Jan Toporowski

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An obituary of John Weeks appeared in the Guardian on 24th August 2020

The link is here

Laszlo Andor , Hungarian Economist , was EU Commissioner Employment, Social Affairs and Inclusion 20

Laszlo is the Secretary General of FEPS , the Foundation for European Progressive Studies

“This Summer, progressive economists lost a great thinker, author, teacher, activist and friend. I have known Prof. John Weeks for nearly three decades, starting with a visit at SOAS, and then an invitation to Budapest. During the post-1989 transition, those who refused to buy into the newly hegemonic neoliberal dogma, found his book Capital and Exploitation highly illuminating as well as accessible. more ..“

Stephany Griffith-Jones, Council member

John Weeks was a rigorous and progressive  academic economist, committed to  good economic policy and political action; at the same time he was a  very kind, supportive and loyal colleague and friend. He is being  so very badly missed; his memory, and that of his personal and intellectual contributions, however,  keeps him alive amongst his colleagues and friends

I got to know John well in recent years, when PEF was being formed. He kindly invited me to join the PEF Council, which I have enjoyed tremendously, so am really grateful to him for that. John was so  crucial to the work of PEF, and to the links with ,as well as  our support for the Labour party, and in particular for then Shadow Chancellor John McDonnell and his team. It was really admirable to see John’s dedication, which continued till the end, even as his health was failing him.In this, he was not just admirable, but in many ways heroic. He was a wonderful colleague, always generous with his support of other people’s work.

Ann Pettifor, Council member

Ann has written a full obituary for Tribune Magazine

“Late last month, pioneering socialist economist John Weeks passed away. Ann Pettifor remembers her colleague and friend – and his contributions to left-wing politics.”: https://tribunemag.co.uk/2020/08/remembering-john-weeks

Carolina Alves, Council member

John Weeks was scholar who inspired me to know more about Marx, Keynes and inequalities. I knew his work on Marx before I met him in person in 2011. Having accepted to give an interview about his views on labour theory of value, he opened his house without knowing me that well. It was an amazing encounter, and an amazing interview. From this day onwards, John never stopped supporting me and listening to what I had to say.

During my PhD at SOAS (2013-2017), he would patiently listen to my ideas, doubts and question, but he was different than other seniors scholars. He seemed to actually listen to me. He showed interests in my ideas. He was curious about my views. He always made me feel like if I knew something he didn’t. This gave me confidence, it made me feel I was doing something right and it made me grow intellectually. I think perhaps that’s what made John so good at his work and so special, he would listen to others – and he will listen to the others with an open mind and open heart. This didn’t mean he didn’t have strong views or a very clear dear of his principles, theories (we all know that he did!) but he was never afraid to test them.

My experience as a PhD student and after as a young scholar showed that John was an exception in academia because he would carry you with him. While many others would only speak about giving space to young minds or women or people from other minorities, John would actually do something about it. He would invite me for events, for discussions, and would push me to write and be vocal. All this he would do treating me as an equal.

He made me feel valuable and sometimes in academia this is all you need to enable you to carry on. There are many other things that made John very special. He was committed to build a better world and he gave his time for that. He was a humanist with his sharp sense of humour. He was transparent and honest. The heterodox community didn’t only lose a brilliant mind, we lost a human being who made our community more bearable and caring. 

Sue Konzelmann, Council member

When you’ve known him for only three of his 79 years, it ought to be harder to write about John than it actually is. His engagement with not only economics, but also the people who define, implement – and, not infrequently, suffer – from it, is not a characteristic you develop overnight. Much the same could be said of his deceptively “low key” approach to both other people and getting things done; he was someone you simply wanted to work with and help out. Unsurprisingly, that’s how we first met John in 2017 – helping him to bring another book to fruition.

This softly spoken gentleman was, though, without doubt also someone driven to continually try to improve things, a task he set about with an energy that never really wound down. Much will be written about his professional career, which will in all likelihood continue to be influential well into the future. But that’s only part of the reason for the many words of appreciation being written and spoken about John. He was also a thoroughly decent man with real sympathy for his fellow man, as well as a keen wit, making light of his declining health with the observation that “getting old is not for sissies …” 

John also took great delight in his cats, and saw no reason not to adopt another in the last year of his life. In an email exchange after his previous cat died, he wrote: “I asked my 5 year old grandson what he thought that meant. ‘He won’t come back’, my grandson said – which is not bad for a 5 year old, but not true. The cat and my sister come back to me every day in my memories”.

