Sunday, 22 March 2009
As I indicated a few posts back, I've started reading the Financial Times on a regular basis, as it has Serious News for Serious Times. I noticed a piece about Britain's coal industry (or what's left of it) on March 12th entitled 'Mining recovery needs longer-term aid' (p.4, bye-lined Ed Crooks) which quoted Nye Bevan's observation that Britain is an island 'made mainly from coal' (Bevan also said Britain was an island 'in a sea full of fish' or words to that effect. The running down of the British Isles' fishing industry is another national scandal). The article then said:
'Estimates from the now-defunct National Coal Board in the 1980s suggest the UK has now enough mineable reserves to meet demand at current levels for about 4,000 years.'
To waste this natural resource is criminal to me. I fully support investment in renewable energy, but to run down the coal industry when we are importing oil and gas (which are hardly environmentally friendly...and what happened to North Sea oil? On the same page of the FT: 'Almost 5,000 platform wells and subsea wells in the North Sea will have to be decommissioned, most of them over the next 15 years, UK Oil and Gas said.' What is going on?!) and are talking about expanding the most dangerous power source of all ie nuclear (think it's safe? Would you live next door to a nuclear power station if you had the choice?). When we have the likes of James Lovelock, George Monbiot, Mark Lynas and other self-righteous eco-doomsters saying we should go nuclear (state-subsidised capitalism par excellence) rather than invest in clean coal technology, I think sections of the environmental movement have gone off the rails entirely.
The FT's review of the coal industry comes on the 25th anniversary of the Miners' Strike. The fact that the miners were badly led by Arthur Scargill does not take away the fact the wrong side lost and the country is still living with the consequences. Simon Jenkins, writing in The Guardian, would disagree with this, but he is far from a Thatcher-worshipper:
Meanwhile history is silent on the downside of the Thatcher era. The command structure she created to crush her foes became unrestrained, over-centralised and inefficient. Her evisceration of local democracy bred a cynicism among Britons towards political participation that remains unique in Europe. It also led to her downfall through the poll tax.
Thatcher was one of the great "nationalisers" of all time, taking control of the public housing stock, the rating system, a previously devolved hospital service, the universities, the courts, crown prosecution and, during the miners' strike, the police. It was Thatcher who turned Whitehall from an elite administrative corps into a demoralised, politicised officialdom which, under Blair and Brown, became besotted with targets, initiatives and useless IT systems.
Thatcher removed former nationalised industries from the state. But ask any doctor, farmer, lecturer, engineer or victim of the health and safety executive if, as a result of Thatcher, they feel less or more liberated from state interference. You will get a sick laugh.
The portrayal of Thatcher as libertarian St Joan in the fight against big government is nonsense. When I once suggested to her that a policy she was proposing was hardly laissez-faire, she exploded: "Never accuse me of that ghastly French word. I believe government should be strong in what it does."
Next time some Thatcher-worshipper gives you the full 'Oh, she believed in freedom' spiel to you, quote this back at them. Personally I think Thatcher-worshippers are largely cut from the same intellectual cloth as Western Stalin-worshippers back in the 1930s! That is, secular worshippers of the idea of a Strong Leader who kicks people (not themselves of course!) around...
The LRB has a bookshop: 14 Bury Place, near the British Museum...
I've also bought the London Review of Books for the first time in ages. I gave up subscribing back in late 06, partly on budgetary grounds, partly because although it has some very good articles, I could sometimes go through an edition without finding anything of worth to read. However, the latest edition (12th March- Volume 31 Number 5) had a fair few articles I wanted to read at leisure at home, as opposed to snatching 20 minutes in the local bookshop.
Amongst the articles I found of interest was a review of Harriet Harvey Wood'sThe Battle of Hastings: The Fall of Anglo-Saxon England written by Tom Shippey, who I know as one of the leading scholars in the field of Tolkienology. He notes that Wood is very much of the view (which I share) that the Norman victory in 1066 was an absolute disaster for England, one which we as a country are still trying to recover from (the idea of a class system comprising 'us' and 'them', with 'them' very much in charge through a modified 'Norman Yoke'). Shippey notes that:
'she comes close to repeating the claim, made many years ago by R.W. Chambers, that in 1065 England looked as if it would skip the Middle Ages altogether and go straight into a Renaissance....While there was admittedly a class system based on weregilds, it was a relatively flat one, with only two main male classes....It was a fairly porous system: there were established procedures for churls to become thanes, with written laws and a system of open-access courts at every level from the hundred, the unit of local government, upwards. Women were also well protected by medieval standards, with legal rights to a share of the property on divorce, no bar to remarriage, and freedom to own and dispose of land, a situation...not reached again until the passing of the Married Women's Property Act of 1882. Sentiments in the gnomic poems, she says, 'were positively advanced even by 20th-century standards', and she quotes in support the poem Maxims I, with its advice (putting it in 20th-century terms) to encourage the self-esteem of the young. Rich, stable, liberal and progressive; why did they lose to a bunch of pirates?' ('Why did they lose?', p.25)
Shippey says 'Wood's view, in short, is that the results of Hastings was a mix of good luck for William with some forgivable bad judgement from Harold; but really, the Normans didn't deserve it.' (ibid, p.26) Shippey suggests there was more to it than that. However, he admits that 'even in the 11th century there was a strong reservoir of national feeling' in England, but it was squandered by the country's ruling and administrative elites, and so the 'Norman Yoke' was imposed, and everyone (not least women) knew their place.
