest economy in purchasing power parity terms.
http://en.people.cn/90780/7719657.html
http://www.businessinsider.com/china-overtakes-us-as-worlds-largest-economy-2014-10
Oddly enough the UK briefly had a Deng Xiaoping economic system of fused command economy and free market capitalism for a few years after the Second World War. It was superior to the communist version because it was a social democratic one but monetary illiterate Labour Party politicians were allowed to weasle their way into positions of power and over time effectively destroyed the fused system. The moral of the story? Economic theory is critical and voters need to be persuaded to understand what the best system is before they cast their vote for a national government.
Well said
I have recorded a podcast on this theme tonight
Out soon
@ Richard Murphy
Well said. I have recorded a podcast on this theme tonight. Out soon.
Thanks. The way I see it Deng Xiaoping’s genius lay in understanding that free market capitalism’s method of reliance on price signals, self-interest and competition, and state planned delivery of goods and services were both “economic delivery systems”which complimented each other. Underlying both was a clear understanding how a medium of exchange could best be created to support both delivery systems.
https://www.palgrave.com/us/book/9781137540379
I agree. with your premise.
We’re not there because of the path dependency in what we do now – that’s why.
And the State’s new job now is to provide social security for speculation. Therefore when things go wrong there is a safety net for the rich. And sod everyone else.
The Establishment therefore is in a win/win situation. Why would they want to change that? Why would they even allow it?
Labour are trying to woo the Establishment by not being too radical. They have pitchforks (but just the handles mind).
In the long run we are all dead but also if the State is bailing out the rich we at least know that contemporary capitalism /North American style capitalism is effectively worthless and does not work. It is being propped up. A sure sign that the West is unfortunately declining. We know the model is broken.
An observation from another area of life if I may…………..?
I have a family relation who has dementia. She cannot look after herself at all but is in complete denial about her condition. The denial comes from a mixture of her condition but also the remnants of her pride, independence and dignity and an unwillingness to concede that she has a problem. This adds to her woes because it creates a cognitive dissonance between who she thinks she is and why she has had to move into a home.
I mention this because one of the possible tools we have is to chip away at the edifice of infallible capitalism is maybe working on the reluctance to discuss what is actually going on and to accept that it is not working. And pride and arrogance prevents people acknowledging this.
The Tory party and the Establishment has a problem. It is a lack of empathy with the real world and the people who populate it who outnumber them. Maybe this is what we should be focussing on – Labour in particular, the Greens, Lib Dems even (non Orange Book types in particular too?
I don’t know – but maybe we have some work to do overcoming pride in the sectors who are calling the shots – even shame maybe?
Honestly I don’t know.
Maybe it is how we approach the problem that is making its resolution so far away? I don’t know. I really don’t.
What do others think?
Let us know….
PSR says: “The Tory party and the Establishment has a problem. It is a lack of empathy with the real world and the people who populate it” Perhaps other parties have similar problems. Craig Murray, in a piece analysing why so many on Labour’s right seem to idolise Thatcher and are complicit in the revisionism that says she was against Apartheid and tried to end it, thinks Labour “is plainly dysfunctional, and it is so because the large majority of MPs are totally removed from the views of the membership”. He further wonders how their MP’s can regard Corbyn as a racist and anti-semite and yet stay in the party. (https://www.craigmurray.org.uk/archives/2018/09/new-labours-irrational-adoration-of-thatcher/)
I wonder why we need professional politicians and parties anyway when there are other, possibly more democratic possibilities which would give political power to “the people” via deliberative assemblies in which citizens would serve as they already do in Juries.
Of course we could have a revolution such as the French or Russians did, and pleasing as it would be to see certain heads rolling, I don’t think it would solve much in the longer term.
Failing either of the above solutions, and I don’t see a mechanism that would bring any one of them about, it would be interesting to see an ethnographic style piece of research on the nature of politicians and others in the power nexus, which might illuminate, what seems from where I sit, grotesque character flaws in those who currently scale the greasy pole to power. With this kind of evidence it might be possible prevent certain personality types from gaining power.
Maybe this sounds like Big Brother, but we already have a discriminatory selection system in place which decides who goes to the “top two” universities, who becomes a judge, who makes it in the BBC, or the Arts, or journalism or politics etc. It’s called the Public School.
G Hewitt
I think that you have a point about a lack of empathy amongst modern politicians per se – not just the Tories and Labour. Blair saw people’s worries about jobs and pay when dealing with immigration as racism. He did not consider how business used immigration (to bring down wages and conditions and exploit immigrants) because he would of course see business as rational and ‘efficient’ like a good Blue Labourite would.
