The death of neoliberalism and the crisis in western politics


August 25, 2016

The death of neoliberalism and the crisis in western politics

By Marton Jacques

In the early 1980s the author was one of the first to herald the emerging dominance of neoliberalism in the west. Here he argues that this doctrine is now faltering. But what happens next?

 

Donald Trump seeks a return to 1950s America, well before the age of neoliberalism. Photograph: H. Armstrong Roberts/Retrofile/Getty Images

The western financial crisis of 2007-8 was the worst since 1931, yet its immediate repercussions were surprisingly modest. The crisis challenged the foundation stones of the long-dominant neoliberal ideology but it seemed to emerge largely unscathed. The banks were bailed out; hardly any bankers on either side of the Atlantic were prosecuted for their crimes; and the price of their behaviour was duly paid by the taxpayer. Subsequent economic policy, especially in the Anglo-Saxon world, has relied overwhelmingly on monetary policy, especially quantitative easing. It has failed. The western economy has stagnated and is now approaching its lost decade, with no end in sight.

After almost nine years, we are finally beginning to reap the political whirlwind of the financial crisis. But how did neoliberalism manage to survive virtually unscathed for so long? Although it failed the test of the real world, bequeathing the worst economic disaster for seven decades, politically and intellectually it remained the only show in town. Parties of the right, centre and left had all bought into its philosophy, New Labour a classic in point. They knew no other way of thinking or doing: it had become the common sense. It was, as Antonio Gramsci put it, hegemonic. But that hegemony cannot and will not survive the test of the real world.

But the causes of this political crisis, glaringly evident on both sides of the Atlantic, are much deeper than simply the financial crisis and the virtually stillborn recovery of the last decade. They go to the heart of the neoliberal project that dates from the late 70s and the political rise of Reagan and Thatcher, and embraced at its core the idea of a global free market in goods, services and capital. The depression-era system of bank regulation was dismantled, in the US in the 1990s and in Britain in 1986, thereby creating the conditions for the 2008 crisis. Equality was scorned, the idea of trickle-down economics lauded, government condemned as a fetter on the market and duly downsized, immigration encouraged, regulation cut to a minimum, taxes reduced and a blind eye turned to corporate evasion.

The first inkling of the wider political consequences was evident in the turn in public opinion against the banks, bankers and business leaders. For decades, they could do no wrong: they were feted as the role models of our age, the default troubleshooters of choice in education, health and seemingly everything else. Now, though, their star was in steep descent, along with that of the political class. The effect of the financial crisis was to undermine faith and trust in the competence of the governing elites. It marked the beginnings of a wider political crisis.

It should be noted that, by historical standards, the neoliberal era has not had a particularly good track record. The most dynamic period of postwar western growth was that between the end of the war and the early 70s, the era of welfare capitalism and Keynesianism, when the growth rate was double that of the neoliberal period from 1980 to the present.

Ronald Reagan and Margaret Thatcher, pictured in 1984, ushered in the era of neoliberalism.
Ronald Reagan and Margaret Thatcher, pictured in 1984, ushered in the era of neoliberalism. Photograph: Bettmann Archive

But by far the most disastrous feature of the neoliberal period has been the huge growth in inequality. Until very recently, this had been virtually ignored. With extraordinary speed, however, it has emerged as one of, if not the most important political issue on both sides of the Atlantic, most dramatically in the US. It is, bar none, the issue that is driving the political discontent that is now engulfing the west. Given the statistical evidence, it is puzzling, shocking even, that it has been disregarded for so long; the explanation can only lie in the sheer extent of the hegemony of neoliberalism and its values.

But now reality has upset the doctrinal apple cart. In the period 1948-1972, every section of the American population experienced very similar and sizable increases in their standard of living; between 1972-2013, the bottom 10% experienced falling real income while the top 10% did far better than everyone else. In the US, the median real income for full-time male workers is now lower than it was four decades ago: the income of the bottom 90% of the population hasstagnated for over 30 years.

A not so dissimilar picture is true of the UK. And the problem has grown more serious since the financial crisis. On average, between 65-70% of households in 25 high-income economies experienced stagnant or falling real incomes between 2005 and 2014.

The reasons are not difficult to explain. The hyper-globalisation era has been systematically stacked in favour of capital against labour: international trading agreements, drawn up in great secrecy, with business on the inside and the unions and citizens excluded, the Trans-Pacific Partnership (TPP) and theTransatlantic Trade and Investment Partnership (TTIP) being but the latest examples; the politico-legal attack on the unions; the encouragement of large-scale immigration in both the US and Europe that helped to undermine the bargaining power of the domestic workforce; and the failure to retrain displaced workers in any meaningful way.

As Thomas Piketty has shown, in the absence of countervailing pressures, capitalism naturally gravitates towards increasing inequality. In the period between 1945 and the late 70s, Cold War competition was arguably the biggest such constraint. Since the collapse of the Soviet Union, there have been none. As the popular backlash grows increasingly irresistible, however, such a winner-takes-all regime becomes politically unsustainable.