Richard Cobden: outside Mornington Crescent tube station!
There is also a review in the LRB by Miles Taylor of The Letters of Richard Cobden, Vol. I, 1815-47 ('Dig, Hammer, Spin, Weave' pp.27-28). I've got quite a lot of time for Cobden and John Bright, who are often called the founders of the 'Manchester School' of economic thought. They were anti-imperialist and anti-war at a time when it was extremely unpopular; they had no time for the landed aristocracy (and, as genuine believers in free markets, I think they would have had little time for the rise of the corporation); no time for the Corn Laws (the Common Agricultural Policy of their day); and were supporters of cheap newspapers and the penny post (would they be supporters of a free internet today?). Taylor's review of the collection edited by Anthony Howe stresses how much Marx and Engels (in the 1840s the latter lived in the same city as Cobden, who was Stockport's MP; Manchester's Free Trade Hall is very much a monument to Cobden) saw Cobden as the leading voice of Britain's revolutionary bourgeoisie against the aristocratic ruling class. However, after the repeal of the Corn Laws in 1845, it was not to be...
Other articles in the LRB which I also found worth reading was an overview of Italian politics by Perry Anderson (who is always worth reading, not least because he writes so well); a review by Neal Ascherson of a new biography of Robbie Burns (The Bard by Robert Crawford), which explains his diverse political views on Burn's love of 'anybody who bravely rose against established power...It was the means-the act of rebellion-rather than the motley ends which made his heart thump.' ('How Does it Add Up?', ibid, p.3); a review by Hal Foster of Guy 'Society of the Spectacle' Debord's Correspondence: The Foundation of the Situationist International (June 1957-60); and an overview by Katie Thumpener of several books on cinema under the Nazis. In short, well worth splashing £3.20 for!
Labour has misunderstood Britain. Time to start afresh: We need to rebuild a community-focused party, embrace electoral reform and pursue - dare I say - a New Socialism
Jon Cruddas, The Guardian, Wednesday 18 March 2009
Are we heading for a political tipping point? Across mainland Europe, the centre appears to be emptying, as parties of both the ultra-right and far-left prosper. Some think the British picture is reminiscent of the dread days of the early 1980s: authorities readying for a summer of riots, predictions of unemployment topping three million, and worries about strikes. June may yet witness a watershed moment for the political class, with a breakthrough for the British National party in European elections. On top of the recession, 2009's big story looks like being a crisis of political representation.
Within Westminster a rather timid critique of the government has emerged, often from former ministers. Its essentials are now almost a cliche: a lack of narrative, too much "initiativitis", and a stalling of momentum as the "Brown Bounce" of 2008 falls away. All these points have something to them, yet they fail to capture the magnitude of the squalls ripping through our economy, and the damage to our society brought on by the collapse of the 30-year dominance of market fundamentalism.
Among the commentariat and in the blogosphere talk of this crisis of neoliberalism is becoming rather hackneyed. But it reflects something real, and increasingly urgent: a deluge of work for local charities, advocacy groups and representatives, appalling housing cases with no hope of resolution, job losses, and people struggling daily to pay the bills. And palpable fear about what lies ahead.
New Labour has had increasingly little to say about these struggles. Indeed, by 2001 its policies were based essentially on a mythical middle England, drawn up by pollsters and located somewhere in the south-east, with affluence taken for granted. In this model, politics always had to be individualised. A leading cabinet member claimed that Labour's essential message was to help voters "earn and own". People were seen as being fixated only on themselves, with no wish to think in terms of collective experience. Aspiration was about buying more things rather than wanting to build the "good society".
