Reining in Public Debts or Challenging Democracies?

Last week I gave a talk in Brussels at a debate moderated by Pierre Defraigne, Executive Director of the Madariaga – College of Europe Foundation. It was A Citizen’s Controversy with Lars Feld, Professor of Economic Policy at the University of Freiburg and Member of the German Council of Economic Experts.

Below is my slideshow from the talk:

Eight fallacies in the LSE Keynes/Hayek debate

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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An open letter to the people of Greece: restore the Drachma


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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No, the Recession is Not Over

Ann Pettifor – 11th June 2009 – For the Guardian Online.

http://www.guardian.co.uk/commentisfree/2009/jun/12/recession-economic-crisis

A banker, Alan Clarke of BNP Paribas, citing a NIESR report, confidently tells the Guardian that the recession is over. Should we take the word of any banker – especially one that claims to be an economist – seriously?

Given that the economics profession was blind-sided by the ‘debtonation’ of 9th August, 2007, I am deeply sceptical. Second, given that this is a banker-induced recession; that reckless and often fraudulent behaviour by bankers led to a loss of $60 trillion of yours and my wealth (in the form of pensions, equities, lost interest on savings, and lost income from job losses) last year, should we believe a banker’s particular spin on the crisis?

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Rates: the BoE is not independent – it has a political mandate

Both the British Chancellor, Alastair Darling and the shadow Chancellor, George Osborne, have been on the radio this morning, resisting the idea that interest rates are political. Instead they have argued, vehemently, that the Bank of England is independent, and that the Bank must decide whether or not to lower interest rates.

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Fannie and Freddie impact will be global, systemic

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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Abandon Inflation Targeting

The Guardian, 12th July, 2008

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.

Debtors (and banks?) ‘crucified’ on inflation cross

The FT reports today on a debate economists are having with the Bank of England (BoE). To summarise: the Bank of England does not seem bothered by falling house prices; economists are.

This is a very important debate for all those that have debts – because while house prices are falling, the debts on those houses loom larger for owners. According to the Office for National Statistics in May, unemployment is rising, and unemployment makes it hard, if not impossible, to pay off any kind of mortgage. This is the context in which the BoE is preparing to raise interest rates above the current 5% and appearing relaxed about falling house prices.
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