August 22nd, 2011
Wall Street plummeted as concerns over European debt and the US economic downturn spurred a broad sell-off. Photograph: Shen Hong/Xinhua Press/Corbis
Read my article from Guardian Cif, Friday 19th August:
As bank shares and stock markets plummet, and investors flock to the safety of government bonds; as obstinate EU leaders crucify their countries in a futile struggle to defend today’s equivalent of the gold standard; as British and American politicians adopt austerity policies and drive their economies closer to the cliffs of depression; and as most professional economists stand aloof from the escalating crisis – what lies ahead for ordinary punters like you and me?
First, let’s take look at the big political picture. This crisis is already sharpening the divide between left and right in both the EU and the United States. Studying a precedent – the implosion of the 1920s credit bubble in 1929 – we note that four years after that crisis erupted, the political divide sharpened decisively. The United States and Britain moved to the left. Germany chose a different path. After 1930, Germany’s Centre party under Chancellor Brüning adopted austerity policies that resulted in cuts in welfare benefits and wages, while credit was tightened. At the same time the German government engaged in wildly excessive borrowing from the liberalised international capital markets. The ground was laid for the rise of fascism.
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August 8th, 2011
Markets react rationally to austerity
The piece below was posted on the “Left Foot Forward” website on Monday, 8th August, 2011
“It is important that we understand the events of last week not as a new outbreak of crisis, but as a continuation of the banking crisis that first came to the public’s attention in 2007-9.
It is now just four years since the ‘debtonation’ on 9 August, 2007, when banks lost confidence in the viability of other banks, and stopped lending to each other. After a year when the fuse of huge debts endured a ‘slow burn’, the 2008 Lehman bankruptcy exploded the financial system and threatened systemic failure.
Without consulting taxpayers, central bankers and politicians rushed to the aid of bankrupt financiers. Private losses were socialised, and attempts at recovery were nursed by central bankers who pushed interest rates down to very low levels. Thanks to the weakness of politicians and central bankers this nationalisation of private losses was offered almost unconditionally to an immensely wealthy, and unaccountable elite.
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August 7th, 2011
RBS chief executive Stephen Hester Source: Getty Images
Dear readers…This is my blog posted on the New Statesman website today, 7 August, 2011 – with one minor correction in the fourth sentence.
“Let’s get one thing clear: this is not a crisis of, or for governments. This is first and foremost a banking crisis.
EU governments do not need a fragile, reckless and immensely wealthy private banking sector. However, as the financial markets made clear last week, the fragile private banking sector urgently needs Eurozone taxpayer largesse.
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August 3rd, 2011
Tonight, Wednesday 3 August 2011 at 08.00pm BST (GMT +1), BBC Radio 4 will broadcast a debate which took place at the London School of Economics (LSE) on 26 July. This broadcast will be repeated on Saturday, 6 August, at 10.15 p.m BST (GMT +1).
Along with my colleagues Prof. Victoria Chick and Douglas Coe at PRIME we have written the following response to the debate:
Debaters considered whether Keynes or Hayek had the solution to the present financial crisis. The economist George Selgin and philosopher Jamie Whyte spoke for Hayek; Keynes’s biographer Robert Skidelsky and the economist Duncan Weldon spoke for Keynes.
On the one hand we are pleased that the BBC and the LSE now acknowledge rival positions to the present austerity policies of Western governments. On the other we are concerned that the debate might have served mainly to reinforce existing prejudices, rather than to clarify the substance of the matters under discussion, matters which – there can be no doubt – are of the most profound importance.
Lord Skidelsky provocatively but justly reminded the audience that in the early 1930s, the same orthodoxy driving western austerity policies directed the actions of Germany’s 1931 Bruning government and paved the way for the rise of Nazism. These actions – vigorously opposed by Keynes – were the final straw for a Germany crushed by defeat and the disastrous boom-bust cycle that followed their return to the gold standard. Reparations were easily circumvented by wildly excessive borrowing from financial interests around the world, in a manner that even Keynes did not anticipate. It was these financial and fiscal policies that brought Hitler to power.
