British House of Lords inquiry into the Bank of England’s performance is a confusing array of contrary notions
On November 27, 2023, the Economic Affairs Committee of the British House of Lords completed…
Reuters reported (July 8, 2018) that the awful Madame Lagarde was in France last week lecturing people on how the “joint euro zone budget could be designed with conditions so that it does not become a no-strings transfer of rich countries’ cash to poorer members”. Meanwhile, Jürgen Habermas was lecturing all and sundry on how a “frightened retreat behind national borders cannot be the correct response to … the politically uncontrollable functional imperatives of a global capitalism that is being driven by unregulated financial markets” (Source). Meanwhile, in the UK, the ‘Remainers’ think staying in the corrupt EU is a good idea because the Tories are so incompetent and divided. The state of the world. Misperceptions, misinformation and just plain poor analysis. There are tremendous opportunities for the Left to make political gains. But if they don’t abandon the type of ideas and language that is exemplified by Habermas’s latest entreaty and if they don’t undermine the likes of Lagarde and the Remainers (the pan-Europe contingent) then they will, once again, miss the boat.
In my recent book (with Thomas Fazi) – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017) – a central organising concept is that a progressive future is only possible if progressive citizens do two things:
1. Learn how the monetary system operates and understand the capacity of the currency issuer and the opportunities and constraints that the government has.
In other words, educate ourselves so that we have the capacity to refute the neoliberal lies that sustains the current system that has seen progressive outcomes diminish markedly.
2. Take control of the political process and expunge neoliberal factions from progressive political parties (like the Blairites in the British Labour Party, almost all the Australian Labor Party, the Wall-Street embedded elites in the US Democrats, much of the traditional machinery of the European Socialist parties etc).
Reclaiming the state is about reclaiming the legislative and regulative capacity of the nation state so that it is directed at advancing well being for the many rather than the few, to steal Jeremy Corbyn’s so excellent catch-cry.
It is not really rocket science.
As I have asked previously, if the nation state is dead why does Wall Street spend billions of US dollars trying to influence who wins government and, once government is decided, on influencing the outcome of specific legislation?
We know that the corporate sector spends billions in an effort to influence elections for the ‘nation state’. Why, if the nation state is dead?
Why do organisations such as the Dow Chemicals spend $US13.6 million lobbying government in 2016, if the state no longer has the capacity to limit their activities?
Why do “Many of the UK’s largest companies shroud their lobbying efforts in secrecy and do not disclose their political engagements to the public or shareholders” and spend billions of pounds lobby government? (Source)
Why did “six of the big energy companies” spend “tens of millions of dollars for a climate change denial campaign, despite knowing the claims were false”? (Source)
Even though the Greek government surrendered its currency sovereignty upon joining the Eurozone, why did the ECB essentially threaten to bankrupt its financial system in 2016 at the time of the referendum if they didn’t think the government had any legislative capacity to take independent decisions?
Why in small nations such as Australia is there a multi-million dollar lobbying industry? Why do gun lobby groups spend hundreds of thousands of dollars “helping minor rightwing parties win seats” at elections in Australia? (Source)
Tobacco, gambling, medicines, energy, and the rest – why do they outlay billions to influence government legislation if the state has withered away?
When Jürgen Habermas just writes the throwaway line that the “functional imperatives of a global capitalism” are “politically uncontrollable” he is ignoring the reality that those type of questions provide.
Of course, global capitalism has functional imperatives that lead the interests of capital to co-opt, capture, threaten, bully, bribe, nation states and all the rest of it.
Short of military invasion these interests have to work through the legislative and regulative machinery of the nation state.
These interests have set up a huge capacity to advance their interests – extremely well-funded think tanks with massive and highly competent marketing capacities to propagandise at will; the infiltration of educational institutions to influence who is appointed, what is taught, etc; the concentration of the media to control the messaging that comes from the backroom donors via the think tanks and the academics that have been co-opted.
When progressive luminaries such as Jürgen Habermas just mouth the same propaganda (in this case the ‘nation state is powerless narrative’) you know how successful the strategic campaign has been.
It has taken 50 odd years to get to this point.