A lot of people are going to remember John like that, too.

Richard Murphy

I first met John when I was appointed as a Professor of Practice. John showed that he understood what others I was working with did not, which was that when appointed to such a post you might really know your subject, but that did not mean that you were familiar with the ways of academia. Because he had that insight he appreciated what others did not, which was that translating ideas into journal paper format is a skill most academics learn when doing a PhD, which stage I had missed. He helped me greatly with that process of adjustment. 

We didn’t always agree. We were on occasion robust with each other. And I like and admired John for precisely that reason. Our commitment to progressive economics permitted differences in pursuit of a greater cause. As a result I did, like I suspect many others who learned from John over his many years in academia, come to greatly appreciate his wisdom, guidance and friendship.

A life well lived is, I think, one that has positive impact on the lives of others. I only knew John in the last years of his life, but he added enormously to my knowledge and understanding during that period, and I am immensely grateful for having had the chance to know him. I suspect there will be a great many who feel the  same way. 

Guy Standing, Council member

When one loses a long-time friend, fellow traveller and kindred spirit, one realises one has lost of bit of oneself. There will be no replacement. This is the case with John Weeks. I will always recall the moment many years ago when he said to me quietly, ‘Please call me Johnny’. He was nearly always a rather serious man. However, what he meant was that he only wanted family and close friends to call him Johnny, rather than the formal John. I felt honoured.

Here is not the place to try to duplicate the excellent obituary written for The Guardian. I merely want to testify to our friendship and recall the two years we worked together in preparing a report for President Nelson Mandela’s Labour Market Commission in 1994-6. I was Director of Research for the Commission, which was a tricky assignment, mainly because of my opposition to the economic strategy being finalised by the Minister of Finance, Trevor Manuel, under the guidance of the IMF. I asked Johnny to work with me on our report and the book that came from all our research, which had contributions from about 50 economists in the country. We also asked John Sender to join our three-man team.

What I will always be grateful for is that Johnny was the one who resolutely supported me and who made major contributions to the book, particularly on macro-economic policy and above all in our economic analysis criticising the emerging IMF approach, known as GEAR.

Johnny and I concluded that if GEAR was pursued, there would be years of sluggish growth, persistence of very high unemployment and worsening inequalities, both within the white population and within the black population. At the time, South Africa had the highest unemployment in the world and probably the most unequal income distribution. Despite our efforts, the ANC government followed GEAR. Today, the country has the highest unemployment rate in the world and the worst income inequality, with a gini coefficient of 0.63. There is not much pleasure in being proved right in such circumstances, but several years ago the Minister of Labour told me that he still regarded our book as his ‘bible’. 

Johnny and I often recalled our work together, and just weeks before he died, when he was asking me to explain exactly why I was highly critical of the job furlough scheme in the UK, he reminded me that I had written a similar critique of wage subsidies in our book. I had forgotten; he had not.

Johnny was the sort of colleague and friend we all need. He could be critical at times, and often was. But you always knew that the friendship and kindred spirit would remain.

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From Keynes’s macroeconomic perspective, the public sector finances are not analogous to household finances. Keynes turned Say’s Law on its head (CW XXIX, p. 81):

“For the proposition that supply creates its own demand, I shall substitute the proposition that expenditure creates its own income”

Given spare capacity, public expenditures not only are productive in their own right but also foster additional activity in the private sector, according to the multiplier. Increased employment means increased incomes, which, from the point of view of government, means higher tax revenues and lower welfare (and, later, debt interest) expenditures.

Now one can just imagine how intellectually challenging it would be for #spreadsheetPhil to accept that “expenditure creates its own income”. It does not do that for individuals, or even households, he will argue. Quite so. But the collective sum that is government expenditure, if invested in the creation of a skilled, well-paid ‘green carbon army’ would generate considerable income for government – and would help ensure the survival of life on earth.

£1 trillion pounds invested between now and 2050 would be a paltry share of Britain’s annual income. It would amount to about £33 billion a year, which is roughly 1.5% of current GDP. But that figure has little regard for the aggregate impact of that spend – which, thanks to the multiplier, would generate additional income – not just for the employed, but also for the Treasury.

That is the context in which to discuss the Prime Minister’s suggestion that we have until 2050 to set a net zero target. We should note in passing that net zero does not mean zero emissions. In contrast to a gross zero target, a net zero target allows for some residual emissions as long as these are offset through ‘negative emissions’ – taking CO2 out of the atmosphere through natural (e.g. planting forests) or technological means.

