Strong and Stable Government?

Let’s go back to basics: nobody won the election. No one has a mandate to carry out their economic policy. So what to do?

The people have spoken but the elite can’t understand what they’ve said. So the elite have to ask another question in a different way.

It’s pretty bloody obvious: form a caretaker government for 6-12 months, don’t start on any serious cutbacks, tell the market they’ll have to wait and then hold another election. If you’re Lib Dem or (possibly) Labour you’ll want to hold this election under new rules (cue argument about voting systems, resolvable only via a referendum). Under this scenario, it wouldn’t matter over much who led the caretaker government.

What the phrase,” strong and stable government” actually means is 'give the Tories a four year term to carry out (the key parts of) their economic policy' despite them lacking a mandate. It’s the nearest thing I’ve ever seen in this country to the saga of the Hanging Chads in Florida. A active politically motivated government that attempts to rule as if it had a popular majority is heading for the rocks.

Now, if you believe there is an economic crisis based on an unsustainable deficit you will violently disagree with what I’ve just written. The key thing is get a set of grim faced apparatchiks in power and start slashing before the bond markets bankrupt us all. On this view, it is Democracy, not the bond markets, that will have to wait.

As it happens, I do think there is an economic crisis – but its mainly a chronic problem, not acute. I think the deficit is a symptom, not the problem itself. The problem is basically that we in Britain – well, in the West generally, but especially in Britain and America – have lived on credit for a generation and half. We’ve built our economies around it – and now it’s not sustainable in the same way any more.

Credit and debt are a contract with the future: it’s about bringing forward - at a price (interest) - the ability to spend income you haven’t yet received. Now, fairly clearly, this depends on having a reasonably reliable sense of what the future is likely to bring - and of your ability to make an efficient enough use of the resources received in advance as to bring you a net benefit overall, despite having to pay interest. You can, if you like, discuss both of these matters in terms of ‘risk’.

& there’s the rub. There are two overwhelming problems here. Firstly, the financial wallahs built themselves neat little models which told them nothing could ever, ever go wrong in the future as long as they used the right set of complicated sums. They thought they had tamed future uncertainty in a Gaussian equation and proceeded to behave as if the vast sea of credit they surfed held no dangers, ever, for any one. They were wrong, and they almost broke the West – and would have done, if states hadn’t stepped in to assume their traditional responsibility of insuring against future uncertainty. There has been no reckoning with these people: the financial wallahs still rule the world.

But even Western states don’t have an unlimited ability to protect against risk- and especially not against the entirely predictable risk that, sometime in my life time, America stops being Top Nation At Everything. This will mean , at some point, we in the West are going to stop being able to use all that cheap credit to buy stuff that other people make or grow or extract from the ground at such absurdly advantageous prices. & this is going to be true even if the credit – the contract with the future – is guaranteed by states rather than Gaussian equations.

Already we see in Greece what happens when weak (financially weak) states try to guarantee debt beyond their means: they’re not believed. The much vaunted move by the Eurozone to shuffle closer to making itself something more like as state in order to face down the fiscal crisis of Mediterranean Europe is a response. It may or may not work - but, as Mason hints, even if it does it may be using the last bits of credibility left in the system in defence of a deflating World Order:

"In looking for a metaphor to describe the anti-crisis measures, I am thinking of tank armour. It consists of layer upon layer of complicated material - ceramics, metals, fabrics - which diffuse impact. When a sabot round goes through one layer it loses energy, then the next, then the next. If you are lucky it never penetrates the final layer and the crew survives. But take a look at the armour: it is destroyed, mangled, defabricated. It can never be used again."

All this is going to be a shock to the population of the West. They’re not going to like it and, for a long time, I don’t expect them to believe it. Why should they? Which politician has actually explained any of this to them? & who has ever asked them for a mandate to confront a problem they haven’t been told exists? Potlatch is good on this point:

"Fiscal policy is at the epicentre of modern democracy (I'm not sure the American revolution would have got off the ground with the slogan "no inflation without representation", for example). A fiscal crisis, as we now face, represents a political choice inviting political answers. It cannot be met simply with strength, and the promise of a 'robust regulatory environment' or strong property rights. But until the options are properly laid out, any democratic choice is arbitrary, and ambivalence ....is the most honest answer."