With financial interests still firmly in the ascendency and reactionary right-wing forces increasing their grip in the United States and much of the Western world, we must not forget these lessons from history, which formed the background to the original debate between Keynes and Hayek themselves. The stakes are high indeed.
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July 26th, 2011
This morning I joined the Guardian’s panel of Martin Kettle, Len McCluskey and Matthew Oakley to give our verdict on today’s GDP numbers:
Ann Pettifor:
“The Chancellor must eat humble pie”
The statisticians, clutching at straws, blamed the victims – the British people – for the measly 0.2% growth in GDP. It turns out we are too fond of holidaying (the royal wedding effect) and basking in “warm weather”.
But this cannot explain the fall in manufacturing by 0.3% and the 3.2% fall in electricity, gas and water supply. Nor does it explain the rise by 0.7% in “business services and finance”. The fact is the economy remains unbalanced, and the coalition government is doing very little to restore some balance, and with it the potential for recovery.
And without economic recovery, there can be little hope for the public finances. The fact is, the chancellor cannot cut the deficit if the economy does not recover. Today’s numbers offer little succour. GDP is still lower than it was in 2006 – four years after the crisis “debtonated” in August 2007.
The chancellor’s budgetary outcome depends on the plans of the entire economic system and its reactions to the Treasury’s policies. Right now the British economy is responding to the government’s determination not to provide a stimulus to the very weak private sector – by faltering.
The argument is that Britain “cannot afford” a fiscal stimulus. That we “cannot afford” to boost the private and public sectors, create jobs, generate income and restore hope to 2.5 million unemployed people.
But we could, apparently, afford to bail out the banking system.
The coalition government’s determination not to stimulate the creation of employment, and with it the income that will generate recovery – will be viewed negatively not just by the powerful rating agencies, but by the British people too.
The fact is that just as work makes things affordable for individuals, so employment makes recovery affordable for the economy as a whole. And until the chancellor eats humble pie, and absorbs this economic lesson, neither the economy, nor the public finances will recover.
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July 18th, 2011
Aviva has brought together a collection of prominent thinkers to provoke renewed debate and fresh ideas about future prosperity and creating a culture of sustainable savings. The group, names the ‘Future Prosperity Panel‘, published their report ‘Big picture thinking – Towards sustainable savings’.
My article is called ‘Savings and the alchemy of credit’ and is published alongside valuable work from Alain De Botton, Simon Tay, Paweł Świeboda and Diane Coyle.
Read a summary of my essay on the Aviva site and watch a video interview with me here… >
July 8th, 2011
The austerity brigade is rattled. Young Daniel Knowles over at the Daily Telegraph is so worried, he has had to rise to the defence of the Treasury and Office for Budget Responsibility – and then resorts to proposing Greece’s economic strategy for the UK. Why? Because orthodox economic ideology has been challenged by none other than Daniel’s ‘hero’ that notorious womaniser, President Bill Clinton.
Bill gets it. On the deficit that is. Thanks to Left Foot Forward and Mehdi Hasan we have all read Clinton’s speech:
“(the) UK’s finding this out now. They adopted this big austerity budget. And there’s a good chance that economic activity will go down so much that tax revenues will be reduced even more than spending is cut and their deficit will increase.”
Daniel Knowles challenges his hero, on these grounds:
- “The government cannot spend so much that net revenues actually increase. By Clinton’s logic we should increase spending until our deficit goes away. ”
- “The Office of Budget Responsibility..using a Keynesian model, estimates that the fiscal multiplier is about .35”……that means that…overall the deficit is will be smaller than it would have been without cuts….. (Note: Knowles Update: I actually made a mistake with that statistic – 0.35 is the estimate for the multiplier for VAT. Estimates of the fiscal multiplier overall, including those of the OBR, IMF and others, are closer to 0.)
