From Paul Krugman, yesterday:
The infuriating thing about this tragedy [of a recession] is that it is completely unnecessary. Half a century ago, any economist – or for that matter any undergraduate who had read Paul Samuelson's textbook “Economics” – could have told you that austerity in the face of depression was a very bad idea. But policy makers, pundits and, I'm sorry to say, many economists decided, largely for political reasons, to forget what they used to know. And millions of workers are paying the price for their wilful amnesia.
Never doubt that this recession is not necessary: it is a deliberate act that was imposed by the will of right wing politicians and their advisers.
Yesterday those right wing politicians succeeded in imposing yet more austerity on Europe. Things will be getting worse soon.
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I think Krugman will be making himself unpopular on Capitol Hill. I assume he’s considered too prominent to silence by the authourities. Let’s hope you are too, eh? 🙂
We don’t even need to go back to Samuelson, Richard. In 2001Steve Keen said (of the Maastricht Treaty) ‘While some fudging has been allowed to make membership possible in the first place, when economic crisis eventually strikes, Europe’s governments may be compelled to impose austerity upon economies which will be in deperate need of stimulus.’ (Debunking Economics, pp212-213).
Where Keen is wrong, unfortunately – even in the revised version of the book – is in thinking that after the crisis governments would start paying attention to those few economists who don’t follow the neoclassical orthodoxy. Clearly they haven’t to any extent that actually impacts on the dire downward spiral Europe (including the UK) is now locked into.
As Mancur Olson remarked years ago: ‘When we [societies] shift from what is best for prosperity to what is worst, the concensus [amongst citizens] would probably be that there is a stronger incentive to take than to make – more gain from predation than from productive and mutually advantageous activities – societies fall to the bottom.’ (Power and Prosperity, 2000:1).
Across Europe and the world we now have a capitalism based almost entirely on predation in one form or another. I see little evidence (yet) that politicians and their corporate puppet-masters have any inclination to give up on policies that result for most citizens in not just a fall but a race to the bottom.
The primary argument against Krugman (and Samuelson) that many politicians and economists make is that half a century ago we didn’t have the massive debt that we have today and that there’s nothing in the ‘bank’ (so to speak) left to deal with a recession. This is the argument we have to counter.
And in response we have to highlight the fact that we can no longer bail out these institutions for what in many cases has been wilful speculations and negligent management. That is not to say we allow depositors to lose their money either. If these organisations cannot run their own affairs properly they should forfeit that right and become nationalised by the government.
Secondly we have to highlight the fact that everyone has to pay their fair share of tax.
Thirdly, most Western governments would be able to expand their money supply (i.e. quantitative easing) without risking hyperinflation – but the money has to be used to fund jobs and job creation – and not paid into the coffers of the banks to boost their balance sheets. As I think I’ve mentioned before on this blog, Australia used its central bank to finance the war effort in World War One, such that the country came out with no debt to speak of and no hyperinflation.
That’s just some counter-responses. I’m sure we can think of more. 🙂
I’m sorry – your argument makes no sense
We had much, much less left in the bank post WW2
Debt was far higher
I agree with much else you say – but that opening comment taints the flow
If we nationalise the banks, who runs them? I mean, who personally would be doing it? It’s easy to speak in generalities but would the practicalities defeat us?
Well let’s appoint some strong people as non execs – that would be the first job. Prem Sikka. Larry Elliot. Neal Lawson. People who have proven commitment to ethics in public debate. There are others. They could hold boards to account. That’s the first stage
Ok, I stand corrected Richard. It is nonetheless an argument I hear bandied about by free-marketeers. Either way the high debt they use as an excuse is just a furfee. And yes I agree there are enough strong people out there to run many of these institutions.
If they find themselves in boardrooms and the board start obfuscating, as is the way with financiers, always has been, would these people see through it? Could they deal? Personally I probably wouldn’t and couldn’t, and I’m reminded here of reading about how, when Sir George Downing (another one who should lose his knighthood) first proposed what later became known as the national debt to the then King Charles 2nd, Lord Clarendon, who was witness to Downing’s explanation of how it was all meant to work, was moved to comment that he thought no-one in the room really understood what Downing was on about. Deliberately so, I imagine, obfuscation remains the bankers’ weapon to this day. What was clear to the King, though, was that by implementing Downing’s scheme he’d have a steady supply of readies in his royal hands, and on that basis he gave the scheme the go-ahead. As a consequence here we are now, centuries later, facing an unpayable mountain of interest.
But I digress. what’s the second stage?