Scotland and Wales may have been implicitly set apart from all that, but England is also very different from such an individualist caricature, and it always has been. Julian Baggini, in his book A Journey into the English Mind, identified a postcode in Rotherham as the typical centre of the country in terms of how we live and think. His exploration of the philosophy of England beautifully defines the conservative, community-orientated outlook of the mainstream, Protestant centre of the country with its rich sense of tolerance and fairness. Labour misread this communitarian disposition - grounded in a deep and still dominant working-class culture - for a shrill politics of individual consumerism. We assumed people would only respond to a sour, illiberal politics about consuming more, rather than a deeper ethic of fraternity and what we aspire to be as a nation. And we feared its nationalism. But public responses to a range of bellwether issues - the abolition of the 10p tax rate, the excesses of bonus culture, the privatisation of the Royal Mail - reveal a different middle England.
Labour lost the language of generosity, kindness and community as it lost the tempo of the country. England's abiding culture was never socialist, but as we misunderstood its essential ethic of solidarity we lost our ability to build a politics beyond the market - to mould a radical hope for the country.
Working-class culture tolerated Labour as long as it promised economic uplift. Sixty quarters of growth helped disguise our cultural distance from the country. The material class politics that we never confronted - around housing, employment insecurity and pensions - was submerged by the housing bubble. Now these tensions are being racialised as recession, employment standards and demographic change collide. The popular terms of debate around immigration capture a profound sense of unfairness felt by thousands, many of whom are on a journey towards a very different communitarian politics, built round a nationalistic nostalgia transposed into a modern tribal identity - essentially a class politics of the far right.
The Labour party is therefore at a critical moment. Already in government hardline market fundamentalists are regrouping, arguing for further dismantling of the state, more privatisation and suspending any equality agenda to placate business. On the left, a movement to leave Labour and form a new workers' party is stirring. What both sides share is a desire to polarise debate. But now is the time to build a different Labour party, to develop a new kind of economy and determine the just distribution of power and resources, in which government and the people work together toward a vision of the Good Society. Specific policies for fair taxation, employment security and job generation, the environment, enduring devolution in public services and housing are all available - if we have the will to reach for them.
We also have to face the crisis of political representation - especially among working-class voters. That means instituting a system of fair voting that can rewind the way Britain's political parties have sought to camp out in that mythical middle England. A grown-up Labour party needs to embrace proportional representation - not as a preserve of the liberal metropolitan intelligentsia, but as a core mechanism with which to combat a sense of working-class alienation.
Above all, the party needs a new language about our purpose. So try this, from 1995: "A nation for all the people, built by the people, where old divisions are cast out. A new spirit in the nation based on working together, unity, solidarity, partnership. That is the patriotism of the future. Where your child in distress is my child, your parent ill and in pain is my parent, your friend unemployed or homeless is my friend, your neighbour my neighbour. That is the true patriotism of a nation." That was Tony Blair, who had it - but lost it. Now, before it's too late, we need to rediscover that kind of Labour politics. And, not that I want to scare the horses, we might even call it a New Socialism.
Jon Cruddas is Labour MP for Dagenham firstname.lastname@example.org
During the Labour Party Deputy Leadership contest back in 2007, Jon Cruddas seemed to be the only candidate who had anything to say in policy terms. As for the other candidates, (eventual winner) Harriet Harman's appeal seemed to be 'Vote for Me, I'm a Woman'; Hazel Blear's pitch was 'Vote for Me, I'm a Woman AND a Blairite'; Alan Johnson's USP was 'Vote for Me, I've a Working Class Background'; Peter Hain's appeal was 'Vote for Me, I've a Radical Past'; and Hilary Benn's appeal to people was basically 'Vote for Me, I've Got a Radical Father'. Nothing of any substance at all. I don't agree totally with what Jon Cruddas stands for- for instance, I have got the impression that he is pro-ID cards- but I cannot see Labour going anywhere after the next election with warmed-up (washed-up?) New Labourism.
If in doubt, make a paper hat...
I've started reading the Financial Times. No real reason, except it has serious news stories in it, and Serious Times Need Serious News I guess.
One of the few undoubtedly good things about the economic crisis is that a whole raft of smug economic/business pundits in the papers have had their credibility torn to pieces by it. You could call it a 'delegitimation crisis'. The worst offender out of a quite sizeable queue is Hamish McRae, who writes in The Independent. I first came across him in the mid-90s, opining that the UK could live on services, most notably financial services, and our industrial base could go to rack and ruin. Now he is piping up that things aren't that bad. Well you didn't predict this did you Hamish? Or have your tea leaves started doing the business again?