But, as Professor Anderson notes, “unless we’re incredibly lucky with these new negative emissions technologies – which don’t yet exist” we won’t be able to achieve net zero and limit global warming to 1.5C. This makes the situation even more urgent:

“We have a handful of years to make some very rapid and radical changes. We know what we need to do. We know it’s all of our responsibility to engage with this. We have everything at our fingertips to solve this problem. We have chosen to fail so far but we could choose to succeed.”

“We have chosen to fail so far”. That is a damning indictment of the British Treasury. The Climate Change Committee has concluded that the economic case for action to achieve net-zero emissions by 2050 – which, again, may not be enough – is fully justified. But only if the Treasury consistently acts to fulfil the 2050 objective. Instead the Chancellor has chosen to sow uncertainty, as Dimitri Zenghelis argues, and that has undermined the Prime Minister’s timid steps towards a net-zero target by 2050:

“The Chancellor’s comments have, highly regrettably, already undermined this objective and raised the policy risk premium attached to decarbonisation investments… The most crucial characteristic is that these costs are a function of the decisions we make now. The more coordinated our response to managing a zero-carbon transition, the cheaper it will be. The costs will be largely determined by the extent of public support for low-carbon innovation, government working in partnership with business to develop and deploy the required new technologies at the necessary speed and stimulating the consumer demand to pull these technologies through markets at scale.”

So, like one of Dickens’s mean-spirited characters, Philip Hammond’s penny-pinching will not just threaten the climate security of the nation – it will increase the costs of tackling that threat in the future. Like William Nordhaus, the Treasury seems to think that the cost of mitigating climate change is higher than not mitigating. The preference therefore is for the ‘cheaper’ version: climate breakdown.

If we are to survive earth systems breakdown, then we must begin by transforming the Treasury and by removing the politicians that threaten the futures of today’s younger generations. As Greta Thunberg explained in a speech to the Vienna Climate conference earlier this month:

“We must acknowledge that we do not have all the solutions now. We must admit that we do not have the situation under control. And we must admit that we are losing this battle. We must stop playing with words and numbers because we no longer have time for that.”

Photo credit: Flickr / Roy

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Last week John McDonnell MP took the opportunity to “make explicit” that a Labour government would not introduce capital controls. The Financial Times covered the story and, like many, got its exchange and capital controls in a tangle.

The UK had various capital controls after 1939 to prevent a run on sterling. After the second world war, the amount of money Britons could take overseas was severely limited and they could not freely invest in overseas assets. Exchange controls in the UK were abolished by Margaret Thatcher in 1979.

Capital controls and exchange controls are not the same thing. Many remember exchange controls as limits over the amount of sterling one could exchange on a foreign holiday. That was before Mrs Thatcher lifted exchange controls in 1979.

Exchange controls, as used in the UK, were a limit on someone’s ability to exchange sterling pound notes for another currency. They also restricted the amount that could be transacted internationally if said transaction required payment to be made in sterling.

Capital controls do not necessarily prohibit or limit sterling (currency) transactions. Rather they make flows of cross-border capital more costly. They do this most commonly by the public authority (invariably the central bank) imposing explicit or implicit taxation on cross-border flows.

The FT story, which was of course brief, also argued this:

The UK had various capital controls after 1939 to prevent a run on sterling.

Capital controls – taxes on the flow of capital across borders – were not there to prevent a run on sterling. Instead they were fundamental to the concept of sovereign economic autonomy – central to Keynes’s theory and policies. By managing cross-border capital flows, governments managed – and stabilised – their exchange rates, but were also empowered to manage the full spectrum of domestic interest rates.

Management of the exchange rate and regulated, low interest rates ensured that entrepreneurs in small firms and corporations were provided with a stable and predictable environment in which to take risks and invest – both at home and abroad.

Today in a world of capital mobility and submissive central banks, entrepreneurs are exposed to a dangerously unstable global economic environment, in which exchange rates move up or down suddenly; interest rates are determined not by public authority but by the market; and the recurrence of financial crises is more frequent. In this new globalised environment, the riskier the enterprise, the higher the market will set the price of money, or interest rate. High real rates (as opposed to the low Bank Rate, which does not apply to entrepreneurs in the real economy) explains the reluctance of today’s entrepreneurs and capitalists to embark on, and invest in, riskier enterprises.

