I am travelling for most of today on my way to Spain to help launch the Spanish language edition of my current book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (see details below). I will also be meeting various people at a very interesting period for Spain, the build-up to the June national election that will attempt to resolve the impasse that arose from the election. I will report when I can on what is going on while I am away
The smug Australian government – conservative to the core, dishonest on a daily basis, running a daily scare campaign that all that matters is the fiscal deficit and how our AAA rating from the (corrupt) rating agencies will be lost if we don’t record a fiscal surplus as soon as possible. It fails to mention that we have around 15 per cent (at least) of our willing labour resources not being utilised at present. It fails to mention that inequality and poverty is on the rise. And now, the Australian Bureau of Statistics has told us that this is a government that has finally plunged the nation into a deflationary spiral. We are now so obsessed with fiscal balances that do not matter that we ignore the things that actually impact on the well-being of the citizens. And now deflation has arrived. The Australian Bureau of Statistics released the Consumer Price Index, Australia – data for the March-quarter 2016 yesterday. The March-quarter inflation rate was negative (-0.2 per cent), which means Australia has now entered a deflationary period – a reflection of our poorly performing economy. The annual inflation rate is 1.3 per cent, which is well below the Reserve Bank of Australia’s lower target bound of 2 per cent. The RBA’s preferred core inflation measures – the Weighted Median and Trimmed Mean – are also now below the lower target bound and are trending sharply down. Various measures of inflationary expectations are also falling, quite sharply, including the longer-term, market-based forecasts. It is time for a change in policy direction although next week’s fiscal statement (aka ‘The Budget’) will likely just reinforce the current malaise. A sorry state.
Financial Times journalist Wolfgang Münchau’s article (April 24, 2016) – The revenge of globalisation’s losers – rehearses a common theme, and one which those on the Left have become intoxicated with (not implicating the journalist among them). The problem is that the basic tenet is incorrect and by failing to separate the process of globalisation (integrated multinational supply chains and global capital flows) from what we might call economic neo-liberalism, the Left leave themselves exposed and too ready to accept notions that the capacity of the state has become compromised and economic policy is constrained by global capital. This is a further part in my current series that will form the thrust of my next book (coming out later this year). I have broken sequence a bit with today’s blog given I have been tracing the lead up to the British decision to call in the IMF in 1976. More instalments in that sequence will come next week as I do some more thinking and research – I am trawling through hundreds of documents at present (which is fun but time consuming). But today picks up on Wolfgang Münchau’s article from the weekend and fits nicely into the overall theme of the series. It also keeps me from talking about deflation in Australia (yes, announced today by the Australian Bureau of Statistics) as the Federal government keeps raving on about cutting its fiscal deficit (statement next Tuesday). I will write about those dreaded topics in due course.
Today, I take a further step in advancing our understanding of why the British government called in the IMF in 1976 and why it fell prey to a growing neo-liberal consensus, largely orchestrated by the Americans. The assertion by British Labour Prime Minster James Callaghan on September 28, 1976 that Britain had to end its ‘Keynesian’ inclinations and pursue widespread market deregulation and fiscal austerity has been taken to reflect a situation where the British government had no other alternative. His words have echoed down through the years and constituted one of the major turning points in ‘Left’ history. Successive, so-called progressive governments and politicians have repeated the words in one way or another. The impact has been that they have increasingly imbibed the neo-liberal Kool-Aid and have, seemingly forgotten that their were options at the time that the British government rejected, which would have significantly altered the course of history. The rejections were ideological rather than based on substance. For all intents and purposes, the British Labour Party, in government, had become the first practising neo-liberal government in British history. Britain just became a part of the US-led policy move that aimed to tilt the world economy heavily in favour of the profit-seeking aspirations of the corporate sector and the financial market sector (‘Wall Street’), in particular. The US government became the international political conduit for ‘Wall Street’ influence and the growing influence of the ‘City’ in London, also allowed these neo-liberal ideas to permeate the policy making circles in Britain. But it wasn’t just a permeation that was going on. The US used institutions such as the IMF to conduct brute force attacks on the prosperity of nations to undermine the viability of their public sectors and to shift more of the national income and national assets into the hands of capital. It was a brazen and very determined shift in world affairs. The ‘Left’ should never hold the decisions that were taken by the British government at the time as an inevitability of global capitalism.