Large sections of the population in both the US and the UK are now in revolt against their lot, as graphically illustrated by the support for Trump and Sanders in the US and the Brexit vote in the UK. This popular revolt is often described, in a somewhat denigratory and dismissive fashion, as populism. Or, as Francis Fukuyama writes in a recent excellent essay in Foreign Affairs: “‘Populism’ is the label that political elites attach to policies supported by ordinary citizens that they don’t like.” Populism is a movement against the status quo. It represents the beginnings of something new, though it is generally much clearer about what it is against than what it is for. It can be progressive or reactionary, but more usually both.

Brexit is a classic example of such populism. It has overturned a fundamental cornerstone of UK policy since the early 1970s. Though ostensibly about Europe, it was in fact about much more: a cri de coeur from those who feel they have lost out and been left behind, whose living standards have stagnated or worse since the 1980s, who feel dislocated by large-scale immigration over which they have no control and who face an increasingly insecure and casualised labour market. Their revolt has paralysed the governing elite, already claimed one prime minister (David Cameron), and left the latest one fumbling around in the dark looking for divine inspiration (Theresa May).

The wave of populism marks the return of class as a central agency in politics, both in the UK and the US. This is particularly remarkable in the US. For many decades, the idea of the “working class” was marginal to American political discourse. Most Americans described themselves as middle class, a reflection of the aspirational pulse at the heart of American society. According to a Gallup poll, in 2000 only 33% of Americans called themselves working class; by 2015 the figure was 48%, almost half the population.

Brexit, too, was primarily a working-class revolt. Hitherto, on both sides of the Atlantic, the agency of class has been in retreat in the face of the emergence of a new range of identities and issues from gender and race to sexual orientation and the environment. The return of class, because of its sheer reach, has the potential, like no other issue, to redefine the political landscape.

The re-emergence of class should not be confused with the labour movement. They are not synonymous: this is obvious in the US and increasingly the case in the UK. Indeed, over the last half-century, there has been a growing separation between the two in Britain. The re-emergence of the working class as a political voice in Britain, most notably in the Brexit vote, can best be described as an inchoate expression of resentment and protest, with only a very weak sense of belonging to the labour movement.

Indeed, Ukip has been as important – in the form of immigration and Europe – in shaping its current attitudes as the Labour party. In the United States, both Trump and Sanders have given expression to the working-class revolt, the latter almost as much as the former. The working class belongs to no one: its orientation, far from predetermined, as the left liked to think, is a function of politics.

The neoliberal era is being undermined from two directions. First, if its record of economic growth has never been particularly strong, it is now dismal. Europe is barely larger than it was on the eve of the financial crisis in 2007; the United States has done better but even its growth has been anaemic. Economists such as Larry Summers believe that the prospect for the future is most likely one of secular stagnation.

Worse, because the recovery has been so weak and fragile, there is a widespread belief that another financial crisis may well beckon. In other words, the neoliberal era has delivered the west back into the kind of crisis-ridden world that we last experienced in the 1930s. With this background, it is hardly surprising that a majority in the west now believe their children will be worse off than they were. Second, those who have lost out in the neoliberal era are no longer prepared to acquiesce in their fate – they are increasingly in open revolt. We are witnessing the end of the neoliberal era. It is not dead, but it is in its early death throes, just as the social-democratic era was during the 1970s.

Image result for Jeffrey D. Sachs

The Earth Institute@Columbia University’s Jeffery Sachs

A sure sign of the declining influence of neoliberalism is the rising chorus of intellectual voices raised against it. From the mid-70s through the 80s, the economic debate was increasingly dominated by monetarists and free marketeers. But since the western financial crisis, the centre of gravity of the intellectual debate has shifted profoundly. This is most obvious in the United States, with economists such as Joseph Stiglitz, Paul Krugman, Dani Rodrik and Jeffrey Sachs becoming increasingly influential. Thomas Piketty’s Capital in the Twenty-First Century has been a massive seller. His work and that of Tony Atkinson and Angus Deaton have pushed the question of the inequality to the top of the political agenda. In the UK, Ha-Joon Chang, for long isolated within the economics profession, has gained a following far greater than those who think economics is a branch of mathematics.

 Meanwhile, some of those who were previously strong advocates of a neoliberal approach, such as Larry Summers and the Financial Times’s Martin Wolf, have become extremely critical. The wind is in the sails of the critics of neoliberalism; the neoliberals and monetarists are in retreat. In the UK, the media and political worlds are well behind the curve. Few recognise that we are at the end of an era. Old attitudes and assumptions still predominate, whether on the BBC’s Today programme, in the rightwing press or the parliamentary Labour party.