It was the ability to manage cross-border capital flows that empowered democratic governments, and produced what is known by all economists as ‘the golden age’ of 1945-71. This era began to be overturned in the early 1960s as bankers and other financial speculators chafed against controls, and lobbied for their removal. As Ed Conway pointed out in the Times last year (Why The Next Crash Could Hit Britain Hardest) few people have heard of the:

OECD Code of Liberalisation of Capital Movements. But this dry 150-page book is perhaps the single most important document in modern capitalism. An obscure set of legal articles agreed in 1961, it signalled one of the biggest shifts in economic history: a commitment by the Organisation for Economic Co-operation and Development (OECD), the world’s developed economies, to end their capital controls.

Britain – or more specifically, the City of London – led the way, as this Bank of England paper explained (p. 257):

The formal recognition of sterling convertibility took place in February 1961 when the United Kingdom, in company with nine other countries, notified the International Monetary Fund of its acceptance of the obligations of Article VIII of the I.M.F. Agreement. These obligations prevent members restricting current payments without the approval of the I.M.F. and require members, subject to certain provisos, to maintain the convertibility of their currencies.

Britain’s capital controls were lifted long before exchange controls were removed by Mrs Thatcher in 1979. To regain economic autonomy, Britain would have to reverse the radical action taken after the 1960s to end the era of managed capital flows across borders. The deregulation of capital flows transformed the global economy into one favoured by today’s financial ‘globalists’. It left central banks with few tools with which to manage the domestic economy. Instead all open economies are exposed to the whim of often erratic globalised capital markets. Low and middle income countries are particularly exposed.

To reduce the new systemic risks posed by the growing international financial liabilities of footloose banks, hedge funds, asset managers etc. central bankers now deploy macroprudential regulation.

The 2007-9 Great Financial Crisis proved that such tools could not protect economies from catastrophic economic failure.

Today the far right of Mrs Thatcher’s Conservative party clamours to “take back control”. By doing so they reveal their subliminal yearning for that post-war golden era of sovereign economic autonomy when the movement of capital was managed. Yet, the only controls Brexiters demand are controls over the movement of people.

Ironically, and in contradiction to their demand to take back control, Brexiters clamour instead for a “global” Britain: one in which it is “citizens of nowhere”, not a nation’s public authority, that have control over capital flows in and out of Britain.

Photo credit from previous page: Flickr / Philip Brewer

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Austerity has severely damaged Britain’s physical and social infrastructure. Coupled with a fall in real wages, austerity has shrunk Britain’s social wage. No wonder British voters are angry and disillusioned. Theresa May, aware of the imminence of a general election, is worried by public anger, and has called for an end to austerity. The Treasury will defy her – successfully, just as they have defied earlier governments, and just as they will attempt to defy any future Labour government. For the ‘Treasury View’ is unchanged from that which worsened the Great Depression of the 1930s.  It can be summed up as follows: “Any increase in government spending necessarily crowds out an equal amount of private spending or investment, and thus has no net impact on economic activity.” 

Let’s examine the case for a £50 billion spend.

Britain’s total income (nominal GDP) in 2018/19 is set to be about £2.1 trillion. If we think of Britain’s GDP as the size of the economic ‘cake’, then the ‘cake’ has shrunk – largely as a result of the double whammy of the Global Financial Crisis worsened by austerity. As the IFS explains “the economy is 16%, or £300 billion, smaller than it would have been had it followed the pre-crisis trend.”.

Given the shrivelled state of Britain’s economic ‘cake’, an increase in spending by government of £21 billion would represent just 1% of the nation’s income. An increase of 2.4% of GDP would imply a spend of £50 billion overall. Before discussing both the spending and its financing it is important to understand that government spending, at a time when the economic ‘cake’ has shrunk, will increase the nation’s income. In other words, the ‘cake’ will expand, and the ‘slice’ that is the government’s share of the cake, will shrink.

What will be the impact of £50 billion spending?

According to the OBR total public spending (TME), including capital spending, in the current year is about 38.4% of GDP, and due to fall to 38.3% in 2019/20 (before the Budget of course). A spend of at least £50 billion would increase public spending to 40.7% of GDP next year. Even so, spending would be lower than it was for five years from 2008 at the height of the crisis. More significantly, it would be lower than for much of Mrs Thatcher’s period as Prime Minister.

