The FT notes this morning that:
The average yield of the global government bond market has slipped to a new record low of 0.67 per cent, according to Bank of America Merrill Lynch indices, and the overall value of sovereign debt with negative yields rose 5 per cent in May to $10.4tn, according to Fitch.
These are the lowest rates for maybe 500 years.
And around the world commentators agree on three things. First, that we need massive new infrastructure investment. Second that we need to get people to work. And third that we need inflation, which can only come from an increase in demand which can only come from rising incomes resulting from getting people to work.
But although it is also, almost universally, agreed that the best agency to undertake such public works is, unsurprisingly, governments, who can fund it at present at almost no net cost at all, those governments sit back and refuse to do anything because they believe that markets must provide the solutions to all problems.
And this despite the fact that it is painfully obvious that markets are queuing up to say to governments that they want them to deliver the solution: that is what following the money tells anyone with the willingness to see. Despite negative rates they are still buying government debt.
We are stuck in a dogmatic pit of neoliberalism's making from which it cannot apparently emerge. And all because politicians have sold the myth that debt is a bad thing when public debt is, in fact, the bedrock of private wealth. At some point this will be understood. I hope it will not be too late.
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Yet another indication that state capitalism is on the rocks.
And to be honest, so it should be. Look at the results of this economic and political experiment. Gross inequality, global instability, environmental devastation, corruption beyond belief and populations across the world questioning why on earth they should support such a system anymore.
If stagnation is the prerequisite for change, so be it.
However, despite conventional “crapitalist” dogma – There Is An Alternative
https://www.youtube.com/watch?v=3gUgfyVt3mE
First rate post.
Here is an offer to those interested or those that might know who might be interested (along the lines that Chompsky was talking about). I founded a UK ISP in 1996. It is still running. I own a substantial part of it. The current “management/shareholders” want to move on – I’m looking for two people (network techie, admin person) to take over and run it as a collective. Transfer of the company (to the collective) will not be gratis, but that does not mean they need to put their hands in their pockets. The company is profitable. We need more collectives (in the Uk) to stand as examples – I’m prepared to donate my (substantial) shareholding into that collective. It will be interesting to see if there are any takers.
Good luck Mike
Surely the low yields are partially a result of the Government being its own buyer of bonds on a large scale. This in itself should give the game away that there is no restriction on Government finance with a sovereign currency. Why doesn’t it? Why is the Overton Window frame STILL so firmly jammed here?
I think, Richard, it is already ‘too late’, too little has been done for too long and their has been no effective political opposition worldwide.
The bond buying is an issue
The opportunity remains
It always does
Of course, for many it’s already ‘too late’, as millions of un/underemployed young people, and those with disabilities and longer term health issues, will confirm (to name only a few groups of “victims”): and that’s just in the UK.
I remember the range and scope of the damage done to the fabric of this country that (new) Labour had to try to fix in 1997. But that will be as nothing to repairing the policy disasters (most of them deliberate or a result of disinterest) of this government and the previous one. And that’s assuming no Brexit – which I still maintain will be the outcome of the 23rd.
And yet we are constantly told the uk employment stats show ‘fullish’ employment.
The UK has a vast pool of un or under employed human capital.
Roger-the present definition ‘of full employment’ is not what it was from 1945-75. It is now known by a Klingon sounding mnemonic ‘NAIRU’ the non-accelerating inflationary rate of unemployment, a bedrock of neo-liberal ideology which uses unemployment as a price control (never mind the wasted lives).
But you are right that there is a mass of underemployment/spurious self-employment and people who have been so hassled they drop off the register. In 2013 the Government launched a sanctions programme of massive proportions ( after grooming the populace with doublespeak/consent management using words like ‘skivers/those that don’t get up in the morning). They had to show that employment was going up so they hammered people and hence the figures to show that. There is no recover, won’t be a recovery, can’t be a recovery with the present ideology.
Haha!! The gods punish us by giving us what we want.
Capitalists demanded small government, that’s what they got.
So always be careful what you wish for – you might just get it!
Small government?
The UK State takes up 40% of GDP!
The Rahn Curve suggest we should be aiming for 15-25%
https://en.wikipedia.org/wiki/Rahn_curve
And as a result UK GDP would fall by maybe 50%
Or is real estate the bedrock of private wealth? The only inflation is in assets that cannot be cloned, like houses on a particular street in London. This drives up inequality and means that those that have also have no reason to invest in anything else. Do you think things can improve without a wealth tax which really means a tax on land values?
But land has no value unless the state protects the claim on it
Indeed, Charles. The other side of real estate ownership is private debt. Simon posted this on another blog and is well worth watching even if you’ve heard Michael Hudson on debt forgiveness before: https://www.youtube.com/watch?v=3gUgfyVt3mE.
I love reading posts and comments in this place but sometimes it feeds my paranoia about a grim few years ahead. This post, and comments, being an example.
Not that I disagree in the slightest with the theme but, nevertheless, I don’t like facing up to the future just now!
I think most of the people in this country gave this problem
Paul, I share your apprehension. I believe ‘the world’ has entered a cycle of almost unprecedented uncertainty. So many issues. So few solutions being articulated in the mainstream. However, shift happens and Richard is right to say that there is always opportunity for change. Gramsci, an underrated theorist, a summed it up in his ‘Prison Notebooks'(1929-35) writing: “The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.”
