With one or two exceptions, western governments and significant others such as China have rediscovered the merits of the good old fashioned economics of J M Keynes in which stimuli are provided to depressed or damaged (not to say broken) economies.
As an unreformed lifelong Keynesian myself I am naturally very pleased about this. It means that there is a fighting chance that the recession will result in a loss of Gross Domestic Product (GDP) of ‘only’ 3 or 4 percent. This will be bad enough, make no mistake about that, and even with the measures applied it could be a lot worse. I do not recall a period since the war when there were so many factors pointing towards depression (a very deep recession with a loss of GDP of around 9 or 10 percent).
Major countries - particularly the US and ourselves, have been living in a fantasy world of non-existent ‘wealth’ ‘created’ by bankers. Alas, ‘bonkers’ would be more like it. One pointer so far as we are concerned is how ill prepared the economy is for this recession (statements by the Prime Minister and the Chancellor about being ‘well prepared’ never said why apart from their far-sighted leadership of course). Truly creative industry (and by this I mean manufacturing - nothing is more ‘creative’ than making things) has been hollowed out since the disastrous years of the early eighties. I recall Mrs Thatcher’s chief economic adviser asking (privately but not in public) ‘why does the country need manufacturing?’ I was flabbergasted and angry then and have been so ever since as successive governments acted as if they’d been reading the same too-clever-by-half monetarist textbooks. We can co-exist with Monetarists in good times but when the going gets really rough its time to send for Uncle Maynard.
We need to make things (and have a thriving agriculture) not just because self-sufficiency means that the country is less exposed to the consequences of get-rich-quick behaviour elsewhere but because the nation’s self-respect demands it. And ownership does matter - again because of national pride but also because being a ‘branch plant economy’ leaves us more exposed to closures made by foreign owners.
There’s a Dorian Grey feeling about an economy that has relied so much on money lending, taking in washing (sorry, providing services) and wheel clamping (one of our strongest growth sectors). With industries eviscerated and household name ‘British’ corporations exporting jobs by the thousand each month, what exactly is it that has supposed to have been growing all these years at 2.5%? You can only consume so much candy floss.
Casino capitalism creates nothing - the amount won exactly equals the amount lost. Real capitalists - our Victorian forebears - would be horrified to be bracketed with today’s fly-boys pretending to be beacons of free enterprise. These old-fashioned entrepreneurs had many faults not least their exploitativeness but they had two other qualities - a sense that what they were doing was important for the nation and that the national interest counted as well as their own profits, and the basic money-morality that meant that you didn’t set out to lie and cheat your way to riches.
The other downside of an industry shrunk in the name of globalisation is that some Keynesian remedies do not work quite as well these days because more of any tax-cut stimulus leaks out through being spent on imports. In the old days we would have been making the goods that people spent their extra money on, thus creating more wealth which in turn was spent leading to the Keynesian ‘multiplier’ where an original pound of stimulus creates several pounds worth of economic recovery. This is also why in my view the Government and most others have got the balance wrong.
More of the stimulus should have been on expanding public works (in which more of the good stays at home) and helping to rebuild industry and less on leaky tax cuts. Incidentally, a Keynesian solution does not necessarily imply huge budget deficits. There is a long neglected balanced budget multiplier where higher tax rates are applied to those who spend smaller proportions of their income (the rich) with lower taxes, higher pensions etc to those who spend greater proportions of income (the rest). But since the nonsense of Reaganomics (continued until recently by Mr Bush) and its followers here, the idea of taxing people who can afford it has been swept off the table with the crumbs.
I’m also sick to death of hearing about the ‘vital importance’ of free trade - whatever is meant by that - and hearing chancellors and former chancellors urging the creation of ‘level playing fields’ when what they should be doing is applying the same degree of tilt as the others. I say ‘whatever is meant by that’ because no (legal) trade is completely free in the sense of having a complete absence of regulations. It’s a question of how much regulation do you need? Just how poor do working conditions have to be in India before you admit that this isn’t competition it’s exploitative cheating? Just how much pollution is it OK to belch out in China? We have been exporting pollution along with our jobs. Production under domestic conditions would have caused less pollution so globalisation (even without the additional transport emissions) has made global warming worse.
In this context there’s also a lot of dangerous talk about so-called ‘comparative advantage’ where countries to the east make goods cheaper for some reason (almost always low pay and poor conditions). After apparent short term gains in the quantity of household bric-a-brac in our homes, this theory leads ultimately to ruin for us too. It is alleged that we surely have a comparative advantage in being ‘smart’ doing designs and selling services - as if the competitors to whom we have handed basic work are stupid and that these things are not next on the list.
So do I favour so called ‘protectionism’, whatever is meant by that, as opposed to ‘free’ trade? It seems that you can use the word ‘protect’ positively when you insure or take other precautions to secure the future of your home and family but to apply ‘protect’ to the economy on which all this depends has been given utterly negative connotations. But it is not a binary choice. Nothing is ever totally free or totally protected. I favour a trading environment where our industry, independence, national pride and environment are conserved (but I’d better not describe myself with the associated adjective!), where we as a country display the extent of self interest that other nations do, where our business leaders rediscover loyalty (bankers need more - a cultural revolution and a few years spreading muck in the fields to see if they can turn this into brass) and act in the wider interest, where we do our utmost to buy English and local and where government, national and local, sets out to rebuild the industry so long dismissed and derided by service economy smart alecs and quick fixers.