'The Independent' has a totally unwarranted reputation as a liberal-left newspaper. Mostly it has achieved this by going on ad nauseum about Iraq and Climate Change on its front pages. However, any paper that employs the likes of Bruce Anderson, Dominic Lawson and Stephen Glover is hardly bona fide centre-left. Moreover, its business/finance pages are basically Thatcherite. I came to this realisation a few years ago, when there was a big controversy about the Link ATM system. Up to then, you were not charged for using your ATM card at Link cash point machines. I think in particular that if you are not in debt to your bank/building society, you should not be charged for using the ATM of some other financial institution. Why should you have money taken out of your account for no good reason? However, some of the big banks wanted to charge Link users. There was a big campaign in the papers against this- quite rightly so- and covered the whole newspaper political spectrum from the Tory tabloids to the Morning Star and all points in between. The only exception I came across was 'The Indie', which argued that as you already pay charges to your bank, why shouldn't you pay another? I thought this outrageous, and after that I've always held a dim view of the Indie's business coverage. You have to remember as well that the Indie is mindlessly pro-EU, so their economic coverage is basically underpinned by trying to find ways to get Britain to join the euro.
Another thing I've noticed reading the business/finance pages, particularly in the Thatcherite papers (which for me consists of The Times, Daily Telegraph, Daily Mail, Daily Express, The Sun, Daily Star and their Sunday equivalents) is the difference in coverage between their news/comment pages and their personal finance sections. Read the news and comment sections and it is all about how great the free market and capitalism are and how bad the state's record and role in the economy is. However, get to the personal finance pages and it usually consists of one big litany of moans and complaints (either in article or letter form) about financial institutions in particular, and capitalist firms in general. This just shows the difference between free market theory and Actual Existing Capitalism in practice. I wonder how many people reading the Thatcherite press have experienced cognitive dissonance when they jump to the personal finance sections.
Update: for an overview of business in the papers by Peter Wilby.
Saturday, 21 March 2009
Well, it makes a change from finding out that picture of Donald Rumsfeld shaking hands with Saddam Hussein back in 1983...
At the moment, if visits to my local bookshops are any indication, I should be writing a book on Barack Obama to become an established (and well-paid) writer- the more gushing (with plenty of photos) the better. It seems the publishing industry, like most of the planet, is trying to forget that the Presidency of Geroge W. Bush ever took place.
So I feel a bit of a political archaeologist in bringing to your attention Craig Unger's The Fall of the House of Bush: The Delusions of the Neoconservatives and American Armageddon . However, I would recommend it, and if you can find a copy in the bargain bins of your local bookstore, purchase it- it is well worth reading.
I could do a really lengthy review. However, I will limit myself to certain themes that I noticed while reading it and some choice quotes.
1: The importance of Religion in American Politics
Reading this, I would hate to be an unbeliever in the US and trying to get somewhere in public life.
A Time/CNN poll from 2002 found that 59% of Americans believe that the events in the Book of Revelation will take place (p.19).
Between 1976 and 1988, the proportion of Americans defning themselves as born again evangelicals rose from 34% to 47% (p.85)
Furthermore, many who hold such views do not think their beliefs should be a private affair. To quote Kathleen Harris, Florida's Secretary of State at the time of the 'hanging chads' affair during the 2000 Presidential Election (pp.178-79):
'If people aren't involved in helping godly men in getting elected then we're going to have a nation of secular laws. That's not what our founding fathers [Unger says for the likes of Harris, the Pilgrim Fathers, not the often Masonic and Deist founders of the USA, are America's real 'founding fathers'] intended and that's certainly isn't what God intended...we need to take back this country...And if we don't get involved as Christians then how could we possibly take this back?...If you are not electing Christians, tried and true, under public scrutiny and pressure, then in essence you are going to legislate sin.'
Unger argues that a lot of evangelical Christians in the US support Israel, and think the more militaristic Israel behaves the better, but only because they think that the state of Israel's existence is a sign that the end of the world as we know it prophesised in the Book of Revelation is close. (Unger points the curious to the website raptureready.com to see how long we have before 'the endtimes' start.)Many do not like Jews as a people. To quote Southern Baptist Convention president Bailey Smith: 'God Almighty does not hear the prayer of a Jew.' (p.103) The alliance between 'born agains' and Neoconservatives is, as Unger says, very combustible. Dubya may be a born-again believer, but much of the rest of his family are not. During the 1988 Presidential primaries, Neil Bush referred to supporters of Reverend Pat Robertson, running against Dubya's father for the Republican nomination, as 'cockroaches...from the baseboards of the Bible-belt.' (p.85).
2: Dubya's Stupidity
Whatever one thinks of the politics of Obama, or John McCain for that matter, I think it is hard to argue that he is stupid. The previous incumbent though...the expression 'They Saved Reagan's Brain' comes to mind. Before he found God (that must have been a day and a half for the Almighty) Dubya was in a church congregation in Midland, Texas when the pastor asked what a 'prophet' was. Bush replied 'That's when revenues exceed expenditure.' (p.84) (Unlike a lot of politicians ie Thatcher, Blair, who extol the virtues of free enterprise, Bush has been involved in business. He just wasn't very good at it.)