It was a major strategic turning point in the rise of neoliberal thought and political control. It married the growing assault on Keynesian thinking in the Academy from Monetarists with the aspirations of American capital that was under siege from what they considered to be the domination of social democratic policy frameworks that aimed to share the benefits of economic activity more fairly and comprehensively.
As the Reclaim Democracy introduction to the Manifesto notes:
Though Powell’s memo was not the sole influence, the Chamber and corporate activists took his advice to heart and began building a powerful array of institutions designed to shift public attitudes and beliefs over the course of years and decades …
Most notable about these institutions was their focus on education, shifting values, and movement-building.
Those aspirations are what I see the – Reclaim the State Project – as sharing, but from a progressive side.
In other words, there is no choice in my view but to concentrate progressive action on what goes on within national borders.
The likes of Jürgen Habermas are wrong to call a renewed focus on national politics and the capacities of the nation state – a “frightened retreat behind national borders”.
That is just emotional language designed to link anyone who thinks the nation state should be the focus with the Right wing racist political movements.
In the same way that the Remainers in Britain have tried to shoehorn anyone who dares say they support Brexit into either the stupid or racist category, or, preferably both.
It is failed categorisation.
The only choice for progressives is to concentrate on taking back control of the national legislative and regulative frameworks.
You can also see the ridiculous Madame Lagarde’s recent interventions on behalf of Emmanuel Macron in the same way. She knows, like all neoliberals where the power lies – in national legislative and regulative frameworks.
Yes, they can be bought, which is how the neoliberals have operated.
But they can also be influenced and ‘won over’ by inspirational, grass roots campaigns that citizens themselves organise on shoestrings.
The recent New York Democratic Primary victory by Alexandria Ocasio-Cortez has shown that a campaign run out of the back of a shop that was shared with a livery cab company and her organisers held meetings and trained activists on the sidewalk (Source).
She was up against big Democrat money – Real estate developers, Wall Street money. See Joseph Crowley’s funding sources.
Jeremy Corbyn’s retention of the leadership of the British Labour Party is also an example of the power of small. Grass roots action makes small big.
That is what the traditional Left has forgotten.
It is little wonder that Alexandria Ocasio-Cortez’s victory has been so quickly attacked by the forces on both the Right and the traditional Left. Both know that if her approach gathers pace and spreads then the neoliberal game will be up.
And then you have characters like Larry Summers trying to retain an image that he is somehow progressive by writing in his recent Financial Times article A jobs guarantee – progressives’ latest big idea (July 2, 2018) that:
The impulse behind the latest “big” progressive idea of offering job guarantees is entirely valid …
If these questions have persuasive answers, that would be terrific. But right now, I am inclined to think that the idea of a jobs guarantee should be taken seriously but not literally. A combination of wage subsidies, targeted government spending, support for workers with dependents, and increased training and job-matching programmes represent a more viable strategy for meeting demand for guaranteed employment.
First, what rock has this character been hiding under? The idea of a right to work has really been core progressive policy for centuries.
Second, his article lists a series of questions that evidently haven’t been answered. Modern Monetary Theory (MMT) proponents including myself have over the last 25 or so years written hundreds of thousands of words defining these issues, answering these sorts of questions, and providing evidential perspective.
Summers hasn’t read a thing it seems if he thinks he has just come up with all these questions now that Alexandria Ocasio-Cortez has been victorious in making a Job Guarantee (along MMT lines) a core campaign promise.
Summers is the sort of guy who cannot stand to be on the outer.
When financial market deregulation was all the rage he was at the centre of it.
In my blog post – Being shamed and disgraced is not enough (December 18, 2009) – I discussed how Summers in cahoots with Robert Rubin and Alan Greenspan were featured on the front cover of the Time Magazine as the “Committee to Save the World”.
in the late 1990s, Rubin and Summers attacked any notion of regulation of the financial markets.
In particular, they homed in on the attempt by Brooksley Born, who became the head of the US federal Commodity Futures Trading Commission, to regulate the out-of-control Over the Counter derivatives market.
Summers telephoned Born in 1998 and told her that “You’re going to cause the worst financial crisis since the end of World War II.”
Soon after LTCM collapsed. Within 10 years the whole world financial system nearly collapsed as a result of policies the likes of Summers advanced.