When Jean-Claude Juncker took over the Presidency of the European Commission in November 2014 – yes, 18 months ago. His record before that should have warned everyone of where his ideological preferences lay. He was the President of the Eurogroup from January 1, 2005 to January 21, 2013, serving two terms and overseeing harsh austerity programs and continually hectoring Member States to obey the rules that would see millions of citizens deliberately rendered jobless. Not only was the Eurozone a deeply flawed construction but the fiscal rules that were enforced for the weaker states (not Germany in 2004) were the anathema of responsible economic policy given the scale of the recession. The Eurozone is still teetering on the brink of crisis some 8 years after the GFC began. It is no surprise that he was termed “the most dangerous man in Europe” by the British press on June 4, 2014 (Source). They noted that he was a “ruthless opportunist” who “admits lying and backs ‘secret’ debate on European finances”. He was previously forced out of his position as Prime Minister of Luxembourg in 2013 as a result of his ‘political responsibility’ for illegal spying by that nation’s secret police on individuals, including rival politicians among other sins. This is the man that is now in charge of the dysfunctional European Commission. When he was eleted to the European Commission Presidency, his main strategic initiative, which was promoted with much fanfare was the so-called €300 billion investment offensive. It was adopted in November 2014 and was accompanied with other plans to fix the banking system and improve productivity growth. The plan has been an abysmal failure like most of the initiatives that come from the neo-liberal Groupthink machine known as the European Commission.
When the Labour Party resumed minority government in March 1974 after a close victory over the Tories in the February election, which had delivered a hung parliament, the British economy was in recession and inflation was running at 12.9 per cent. To resolve the political impasse, he called a further election on October 10, 1974 and gained a majority. The contraction in real GDP began in the third-quarter 1973 under the Tories as the Dash for Growth ended badly and Britain recorded three consecutive quarters of negative growth. Thus, British Labour was on the back foot from day one as a result of inheriting an economy that was in decline as a result of declining investment in best-practice technology as British capital sought lucrative speculative investments abroad. Productivity was falling and the scope for rising standards of living were becoming limited, thus intensifying the struggle over the distribution of income. Many coalmines, a major source of employment and growth, were also reaching the end of their economic life. However, key figures in the Labour government (such as the Chancellor Denis Healey) had fallen into the sway of the emerging Monetarist thinking, which had the consequence of elevating the fraught Monetarist causality to centre stage at the neglect of policies that might have actually addressed the underlying issues. The IMF entered the fray and made matters worse, as usual. Today, we trace the events leading up to this turning point.
Several new articles have appeared in the last few weeks in the major media outlets expressing surprise that central banks have had little effect on economic growth despite the rather massive buildup of their ‘balance sheets’ via various types of quantitative easing programs. I have indicated before that I am coming to the view that most of the media, politicians, central bankers and other likely types (IMF and European Commission officials etc) seem to be in a constant state of ‘surprise’ as each day of reality fails to confirm what they said yesterday or last week (allowing for lags :-)). What a group of surprised people we have to effectively run our nations on behalf of capital. Poor souls, constantly be shocked out of their certainties. That is what Groupthink does – creates mobs that deny reality until it smacks them so hard in the face that they can only utter “that was surprising!” And in that context, the latest media trend appears to be something along the lines of ‘well let’s get the turbines moving’ or ‘those helicopters are about to launch’ and when we read that and what follows we learn that the media input into our lives only reinforces the smokescreen of ignorance that we conduct our daily lives within.
We once believed the Earth was flat. Then someone sailed out to the edge and came back the other way or something like that with apologies to Pythagoras and others in 5BC. At some other point in history, alchemists were convinced that they could take base metals (for example, lead) and turn them into ‘noble’ metals (like gold). More recently, the German Nazis convinced a nation that there was a Master Race (them) which had to purify civilisation by exterminating the parasitic (non-Aryan) races. The lowest races were considered to be Lebensunwertes Leben. Millions died unnecessary and cruel deaths as a result of that piece of national deception. Sometimes these demonstrations of national ignorance are relatively benign. Other times, as history shows the outcomes are devastating. The World is, once again, in the grip of another major deception, which is generating negative consequences at the worse end of the scale. As Australia approaches May, fiscal hysteria reaches its apex each year. Add the prospect of a general election (as early as July 2016) and the lying politicians and the media frenzy that support them extend themselves beyond the normal day to day idiocy and prevarication. On the world stage, the IMF prances around, wiping the blood of millions of citizens that it has impoverished over the years with its incompetence and bloody-mindedness, lecturing nations on what they should do next. Whenever, a nation follows their advice unemployment and poverty rises and the top-end-of-town walk off with even more loot. Loot is what pirates stole. These looters, however, do not even have the panache and elan that we associate with the romance of piracy. They are just sociopaths and cheats. Welcome to a new day in neo-liberal hell!