So I say to the political class come back and ask us for a ‘strong and stable government’ when you’ve told us something of the truth – and of a path to national economic renewal which gets us out of the grasp of the City and makes us believe we genuinely are all in this together.

We’re not taking your painful medicine till then.

"If we’re lucky, it won’t be any worse than Thatcherism."

There's a new benchmark in journalism about the economic crisis and the failure of the banks: John Lancaster's long but incredibly rewarding, incredibly clear and incredibly angry piece in the current London Review of Books. He brings a novelist's clarity to the necessary unpicking of otherwise arcane banking euphemisms. Go educate yourself.

I'll restrict myself to two delicious quotes. First, here he is summing up after a long, penetrating description of the nature and origin of toxic assets and Anglo American governmental attempts to deal with the crisis:

"Many of the banks will turn out to be insolvent. In that case the bank is nationalised, or at the very least goes into administration and receivership. Then, a number of options become available, one of the principal ones being to break the bank up into the viable part of the business, which will eventually be refloated back onto the market, and a ‘bad bank’ of dodgy assets which must be sold off (or arguably held until the values recover) in whatever way makes the most possible money for the taxpayer.Nobody in power wants to do that. Nobody with power in the banking system, and nobody with power in government. Both the British and the American plans to help the banks are very, very, very expensive variations on the theme of sticking their fingers in their ears and loudly singing ‘La la la, I’m not listening.’ This is what’s happened so far."

Second, here he is on the meaning of the disaster:

"....the cost of the financial crisis is going to be paid not over a few years but over a generation, we have a perfect formula for a deep and growing anger. Expectations have risen a lot, over the last three decades; that’s going to have a big impact on how furious people feel about the hard years ahead. The level of future public spending cuts implied in Darling’s recent budget – which included the laughably optimistic idea that the economy will grow by 1.25 per cent next year – is greater than the level of cuts implemented by Thatcher. Remember, that’s the optimistic version. If we’re lucky, it won’t be any worse than Thatcherism."

It's worth remembering this when you hear different economists or politicians comment on this or that latest tactical development. Take that business of the threatened S& P downgrading of Britain's creditworthiness for instance. Basically the siren voices of the Right claimed this was a sign we were heading for a Sovereign default and having to go cap in hand to the IMF. On the other hand people from Left and Centre tended to say, no, this is about a recognition of what we already know and, in any event, there is absolutely no chance of Britain going bust because it will, in time, balance its books through cuts and raised taxes after the election. But that last quote is Lancaster saying what the future is going to look like if the second set of voices are correct - in other words, that's the optimistic scenario.

Recovery: It's Not a Geometric Question

Duncan picks up the ball from Stephanie Flanders with a thought provoking post on the geometry of recovery – will this be a ‘V’ shaped recession, or a ‘W’ shaped one and so on. (Steph’s going with a square root shaped one apparently. Willem Buiter goes one better and offers a moving sine wave graph. You regret asking now, don’t you?). Dunc makes the fair point that he’ll judge the recovery by the (un)employment figures.

Well, yes, partly, of course. If a social democratic government can’t minimise unemployment it really isn’t much use for anything at all is it? (Not that I accept that New Labour is a social democratic government, but that's a matter for another time...). But I understand economists describe unemployment as a ‘lagging indicator’- not, you may be surprised to hear, anything to do insulating your boiler, but simply a reference to the fact that first comes the crisis then comes the unemployment some time later. So whatever happens, unemployment is going to go up whether or not those green shoots really do constitute a recovery. So this is going to be weak ground for any political party to stand on over the next couple of years. "Yes, unemployment is really high but it would have been higher under the other lot", is going to sound particularly fatuous coming out of the mouth of a Labour canvasser on the doorstep.

Rob asks a perhaps more pertinent question - and in the Times no less: What is Britain For? The fact that I utterly reject his Spiked influenced answer - he's totally blind to the catastrophic climate implications of getting behind technological 'innovation' in Big Pharma and aerospace, and has a touching faith in 'leadership' - doesn't mean it isn't the right question.