Following Ed Miliband’s resignation as Labour leader, virtually no one foresaw the triumph of Jeremy Corbyn in the subsequent leadership election. The assumption had been more of the same, a Blairite or a halfway house like Miliband, certainly not anyone like Corbyn. But the zeitgeist had changed. The membership, especially the young who had joined the party on an unprecedented scale, wanted a complete break with New Labour. One of the reasons why the left has failed to emerge as the leader of the new mood of working-class disillusionment is that most social democratic parties became, in varying degrees, disciples of neoliberalism and uber-globalisation. The most extreme forms of this phenomenon were New Labour and the Democrats, who in the late 90s and 00s became its advance guard, personified by Tony Blair and Bill Clinton, triangulation and the third way.

But as David Marquand observed in a review for the New Statesman, what is the point of a social democratic party if it doesn’t represent the less fortunate, the underprivileged and the losers? New Labour deserted those who needed them, who historically they were supposed to represent. Is it surprising that large sections have now deserted the party who deserted them? Blair, in his reincarnation as a money-obsessed consultant to a shady bunch of presidents and dictators, is a fitting testament to the demise of New Labour.

‘Virtually no one foresaw the triumph of Jeremy Corbyn’, pictured at a rally in north London last week.

‘Virtually no one foresaw the triumph of Jeremy Corbyn’, pictured at rally in north London last week. Photograph: Daniel Leal-Olivas/AFP/Getty Images

The rival contenders – Burnham, Cooper and Kendall – represented continuity. They were swept away by Corbyn (pic above), who won nearly 60% of the votes. New Labour was over, as dead as Monty Python’s parrot. Few grasped the meaning of what had happened. A Guardian leader welcomed the surge in membership and then, lo and behold, urged support for Yvette Cooper, the very antithesis of the reason for the enthusiasm. The PLP refused to accept the result and ever since has tried with might and main to remove Corbyn.

Just as the Labour party took far too long to come to terms with the rise of Thatcherism and the birth of a new era at the end of the 70s, now it could not grasp that the Thatcherite paradigm, which they eventually came to embrace in the form of New Labour, had finally run its course. Labour, like everyone else, is obliged to think anew. The membership in their antipathy to New Labour turned to someone who had never accepted the latter, who was the polar opposite in almost every respect of Blair, and embodying an authenticity and decency which Blair patently did not.

Labour may be in intensive care, but the condition of the Conservatives is not a great deal better.

Corbyn is not a product of the new times, he is a throwback to the late 70s and early 80s. That is both his strength and also his weakness. He is uncontaminated by the New Labour legacy because he has never accepted it. But nor, it would seem, does he understand the nature of the new era. The danger is that he is possessed of feet of clay in what is a highly fluid and unpredictable political environment, devoid of any certainties of almost any kind, in which Labour finds itself dangerously divided and weakened.

Labour may be in intensive care, but the condition of the Conservatives is not a great deal better. David Cameron was guilty of a huge and irresponsible miscalculation over Brexit. He was forced to resign in the most ignominious of circumstances. The party is hopelessly divided. It has no idea in which direction to move after Brexit. The Brexiters painted an optimistic picture of turning away from the declining European market and embracing the expanding markets of the world, albeit barely mentioning by name which countries it had in mind. It looks as if the new prime minister may have an anachronistic hostility towards China and a willingness to undo the good work of George Osborne. If the government turns its back on China, by far the fastest growing market in the world, where are they going to turn?

Brexit has left the country fragmented and deeply divided, with the very real prospect that Scotland might choose independence. Meanwhile, the Conservatives seem to have little understanding that the neoliberal era is in its death throes.

‘Put America first’: Donald Trump in Cleveland last month. Photograph: Joe Raedle/Getty Images

Dramatic as events have been in the UK, they cannot compare with those in the United States. Almost from nowhere, Donald Trump rose to capture the Republican nomination and confound virtually all the pundits and not least his own party. His message was straightforwardly anti-globalisation. He believes that the interests of the working class have been sacrificed in favour of the big corporations that have been encouraged to invest around the world and thereby deprive American workers of their jobs. Further, he argues that large-scale immigration has weakened the bargaining power of American workers and served to lower their wages.

He proposes that US corporations should be required to invest their cash reserves in the US. He believes that the North American Free Trade Agreement (Nafta) has had the effect of exporting American jobs to Mexico. On similar grounds, he is opposed to the TPP and the TTIP. And he also accuses China of stealing American jobs, threatening to impose a 45% tariff on Chinese imports.

To globalisation Trump counterposes economic nationalism: “Put America first”. His appeal, above all, is to the white working class who, until Trump’s (and Bernie Sander’s) arrival on the political scene, had been ignored and largely unrepresented since the 1980s. Given that their wages have been falling for most of the last 40 years, it is extraordinary how their interests have been neglected by the political class. Increasingly, they have voted Republican, but the Republicans have long been captured by the super-rich and Wall Street, whose interests, as hyper-globalisers, have run directly counter to those of the white working class. With the arrival of Trump they finally found a representative: they won Trump the Republican nomination.