Ordinary citizens find it difficult expressing their dissatisfaction with the overall state of affairs in their nations. Sure enough we can vote a poor government out in many nations but the neo-liberal infestation is now so entrenched that the choices in terms of macroeconomic policy have narrowed to be no choice at all. At the corporate level, shareholders can cause trouble at annual meetings as they did last week in Australia when the bosses of the poorly-performed BP tried to push through a massive executive pay deal for themselves. 60 per cent of shareholders rejected the deal. But then not many of us a shareholders so that is a limited strategy. One thing we can do however is use our powers as consumers to punish corporations that lie to us in pursuit of profit. Consumers, united, do have power. Enough of us, pursuing a common goal, can send a corporation broke, just like the mainstream textbooks, which claim ‘consumer sovereignty’ drives the pattern of production, tell us. In this respect, I urge all readers of this blog to cancel any subscriptions that you might have to Time magazine and run a social media information campaign urging everyone you know (and everyone they know) to do the same. If you are a company who advertises in Time Magazine, I urge you to stop doing business with them. And then seek information on other products the owners of the magazine sell and boycott them too. That might given the company some reason to stop publishing erroneous material designed to distort the public debate.
The Bank of England’s failure in the early 1970s to control the money supply under the Competition and Credit Control (CCC) policy should have discouraged the Monetarist support base. However, while the monetary targets were abandoned, the Monetarist infestation was firmly alive among economists in the British Treasury and the Bank of England and the junior ministers in Edward Heath’s government. The City was also a hotbed of Monetarist support, with the likes of Gordon Pepper, an economist in the private sector who edited the Greenwell Monetary Bulletin prominent. Pepper, was very vocal and very influential within government circles. The ‘Greenwell Monetary Bulletin’ became a vehicle for the monetarist views to penetrate the highest levels of government. The British Labour Party was struggling with its factions. On the one hand, the Left was becoming more powerful within the Party and deeply rejected the attempts to diminish union operations. They formulated a new and far reaching industrial policy, which was light years away from the approach adopted by Harold Wilson’s government in the 1960s. But there was also a significant rump of Labour Monetarists, mostly concentrated in the Parliamentary party who were closer to the Tories on macroeconomic policy than their colleagues on the Left. Major tensions developed and would, ultimately lead to the famous 1976 surrender to Monetarism by James Callaghan at the National Conference. We trace this evolution in this blog so that we can understand the next instalment, which analyses the 1976 IMF loan arrangement that the British government entered into. This arrangement is a significant turning point in the way that social democratic governments have been captured by the neo-liberal myths.
I am off to Spain in a few weeks to undertake a lecture tour associated with the publication of a Spanish translation of my current book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (see details below if you are interested). I noted by way of passing in a blog last week that a recent article in Spain’s highest-circulation newspaper El País (March 31, 2016) – Public deficit for 2015 comes in at 5.2%, exceeding gloomiest forecasts. The latest data shows that the Spanish government is in breach of Eurozone fiscal rules and is growing strongly as a result. Those who claim that Spain demonstrates how fiscal austerity can promote growth should examine the data more closely. The reality is that as growth has returned (albeit now moderating again), the discretionary fiscal deficit (that component of the final deficit that reflects the policy choices of government) has increased. Government consumption and investment spending has supported the return to growth, which had collapsed under the burdens of fiscal austerity between 2010 and 2013. Spain demonstrates how responsible counter-cyclical fiscal policy works.
Last week, 61.1 per cent of Dutch voters who turned out (the turnout was above the legal threshold to make the vote legal) voted against the referendum proposal to ratify a ‘preferential trade’ agreement between the European Union and Ukraine. It means that the Dutch government cannot, from a political perspective, ratify the EU initiative. It is the second time in its history that the Dutch have rejected a referendum about the EU – the last time was in 2005 when the EU Constitutional Treaty was soundly rejected. Then, the EU elites just ignored the democratic intent and bundled the initiative up into the Treaty of Lisbon and went about business as usual. Democracy is only useful to the EU elites if it ratifies their own self-interest. The same will happen this time. Merkel and Hollande have already said (in as many words) that they will disregard the Dutch outcome. The interpretations of last week’s voting outcome are now coming ‘fast and furious’ and the denialists are out in force – ‘oh, it doesn’t mean what it appears’ etc, and so the EU will just go about business as usual, as it always does, and that ‘culture’ is one of the reasons the whole European Project (now dominated by the common currency) is now proving to be an abject failure. It is a dysfunctional dystopia! Then citizens are watching the unfolding story from The Panama Papers, which only serve to confirm how top-level corruption, hypocrisy etc is rife and there is one (no) rule for them and another, harsher, binding rule for the rest of us. And, recent research findings suggest that our social settlements, where we live, bring up families, develop our aspirations and behaviours, are riven with rising inequality and increased segregation. Juxtapose that with the facts coming out about the urban backgrounds of young Belgians who achieve their aspirations by blowing themselves up and taking as many of us with them. The souls typically come from highly segregated urban enclaves in our cities with joblessness and poverty a daily burden. All of the above has been created by a neo-liberalism that works for the elites and aims to extract as much real income out of the system for the few as possible with as little democratic oversight as possible.