A long time ago someone patiently explained to me that the function of downturns in the business cycle - even severe ones - was to destroy unproductive capital and realign investment into new channels to lay the basis of further expansion of the economy. Or so the theory taught in Econ 101 has it. In real life stuff is more complicated, I know. But a party that wants to ride out this crisis has to be able to explain how we're going to live in the future if the 'old way' of living off the crumbs from the City of London's table doesn't seem so viable any more.

What can we sell to the world? How do we develop competitive advantages in different areas? What new industries and services are we going to invest in? What is the balance we are seeking to develop between private, state, municipal, not-for-profit and co-operative enterprise? Where is the seed money going to be sown to ensure our children a decent future? How do we change our patterns of settlement, work and travel to reflect a greener future?

It's not just about employment - you could, eventually, boost employment by attempting to put Humpty-Dumpty together again and restore the status quo ante model of political economy. I'd say that is the broadly shared aim of Tories, LibDems and New Labour. & that might work for a while - until the next speculative bubble came along.

Some say the world economy is on the cusp of a great change - the Long Wave view of history, Kondratievian or Schumpterian according to taste, suggests we might be entering a new period of upswing based on the wholesale adoption of a bundle of new technologies. This, some versions of the theory say, will mean a rebalancing of the importance of speculative Finance capital, actual industrial/IT capital - and the State. (I've blogged before about how Mike Davis sees this panning out in Obama's America). I haven't got the background in economics to assess such contentions - but I do think that this points to the fact that it is quite possible that if the Left fails to 'grab the future' by asking the sort of questions I've outlined, some other political current will.

It’s not just about employment. It’s about the future we want.

I Can’t Do Instant Commentary, but I Can Wonder What Age We’re Living In...

Those bloggers who, quite unlike me, don't have to take their socks off to count up to 20, are fast coming into the fray with instant budget commentary. I marvel at their ability to absorb and assess so much stuff so quickly. Duncan the Labour Fund Manager delivers a 'on the right lines but could do better' sort of end of term report, and then moves into a pragmatic defence of the 50% tax rate. Meanwhile Richard Murphy is moving from initially positive coverage to a series of critical, detailed notes on taxes, anti-tax avoidance measures and the limitations of the 'greenspray' Darling has slapped onto his plans.

Over on the right-hand side end of the playground, Alice tells us we're all doomed because of the size of the gap between tax take and spending; Chris Dillow says there's loads of money sloshing round the globe wanting to buy gilts to cover that gap; from the Left AVPS breaks into uncharacteristic purple prose to tell us that the ,"...twitching corpse of neoliberalism has been stitched together with the cadaverous remains of disinterred Keynesianism" with the aim of making the working class pay for the crisis.

I respect all of these bloggers a lot, but I can't help thinking that these are responses 'prepared earlier', like a half built Blue Peter project pulled from under the presenters table. But - hey, what do I know? I've still got both my socks on, after all...

But even as an economic ignoramus I have a hunch that two things are true, one to do with low down politics and one with our perceptions of the Age itself.

Firstly, this is a pre-election budget so it is voter friendly as it is possible to make it in the circumstances.(Just because the rest of us think the prospect of a Labour victory at the polls is vanishingly small doesn't mean that Darling and Brown have accepted the fact). So whoever wins the next election is going to introduce a more severe budget shortly after they move into Downing St.

Well, at least they will if we really are living through a crisis. From the unorthodox left, Boffy argues that not all of us actually are, and the effects of the credit crunch might be quite short lived, though severe in those age and geographical sectors most affected. But there's another view: the Keynesian Left have rediscovered both long waves and Schumpeter, now joyfully reunited by Carlota Perez,

"...growth in the world economy takes place by successive surges of about half a century, each driven by a technological revolution. The massive changes that this brings each time around... involve great behavioural upheavals in the economy and society. For that reason, the difficult process of unlearning the old and absorbing the new takes twenty or thirty turbulent years of "creative destruction." It is after the massive paradigm shift has been basically achieved, that the fruits of the new technologies in higher productivity and widespread innovation can be reaped and socially shared.