The economic nationalist argument has also been vigorously pursued by Bernie Sanders, who ran Hillary Clinton extremely close for the Democratic nomination and would probably have won but for more than 700 so-called super-delegates, who were effectively chosen by the Democratic machine and overwhelmingly supported Clinton. As in the case of the Republicans, the Democrats have long supported a neoliberal, pro-globalisation strategy, notwithstanding the concerns of its trade union base. Both the Republicans and the Democrats now find themselves deeply polarised between the pro- and anti-globalisers, an entirely new development not witnessed since the shift towards neoliberalism under Reagan almost 40 years ago.

Another plank of Trump’s nationalist appeal – “Make America great again” – is his position on foreign policy. He believes that America’s pursuit of great power status has squandered the nation’s resources. He argues that the country’s alliance system is unfair, with America bearing most of the cost and its allies contributing far too little. He points to Japan and South Korea, and Nato’s European members as prime examples.He seeks to rebalance these relationships and, failing that, to exit from them.

As a country in decline, he argues that America can no longer afford to carry this kind of financial burden. Rather than putting the world to rights, he believes the money should be invested at home, pointing to the dilapidated state of America’s infrastructure. Trump’s position represents a major critique of America as the world’s hegemon. His arguments mark a radical break with the neoliberal, hyper-globalisation ideology that has reigned since the early 1980s and with the foreign policy orthodoxy of most of the postwar period. These arguments must be taken seriously. They should not be lightly dismissed just because of their authorship. But Trump is no man of the left. He is a populist of the right. He has launched a racist and xenophobic attack on Muslims and on Mexicans. Trump’s appeal is to a white working class that feels it has been cheated by the big corporations, undermined by Hispanic immigration, and often resentful towards African-Americans who for long too many have viewed as their inferior.

A Trump America would mark a descent into authoritarianism characterised by abuse, scapegoating, discrimination, racism, arbitrariness and violence; America would become a deeply polarised and divided society. His threat to impose 45% tariffs on China, if implemented, would certainly provoke retaliation by the Chinese and herald the beginnings of a new era of protectionism.

Trump may well lose the presidential election just as Sanders failed in his bid for the Democrat nomination. But this does not mean that the forces opposed to hyper-globalisation – unrestricted immigration, TPP and TTIP, the free movement of capital and much else – will have lost the argument and are set to decline. In little more than 12 months, Trump and Sanders have transformed the nature and terms of the argument. Far from being on the wane, the arguments of the critics of hyper-globalisation are steadily gaining ground. Roughly two-thirds of Americans agree that “we should not think so much in international terms but concentrate more on our own national problems”. And, above all else, what will continue to drive opposition to the hyper-globalisers is inequality.

 https://www.theguardian.com/commentisfree/2016/aug/21/death-of-neoliberalism-crisis-in-western-politics

Keynes: The Return of the Master by Robert Skidelsky


August 22, 2016

Keynes: The Return of the Master by Robert Skidelsky

by Economics Nobel Laureate Paul Krugman

Paul Krugman :The Finest of his Generation

The great economist’s theories have never been more relevant – and his biographer remains their most compelling advocate, says Paul Krugman

At research seminars, people don’t take Keynesian theorising seriously anymore; the audience starts to whisper and giggle to one another.” So declared Robert Lucas of the University of Chicago, writing in 1980. At the time, Lucas was arguably the world’s most influential macro-economist; the influence of John Maynard Keynes, the British economist whose theory of recessions dominated economic policy for a generation after the Second World War, seemed to be virtually at an end.

But Keynes, it turns out, is having the last giggle. Lucas’s “rational expectations” theory of booms and slumps has shown itself to be completely useless in the current world crisis. Not only does it offer no guide for action, but it more or less asserts that market economies cannot possibly experience the kind of problems they are, in fact, experiencing. Keynesian economics, on the other hand, which was created precisely to make sense of times like these, looks better than ever.

The Continued Relevance of John Maynard Keynes–Macro-Economics


August 22, 2016

The Continued Relevance of John Maynard Keynes

By Lord  Robert Skidelsky at LSE

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.

READ:

https://www.theguardian.com/books/2004/jan/04/biography.features?CMP=share_btn_fb  by William Keegan

The Future of Europe


August 21, 2016

SLIPPERY SLOPE
Europe’s Troubled Future
By Giles Merritt
270 pp. Oxford University Press. $29.95.

WELCOME TO THE POISONED CHALICE
The Destruction of Greece and the Future of Europe
By James K. Galbraith
213 pp. Yale University Press. $26.