Third, after praising the idea of a Job Guarantee he then deploys the “faint praise” tactic by saying we shouldn’t take the idea of a Job Guarantee literally – that is, that the state uses its currency capacity to provide jobs – but rather should think about other policies.
And he lists a whole swathe of typical neoliberal labour market activation policies – mostly supply-side – which are the norm for organisations like the IMF, mainstream economics departments and the like.
In other words, the anathema of the sentiments that Alexandria Ocasio-Cortez was advancing.
A denial of what the majority who voted for her were enthused about.
That is the way the traditional Left operates if it is not leading the charge in imposing austerity under direction, in some way or another, from the European Commission, the IMF, the World Bank or Wall Street.
Paul Krugman is another commentator who seeks attention and continually holds out that he is progressive but then advocates New Keynesian solutions, which are a core part of the problem.
His latest New York Times article (July 5, 2018) – More on a Job Guarantee (Wonkish) – is in the Larry Summers faint praise vein.
He claims that a “federal jobs guarantee is more problematic” and then cites a range of neoliberal (pretending to be progressive) commentators as authority.
All his “caveats” really come down to constructing the policy in monetary cost terms. Never mind that it “might bring a substantial number of … non-working adults back into the workforce … a good thing from a social point of view” – it is bad because it would cost a lot of money.
That is a neoliberal construction of ‘cost’. The cost of the Job Guarantee, in this context, would be the extra real resources that those “non-working adults” would consume and the program would require to provide productive work.
The dollars in the official public accounts are not a “cost” at all for a currency-issuing government. Focusing on these ‘numbers’ is the way the mainstream economists dupe the public and divert attention from socially productive policies.
And Krugman finishes by trying to claim progressive economics credentials by calling out the “Larry Kudlow or Sam Brownback-style voodoo economics, which passes for mainstream economic thinking on the other side of the aisle”.
So he wants his readers to think that the Democrats in the US as being progressive. Alexandria Ocasio-Cortez is progressive. Most of the Democrat Party elite, many of which have openly criticises Alexandria Ocasio-Cortez’s policies as being naive, unrealistic, unaffordable, etc, are not.
And the likes of Madame Lagarde knows full well that the nation state has to be compromised if global corporate interests are to be served when she told a French audience last week that:
This centralised budget capacity does not need to become a payment facility … It can very well have disciplinary conditions attached.
That is exactly what the Stability and Growth Pact does at the national level. It compromises national fiscal capacities so that they cannot advance generalised well-being.
While Germany and France talk about a ‘centralised budget capacity’ the reality is that it will be small and so hamstrung with restrictions that it will be beyond a joke.
But the elites all know that national governments have to be tethered tightly or else the global capital domination can be effectively controlled.
As an aside but contextual, Jürgen Habermas was correct when he noted that the need for a European-level fiscal capacity was:
… not just about fiscal stabilization, but about convergence – the credible political intent of the economically and politically strongest member states to fulfill the common currency’s broken promise of convergent economic developments.
The neoliberal elites are constructing this aspect of the ‘reform’ debate exclusively in terms of “fiscal stabilisation” – to help out nations in trouble but not to engage in any permanent transfers.
And to put a line under that, they want the Member States to contribute to the ‘European Monetary Fund’ and pay it back, and, if that wasn’t enough, they want the Member States most likely to draw assistance from the ‘Fund’, to pay more into it in the advance than other nations.
In other words, the weakest nations will be slugged more in advance and compromise their capacity to build effective public services and infrastructure in good times and then have to endure withering austerity in bad times as it is forced to pay back the money it contributed in the first place.
Ever heard of currency sovereignty!
But Jürgen Habermas point about a central fiscal capacity being about convergence, which is the way effective federations operate is exactly why it will never be constructed in that manner in the European Union.
The reason being that it would require permanent and on-going transfers from the richer income states to the poorer states. Exactly how Australia works!
The influential Member States in Europe are never going to agree to that sort of system.
Please read my blog post – The Meseberg Declaration – don’t hold your breath waiting (June 26, 2018) – for more discussion on this point.
Which brings me to an interesting article I read on the Left Foot Forward site (July 7, 2018) – After decades of following a failed economic model, we need to reshape the state.