During Thatcher’s premiership total spending in 1979-80 was 41% of GDP. In 1980-81 it rose to 42.9% of GDP. By 1982-3 total public spending hit 43.3% of GDP. In fact, public spending was over 40% of GDP throughout the first seven years of her premiership. And an increase of spending of this would simply put the UK as same level (as percentage of GDP) as the Netherlands.

£50 billion added to the 2019/20 Budget would add £13 billion to the NHS; £12 billion to the social security budget and £12 billion to local government services. £13 billion would be added to other government departmental services.

Part of these increases would just compensate for presently planned further cuts. Local government urgently needs further support, while the Justice Department budget, which includes legal aid, has been cut from £8.6 billion outturn 2013/14 to £6.4 billion in 2019/20 in real terms – roughly 25%!

The multiplier effect

An increase in planned government spending of 2.4% of GDP will have a multiplier effect – because despite high nominal employment, incomes are low, and the economy still well below its full capacity, despite denials by the OBR and the Treasury. (See the Bank of England: “In terms of output gaps, the OECD, IMF, OBR and EC all judge that slack has now been used up, and the economy is now operating slightly above potential.” ) We disagree.

£50 billion injected into the economy could raise national income. It would do so, because government spending – on both physical and social infrastructure – multiplies its impact. More people would be employed, and would pay more pay taxes (PAYE or self-employed taxes). Just as importantly, the increased income generated by government spending filters through to firms including those selling housing, energy, food and services. Increased spending by the newly employed, or by those whose wages rise, generates income for firms, and VAT revenues for government. And as those firms become more profitable, so they pay more corporation tax to HMRC. So an injection of £50 billion could generate another £25billion of income – thereby expanding the economic ‘cake’. At the same time, and over time, £50billion of spending will generate tax revenues for HMRC – to pay for the initial investment. 

How to pay for £50 billion now?

Government would pay for the increase spend in exactly the same way it finances its £56 billion expenditure on HS2.  It would do so by issuing gilts or bonds – in great demand by pension funds and insurance companies, amongst others.

The government is already intending to borrow the equivalent of 1.6% of GDP in the next financial year. This is below the level of planned public investment, and it is widely agreed that borrowing for positive investment is appropriate.  Moreover, tax and national insurance payments have been rising faster than the OBR anticipated back in March, by around £13 billion or 0.6% of GDP, and the multiplier effect of the extra spending will strengthen this further.   

In essence, therefore, around 1% of the additional spending of 2.4% of GDP would come from this increase in tax and NI payments. The remaining 1.4% of GDP would be raised either via further gilt/bond issuance, or by a mixture of this and increased tax take on corporate profits – noting that the UK is now well below OECD and G7 averages in such tax rates  – and increases in taxation on the very rich.  If none was raised by additional taxation, the total deficit would be of the order of 3% of GDP (so below that achieved in 9 of the 18 years of the Thatcher/Major governments).

None of this is rocket science. Nor is it beyond the levels of expenditure considered acceptable during the Thatcher era. All it takes is political will – and the overturning of the ‘Treasury View’.

Photo credit: HM Treasury / Flickr

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That is both a calumny, but also a lie – twice over. First because no Labour government has ever run out of money – not even Clement Attlee’s which started life with public debt at 250% of national income, and then spent enormous sums creating the NHS, affordable housing, a public education system etc. As a result of that spending, public debt as a share of GDP fell precipitously, because the Labour government increased the nation’s income, through well-paid employment. Good, well-paid employment in turn generated tax revenues – to pay for the borrowing, and pay down the public debt.

Second, no government – including today’s Conservative government – finances spending from taxation. Instead governments finance spending by borrowing from their own Bank, the Bank of England, or from capital markets. If that borrowing creates employment and increases income, then tax revenues accrue to HMRC, and is used to pay for the borrowing. To keep the public finances balanced at a time of private economic failure, it is vital for government to borrow and spend, to expand the nation’s income and thereby to generate the tax revenues needed to repay the borrowing, and keep the public finances in order.

Mrs May intended to imply that a Labour government is likely to finance its activities differently – by increasing taxes and thereby ‘raiding’ or embezzling the purses of Britain’s taxpayers.

Let me illustrate why this is a false characterisation of government financing. An email popped into my inbox on 4 October – the day after Mrs May’s speech. It was from the Debt Management Office (DMO) of the British government. It informed me that on behalf of Philip Hammond the Chancellor, the DMO had the previous day held an auction of a precious government asset: the 1% Treasury Gilt 2024. In other words, on behalf of the British Treasury, the DMO had auctioned and then raised £3 billion from the sale of a government asset – a bond or gilt – from capital markets. The purpose of this sale was to finance the spending and activities of Mrs May’s government.