Dubya's stupidity, or more accurately, lack of curiosity about the world, was spotted relatively early on by those who advised him. Leading Neo-Con ideologue Richard Perle commented:
'The first time I met Bush 43, I knew he was different. Two things become clear. One, he didn't know very much, The other was he had the confidence to ask questions that revealed he didn't know very much.' (p.166) A State Department source cited by Unger concurs: 'His ignorance of the world cannot be overstated.' (p.166) Or to quote the great man himself: 'I don't do nuance.' (p.198)In reference to the Middle East, Dubya once expressed the opinion that 'Sometimes a show of force by one side can clarify things.' (p.201).
3: Dick Cheney as Puppet Master?
'Am I the evil genius in the corner that nobody ever sees come out of his hole? It's a nice way to operate, actually.' (p.314)
Reading Unger, Dick Cheney's extremely secretive Office of the Vice President seems to be the place from where much of the genuinely 'dark' facets of The War Against Terror originated from: 'Cheney...was the man in charge of foreign policy. If Cheney wanted to keep something secret, he could classify it. If he wanted to leak information, or disinformation, to the New York Times or Washington Post, he could declassify it.' (p.293) I also noticed as well how many times Unger cites traditional Republican and military/diplomatic figures who were extremely uneasy, to put it mildly, about how Dubya and his acolytes (puppet-masters?) such as Cheney, Rumsfeld and Wolfowitz worked. For example, Bruce Fein, deputy Attorney-General under Ronald Reagan, described Cheney's post-9/11 domestic spying programme as being based upon:
'an imperial theory of inherent constitutional power that would empower[the President] to open mail, break-in and enter homes or torure detainees even inviolation of federal criminal statutes' (pp.221-2)
Fein also attacked Cheney for 'theories for evading the law and Constitution that would have embarrassed King George III', and military commissions for giving the President 'the functions of judge, jury and prosecutor in the trial of war crimes....the authority to detain American citizens as enemy combatants indefinitely [is]...a frightening power indistinguishable from King Louis XVI's exercrated lettres de cachet that occasioned the storming of the Bastille.' (p.224).
If Fein goes back to the late Eighteenth Century to find analogies, Colin Powell's chief of staff Captain Lawrence Wilkinson uses both the late 1700s and a more up-to-date analogy to decribe how Cheney et al worked:
'We used to say about both [Rumsfeld's office] and the vice president's office that they were going to win nine out of ten battles, because they are ruthless, because they have a strategy, and they never, ever deviate from that strategy. They make a decision, and they make it in secret, and they make it in a different way that the rest of the bureaucracy makes it, and then suddenly foist it on the government and the rest of the government is all confused.
'When I say 'secret cabal', I mean 'secret cabal'....I see them as messianic advocates of American power from one end of the globe to the other, much as the Jacobins in France were messianic advocates of the French Revolution. I don't care whether utopians are Vladimir Lenin on a sealed train to Moscow or Paul Wolfowitz. You're never going to bring utopia, and you're going to hurt a lot of people in the process.' (p.299)
With history-making often comes arrogance of an insufferable sort. One example from Unger is from an unnamed senior Bush advisor:
'We're an empire now, and when we act, we create our own reality. And while you're studying that reality- judiciously, as you will- wel'll act again, creating new realities, which you can study too, and that's how things will sort out. We're history's actors...and you, all of you, will be left to just study what we do.' (p.242)
However, even the greatest empire-builders can suffer hubris. As the war started in Iraq, Cheney told 'Meet the Press' that 'I really do believe that we will be greeted as liberators.' (p.293) Obviously avoiding military service in Vietnam through five deferments (p.182) did not help his strategic acumen when it came to Iraq...
4: Why Obama was better than McCain
I read The Fall of the House of Bush on holiday in Vancouver back in September when I really started to take an interest in the US Presidential campaign. Although I never fell for Obama-mania, I was realising by then that on the big issue for us all, preventing a war to end all wars (and possibly life on Earth), McCain was extremely bad news: 'I'm sorry to tell you there's going to be other wars. We will never surrender, but there will be other wars.' (p.364) Throw Sarah Palin as his V-P into the mix, and it was 'please no!' I was peturbed earlier in 2008 by the news that Zbigniew Brzezinski, Jimmy Carter's hawkish former National Security Adviser, and erstwhile encourager of Islamic fundamentalism in Afghanistan, was advising Obama on foreign policy. However, this quote from Brzezinski in Unger, pouring cold water on the possibility of war with Iran, eased some of my worst fears:
'I think of war with Iran as ending America's present role in the world. Iraq many have been a preview of that, we'll get dragged down for 20 to 30 years. The world will condemn us. We will lose our position in the world.' (p.346)
So to conclude, I hope I've shown that The Fall of the House of Bush is a worthwhile read, even though it may appear ancient political history. I have a horrible feeling that some of the characters around the great man may return...