This is an example of a ‘nearly’ argument that ultimately fails because it keeps using neoliberal frames and language despite a very progressive agenda being outlined.
The author Prem Sikka (an accounting academic) in England writes that:
We have missed far too many opportunities to steer our economy in a positive direction. It’s time for the left to address the role of the state today … the government remains wedded to the dogma of privatisation. During the last forty years, successive governments have privatised key sectors at knockdown prices – often with disastrous outcomes for consumers and taxpayers.
The discomfort starts with the use of the term “taxpayers”.
And then the first neoliberal frame enters:
The revenues from the sale of publicly owned assets could have been used to fund investment in new industries or social infrastructure, but that did not happen.
Which means the reader is immediately channelled into believing that government spending (including public infrastructure) requires “revenues” and if “revenues” are used in one way they cannot be used in another.
The framing is typical of the problematic way the Left tries to engage in these debates.
The fact is that a currency-issuing government such as the British government can provide currency (pounds in this context) to fund any investment in new industries or social infrastructure that it chooses.
There is no “revenues” required.
The only reason why “revenues” might need to be associated with public spending is if the economy is already operating at full capacity and the government has to deprive the current users of some of the fully utilised real resources so they can be diverted into the infrastructure projects.
But the “revenues” are not ‘funding’ anything. They are the tool through which the government deprives the non-government sector of access to resources – they represent the diminution of non-government purchasing capacity.
That diminution would be necessary in that context to provide the real resource space for government to occupy (and build the infrastructure).
In times where the nation is operating below full capacity that diversion of real resources is not necessary.
The author continues in this vein however.
He correctly notes that the history of privatisation is one where governments have handed public resources “over to corporations on very favourable terms”.
They did that because they didn’t want the political flack that the privatisation failed to attract interest from the private bidders.
So to make sure there was a sale they discounted the ‘market value’ of the entity.
But to then claim that the government “squandered” the money and could have done more with the funds.
That is where the neoliberal frame dominates the logic and the argument that conservative governments and Blairite-type social democrat governments actively diverted what should be public space and public activity to private, profit-seeking space is lost.
It is also true that:
Neoliberals have redirected the state to serve their purposes. Under their policies, the state has become a guarantor of corporate profits. The Private Finance Initiative (PFI) has been a bonanza for banks and contractors. PFI schools cost 40% more to build and a hospital 70% more to construct compared to if they were financed by government borrowing.
The first sentence is core Reclaim the State Project logic.
The last sentence is along the lines of Paul Krugman’s ‘cost’ confusion.
The fact is that privatisation and public-private partnerships (PFIs) are disastrous because they allocate public funding guarantees to private operators in line with a profit motive rather than social benefit.
The motivation is the problem. Public infrastructure should be about advancing maximum public benefit not advancing private profit.
The profit motive has also distorted the pattern of public infrastructure development created under PPP or PFI projects. For example, we get toll roads instead of public transport developments.
The toll roads get clogged relatively quickly which then leads to further toll roads. The pattern of urban development deteriorates even further as the profit motive drives planning.
Prem Sikka is correct to conclude that the neoliberal “economic experiment” has failed and “is not conducive to social stability or possibilities of building a sustainable economy”.
He is right in concluding that:
The toxic consequences of neoliberalism are evident in its philosophy of light-touch regulation. The daily parade of tax avoidance, money laundering, bribery, corruption and misselling of products, especially in the financial sector, are a direct consequence of the light-touch philosophy.
But linking that to funding shortfalls for currency-issuing governments means that the path to ‘reclaiming the state’ is lost.
The Left then gets lost in a haze of arguments that sound more or less like ‘we will run surpluses but do it in a fairer way’.
Prem Sikka should actually scrap most of his article and start with his final paragraph:
The left has long known that the state is a key institution – now we need to develop strategies to restructure and redirect it to build a more equitable society.
And then – remind the Left that the state is a key institution. Start with Jürgen Habermas is you like who thinks that global capital has bypassed the state and that pan-European movements are the only way forward.
And then, once we have jettisoned the myth that the state is powerless, the Left can build that ‘discovery’ into an MMT framework.
And that is more or less what we did in our latest book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017).
That is enough for today!
(c) Copyright 2018 William Mitchell. All Rights Reserved.