The IMF's new director is warning the world that universal austerity will not work. Coordinated action to encourage growth is needed, she says.
The UN agency responsible for trade and development, UNCTAD, has issued its annual economic review and has included in it a stern warning that the economies of countries do not behave in the same way as households, even though right wing economists and politicians from Margaret Thatcher to George Osborne are adamant that they do.
Eminent economists like Krugman and Stiglitz ring their hands in despair.
Leading UK commentators like Martin Wolf and Larry Elliott do likewise.
All of them know that the debate on whether we're now in recession again is almost over: the inevitability of double dip is being conceded.
For those, like me, who have been arguing for a long time that first of all recession was likely and that double dip was inevitable without sustained government intervention this is all rather depressing because we also knew this was not inevitable and as such could have been avoided. It is the poverty of right wing thinking that really believes that the national economy behaves like the corner shop (which few, if any of those who promote this thinking have ever run in any event) that has led us to this mess.
So what now? Well to some extent I have to wait to answer that question as I'm addressing it in my forthcoming book - The Courageous State.
Suffice to say that now we cannot make progress unless it is conceded that neoliberalism is not just broken; it is fundamentally wrong. The belief that markets can provide answers to all problems has led us into this mess, and left us with incapacitated politicians who think there is nothing they can do about it (which is why Osborne persists in doing nothing). No one should dispute markets are powerful tools for delivering real benefit, because they are. My own experience has taught me that. But anyone who thinks they solve all problems suffers three problems.
The first is the evidence does not support their case. Just look around you.
The second is that the theoretical models that support this argument are ludicrously flawed.
The third is that the people who persist in this argument almost all work in secure employment in government Treasuries or universities and have no experience at all of the best in which they place so much faith.
I have that experience. And I know markets are full of people who are as clueless about what will happen next and who are as willing to fly by the seat of their pants as the person setting out to climb a mountain without a map or guide. They're not wrong to do that - it's just what has to happen in a world of uncertainty.
But in that same world of uncertainty (which neoliberals do not think exists) there has also to be firm government action under the direction of politicians who know they have been elected to make decisions. We don't have those politicians right now, and we don't have politicians who are equipped with the right outlook and intellectual understanding to make those decisions.
No wonder we are in a mess.
But there is a way out. And that's the reason for hope.
It's just a shame we have to change the government and neoliberalism first, but we'll do it: don't worry.
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Let’s get it straight: you can’t have a double-dip if there was no first recovery.
Well technically there was
One of the ‘funny’ things about the technicalities is the asymmetry between “recession” and “recovery”..
Two consecutive quarters of decline to declare a recession, but only one quarter of growth to call a recovery.
That alone should be enough to set people’s internal alarm bells ringing.
Not to mention books, and the cooking thereof.
A nice upbeat ending, Richard, though what I see currently is more akin to what Martin Wolf described last week: prophecies of doom becoming self-fulfilling.
That said, I do wonder if part of the issue you and many other commentators have with Osborne and co is that you/we are ascribing to them a primary economic policy aim which is in fact not their primary aim. We assume that Osborne and co’s primary concern (aim) is to get the economy growing again. And to be fair, this is the impression that Osborne and co promote.
But what if their primary aim is in fact to (try to) fundamentally restructure economic (and social) relations in this country (and beyond if they can) and that their belief is that to do that “austerity” is an essential tool. It can be argued that this is similar to the approach Thatcher employed between 1979-83. For example, under the cover of “austerity” we are witnessing a massive fire sale of public assets, planning laws are being relaxed, the NHS is being “restructured”, and so on and on, all to the considerable benefit not to the “big society” but to big business and big finance.
My conclusion would be that the “austerity” approach – and the narrative that’s been developed to support it – will not be dropped, regardless of any arguments put by the IMF, UN, you, Martin Wolf or anyone else – or the production of data that shows how dire the economic situation of this country is – until Osborne and his supporters are confident that their primary policy aim is sufficiently entrenched to withstand efforts to stop or undo it. Again, we see this approach reflected in the behaviour of Thatcher’s first government. And, furthermore, it resonates with the reported view of senior/influential Tory thinkers, that the first Blair government wasted their first two years in power. In summary then, we could argue that Osborne and co have simply been very good at learning from history.
I liked your comment a lot – it is now a blog in its own right – hope you do not mind
It was a nice surpise to see it as such when I read you blog this morning, Richard. Thanks.
I have always considered that the conservative parties idea of “Big Society” only ever included Big Business and Big Money.
The “little people” only ever matter at election time, and not much at that time now…..
Since the only difference between the conservative party, the labour party and the liberal-democrat party is the name I do not think we can look for salvation to any of the current crop, all of who are run by young, photogenic and stupid people.
An interesting viewpoint:
“Any time a major bank releases a report saying a given course of action is too costly, too prohibitive, too blonde, or simply too impossible, it is nearly guaranteed that that is precisely the course of action about to be undertaken. Which is why all non-euro skeptics are advised to shield their eyes and look away from the just released report by UBS (of surging 3 Month USD Libor rate fame) titled “Euro Break Up – The Consequences.” UBS conveniently sets up the straw man as follows: “Under the current structure and with the current membership, the Euro does not work. Either the current structure will have to change, or the current membership will have to change.” So far so good. Yet where it gets scary is when UBS quantifies the actual opportunity cost to one or more countries leaving the Euro. Notably Germany. “Were a stronger country such as Germany to leave the Euro, the consequences would include corporate default, recapitalisation of the banking system and collapse of international trade. If Germany were to leave, we believe the cost to be around EUR6,000 to EUR8,000 for every German adult and child in the first year, and a range of EUR3,500 to EUR4,500 per person per year thereafter. That is the equivalent of 20% to 25% of GDP in the first year. ” It also would mean the end of UBS, but we digress. Where it gets even more scary is when UBS, like many other banks to come, succumbs to the Mutual Assured Destruction trope made so popular by ole’ Hank Paulson : “The economic cost is, in many ways, the least of the concerns investors should have about a break-up. Fragmentation of the Euro would incur political costs. Europe’s “soft power” influence internationally would cease (as the concept of “Europe” as an integrated polity becomes meaningless). It is also worth observing that almost no modern fiat currency monetary unions have broken up without some form of authoritarian or military government, or civil war.” So you see: save the euro for the children, so we can avoid all out war (and UBS can continue to exist). The scariest thing, however, by far, is that for this report to have been issued, it means that Germany is now actively considering dumping the euro”
http://www.zerohedge.com/
So maybe a double-dip is not the worst thing that may happen……….
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