Many of the bidders for gilts would have been pension funds, but also insurance companies and other financial institutions. They all regard Treasury gilts as a very important safe haven for their financial holdings. So keen are they to buy British gilts that the auction was over-bid – 1.73 times over, the DMO tells me. Investors were willing to hand over £5 billion when the DMO, on behalf of the British government, only wished to raise £3 billion. As a result of this over-bidding, the interest rate on the gilt was very low – 1.3%. Given that inflation is 2.4%, the interest government will pay is negative. In other words, investors are effectively paying the DMO for the privilege of lending to the British government and parking their assets/savings in a safe British Treasury Gilt.

The Bank of England (via its Open Market Operations) has also purchased gilts, including those issued by George Osborne and Philip Hammond. It has done so for many years as a way of influencing the Bank Rate of interest.

And there is one other minor, but important point to make about the DMO’s auction. Given that most Treasury Gilts are bought by pension funds and insurance companies, the interest (yield) on the gilts serve as a source of income for the pension or insurance fund, maintaining its value until claims are made on the funds. Ultimately that income is returned to British taxpayers when pensions are paid out or insurance claimed. So, in a circular process, the money paid in interest by the British government for its borrowing ultimately returns to taxpayers when they claim their pensions.

That is why government bonds or Treasury Gilts are a vital part of the ‘plumbing’ of the private financial system.

This is all by way of explaining that governments like ours finance their activities, not from “your money” – i.e. taxation, but by auctioning valuable government assets – gilts or bonds in capital markets. In other words, by borrowing. That is how this government’s expensive HS2 project, estimated to cost £56 billion (up 71% on the initial projection in 2010 of £32.7 billion) will be financed. That is how £1,000 billion was found in 2009 to bailout the banking system. That is how £1 billion was raised to bribe the DUP into supporting the government.

And even at the greatest times of crisis – such as the 2007-9 Great Financial Crisis – the government assisted by the Bank of England was able to raise huge sums to finance the bailout of RBS and the rest of the banking system.

The key point is that financing for investment (via borrowing) comes first, and taxation later. Taxation – “your money” – as we all know from our own experience, is a consequence of public or private investment in employment or of other forms of activity. We take a job, and only at the end of the month, and as a consequence of our employment, are we paid, and only then are taxes deducted. Similarly it is only after the production and sale of a good or service, can VAT be charged. Only after profits are made, can corporation tax be paid. And so on.

All governments including your own Mrs May, borrow to finance their activities. Which is why the Debt Management Office yesterday raised £3 billion to finance activities sanctioned by your Chancellor, Philip Hammond. The process is as old as the Bank of England (1694) itself, and is both legitimate and transparent.

And as is obvious to all, Philip Hammond bears no resemblance whatsoever to embezzlers like the character depicted by Danny de Vito in that movie.

Photo credit from previous page: Dix Noonan Webb

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The lost decade?

A decade on from the Global Financial Crisis (GFC), now is the time for serious reflection on where we are, how we got here and what future lies before us. In the aftermath of the 2008 crisis, finance-driven capitalism appeared to be on a precipice. The collapse of leading global financial institutions in the US and UK led to a freefall in global markets, followed by the European Sovereign Debt crisis. It all seemed to herald the end of unfettered financial expansion. Indeed, many believed 2008 was another 1929 moment. A systemic crisis would bring about a New Deal style recovery and a Bretton Woods agreement for the 21^st century to establish clear parameters for a stable global financial system. A decade later the outcome is far different: financial capitalism has never had it so good.

The initial bailouts, deemed necessary to keep the financial system afloat, were followed by drastic reductions in interest rates that have yet to return to pre-crisis levels. Risk guarantees offered by Central Banks and Treasury Departments across the globe were committed to providing the money (liquidity) necessary to maintain the stability the global financial system. This was followed by asset buy-back schemes and long-term refinance operations which became systematised into successive rounds of Quantitative Easing (QE). Technocratic speak refers to the last decade, euphemistically, as the ‘era of unconventional monetary policy’, or the biggest ever helicopter money drop onto the financial sector in living memory. Those who believed 2008 could have been a reckoning for the failures of finance-driven growth could not be more disappointed. The financial sector is more entrenched than before the crisis, and the political power of finance to control the public policy agenda stronger than ever.