Thatcher is worshipped in political circles for one reason in my view – that she got into power and retained it for long enough. Even Cameron hero worshipped Blair and set out to ape him and did so as a most effective and ultimately toxic familiar to win power for a darker cause – a cause that seemed nothing short of wreaking revenge on British society for daring to vote Labour and not Tory. It is all very insular in politics at the moment as you have suggested. Politics is now simply about ‘How can we win?’ or even ‘How can I win?’. And this has nothing to do with the voter.
Revolution? Yes please! But then again, maybe not. But it might just be that we have a possible revolution in the form of BREXIT and UKIP – a revolution that is just plain wrong but a revolution nevertheless.
A good long term ethnographic account of the elite? Why we have one G Hewitt!:
Aeron Davis (2017) ‘Reckless Opportunists: Elites at the End of the Establishment’ (Manchester University Press).
Debt and Demand [lack of] are variously cited as the source of our problems. However they are both Symptoms of the real problem: Money. Since 1970 and the banking deregulation of the 70’s/80’s the Bank of England has created NO NEW MONEY for the UK economy – and EU National Central Banks are not allowed to! In 1970 the UK GDP was c. £100bn – BOE and Commercial Bank created money were each c. £50bn. Over the past c. 50 years the economy has expanded 20-fold to c. £2,000bn but successive Governments have abrogated to Commercial Banks the States duty to provide an adequate and appropriate money supply. The result is that 98% of the money in the economy – c. £1,950bn – has been created as debt and that both austerity and/or saving simply stagnate the economy.
Please not that the Bank of England did create £425bn in the QE programme but virtually all of this cascaded via banks and pension funds into inflating the price of existing assets – stocks and shares, bonds and property – farmland has increased from c. £1500 /acre in 2002 to nearer £10,000 per acre now.
Part of the reason for the increase in value of farmland has to do with the CAP which is now paid by acreage owned. There’s a positive correlation between subsidy and price and a negative correlation between tax and price. There’s no tax on agricultural land. On the other hand the tax on residential land has decreased substantially since domestic rates were abolished.
I disagree: all money has been created by the central bank but it has outsourced this operation to the advantage of private banks
It easiest to understand Richard’s point by thinking of money as a balance sheet phenomena. A sovereign government can create money, reserves and cash without incurring a liability to anyone whereas a private sector clearing bank can only create money through the liability of obtaining government created reserves necessary to make the payment settlement system work smoothly.
At any time government can change this outsourcing arrangement. For example, the government could decide to directly supply home mortgages. These loans make up the bulk of private sector bank loan operations and consequently a large percentage of their profits.
The way and the amount of money creation in the UK is therefore ultimately a political decision despite the Money Macro-Economic statement the UK’s central bank has no choice in supplying reserves to solvent private sector clearing banks. Indeed at times of Financial Crisis a central bank can offer reserves at below the central bank’s base rate to facilitate profit making which will enable insolvent banks to return to solvency over a period of years. An umbilical cord policy if you like!
Thanks
I would be interested in the data to support this point
I cannot see what you’re commenting on when moderating so I am unable to reply
It could be viewed as semantics or a common usage misunderstanding but Richard is correct to highlight that the central bank creates the money. Only the state has the legal right to create, any others can only do so under licence. This is an important distinction because most people fail to understand this crucial aspect. When you do understand the obvious question that arises is why a state uses bond markets and borrowing when it can just direct spend without any interest burden. This is an incredible giveaway to financial institutions and in return they were meant to, what? Manage risk, control inflation, invest for jobs/pensions, stop runaway state spending, etc, etc. Instead they’ve blown bubbles, burst them, rewarded themselves handsomely, put us all on the hook and introduced austerity during falling demand.
One would almost think that everything has been done to enrich the few at the expense of the many.
@Schofield
What impact is Help to Buy having on the banks provision of home mortgages?
It seems to me that HMG is providing up to 25% of the mortgages.
Or is the impact diluted by the help to sell part of this policy inflating the prices of new homes?
@ JohnB
“What impact is Help to Buy having on the banks provision of home mortgages?”
When average house prices are 7.6 times average earnings as opposed to the traditional 1:3 mortgage loan under-writing standard in the decades prior to the early 1970’s “Big Bang” financial deregulation it’s obviously something of an inadequate band-aid.
Of course, house price hyper-inflation had to be accompanied by corrupt Conservative and Labour governments who slashed the social housing programme so that the supply of affordable homes increasingly failed to meet demand.
Note that real wages in the UK have also failed to keep up because of a combination of factors, lack of investment particularly manufacturing due to outsourcing and poor quality management taking an adversarial approach to employee relationships and employment affecting productivity.
https://www.theguardian.com/money/2017/mar/17/average-house-price-times-annual-salary-official-figures-ons
Certainly if central government can do what it does by providing money to put a roof over people’s heads it could also go the whole hog and provide full home mortgages.