Sunday, 8 March 2009
No-one has a clue where the world economy is heading, do they? It will probably get worse (and feel worse) before things get better (or feel better), but apart from that, whose to say? I think all that money- obscene amounts- that Governments and international institutions have thrown into the global economy will have some sort of effect in mitigating the worst consequences of the 'downturn' (it's a euphemism), at least in the short-term, but no-one knows how it will finally pan out. As Keynes said, in the long-term we are all dead.
Instead of making predictions, I'll just post two articles that have caught my eye in recent days. This one by Larry Elliott will appear in tomorrow's Guardian:
Never give a sucker's rally an even break
Larry Elliott, guardian.co.uk, Sunday 8 March 2009
Even when times are really hard, stockmarkets never go down in a straight line. There are periods – often lasting months – when prices rally amid hopes that recovery is under way. Then the selling resumes and the market takes another downward lurch. Dealers call it a sucker's rally.
Bear this phrase in mind, because it is not only financial markets that can have false dawns. In the late 1970s, for example, the UK economy appeared to bounce back from the recession of 1974‑75 and the sterling crisis of 1976 only to be plunged into an even deeper slump in 1980-81.
The chances of a sucker's rally over the next couple of years are high. Hard though it is to envisage during these dark days, there will be a resumption of growth – and probably sooner than the financial markets envisage. Policy was so heavily geared to expansion – even before the Bank of England announced that it was to start creating money – that it would be a miracle if green shoots did not soon start to appear.
Just consider: six months ago, anyone with a £150,000 tracker mortgage was paying more than £600 a month to finance their home loan. They are now paying about £60 – a colossal increase in spending power that is bound to affect behaviour, despite the fear of unemployment. Falling inflation means those in work are seeing increases in real income, and that tends to be a key determinant of consumer spending. Add lower taxes to the mix and it is a heady cocktail that, in normal times, would be enough to generate a wild boom.
Clearly, though, these are not normal times. In normal times, the Bank of England likes to keep the bank rate at about 5% rather than 0.5%, and it would not be pursuing monetary policies more normally associated with banana republics. One City financier has what he calls a Gono index, which charts how far the UK is along the road travelled by Robert Mugabe's central bank governor. He estimates that we are halfway there.
Normally, Alistair Darling would be preparing a budget next month of such austerity that it would put Sir Stafford Cripps to shame. But the chancellor is considering an expansionary package that will lead to a further increase in the budget deficit. On some estimates, the Treasury may need to borrow £180bn next year to balance the books – 12% of GDP and unprecedented in peacetime (and probably wartime, for that matter).
The justification for all this is that the banking system has been rendered dysfunctional by the credit crunch. That is true up to a point. Homeowners and businesses are finding capital harder to come by, but the supply of loans did not entirely dry up even when the financial pressure on the banks was at its most intense last autumn.
Consider what the financial system was like before the crash: the Icelandic banks and specialist lenders filling the gap between domestic savings and demand for loans; mortgage providers gaily handing out home loans worth 125% of the value of the property. We have merely gone from one form of dysfunctionality to another.
Be that as it may, the re-capitalisation of the banks, the insurance scheme for their toxic loans and now quantitative easing should increase the supply of credit in the coming months. To make a difference, of course, there has to be a matching demand for credit, and the question is whether the impact of the policy stimulus will outweigh the negative effects of falling house prices, a bombed-out stockmarket, rising unemployment and weak global trade.
It will, not least because Mervyn King says the Bank will continue to print money until the policy has the desired effect. When will this happen? No one knows but after a horrendous start to the year and a poor second quarter the economy could begin to bottom out in summer. My guess is that there will be evidence of modest growth by autumn, at which point – sucker's rally or not – Gordon Brown will claim vindication for his handling of the economy.
There are, however, reasons to treat any recovery with caution. One is that the causes of the original problem – an economy heavily dependent on property speculation, easy credit and debt – have not been addressed and, indeed, will not be until Brown admits that the economy he presided over as chancellor was nowhere near as strong as he thought it to be.
What is true of Britain is also true globally. The problem in the boom years was that one half of the world spent too much and the other half saved too much, thus creating a fatal imbalance between creditor and debtor nations. One of the great fallacies of the bubble years was that the surpluses from the export booms in China, Japan and Germany could be recycled to finance the trade deficits in the United States, Britain and Spain.