In the previous instalment of this series of blogs I am writing, which will form the input to my next book on globalisation and the capacities of the nation-state, which I am working on with Italian journalist Thomas Fazi, I covered the role of trade unions in a capitalist system where class conflict is a major dynamic. One of the characteristics of the post-modern Left is the denial of the role trade unions play in inflationary episodes. However, once we accept that the unions are creatures of capitalism and embody of the conflictual nature of income distribution within that mode of production, then it is clear that as a countervailing force against capital, unions can precipitate economic crisis if they are ‘too successful’. Too successful in this context refers to the use of their power to control the supply of labour which negative impacts on the rate of profit earned by capital and leads to a decline in investment and a rise in unemployment. Trade unions are a problem for capital. Today, we consider the way in which this ‘problem’ manifested in the inflation in Britain in the early to mid-1970s and the failure by the British Labour Party to fully understand the causation involved. By the mid-1970s, the British Labour government had surrendered to the growing dominance of the Monetarist school of thought, which diverted its gaze from the true nature of the economic crisis. They unnecessarily called in the IMF as a result of this blindness.
It is easy to get distracted by other important events in the last week by the enormity of the information that has been released in the so-called – The Panama Papers – which document around 40 years of secretive banking deals, tax dodging, criminal money laundering and political corruption. The information shows that “major banks are big drivers behind the creation of hard-to-trace companies” in tax havens and once again demonstrates the urgency of root-and-branch banking reform to wipe out their ‘non-banking’ businesses. The revelations from that leak (‘hack’) will continue for some time given the size of the data. But the world keeps turning and the IMF keeps informing us, either through their own voluntary statements or through information that they clearly don’t want us to know about, which gets leaked, just what a rotten institution it has become. Read on and feel sad.
Sometimes we have to take a longer look at things to see the present in perspective. Greece has been a living experiment for the neo-liberal Groupthink machine that is the Troika. We rarely experiment on humans on any sort of large-scale if there is the likelihood of adverse result. That would breach any notion of human ethics. It is a pity that we relax those standards when dealing with other animals, but that is another story again, which I will leave silent here. The Nazis certainly conducted large-scale experiments on humans and we vilified them for it. The Troika is conducting different types of experiments on the citizens of Greece, which defy reason, and which also have had devastating effects. But still the mantra continues from the babbling mouths of the political leadership in Europe and its technocratic squawk squad (SS) embedded in the European Commission bureaucracy, the ECB, the IMF and various so-called ‘think tanks’ that continually pump out pro-Euro propaganda disguised as research – more structural reform, more fiscal austerity. Apparently, this scorched earth approach is the only alternative and will deliver higher productivity, increased international competitiveness and underpin a return to prosperity. Greece is on the front line of this approach. I never believed it would work because it defies economic reason. Economic reason that is not blighted by the neo-liberal Groupthink. It hasn’t worked. And now, the IMF, or at least segments within the IMF, are admitting that and producing research that supports the opposite case – the Modern Monetary Theory (MMT) case – that expansive “fiscal policy is a potent instrument for productivity growth through innovation”. Correct!
The mainstream economics (by which I mean neo-classical economics and its siblings in a History of Economic Thought context) constructs trade unions as being market imperfections that interfere with the freedom of supply and demand to determine optimal price (wage) and quantity (employment) outcomes. The textbooks teach students that the supply of and demand for labour without the intrusion of trade unions (and other impositions from the state – minimum wages etc) will deliver optimal outcomes for all in accordance with the respective contributions of each ‘factor of production’ (labour, land, capital etc). The real world isn’t like that at all and the determination of shares in national income is the result of a continuous struggle between labour and capital for supremacy. It is very easy to construct the trade unions has job killers in this context and to blame them for inflationary outbreaks. That certainly is how the British trade unions in the early 1970s were constructed by the conservatives and later the Labour Party itself. By the early 1970s, Monetarism was gaining a dominant hold in the academy and strong adherents in policy circles. Trade unions were considered by the Monetarists to be ‘market imperfections’ that should be destroyed by legislative fiat. Governments came under intense pressure to introduce legislation that would constrain unions. However, once we understand history, we can see the early 1970s in Britain leading up to British Labour Prime Minster James Callaghan’s speech to Labour Party Conference held at Blackpool on September 28, 1976 in a different light. It also allows us to see just what surrender monkeys the British Labour Party became after that period. This is a further instalment of my next book on globalisation and the capacities of the nation-state, which I am working on with Italian journalist Thomas Fazi. We expect to finalise the manuscript in May 2016.