Americans tend to struggle to grasp the ways of the European Union, which admittedly are complex and often arcane. It’s unhelpful that much of the writing on the continent’s seminal postwar project lapses into the same euro-jargon that the union’s technocrats and think tanks employ. Many Europeans can’t make sense of it either, which is one explanation for the triumphant Brexit vote and the historically low trust in the E.U. that Europeans everywhere express today. The community is indisputably mired in its most acute crisis since its founding in the 1950s.

Yet contemporary Europe is incomprehensible without it, so thoroughly does the E.U.’s existence suffuse the everyday lives of its 508 million citizens, the governance of the 28 member states and a $15 trillion economy. This is why the short­ish, lucid books of the Brussels-based journal editor Giles Merritt and the American economist James K. Galbraith deserve particular attention. In accessible prose flush with strong argument, they diagnose the E.U.’s problems — and offer prescriptions on how to deal with them. Though the community is currently preoccupied with Britain’s vote to leave, the influx of migrants, an economy still reeling from the financial crisis, the ascent of far-right parties and a declining global market share, both authors believe deeply in the E.U.

In order to get at the community’s core deficiencies, Merritt first punctures some of the myths that unfairly damage its credibility. A favorite of euro-skeptics is that the E.U. is a gigantic, autonomous “superstate” that runs Europe from Brussels. In fact, the E.U.’s largest body and its executive arm, the European Commission, has a staff of just 23,000, smaller than many national government ministries.

Moreover, most E.U. legislation is not in the form of written law, but rather “directives” to the states, whose legislatures then turn them into law. The heavy lifting is done by the member states. As for autonomy, it is the states that drive the E.U., whether through their national ministers in the Council of Ministers, one of the E.U.’s legislative bodies, or the commission, where state appointees deal with everything from agriculture to consumer protection. The governments call the shots, and it is therefore at their feet that Merritt lays most of the blame for the E.U.’s malaise.

In the same vein, the E.U. has come under fire for its policies guaranteeing workers’ freedom of movement within the union. In the Brexit campaign, anti-E.U. voices charged that its provisions enabled Central Europeans to swamp Britain. In fact, demographic analyses show that northern Europe needs many kinds of workers now and will increasingly require more in decades to come. Although European politicians know this too, many can’t sell this argument to their electorates, just one example of the dichotomy that pits the interests of elected national officials against those of the greater good, embodied in the E.U.

Merritt, despite his substantial respect for the E.U., argues that bold, sweeping reforms are imperative to meet the challenges of the 21st century. Global warming, terrorism, globalized markets, mass migration, militarized geopolitics and the digital revolution all require supranational attention. On their own, he argues, the individual nation states of Europe, Britain included, are doomed to irrelevance.

Yet there’s much more consensus on the union’s shortcomings than on how to address them. The so-called democratic deficit, for instance, refers to the lack of transparency and accountability in the E.U.’s decision-making process. The council, the “true legislative body,” meets behind closed doors. The European Parliament’s elected M.P.s exercise some power, yet no one is held responsible for failure. And then there are the unelected civil servants. No democratic state worth its salt would permit such basic transgressions of democratic procedure. But the E.U., Merritt charges, gets away with it.

Furthermore, the E.U.’s rigidity undermines its ability to promote innovation. Europe lags woefully behind the United States and China in turning digital technology into commercial success. Meager investment in R&D has hurt Europe’s productivity and thus global competitiveness, causing Europe’s share of the international market to stagnate while its rivals post gains. In more ways than one, Merritt argues convincingly, the E.U. is stuck in the 20th century.

Until the Brexit vote, the single greatest blow to the E.U. had been the post-2008 tribulations of the euro, called the euro crisis, which manifested itself as a devastating debt problem that upended the economies of southern Europe and Ireland. The threat of insolvency forced the wealthier northern Europeans, above all Germany, to bail out the troubled nations at high cost, both financially and in terms of good will.

James K. Galbraith, the son of the great Keynesian economist John Kenneth Galbraith, had, as an adviser to the left-wing Syriza government in Greece, a front-row seat at pivotal moments in the showdown between the E.U. (and the International Monetary Fund, too) and Greece, the hardest hit of the debtor nations. The E.U. erred egregiously, he writes, in making draconian austerity policies the price of Greece’s rescue while letting the continent’s banks off scot free. The wrongness of this prescription, he says, is borne out today, five years later, with Greece prostrate under the burden of the E.U.’s highest external debt (in relation to its economy’s size), the highest unemployment (29 percent) and grim social and psychological fallout. Deep budget cuts and higher taxes have cost Greece a quarter of its pre-crisis wealth, rendering a recovery impossible, according to Galbraith, perhaps forever. Greece’s withdrawal from the euro zone, he suggests, would have been preferable.

 Galbraith understands the eurocrisis largely as a byproduct of the global banking and financial disaster triggered in the United States in 2007, which the ­center-right governments in Germany and France exploited to crush the left-wing government in Greece and its allies elsewhere in southern Europe. Leftist governments, Galbraith says, won’t get relief from the punishment of austerity, slashed wages, reduced pensions and the fire sale of state assets until their politics return to the center. Until then, they will suffer and the wealth disparity between northern and southern Europe will widen.