Thanks Richard. One point struck home particularly:
“It would search for economic truth based on observation, not abstract theory.”
One could widen that to include all aspects of government activity. The current government seems to be an evidence free zone 🙂
For example education – Theresa May’s priorities seem to be: 1 Setup more academies and free schools (despite evidence that free schools are failing). Expand grammar schools (against all evidence that they improve outcomes overall). 3. More faith-based schools (I admit to not having the evidence in this area myself – but they feel like a bad start to living in a multicultural society – therefore need more evidence one way or the other before proceeding).
The simplistic theorising we’ve had relies on slogans that negate argument about reality in favour of resonance already in place through cultural propaganda coming at us from literature we do little to sort from fact. Standing in incredulity to such chestnuts as “free trade”, “economics is a science” and “be proud of your country” soon produces counter-narrative if you are prepared to look. The new narrative doesn’t have to be postmodern waffle. We need a big change away from the chronic democratic epistemology of mob and exploiters first described by Thucydides and surely at its worst in Trump v Clinton and the false arguments of the Brexit referendum and chronic exploitation since in Maybotese and false claims about the will of the people tied to the referendum date. If there was a will then, surely the one now is more important.
My contention is that standard work across economics, politics and literature-religion is largely copyist, illusion producing and protecting, and is merely the data of the illusion in any genuinely modern thinking and consciousness. This is a big claim I am struggling to support or shake off in my writing – writing that feels impotent in the ongoing, daily atrocities. The atrocities themselves feel more like data than such as unemployment rates from ONS. GDP and the rest feel more correctly labelled ‘contribution to plasticised sea-food and planet burning’. As an academic I am aware of progressive theorising – there is no lack of it. Our mistake is to think we are invited into argument about it. Argument against an authority of ignorance is little more than being court jesters, New technology offers some chance of genuine, reciprocally concerned argument and realistic monitory democracy. All we can currently say of the internet is it ain’t that.
I have enormous sympathy with that
I have a year to go on my research contract and am wondering what to do next
What is the most effective use of my time is the question I am asking
archytas
You articulate in your last paragraph why I have to have periods away from this excellent blog out of frustration – it does sometimes feel that – well – it is all for nought or at least it will take a long time to change – too long in our suffering. At least however, when the shit hits the fan some of us will be able to make more sense of it than others.
BTW- Richard of course is also a full time and effective campaigner – I refer to this blog in the sense of what it does or does not do for me only.
I have tried to engage with local political groups but these are fractured with gender politics, disabled politics, politic politics – all valid but perversely not addressing the fundamentals that make personal politics worse – the need for good tax and economic policy.
I somehow stick with path dependency theory and still think that something will come out of the blue. But I do not necessarily expect it anymore to be along the lines of a teleological event – designed intentionally by progressives or other humans. It/they may well be more ideographic in nature – unique, one off types of punctuations/events that may well have to be seized by progressives in particular to afford change. If those progressives are any good of course.
As for the internet, may I recommend Jaron Lerner’s ‘Ten Arguments for Deleting Your Social Media Accounts Right Now’ (The Bodley Head, London, 2018). There are some really useful insights into the digital world in this gem of a book by someone who was instrumental in creating it as it is now.
Thanks.
I have to correct one thing
I am these days a spare time campaigner
I have five academic research papers in progress – which is silly – and slows them all down – but is what I am contracted to deliver
I am asking whether that is a good use of my time
Thanks for the book heads-up from above, PSR. Re fractured politics, I sometimes wonder if single issue campaigns don’t just dilute our forces, no doubt to the glee of those like the Tories who generally concentrate on their own single issue politics: rewarding those like themselves.
As you say, all these issues are valid, but if we concentrated on the general principles of equity and fairness for all of us and ensured that all groups were treated equally perhaps we would make more progress?
Correction accepted unreservedly.
You have drawn our attention to progress being made from some of your former campaigns.
Maybe it is best to get back to the direct campaigning?
Nevertheless, you know very well that you and your family need to eat! And that you are a very good writer and such papers are good for honing and refining ideas and arguments and counter arguments to be used in campaigning.
Also, if there is one edifice of neo-liberal thought that needs dealing with, it is what is being taught in our universities – God help us.
What I’m saying is that what you do is all good to me. It all seems to work in harmony. But you know best Richard – you are at – it seems – at the centre of your own life.
The disconcertment itself is something I have worn too long to be worried about Pilgrim, The paper production grind is dire Richard, Just before our time querulous academics were being retired at 50 as “too expensive”.
Thankfully I have impact – and that has value