Looking to the future and seeing much of the same

Looking back over the past decade, even achieving an economic ‘recovery’ took longer than the Great Depression. The promises of a rebalancing of growth across Great Britain, well-funded health and education services, and prosperity for 95% that did not benefit from QE, never materialised. The failures of austerity are plain for all to see: the economy is stagnant and most people are worst off now than a decade ago.

Our shared economic future only promises more austerity. Wages and incomes will continue to stagnate. The economy will be still dependent on private debt to fuel asset bubbles and ever more household debt will be needed to sustain meagre economic growth. With the economy in the doldrums and Brexit looming on the horizon, we face entrenched economic malaise or another severe financial crisis. When growth is forecast over the medium term, it is always revised downward. To put it simply, no one is predicting the UK’s economic future getting any better.

Making another future possible: we need an alternative policy agenda

In the face of peril, we cannot lapse into fatalism. We need to break out of the perpetual loop of anti-austerity, which points to the real failures of the austerity policy agenda without clarity on viable alternatives. The Progressive Economy Forum (PEF) seeks to dispel the myths and lies of austerity economics and replace that pernicious ideology with a progressive macroeconomic vision and narrative that makes another future possible.

The aim is to develop a 21st century Keynesian policy platform, that will end today’s austerity just as Keynes’ ideas in practice helped end the Great Depression and usher in a generation of economic stability and prosperity.  In his pioneering work, The General Theory of Employment Interest and Money (page 383), Keynes famously wrote:

“Practical [people] 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.”

Today, the global economy is gripped by these same “madmen in authority” that bring us austerity. The current “voices in the air” come from economists who are very much alive and whose scribbling continues unabashedly. In response, we must begin mapping out a new direction, to forge a different path that leads to a better future.

100 policies to end austerity: a call for interventions

The goal of PEF is to build a policy platform that will end austerity in a way that embraces the progressive values of equality, dynamism and sustainability. In line with openDemocracy’s New Thinking for the British Economy agenda, our aim is to cultivate a rich garden of new ideas, policies and plans to end austerity by forging a new path. Our bold plan is to curate 100 Policies to End Austerity as a starting point for a better future. We will bring together contributions from economists and policy experts that articulate clear proposals for a progressive, sustainable and equitable British economy for the 21^st century. This is the start of an interactive conversation, not a definitive policy platform, about a vision of a better future.

In practice these means debating the key ideas that inform public policy, like the monetary, fiscal and taxation policy needed to end austerity. In addition, it requires addressing the problems created by austerity. For example, creating an investment bank, green jobs, affordable housing, a fully-funded NHS and education system, compassionate care for an ageing population, a secure social security system, better local authority services and regional development. The list of ways to end the harm caused by austerity goes on. The challenge for progressives is to create a policy agenda that can foster a better future for everyone.

This article is cross-posted from openDemocracy.

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The BBC’s Today programme invited me to comment this morning on whether the proposed extension of the governor of the Bank of England’s contract of employment was “exceptionalism”. This view prevails because Mark Carney first declined to hold the post for the traditional eight years and instead opted for five, and has since changed his mind about when to resign.

Mark Carney was appointed by George Osborne in late 2012 in the hope that new blood at the Bank would give both the institution and the economy a boost. His salary was set at a considerably higher rate (at £480,000) than that of predecessor (£305,000) in the hope that he would deliver.

Instead he has presided over a period of prolonged stagnation.

In his defence, the persistent weakness of the UK economy cannot be attributed to him, or to any single man or woman. The setting of post-crisis policy by the Treasury and the Chancellor; the stubborn insistence on contracting the economy by grinding it down with austerity – these policies were endorsed by Carney, but were not of his design. He never raised any substantial objection to the dysfunctional nature of ‘monetary radicalism and fiscal consolidation’. Instead, he once remarked correctly that the Bank was “the only game in town.”

Five years after his appointment, and ten years after Lehman’s bankruptcy, the economy continues to vegetate.

In a recent Mansion House speech  – ‘New Economy, New Finance, New Bank’ – Carney reminded his audience of Montagu Norman’s first Mansion House speech (1920) after the the World War.

Norman emphasised the unity that the City needed in order to return to normal. Norman’s particular unity was around “the policy” proposed by the Bank of England. He believed “the policy was the one and only policy which ultimately would place the City and the country again on that eminence which it occupied before the war.”

Such was his confidence that Norman mentioned only once, in passing, that “the policy” in question was to “attempt to regain the gold standard”, and he spent no time at all explaining what, apart from normalcy, would be achieved by it.