Greece, Galbraith writes, could become something like “a Caribbean dependency of the United States. Its professional population will continue to leave, and its working classes will also either emigrate or sink into destitution. Or perhaps they will fight.”

Fighting, however, didn’t get Syriza or Galbraith’s friend, the controversial ­January-to-June-2015 Greek finance minister Yanis Varoufakis, very far. Even a national referendum rejecting the terms of a bailout didn’t manage to dilute the poison the Greeks had to swallow. The way out, argues Galbraith, ever the Keynesian, is a multi-pronged approach that includes a spending program like the postwar Marshall Plan.

For his part, Merritt presents the recipes of several research institutions, all of which call for rejuvenating the E.U.’s structures to make them more democratic, flexible and efficient. He, like Galbraith and other E.U. advocates, insists that deeper political and economic integration is the answer. Yet, he concedes, because Europe’s political spectrum is fractured as never before, with national interests regularly trumping common cause, the lesser evil at the moment may be smaller, tactical interventions to complete the single market, invest in research, modernize infrastructure and strengthen foreign policy mechanisms.

Doing nothing at all is the worst option, the authors agree, a conclusion dramatically reinforced by the Brexit vote. That would condemn the E.U. to muddle from crisis to crisis until finally one of those crises takes it down once and for all.

Paul Hockenos is a Berlin-based writer. His “Berlin Calling: Anarchy, Punk Rock, Techno, and the Birth of the New Berlin” will come out next year.

A version of this review appears in print on August 21, 2016, on page BR16 of the Sunday Book Review with the headline: Europe Is Falling . . . .

Revisiting John Maynard Keynes–The Father of Macro-Economics


August 20, 2016

Revisiting John Maynard Keynes–The Father of Macro-Economics

In the long run we are all dead.–Lord Keynes

For Economists, social scientists and policy wonks among us. Remember what happened to the global economy following the banking crisis in 2008. Did Keynes’s General Theory (1936) saved us? Listen to Keynes’s Eminent Biographer  Lord Skidelsky deliver his speech to commemorate the 80th Anniversary of the publication of the book. –Din Merican

ON  Keynes:

John Maynard Keynes (June 5, 1883 – April 21, 1946) was one of the most influential economists of the Twentieth Century. His ground breaking work in the 1930s led to the development of a whole new economic discipline dedicated to macroeconomics. In particular, his economic theories termed ‘Keynesianism’ advocated government intervention to end the Great Depression.

keynes

John M. Keynes was born in Cambridge to an upper middle class family. His father was a lecturer in economics and moral sciences at Cambridge university. He was bright scholar won a scholarship to Eton College. After Eton, he studied Mathematics at Kings College, Cambridge. It was here that the great economist Alfred Marshall encouraged Keynes to take up the relatively new science of Economics. He published his first economic article in 1909, and by 1911 was editor of the Economic Journal.

During the First World War, Keynes acted as a government advisor for the government. He helped to negotiate terms with Britain’s creditors (UK debt rose sharply in World War One. At the end of the First World War, Keynes took part in the British delegation to the Treaty of Versailles. Keynes was shocked at the level of reparations the Allies wanted to impose on the Germans. Keynes resigned from the British delegation saying it was a recipe for bankrupting Germany. He wrote the Economic Consequences of the Peace in 1919, accurately predicting the difficulties Germany would have and the consequent political resentment at such as harsh peace treaty.

If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp.

The Economic Consequences of the Peace (1919)  Chapter VII, Section 1, pg.268

In the 1920s, Keynes was a fearsome critique of Britain’s decision to remain in the gold standards at a pre 1914 level. Keynes argued that this high value of sterling made life difficult for British exporters and was the main reason for the deflation and high unemployment the UK experienced in the 1920s.

It was the Great Depression of 1929-39, which gave Keynes the opportunity to disparage and challenge the classical orthodoxy which dominated economic theory at the time. At the outbreak of the Great Depression, the classical response was to rely on free markets and balance the budget. The classical response was to try and balance the government budget, through tax increases and government spending. In 1931, Keynes was particularly critical of Ramsay McDonald’s austerity budget which cut public investment, wages and increased taxes. Keynes argued that the government should be doing the opposite. Throughout the 1930s, Keynes was a consistent voice for advocating higher government spending funded through higher borrowing. However, in most democracies, it proved a lone voice – apart from intermittent spending as part of Roosevelt’s new deal.