What actually happened was that the flows of hot money into London and New York drove up the pound and the dollar, making exports dearer, and the higher exchange rate bore down on inflation and put downward pressure on interest rates. That kept consumer spending high, sucked in more imports, which in turn made the surplus nations even more dependent on exports.
Ironically, the recession is hitting the big exporters – Japan and Germany especially – harder than those that were living beyond their means. The exporters will enjoy their own sucker's rally on the back of the pick-up in demand in the US (and, to a lesser extent, Britain) but for a lasting recovery, the surplus countries have to increase their domestic demand and the debtor countries have to save more. There is no evidence that this is going to happen on the scale needed.
Even so, tentative signs of recovery will put pressure on policymakers to apply the brakes. Here, we are back to the dilemma Alan Greenspan had after the dotcom bubble in the early years of this decade. The then Fed chairman ensured the recession was short and shallow by cutting interest rates to 1% and leaving them there until he was absolutely certain that the economy was recovering. But monetary policy works with a time lag, and by the time Greenspan started to jack up interest rates it was too late and he then had to tighten aggressively to prick the housing bubble.
This is now Groundhog Day. Policy has been loosened to compensate for the tightening in mid-decade, which in turn was to compensate for overly lax policy at the start of the decade. Policymakers now have a choice: they can move early, anticipating recovery, but with a risk that they will move too soon – as Roosevelt did with his fiscal tightening in 1936 – and push the economy back into recession. Or they can do what Greenspan did and risk the build-up of inflationary pressures and a new bubble, this time in the bond market.
Policymakers are more comfortable dealing with inflation, a problem they feel equipped to solve, than with a slump only Japan has experienced. They will do what they always do: increase borrowing costs, raise taxes and cut public spending. Unless they get it spot on, which they have conspicuously failed to do previously, the sucker's rally will be followed by sluggish growth or a double-dip recession.
The other simply shows that things must have got bad economically when mainstream economic pundits, such as HSBC Group's Chief Economist, have to admit that Karl Marx may have had more than a point:
As capitalism stares into the abyss, was Marx right all along?: We may avoid a 1930s Depression but the best we can hope for may be a 1990s Japan
Stephen King, The Independent, Monday, 2 March 2009
Karl Marx...in Lego!
"Modern bourgeois society ... a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells."
Those of you with revolutionary zeal will immediately recognise these words. Penned by Karl Marx in 1848, they form part of the Communist Manifesto. Marx, like Adam Smith before him, had a historical view of society's development. Capitalism, with its bourgeoisie, had replaced feudalism, but capitalism, according to Marx, would be replaced by communism. Capitalism was inherently unstable, as Marx noted later in the same paragraph:
".....the commercial crises... by their periodical return, put the existence of the entire bourgeois society on its trial, each time more threateningly. In these crises, a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity – the epidemic of over-production."
Whatever else one thinks of Marx, he certainly knew a thing or two about the business cycle. Were he alive now, he would surely claim his theories were being vindicated. We are, after all, witnessing the most remarkable collapse in economic activity around the world. Take Japan. In November, industrial production fell 8 per cent. That was bad enough. In December, production dropped another 9 per cent. That was even more remarkable. January's production figures, though, are simply eye-wateringly awful, showing a further 10 per cent decline. Production, then, is down almost 30 per cent in just three months, a pace of decline unprecedented in Japanese post-war economic history.
Or how about the US, where we discovered last week that national income contracted in the final quarter of last year at an annual rate of more than 6 per cent, the biggest drop since the early 1980s. Then there's Taiwan, where exports have been in freefall in recent months. Not to mention dear old Blighty, where the economy might end up shrinking by approaching 4 per cent this year.
The pace of decline in global economic output is extraordinary. On virtually any metric, we are seeing the worst global downturn in decades: worse than the aftermath of the first oil shock in the mid-1970s and worse than the early-1980s downswing, when the world economy had to cope with a doubling of the oil price, the tough love of monetarism and the onset of the Latin American debt crisis. Moreover, this time we cannot use the resurgence of inflation as an excuse for lost output: the credit crunch in all its many guises has seen to that. Instead, we have a world of collapsing output combined with falling prices: a world, then, of depression.
For many years, Marxist ideas appeared to be totally irrelevant. The collapse of the Berlin Wall in 1989 brought to an end the era of Marxist-Leninist Communism, while China's decision to join the modern world at the beginning of the 1980s drew a line under its earlier Maoist ideology. In western economies, Marxist ideas were at their most potent after the First Word War when the likes of Rosa Luxemburg could smell revol-ution in the air and as the Roaring Twenties gave way to the Great Depression of the 1930s. I'm not suggesting we're entering revolutionary times. However, it seems increasingly likely that the economic landscape in the years ahead will be fundamentally different from the landscape that has dominated the working lives of people like me who entered the workforce in the 1980s. We've lived through decades of plenty, where incomes have risen rapidly, where credit has been all too easily available and where recessions have been mostly modest affairs. Suddenly, we're facing a collapse in activity on a truly Marxist scale. It's difficult to imagine the world's love affair with free markets being sustained under this onslaught. The extreme nature of this downswing will change our lives for decades to come.