- Greece: spending cuts have reduced the deficit from 15.4% of GDP in 2009 to 9.5% now.
The first two points are rightly, morphed together in Knowles’s argument. The first is to do with the impact of government spending. In a slump – which we are living through now – it is vital for the government to spend to fill the investment vacuum created by an over-indebted and extremely nervous private sector, desperately trying to de-leverage its debt. Right now the UK private sector is busily hoarding cash, because they are – rightly – worried about their levels of debt; and because they fear – rightly – that if they do invest, customers (both private and corporate) will not walk through the door – because customers too, are heavily indebted and worried about the threat of unemployment and falling house prices.
So given these circumstances of widespread fear and paralysis in the economy – what the ONS calls ‘flat-lining’ – say the government invests £1 billion in libraries. What would happen next?
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June 23rd, 2011
Some of our friends were irked by my observation this week that Paul Krugman is:
“an extremely controversial figure for Keynes scholars. He champions a mainstream interpretation of Keynes’s work known as the neo-classical synthesis”
Many rightly applaud him for using his platform at the New York Times to defend further fiscal stimulus in the US – against a hostile political crowd, not to mention the downright opposition of neo-liberal economists – and we commend him for that.
However, because he has such an important platform, it matters more that he lacks a proper understanding of the nature of credit. Our beef with him – and the vast array of neo-liberal economists - is well expressed, and evidenced by Steve Keen in his latest blog: “Dude! Where’s my recovery?” Namely that:
“Neoclassical economists ignore the level of private debt, on the basis of the a priori argument that “one man’s liability is another man’s asset”, so that the aggregate level of debt has no macroeconomic impact. They reason that the increase in the debtor’s spending power is offset by the fall in the lender’s spending power, and there is therefore no change to aggregate demand.
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June 22nd, 2011
The olive grove harvest. Image source: www.oxfam.org
As a follow-up to yesterday’s post on Greece: the Greeks are doing the one thing that hurts bankers most – they’re turning down invitations to their party.
In my book, ‘The coming first world debt crisis‘ I tried to spell out what actions individuals could take to defend themselves against the predations of voracious lenders.
“After all,” I wrote, “the finance sector depends on us, the world’s debtor-spenders, to come to the ball. We can turn down the invitation. We can decline the credit card, overdraft or loan. We can refuse to dance to Finance’s tune. We can live within our means.”
Well the Greeks have taken the advice, but gone further. They are taking their money out of banks.
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June 21st, 2011
Unemployment poster ‘jobless men keep going, we can’t take care of our own’, 1931.
We write to encourage you – to urge you on in your resistance.
In your defiance, you understand Greece is slave to the interests of private wealth.
You must understand too that it is private wealth that needs Greece. Greece does not need private wealth.
As is obvious to you – if not to EU finance ministers – Greek and other EU taxpayers are asked to shore up the immense wealth and reckless lending of private French, German, British and American banks.
Without your taxes, your sacrifices, the privatisation of your government’s assets, these bankers once again face Armageddon – as they did in autumn of 2008.
Just as then, so now they have rushed behind the ‘skirts’ of their defenders at the IMF and the EU. On their behalf, these unelected officials and some elected politicians demand that Greek and EU taxpayers shield private sector risk-takers from the consequences of their risks. The very antipathy of market principles.
In the process, the European Union is torn apart. Politicians, backed by officials, now defy the founding goals of the Community and, in the interests of private wealth, set the peoples of Europe against each other.
On 20 June, 2011 the acting Head of the IMF called for “immediate and far-reaching structural reforms, privatization, and the opening of markets to foreign ownership and competition.”
Which proves our point: private wealth needs Greece. Greece does not need private wealth.
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In the September 2003 edition of openDemocracy I wrote:
Click here to read the full story in openDemocracy
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