The strangelhold Neo-liberalism has exercised on orthodox economics for the past 40 years is difficult to understand but, given that its major protoganists have held all the aces, it’s not really surprising. Under Reagan there was a major ‘re-education’ programme in the Universities where any heterodox economic teaching was eliminated from the ‘Economics 101’ curriculum. Acording to Richard Wolff an entire generation of students graduated from the major universities without ever having studied Marx in any context.
(For anyone interested here’s a succinct history of Neo-liberalism – http://www.newleftproject.org/index.php/site/article_comments/a_short_history_of_neoliberalism_and_how_we_can_fix_it).
The good news is nothing lasts forever. The seeds of change have already been sown and will eventually blossom, possibly in unexpected locations. Sadly, as Ivan says, there has been irretrievable damage to lives and livelihoods in the US, UK and many EU countries. Michael Hudson recently spelled out its negative effects – http://www.counterpunch.org/2016/06/07/the-wages-of-neoliberalism-poverty-exile-and-early-death.
Like many, I don’t think radical change will come about until enough people are hurting enough. Maybe a real property crash will be a wake-up call. However, in or out of the EU isn’t going to trigger a change in the economic agenda any time soon. Personally I believe that a vote for Brexit (ominously a possibilty) will set-back any fundamental reforms, especially in the UK. But I don’t want to open up that can of worms again here!
The perennial question is ‘what to do?’. And the answer is always the same: ‘do something, anything, to nurture the seeds into saplings’. Every little helps! It’s going to be a rough ride, not without some collateral damage in terms of still more unnecessary deaths. Usually I’m not as optimistic as Richard but because it’s Friday afternoon and the sun is shining I feel the beginning of the end is within our grasp. I so hope so. Back to Gramsci – the immediate worry is what will fill the intervening vacuum. Happy weekend!
Teach
That’s part of my answer
The most effective and enduring option. “Education is not filling of a pail but the lighting of a fire.” W. B. Yeats
And hope I’m not too late to wish you a Happy Weekend in return (it’s coming up to 2pm Oregon time). You provide yet another example of deeply interesting reflections on the ‘here and now’.
As the country is obessed with property, I think you are right – a real (30%+ reduction ) will do it!
Capital post my dear Richard – capital!!
Do you mean ‘constant’ or ‘varying capital’? (smiley emoticon).
Two neo-liberal myths must be dispelled.
The first is that governments cannot be trusted to manage growth, and public spending will therefore always be inflationary. This was based on 1970s experience when the economy was at capacity. This is clearly not the case across G7 nations today.
The second myth is that increases in marginal taxation always restrict growth, and conversely that tax cuts for the wealthy are the best way to stimulate the economy. If we are to expand public spending to boost the real economy then marginal tax rates should, if anything, be increased to help fund this investment and limit rising inequality. Post war years of rapid economic growth took place under some of the highest rates of marginal taxation in modern times, so why should we see increasing marginal taxation as incompatible with investing for sustainable growth?
You are right
‘ Post war years of rapid economic growth ‘ – true Robert but we are now hampered by 40 years of asset bubbling, chiefly in housing/land which puts a huge ball and chain around the economy and leaves renters with wealth inter-generational wealth in the hands of the least productive, that wasn’t the case in 1945.
Even a gradual introduction of LVT , as Carol Wilcox propose, would take decades to reverse the damage of this asset bubble. But you are right, I think marginal tax rates were up to 90% until the mid ’60’s even in America.
If I recall correctly, the “austerity” talked about in 2009 was underpinned by tax cuts?
Would not tax cuts create the increased demand we need?
I appreciate that this would require cuts in government expenditure and that public sector jobs might be lost as a result, but these highly-skilled people could presumably find work in the private sector?
And if the answer is “reductions in tax yield would mean bigger deficits” then are we not talking about a different version of People’s QE, but with the money returned to the middle classes rather than taken from them and used to fund infrastructure investment (for which we could still create money if needed)?
After all, “aggregate demand” is about people creating jobs and economic activity by buying stuff, not merely new bridges?
Ivor
You clearly have not a clue about how government or economics works
Start here https://www.city.ac.uk/__data/assets/pdf_file/0003/296301/CITYPERC-WPS-201503.pdf
Then read The Joy of Tax
There is no necessary link at all between tax collected and services supplied by a government. Stop inflation. But equating the two is compoleteklyh and utterly unncessary
And you clearly do not understand PQE either. But if I was you I’d start with tax first
Come back when you get it
Or don’t bother
Richard
Ivor
I think part of he problem is that we live in an absurdly unbalanced economy. Almost all of the wealth is owned by a tiny handful of the people. If you give those people some money, by cutting taxes, they won’t do anything different. They were absurdly wealthy before & even more after.
If you’re talking about the “middle class” you get into the point that the Government doesn’t just take money. It takes money to provide services. Speaking personally (& as William Burroughs liked to say, how else can we speak, lacking as we do the Termites’ capacity for collective consciousness) the effect of Government cuts means I’m going to be on the hook for both my children’s student loans. I’m scarcely going to go out there & spend money I haven’t got knowing that, am I ?
Realistically, if the Govt abolished Income Tax, the extra money I had would still not remotely equate to the extra expenses I have because of that, health insurance & the like. So why would I react to a tax cut by splurging gelt?