Can’t be done? Of course it can! But first there needs to be the will, robustness in international terms and a genuinely long run vision for the national future. Quite a lot to ask for these days I suspect. In the meantime we should apply the approach of John Maynard Keynes to our national infrastructure in all its aspects and not be averse to a fairer system of taxation that would make this an affordable reality.
Major countries - particularly the US and ourselves, have been living in a fantasy world of non-existent ‘wealth’ ‘created’ by bankers. Alas, ‘bonkers’ would be more like it. One pointer so far as we are concerned is how ill prepared the economy is for this recession (statements by the Prime Minister and the Chancellor about being ‘well prepared’ never said why apart from their far-sighted leadership of course). Truly creative industry (and by this I mean manufacturing - nothing is more ‘creative’ than making things) has been hollowed out since the disastrous years of the early eighties. I recall Mrs Thatcher’s chief economic adviser asking (privately but not in public) ‘why does the country need manufacturing?’ I was flabbergasted and angry then and have been so ever since as successive governments acted as if they’d been reading the same too-clever-by-half monetarist textbooks. We can co-exist with Monetarists in good times but when the going gets really rough its time to send for Uncle Maynard.
We need to make things (and have a thriving agriculture) not just because self-sufficiency means that the country is less exposed to the consequences of get-rich-quick behaviour elsewhere but because the nation’s self-respect demands it. And ownership does matter - again because of national pride but also because being a ‘branch plant economy’ leaves us more exposed to closures made by foreign owners.
There’s a Dorian Grey feeling about an economy that has relied so much on money lending, taking in washing (sorry, providing services) and wheel clamping (one of our strongest growth sectors). With industries eviscerated and household name ‘British’ corporations exporting jobs by the thousand each month, what exactly is it that has supposed to have been growing all these years at 2.5%? You can only consume so much candy floss.
Casino capitalism creates nothing - the amount won exactly equals the amount lost. Real capitalists - our Victorian forebears - would be horrified to be bracketed with today’s fly-boys pretending to be beacons of free enterprise. These old-fashioned entrepreneurs had many faults not least their exploitativeness but they had two other qualities - a sense that what they were doing was important for the nation and that the national interest counted as well as their own profits, and the basic money-morality that meant that you didn’t set out to lie and cheat your way to riches.
The other downside of an industry shrunk in the name of globalisation is that some Keynesian remedies do not work quite as well these days because more of any tax-cut stimulus leaks out through being spent on imports. In the old days we would have been making the goods that people spent their extra money on, thus creating more wealth which in turn was spent leading to the Keynesian ‘multiplier’ where an original pound of stimulus creates several pounds worth of economic recovery. This is also why in my view the Government and most others have got the balance wrong.
More of the stimulus should have been on expanding public works (in which more of the good stays at home) and helping to rebuild industry and less on leaky tax cuts. Incidentally, a Keynesian solution does not necessarily imply huge budget deficits. There is a long neglected balanced budget multiplier where higher tax rates are applied to those who spend smaller proportions of their income (the rich) with lower taxes, higher pensions etc to those who spend greater proportions of income (the rest). But since the nonsense of Reaganomics (continued until recently by Mr Bush) and its followers here, the idea of taxing people who can afford it has been swept off the table with the crumbs.
I’m also sick to death of hearing about the ‘vital importance’ of free trade - whatever is meant by that - and hearing chancellors and former chancellors urging the creation of ‘level playing fields’ when what they should be doing is applying the same degree of tilt as the others. I say ‘whatever is meant by that’ because no (legal) trade is completely free in the sense of having a complete absence of regulations. It’s a question of how much regulation do you need? Just how poor do working conditions have to be in India before you admit that this isn’t competition it’s exploitative cheating? Just how much pollution is it OK to belch out in China? We have been exporting pollution along with our jobs. Production under domestic conditions would have caused less pollution so globalisation (even without the additional transport emissions) has made global warming worse.
In this context there’s also a lot of dangerous talk about so-called ‘comparative advantage’ where countries to the east make goods cheaper for some reason (almost always low pay and poor conditions). After apparent short term gains in the quantity of household bric-a-brac in our homes, this theory leads ultimately to ruin for us too. It is alleged that we surely have a comparative advantage in being ‘smart’ doing designs and selling services - as if the competitors to whom we have handed basic work are stupid and that these things are not next on the list.
So do I favour so called ‘protectionism’, whatever is meant by that, as opposed to ‘free’ trade? It seems that you can use the word ‘protect’ positively when you insure or take other precautions to secure the future of your home and family but to apply ‘protect’ to the economy on which all this depends has been given utterly negative connotations. But it is not a binary choice. Nothing is ever totally free or totally protected. I favour a trading environment where our industry, independence, national pride and environment are conserved (but I’d better not describe myself with the associated adjective!), where we as a country display the extent of self interest that other nations do, where our business leaders rediscover loyalty (bankers need more - a cultural revolution and a few years spreading muck in the fields to see if they can turn this into brass) and act in the wider interest, where we do our utmost to buy English and local and where government, national and local, sets out to rebuild the industry so long dismissed and derided by service economy smart alecs and quick fixers.
Can’t be done? Of course it can! But first there needs to be the will, robustness in international terms and a genuinely long run vision for the national future. Quite a lot to ask for these days I suspect. In the meantime we should apply the approach of John Maynard Keynes to our national infrastructure in all its aspects and not be averse to a fairer system of taxation that would make this an affordable reality.
No comments:
Post a Comment