Historically, the first half of each surge -the Installation Period- has been the time when financial capital shapes the economy, while the ideology of laissez faire shapes the behaviour of governments. It is a grand experiment when unrestrained finance can override the power of the old production giants and fund the new entrepreneurs in testing the vast new potential. Finance then helps the new giants emerge, enables the modernization of the old industries with the new techno-economic paradigm and facilitates the necessary overinvestment in the new infrastructures (so coverage is enough for widespread usage). Thus the extreme "free market" ideology has a role to play in the early decades of each surge.

The Installation period has led each time to a major bubble followed by a major crash (canal and railway manias ending in panics, the roaring twenties ending in the crash of 1929). The collapse reveals the need for regulation to restrain financial excesses and to favour the real economy, usually under political pressure for reversing the income polarization and other negative consequences of the bubble times. If adequate policies are put in place to facilitate and develop the conditions for healthy market operation and social fairness, what follows is a Golden Age -the Deployment Period- when production (rather than finance) leads the expansion, the benefits of the new technological potential are fully realized across the economy and its social benefits better spread (the
Victorian Boom, the Belle Epoque, the Post War Golden Age)."

Fascinating – but shot through with technological determinism, if the quote above is typical. Schumpeter himself had a rather brilliant protégé who would have dismissed this with a snort: Paul Sweezy. He might, plausibly, have accepted a lot of Perez's analysis, but he would have insisted on the importance of the relations of production as well as the forces of production. & it is Sweezy's own protégés who, to my mind at least, have produced the most interesting analysis of the crisis from the Marxist Left so far. They say there is a systematic crisis, and that socialism is the answer- but Perez's analysis points to the possibility of a kinder, gentler capitalism. So what is the nature of this crisis, and of the Age we're living through?

The Economic Crisis: How's the Centre Left Doing?

Henry knows.
"It may well be.... that the time is ripe for social democracy. But I fail to see any social democratic actors out there who are ideologically prepared (let alone politically organized) enough to take advantage of these opportunities. Hence, we’re seeing what might be described as parodic social democracy – many of the organizational forms of social democracy (temporary stimuli, nationalization of major chunks of the economy) being undertaken by right leaning and centrist administrations as stop-gap measures to save capitalism and markets, rather than to subordinate them to broader social and democratic needs."

'Parodic social democracy'. Somehow the phrase has a certain ring to it, don't you think? .

Sailing Slowly to Sweden via Brussels?

Ken's utterly unambiguous: the new bail out won't work and it's time to go for full bank nationalisation. Well, we'll see if he's right on the first point - it really is only susceptible to an empirical answer as I don't really think we've been this way before in global economic terms. (Just because, as an old Leftie, I want it to be true that things short of full nationalisation won't work doesn't mean that it is so.)

Looking back at my previous posts (e.g.) I see I rather airily dismissed the ideological problems in getting mainstream politicians to go fully Swedish - that is to say, to temporarily nationalise the banks in order to fatten them up and then, eventually, sell them back to the private sector. There is clearly resistance to this idea in its full blown form and almost everything else is being tried first. Part of the problem - and this at least I do think I got right - is that the banks themselves are hugely opposed to any such move. Partly also it is that it may well be that Brown and Darling agree that it is hard to see how any such move can possibly be temporary - something Mason first alerted me to back at the beginning of October. But ideology also plays its part, and I can see, at a human level, how difficult it might be for New Labour to abandon it's basic economic world view.

There is one other factor that is beginning to interest me politically. The point of nationalisation is to put the guarantee of the nation behind any enterprise. But London's banks aren't 'nation-sized' : they're a continental sized off shoot of Wall Street, the key component of it's 'shadow banking system'. So even nationalisation may not be enough of a guarantee.

That, it seems to me, is the implication of much of the weekend's chatter about the difference ('6 months plus membership of the Euro') between the Icelandic and Irish situations - Ireland has the authority of the ECB, a continental sized guarantee, behind it. Iceland doesn't. So will Britain be driven into the Euro?

British Politics 2009: Sweden v Italy?