The public policy debate in Australia today has been hijacked by two ridiculous interventions. The first, being a proposal that the states be given back their income tax powers (which they voluntarily forfeited in 1942). It is an attempt to align the large spending responsibilities that the Constitution places on the state governments with the capacity to raise revenue. The ideology behind the conservative proposal is to reduce the size of the federal government and to increase the likelihood of a Eurozone-type crisis where the non-currency issuing states would not be able to maintain first-class health and education systems. A far better and more modern solution to the spending-revenue mismatch would be for the currency-issuing federal government to assume responsibility for large-scale public infrastructure, education, health and other related expenditure areas that are currently the responsibility of the states. I will leave that at that for the moment. The second intervention came in the form of a publication, released yesterday (March 29, 2016), by the so-called Committee for Economic Development of Australia (CEDA) – Deficit to balance: budget repair options – which has been in the headlines over the last 24 hours. All the media outlets have been salivating over this report – some calling it the work of a “high-powered … Commission”, and I have not read one report as yet, which has given it any form of critical scrutiny. All the reports on all media forms have essentially acted as amplifiers – as press agents for CEDA. Which only goes to show how our national media fails to serve the people in areas that are of crucial importance to our national prosperity. The fact that such a report gets any coverage also confirms that in these crucial areas of public life, the debate is conducted within a fog of ignorance and lies. Almost all of the propositions that form the basis of this Report are just ideological myths perpetuated to advance the interests of capital over the workers.
Last week (March 25, 2016), the US Bureau of Economic Analysis released their ‘Third Estimate’ of – Gross Domestic Product, 4th quarter 2015 – which showed that the US economy slowed rather appreciably in the last three months of 2015. The BEA said that real GDP growth was “increased at an annual rate of 1.4 percent” after having increased by 2 per cent in the third-quarter of 2015. Two things stand out from the data: (a) Private consumption expenditure, while still relatively strong continues to slow. The main drivers of consumption expenditure are recreation and health care services and durable goods; (b) Capital formation (investment) declined for the second consecutive quarter, signalling a lack of confidence in the medium-term outlook by business firms. However, residential investment was relatively strong as was federal government spending. The BEA also reported that corporate “profits decreased by 7.8 per cent at a quarterly rate”. The data release provides no succour to those who think the Federal Reserve Bank should continue to hike interest rates. Inflation is still well below the implicit central bank target rate (2 per cent) and growth is faltering.
It is a holiday today and so my blog will be relatively short. The Mahatma Gandhi National Rural Employment Guarantee Act 2005 (MGNREGA) was proclaimed on September 7, 2005. It aims “to provide for the enhancement of livelihood security of the households in rural areas of the country by providing at least one hundred days of guaranteed wage employment in every financial year to every household whose adult members volunteer to do unskilled manual work …” The program is an example of supply-determined job creation, which renders it less effective than it might otherwise be if it was redesigned to become a demand-determined scheme. The latest data shows that as the relevant labour market starts to slow down in terms of employment creation, the number of workers who are unable to access jobs at all within the MGNREGA are rising and the proportion of workers who cannot access the full 100 days of guaranteed work remains high (as does the hours gap).
The early 1970s brought into relief the internal contradictions of the capitalist system of production and distribution. This was never more evident than in Britain at the time. The trade unions, previously illegal had become more powerful and integrated as they defended the rights of their members. The very existence of the union movement exposed the conflictual nature of capitalism. The trade unions caused havoc in Britain in the early 1970s. But before we consider the role of the trade unions, it is important to understand what was happening on the capital side at the time. After the Monetarist ideas of Milton Friedman and his colleagues at the University of Chicago and beyond had seeped out of the academy into the policy and lobbying circles, it became obvious that capital would mount a major action against the unions and governments that gave them succour. Corporations and big money were far from passive. They didn’t buy the line that the Left has been lured into believing that the state had become increasingly powerless as capitalism became more global. Far from it. They got more organised than ever! The British Labour Party became lambs for the …