The basic principle of Keynes’ work was that in a recession, there were wasted resources due to falling private sector investment and spending. Therefore, the government should step in and by increasing government spending making the unemployed resources, lying idle become used. See more at explanation of Keynesian economics

Keynes was also a great publicist of his own views, with a knack of attracting attention. For example, when he saw a waiter with nothing to do, he knocked some serviettes on to the floor. He explained to his bemused friends he was trying to prevent unemployment by creating work. In his General Theory, he used the analogy of digging holes in the ground to explain concepts of aggregate demand.

Keynes was also a great publicist of his own views, with a knack of attracting attention. For example, when he saw a waiter with nothing to do, he knocked some serviettes on to the floor. He explained to his bemused friends he was trying to prevent unemployment by creating work. In his General Theory, he used the analogy of digging holes in the ground to explain concepts of aggregate demand.

To dig holes in the ground“, paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services. It is not reasonable, however, that a sensible community should be content to remain dependent on such fortuitous and often wasteful mitigations when once we understand the influences upon which effective demand depends.

His work created some notable soundbites – he popularised the idea of the paradox of thrift (individual saving causes aggregate spending to fall). He also coined the phrase ‘in the long run we are all dead’.

The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again. A Tract on Monetary Reform (1923) Ch. 3.

This phrase was an ironic criticism of classical theory, which argued markets would return to equilibrium ‘in the long run’

His ground breaking work – The General theory of Employment, Interest and Money (1936) provided a framework for macroeconomics and was a radical departure from the more limited classical framework. After the war, to varying degrees, governments in the West, pursued Keynesian demand management in an attempt to achieve full employment. This led the US president R. Nixon to declare in the 1960s – “we’re all Keynesians now.” In the 1970s, the reputation of Keynes’ work was challenged by the neo-classical economists – monetarists, such as Milton Friedman. But, the great recession of 2008-2013 led to a resurgence of interest in Keynes’ explanation for prolonged recessions.

In 1940, his health suffered, and he had to cut back on his workload. However, after the Second World War, he was asked to take part in the British negotiations with America over debt repayments. It was Keynes’ job to emphasise to the Americans how bankrupt the UK was. The American delegation who met Keynes were deeply impressed by his intellect and passion. Though they couldn’t meet his demands until congress became worried about the spread of Communism in Europe, and agreed to extend the terms of credit.

Outside economics, Keynes was lover of the arts, opera and noted for his exceptional wit. He was a formidable, intellect and even critics admitted he had both great intellect and powers of persuasion.

Every time I argued with Keynes, I felt that I took my life in my hands and I seldom emerged without feeling something of a fool.

Bertrand Russell

Austrian economist Friedrich von Hayek who came up with an economic theory (Austrian economics), very different to Keynes, wrote:

He was the one really great man I ever knew, and for whom I had unbounded admiration. The world will be a very much poorer place without him.

Another quality of Keynes was his optimism and belief in finding a solution. Whilst many despaired at the social and economic cost of the Great Depression, to Keynes, he saw a way out – it need not be like this.

He used his knowledge of economics to make a fortune on the stock market, though in 1929, he failed to predict the stock market crash, and lost a fortune. However, in the 1930s, he saw his financial investments make a good return, as he made a number of astute investments. He was a member of the Bloomsbury Group, a fashionable society of Cambridge graduates, who also included Virginia Woolf and E.M.Forster

Keynes married the ballerina Lydia Lopokova, but, had a number of affairs with both women and men. He tragically died from a heart attack in 1946, just as he was helping to implement the post war economic settlement and set up the Bretton-Woods system.

Citation : Pettinger, Tejvan. “Biography of John M Keynes“, Oxford, www.biographyonline.net 3 Feb. 2013

Influence of John M Keynes

  • Provided dissenting voice at Treaty of Versailles about harshness of peace treaty. Later, many in Britain felt guilt at terms of Treaty, which justified appeasement.
  • Opposition to Gold Standard. In 1931 Britain finally left Gold Standard, which Keynes had criticised for a long-time.
  • Giving sense of hope in Great Depression. As Bertrand Russell says in his autobiography:“There are still many people in America who regard depressions as acts of God. I think Keynes proved that the responsibility for these occurences does not rest with Providence.”
  • Sustained attack on orthodox ‘classical economics’. In 1930s, the UK and US governments didn’t really listen to Keynes, but he did change the study of economics, creating a seismic shift in the subject – which would later incorporate Keynesian ideas into text books and economic theory. Joan Robinson said: “The consequences of Mr. Keynes’s attack upon orthodoxy are very far reaching. First, it cuts the ground from under the pretended justification of inequality, and allows us to see the monstrous absurdity of our social system with a fresh eye.”
  • Keynes is credited with the creation of the branch of macro-economics – which up until that point economics was only concerned with micro-economics.
  • Keynes helped negotiated credit terms with US after the war. In 1965, Time Magazine led with a story, quoting Milton Friedman ‘We’re all Keynesians now’
  • A pacifist for much of his life, in 1936, he argued Britain should rearm in face of Nazi threat.