The first change relates to the allocation of capital. Increasingly, policymakers are accepting that market forces, left to their own devices, will lead to a race to the bottom. The dangers are becoming greater by the day. Interest rates are close to zero while prices and wages are in danger of declining. If deflation takes hold, real interest rates on cash will start to rise, creating perverse incentives in capital markets. Why bother to buy equities or corporate bonds if you are nicely rewarded for hanging on to an entirely risk-free piece of paper?
The efforts to stop this vicious circle are increasingly focused on bypassing the banking and financial system. As central banks widen the assets they are prepared to purchase to maintain the flow of credit to the economy at large, they are increasingly getting into the capital allocation game. They, and not the market, will at the margin decide whether companies and households are creditworthy. And as governments increase their spending plans to ward off a catastrophic loss of demand, they, rather than companies, will decide on how our savings should be allocated.
The second change relates to an increased national bias in the allocation of capital. As Nicolas Sarkozy, the French President, pushes to offer government funding to French car companies on condition they don't outsource French jobs abroad, as US Congress signs off a stimulus package with more than a hint of a "Buy American" policy, and as the UK Government pushes to encourage bailed-out banks to lend domestically as opposed to internationally, we appear to be turning our backs on the previous world of heightened cross-border trade and capital flows. While these flows have undoubtedly been volatile, they have nevertheless allowed emerging economies, in particular, to gain a foothold on the development ladder. Are we about to cast these countries asunder in our desperate attempt to fix our domestic problems?
The third change relates to interference in the price mechanism. When it comes to Sir Fred Goodwin's pension, this isn't so surprising, but the price mechanism extends far and wide. At the microeconomic level, we'll enter a world of subsidised loans with murky political undertones. At the macroeconomic level, countries may take the opportunity to manipulate their exchange rates in an attempt either to gain a competitive advantage or to "default" to foreign creditors.
Some of these changes may be absolutely necessary to prevent an outright collapse in global economic activity (although the rise in protectionist pressures is surely a retrograde step). They also suggest, though, that there will be no return to "business as usual" for market forces. The cost of avoiding depression is a heightened level of state intervention on a scale unimaginable for those who believe in the virtues of free markets. While such intervention may help prevent the worst ravages of economic collapse, it will ultimately do little to foster the entrepreneurial spirit and risk-taking behaviour which have, in the past, contributed so much to rising living standards. We may avoid a 1930s Depression but, increasingly, we may find the best we can hope for is a 1990s Japan. Not quite a Marxist revolution, then, but certainly a lasting sea-change in economic performance.
In short, Marx may have got the answers wrong, but he asked the right questions...
Apols for the relative lack of blogging in recent weeks. I've been busy with other projects. I have still to totally finish Kevin Carson's Studies in Mutualist Political Economy. I am also ploughing slowly through the Cambridge University Press volume on The English Levellers and their political thought.
I have also updated and revised my article on the European Round Table of Industrialists for publication in the trans-European, anti-EU mag These Tides. That is more or less been put to bed. I am also going to get stuck into an article on the 'Security and Prosperity Partnership' between the USA, Canada and Mexico in the coming weeks. There are also a few obscure subjects I want to look at to see if there is enough for writing meaty articles about.
On a more practical political level, there is a bye-election in the nearby ward of Belsize Park in April 2nd. I would like to help out the Green Party campaign there. The weekend of Friday 3rd to Sunday 5th April sees the AGM of TEAM (the European Alliance of EU-critical movements) in London.
There is also the European/local elections on June 4th. Perhaps even a General Election that day. So it will busy for me until June at least. However, I will try and not neglect this blog.
Finally, a word or two about more eagle-eyed readers may have noticed at the top of the blog. First, 'the flag.' I came across it at Social Memory Complex and it symbolises 'Anarcho-Mutualism'. I quite like the colour scheme- quite distinctive. Really I also should find a Sea-Green flag, the colour of the Levellers, alongside the Red Flag, the Flag of St George, the Black Flag of Anarchism, the Green Flag of Environmentalism and the Red-Black Flag of Anarcho-Syndicalism. However, it could become a bit of a colour mish-mash! Second, the new strapline for the blog is adapted from Emma Goldman ('If I can't dance, it's not my revolution'). Most of the people I cannot stand in politics are pretty humourless, so it sort of indicates (and attracts, hpefully!) the people I would like to work with politically.