Carney does not seem to be aware, but central bankers’ groupthink today unites once again around the “normalcy” of a single policy: financial globalisation, or unfettered financial capitalism. In other words, the deregulation and globalisation of markets in money, goods, services, property and labour is once again the dominant “policy”. And no central bank governor or Treasury politician or official deviates from it. The remedy for economic failures caused by “the policy” of financial globalisation is not very different from bloodletting, caused by the automatic deflationary policy machinery so revered by Montagu Norman and fellow architects of the Great Depression. Think Greece, Argentina and Turkey… and now South Africa, Indonesia and Malaysia.

The sad thing is this: there is no eligible candidate that would deviate from “the policy” that has prevailed under central bankers since the crisis, including Carney, Jerome Powell at the Fed or Mario Draghi at the ECB.

As Philip Stephens remarked in the FT (30 Aug 2018) today’s “policy” – “laissez faire economics and the open frontiers of globalisation” – has led, unsurprisingly, to “populist uprisings against elites”.

“Most striking is how little has changed in the operation of international financial markets. A handful of bankers were sacked and some institutions faced hefty penalties and fines. But the burden has fallen on the state or on shareholders. The architects of unfettered financial capitalism are still counting the noughts on their bonuses.”

Central bankers across the world are of one mind: globalisation is today’s gold standard. No orthodox economist dares to deviate from it. Groupthink prevails.

In many ways, it matters not a jot whether Carney stays or goes. The next person to fill the post will pursue the same flawed “policy” that damaged Britain after World War 1, and that has inflicted immeasurable harm on both the domestic and global economy both before, and since the catastrophic 2007-9 crisis.

Photo credit from previous page: Flickr / Bank of England

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It is a mistake that must be understood in a wider context. Not just the political context – which promotes ‘monetary radicalism and fiscal conservatism’ – to quote David Cameron and George Osborne. But also in a wider monetary policy context.

As the governor of the Bank pointed out recently: ‘the Bank is the only game in town’. Policy for the British economy is now largely driven by technocrats appointed by government to the Bank of England’s Monetary Policy Committee (MPC). The elected government in the form of the Chancellor and HM Treasury are happy with this arrangement and prefer to sit on the sidelines of economic policy-making. Since the crisis, the government has pursued the policy of monetary radicalism and fiscal conservatism vigorously. The consequences of such austerity and economic passivity became evident in the Brexit referendum result, and in popular anger and unease at the ongoing stagnation of the economy and of real incomes.

The problem with leaving all policy-making to technocrats at the central bank is that the MPC has very few tools with which to address Britain’s economic malaise. It has only the rate of interest rate as a tool with which to influence rates across the spectrum, and the exchange rate.

This incapacitation is partly a self-inflicted weakness; partly a result of monetarist/neoclassical theory, but largely political. Conservatives do not want action on the economy. They believe that the ‘market’ can be trusted to manage the economy. Above all they believe that the now globalised market in money and labour can be trusted to crowd out government spending and to lower wages to levels comparable to, or, as they would see it, ‘competitive’ with, wages in emerging markets.

Falling wages have driven consumers to borrow more, to supplement their incomes to maintain living standards. This is of course unsustainable, and if the Bank was a proper regulator it would be issuing guidance to commercial bankers on credit creation, and demanding that, to benefit from the largesse of taxpayer deposit guarantees, QE and low cost borrowing, commercial bankers should limit speculative lending; particularly credit card loans to struggling consumers at very high, real credit card rates of interest. 

The Bank however, has not chosen to manage the supply side of money-lending. Despite the recent u-turn on public sector pay, the Treasury chooses to do very little to help raise Britain’s low levels of investment, its poor productivity and falling incomes.  Instead the choice is to allow ‘the only game in town’ to punish struggling borrowers – the victims of austerity –  by imposing a higher Bank Rate, which will in turn lead to higher rates on credit cards and other loans.

Britain’s private debt level is at about 217% of GDP, lower than before the GFC, but rising. Public debt, which we were told would peak at 70% in 2016, is now approaching 90% of GDP. The policy of allowing borrowing at government, corporate, household and individual levels to balloon, while resorting to only one instrument – the ‘dagger’ of high interest rates – to puncture that balloon is very likely to be catastrophic. We know that, because it was a policy pursued by Alan Greenspan’s Fed from 2003-2006.

And we all know how that ended.

Photo credit from previous page: Flickr / Liz

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