John M. Keynes Biography

No political leadership in failing ASEAN


August 4, 2016

 No political leadership in failing ASEAN

by Dr. Munir Majid

http://www.thestar.com.my

The Transformation of Munir Majid: From  an ASEAN Activist to an ASEAN Skeptic

ASEAN is failing. It is not working in the way grand declarations and pronouncement of community just last year proclaim it would. Yet, in a pattern of self-deception which has become a regional characteristic, ASEAN – and its intellectual apologists – continue to deny what is plain for all to see.

If not before it is piece of fiction now to speak of ASEAN centrality. This was again proclaimed when the ASEAN Political and Security Community was pronounced last November. ASEAN Foreign Ministers even agreed in September on a “work plan” to strengthen this.

But, however ASEAN muddles through with a definition on what this centrality means, it is gone.Surely, the first and foremost thing about ASEAN centrality must be that it is central to its member states. Is it? Certainly not in respect of how to project and defend an ASEAN position on the South China Sea.

Some have described ASEAN as toothless in this regard. This is unfair. You cannot expect ASEAN to bite or even bark at mighty China. However you would expect ASEAN to stand up for its principles and sovereign rights of states, big or small. Therefore ASEAN should more appropriately be described as spineless.

This did not use to be the case. When ASEAN declared ZOPFAN (Zone of Peace, Freedom and Neutrality) in 1971, through the leadership of Malaysia’s Tun Razak among others, it was in no position to defend it in a very hot phase – the Vietnam War was raging – of the Cold War. Nevertheless it drew a line in a joint commitment to establish a cordon sanitaire.

When ASEAN so creatively promulgated the Treaty of Amity and Cooperation (TAC) in 1976 – with leaders such as Indonesia’s Suharto and Singapore’s Lee Kuan Yew at the fore – it was in actuality the origin of ASEAN centrality: when states from outside the region want to come and treat with ASEAN, they had to accede to the TAC, one of whose main tenets was the legal undertaking to resolve disputes peacefully.

Thus it was that China acceded to the TAC in 2003 and the US in 2009. It is interesting to note that in the joint communique in Vientiane last weekend, where ASEAN Foreign Ministers struggled to forge a weak consensus, there was allusion to the TAC – as if, whistling in the dark, ASEAN wanted to remind its outside partners, especially in relation to the South China Sea, of their commitment to the peaceful conduct of states.

If there was some agreement in Vientiane not to make big the arbitration award on the law of the sea which so infuriates China, to lower the temperature in a situation that was spinning out of control, to engage in bilateral negotiations with China among the claimant states, but also to return to the Declaration of Conduct of Parties (2002) framework which will be fulfilled by a legally binding Code of Conduct, it is actually a good thing.

But where is the leadership in ASEAN to pursue the matter with the commitment that is needed? Leaders and ministers meet and then they go back to domestic concerns. Who follows through?

Certainly not the weak secretariat. Who provides the leadership in ASEAN today of the type which saw its establishment of Asean 50 years ago, of the panache and imagination of Tun Razak, Lee Kuan Yew and Suharto, to name just a few of the luminaries of ASEAN days gone by?

This lack of leadership is the reason why ASEAN is failing today. Asean has been happily organising meetings, with rotating chairs, among its members, with its partners (the so-called Asean Plus countries), at the Asean Regional Forum (established in 1994, now with 27 members) and the East Asia Summit (set up in 2005, now with 18 members), where they all come and attest to Asean centrality. Which Asean believes while they do their own thing.

After the hoopla and the linking of arms, there is poor follow up and follow through, except for the organising of more meetings. All too often you hear the assertion: ASEAN will do this and that, will take on the challenge of one thing or the other. Who? Which ASEAN? Doing what exactly?

There is no doubt there are big problems in the region. The biggest is the new regional geopolitics in South-East Asia informed by strategic contest for influence in the region between China and the US.

Weighty academic conclusions have been reached such as South-East Asia has become “the decisive territory, on the future of which hangs the outcome of a great contest for influence in Asia.”

ASEAN – here we go again, ASEAN as one when there is not any – is not able to contend with this new geopolitical reality. There is now an environment in the region out of the control of ASEAN’s institutional capabilities, such as they are. Another comment by a regional expert: “ASEAN suffers from inherent institutional paralysis.”

However, the situation was not any easier at the height of the Cold War at the time ASEAN was established, when the Vietnam war was raging, later when the genocidal Pol Pot regime reigned in Cambodia, which was then invaded, the war between China and Vietnam in 1979 – one thing after another – but ASEAN held together and fashioned a regional order even if it did not exclusively determine its remit.

There was leadership in ASEAN to make it possible to talk about an ASEAN position. Nowadays even the simplest of things take forever to happen.

The leaders talk grandly about a “People-Centric”. Yet they cannot even make sure there are ASEAN lanes at all ASEAN airports and points of entry.

 

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