Damned if we do, and screwed if we don’t.
Why economists have a lot to answer for.
Cutting to the chase for a minute when it comes to the deficit-cut/stimulation debate, I’m sure the 85% of you not wedded to either Keynes or Friedman worked out many months ago that we have no alternative. That is – fiscally – the West has a choice between a quick or a slow death.
The Coalition has chosen the quick – to my mind, infinitely preferable route – of deficit cutting; while the US has chosen the slow one - full ahead lalalalala. This less than stimulating option choice (real alternatives are meant to have a different outcome) is a legacy left to us by banking warped-mind-supremacy syndrome, political pain evasion (what we anthropologists call ‘delayed ramification’) and consumer delusion about the Micawber formula for happiness.
The truth is that Draper Osorne’s ‘we’re all in this together’ warble would work better as ‘we’re all to blame’. He’d never say that, because politicos don’t take blame or make mistakes, but it is true nonetheless. In my book, the blame lies with politicians first, because bankers can plead insanity and the rest of us just went along with the feelgood plastic. But what the heck: a cultural cancer took hold – and now the normal cures have all failed, we’re down to crystal energy seances and colonic beeswax therapy.
Economics propellor-heads around the world are nevertheless beside themselves with joy at the minute, because for the first time ever it’s going to be possible to do a side-by-side paired comparison between the US and the UK approaches to financial demise. There’s nothing like empirical fieldwork to stimulate economist tumescence, so expect to see a slushpile of learned papers as a result of this….once the dust of civilisation’s collapse has settled.
Economists are people who drive cars in a forward direction solely by the use of rear-view mirrors. Several of them, in fact, so that every angle can be covered. But it takes a policemen later to point out that there’s a lot of other traffic they didn’t see while this was going on; and the outcome – a monumental pile-up - is always the same. You may think that assessment unfair, but I don’t – and it’s my article, not yours. Furthermore, the evidence supports me, not you: very, very few economists saw 2008 coming, but nearly all of them have been globe-trotting ever since on the basis of telling people how and why it happened.
Are either of the US and UK right in their fiscal choices? Of course not, but that’s because the banks and the previous crop of legislators left those in charge afterwards with no right things to do. So this bit of scholarly guillotine v drying paint research is going to be especially meaningful. As in, up there with the Haydron Collider, because we’re talking metaphysics here – big questions: Is it better to go to Hell in a bucket you bought or a glider you borrowed?
I’m going to put my neck on the block here and assert that buckets are quicker. Not only that, quicker is better because you can get it over with, and hope that there’s life after death. On the other hand, there’s a lot of the species who would rather face the wall than the music. So it does promise to be interesting. For economists. And very painful for the rest of us.
However, the best-planned research of mice and economists gangs aft awry: the US may be about to miss even the glider. For instance, Pimco CEO Bill Gross says America has no real grasp of how much its trillion-dollar annual deficit is costing. “As long as policy is still focused on maintaining consumption instead of making the country more competitive, dollar depreciation will sap the purchasing power of US consumers” he suggests darkly.
The $477 billion decline in revenues earned by the pension funds and other social insurance trust funds is also likely to rain on Bernanke’s parade. Don’t ask me to explain this, but the wizardry of actuarial valuations dictates that all personal and company pension contributions be driven up considerably in the coming years. That’s true despite the good stock market of 2009, and the relatively good stock market of 2010. And older consumers grasp this – cutting expenditure and saving through alternative means rather than spending.
So that glider may be turning into a Stuka. And all because of people, damn it.
Imagine how galling it’s going to be for economists if people keep on not behaving as the models say they should. A once-in-a-billennium project (history suffers with inflation too, you know) is going to be ruined, and all because an untutored bunch of American families opted to ignore Government bollocks…..purely for the selfish purpose of not losing their homes.
And the test-project could get a lot muddier. Even though Britain’s deficit programme is doomed, what would happen if an eccentric but influential credit-rating manager somewhere decided to give the UK thirteen out of ten for effort? The next thing you know, the £ is worth $5 and 40 euros. Britain’s banks give up on credit derivatives, embarking instead on a massive acquisition programme once the stock markets have bottomed. Suddenly, a China impoverished by equally pauperised customers is borrowing off us.
But the thing with economists is, they are always bloodied (but never bowed) by the sort of left-field stuff aka fantasy I just outlined above. Closer to earth, for example, the Queensland floods and generally poor Aussie summer will affect the prices of both coal and wheat. For economists, such things are a useful excuse for not really knowing which way is up. They represent that wonderful thing, an explanation.
But to return to the our backwards-looking pointy-head, what no economist has given us for some seventy years now is a new idea about what to do next. I realise this will offend Friedmanites and others of the new Young Right, but Milt’s theories were nothing more than a return to devil take the hindmost – with the new miracle ingredient, trickle-down wealth; while his lesser clone Theodore Levitt, the father of globalism, basically reinvented eighteenth century mercantilist free trade. (To be fair, his theory of global commonality between classes across cultures was complete invention, in that it is absolute rubbish; Levitt spent too much time flying globally to conferences, and thus imagined those other passengers in Business Class might in some way be normal people.)
We haven’t had a full-blown new theory about What To Do Next since Keynes married Marx to Bentham, and gave birth to the Mixed Economy hated by both Communists and neo-Conservatives. As I’ve written many times, whether the Reaganomists like it or not, that model produced the best growth and most stable societies in history between roughly 1952 and 1970. Everything since has been a curate’s egg – but still the same old egg.
Where is this new idea – in some student’s bottom drawer? In an LSE dissertation marked down because it didn’t praise Keith Joseph? Who can tell. But the changes since the 1950s make it pointless to go back to mixed ownership – which, in a panic, is what the two big Western economic groupings have effectively done.
Again, I’m on the record as liking the idea of a society of businesses with mixed motives, but then I would because it’s mine. I reject globalism as obviously flawed from both an economic and ecological perspective – climate change or no climate change. And I think there needs to be a new point to capitalism…which I suspect will be part and parcel of how it raises the money that gave it its name. Look in learned economics publications, however, and such thinking is nowhere to be seen. There is no thinking – only one post mortem after another.
The one magazine you’d expect to be giving all of this some oxygen is The Economist, but its quality is at an all-time low. It seems to infuse every article with two assumptions: it’s the EU or nothing for Britain, and free markets are the answer. Not only are both assertions patently open to question, they are also contradictory: if the EU is a free market then I’m Hugo Chavez.
Last January, Britain’s perhaps best-known economist Will Hutton wrote, in an Observer piece, “2010 will be the year that the global economy once more regains its momentum”. The article (a pretty shameless piece of political advertising) conveniently forgot what Will had been bashing on about for the previous two years: that the banks were in tatters. It also hopelessly overestimated the US economy’s ability to bounce back – as the Slog pointed out at the time.
Today, journalists like Jeremy Warner (another economist working at the Telegraph) are still writing the same bollocks, as if an ‘economic recovery’ could be measured purely in terms of a meaningless average growth percentage. Why, for instance, does everyone assume that the global economy has to grow? What’s the point of 2% growth if sovereign-applied stimulus is 100% ineffective? Why will the US benefit from a ‘boom’ that merely grows its trade deficit? And if all this ‘recovery’ can occur while banks are going bust all over the place, why do we need banks as much as bankers tell us we do?
If we are not to think that economics is simply a rather dull branch of history, then the academics who keep writing to newspapers about deficits – in the same numbers as they write about not cutting deficits – will have to shape up. For me, a fully explained account of what went wrong in the 2011-13 period can wait for a while. I’d rather be shown a blueprint for genuinely creative reforms supporting new objectives.