Monday 21st July, 2008

Today sees the publication of a report – The Green New Deal – that I co-authored. Much of the analysis in these pages is reflected in the report.

The Green New Deal highlights the fact that ‘easy money’ led to excessive consumption, which in turn led to the uprooting of forests and the burning of emissions to satisfy demands for goods and services. By easing up on excessive credit, and regulating finance we may also give the ecosystem a chance to renew itself, and to recover from this latest period of rapacious consumption.

Published by the new economics foundation (nef) it highlights the similarities between today’s Credit Crunch and the Great Depression of the 1920s. The report draws on lessons learned in the 1930s about the risks of excessively de-regulated finance in causing major recessions, and calls for the kind of intellectual and political leadership shown by Roosevelt and Keynes, and so lacking today. The contempt in which these two great figures are held by most orthodox economists and neoliberal politicians is, in my view, but a reflection of their own analytical failure. It is this analytical failure that explains why central bankers, economists and finance ministers have failed to adequately predict and handle the Credit Crunch .

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Fulfilling my duties as a citizen, I am now confined to the Southwark Crown Court as a juror, so have little time to update the blog. However the effective insolvency of two US government sponsored banks or enterprises (GSEs) – Fannie Mae & Freddie Mac – will now impact not just all those US individuals, institutions and local governments that may have invested in these banks; not just on US taxpayers who are expected to bail them out; but also on you and I (our banks may well hold Fannie and Freddie securities); the central banks of the world that have bought their debt – confident that it will always be repaid.

Their insolvency now threatens a global systemic financial crisis, and their taxpayer-funded bailout of shareholders, bondholders and an incompetent management exposes the hypocrisy of much neo-liberal cant.

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In Ten tactics to brighten the gloom, the Guardian invited ten experts to give advice to the Chancellor and Prime Minister on how to lift the economic gloom – and to do it in just 100 words. Other contributors included Howard Davies, Robert Peston, Irwin Stelzer and Bill Emmot. Here is Ann Pettifor’s contribution:

Don’t crucify the economy on the cross of inflation. In the 1920s, central bankers crucified debt-laden economies on the cross of gold. In the 90s Japan’s finance ministry crucified that economy on the perceived threat of inflation. Ending the creditor-driven policy of inflation targeting frees up the Bank of England to cut interest rates and immediately helps debt-laden banks, companies and consumers. Inflation is feared most by creditors, grown rich on financial deregulation policies. The greater threat to the poor is a debt-deflationary spiral leading to high unemployment – made more certain by high real rates of interest.

The precedent of the United States’s great depression and Japan’s post-bubble collapse should haunt today’s G8 summiteers, writes Ann Pettifor in Open Democracy.

Japan hosts the G8 summit in the northern island of Hokkaido on 7-9 July 2008 at a time when its prolonged period of deflation and economic failure have rendered its politicians impotent. Philip Stephens notes that – despite Japan’s still considerable role in the global economy – the country’s politicians are the weaklings of global geopolitics. “Where is Japan?”, he asks. “The question is one of psychology rather than geography. Japan is still the world’s second most powerful economy. Politically, it is all but invisible” (see “Japan goes missing: invisible host at the summit“, Financial Times, 4 July 2008).

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