Robert Peston: Journalist of the Year 2008, surely? So what are we to make of his Christmas Eve statement that:

"As a nation, our fortunes in 2009 will be conspicuously tied to the fortunes of our banks as never before........ the balance sheet of the British public sector can be seen as the aggregated balance sheet of some substantial banks - because the state now controls three banks, Northern Rock, Bradford & Bingley and Royal Bank of Scotland, and will have a huge stake in a soon-to-be created fourth, LloydsTSB/HBOS. It means that if the perceived credit-worthiness of our banks - with their trillions of pounds of assets and liabilities - were to deteriorate further, that would have an impact on the perceived credit-worthiness of the state."

Paulie labels this UK Plc, and he's onto something. Dear old Ralph Miliband quoted Paulie's mentor, Kautsky, as once saying, " ..the capitalist class rules but it does not govern." But if the fortunes of the State per se are now so tightly tied to the fortunes of finance capital this may not be remain quite so inevitably true.

That hoary old Marxist chestnut of a question, the relative autonomy of the State, may rear its head again. A thousand undergraduate essays on old Ralph and sad Nicos will be dusted down and regurgitated. But the old essays may be missing the point. It may be that the thing to explain in 2009 is not the 'gap' between direct class power and State action which Miliband and Poulantzas tried to theorise, but the speed and nature at which this gap decreases.

One potential logical move, for finance capital, when faced with a situation where their basic instruments of profit are owned by the State, is to find a Berlusconi type figure: someone who will run the State much more directly in the interests of the capitalist class as a whole, or even a specific fraction of it as in the Italian situation. Britain has a different history to Italy of course, and the availability of 'hero innovator' types from the private sector is really quite limited. But I wouldn't bet against Cameron 'bigging up' - perhaps even 'ennobling' and pushing onto the front bench - a few folk like Branson.

Meanwhile Gordon has to plug away at his son of the manse act and at least pretend its all going to be Sweden: the temporary nationalisation of the banks pending their fattening up and resale. But in reality no such resale is going to happen anytime soon. Gordon - or his successor - is going to be running the British arm of international finance capital for its owners for a good while yet.

So the political question of 2009 is - to put the matter in anachronistic Marxist terminology - who will come out on top in a clash between the direct logic of finance capital and the logic of a (relatively autonomous) capitalist state. It seems the future of our country rests on this battle.

What Are Banks For Anyway (pt 2)

I'm a bit disappointed that Richard Murphy's answer to this problem hasn't attracted more debate on the Left blogosphere.

He carefully distinguishes between banking functions (like the operation of a national payment system and creation of credit) which have to be centralised, and therefore should be taken over by the State, and those functions, like deposit taking and investment, which might reasonably be franchised out to a number of operators to create some degree of competition and thus generate some consumer choice and 'alternate providers' in the event of any one of them crashing. Strong regulation would also be needed. In essence it is a similar kind of approach to the one New Labour have taken to much of the welfare state. I can't help laughing a bit at seeing it applied, even theoretically, to the banking industry.

But let's review the underlying arguments as to why New Labour use this kind of approach in the Welfare State: foremost amongst such justifications is the theory that without competition organisations are liable to 'provider capture'- that is to being run in the interests of their workforces, not their 'customers' or 'owners'(e.g. the tax payer).

Now this is mainly bollocks of course - but not quite entirely. The fact that in the Welfare State such arguments are used as cover for 'privatisation by devolution' and the creeping invasion of financial privatisation through PFI like arrangements does not mean that 'provider capture' never happens in any circumstances. My previous post waxed indignant on the subject of City bonuses - the size of these would seem to suggest provider capture has happened in that sector.( This would also fit in with Stumbling's ongoing worries about principal-agent problems, I think) In which case there would seem to be grounds for setting up a system designed to discourage it....Co-incidentally, it would be a very British form of socialism, but let's not go shouting that from the rooftops just yet, eh?

I'd be really interested in hearing others' take on this.

What Are Banks for Anyway?

Richard knows. The debate on this one is going to be fascinating.

How Long Can the Labour Bounce Last?

Stumbling tells us the government is all over the place: the right hand doesn't quite know what, er, the other right hand is doing. It's probably true: a large ship of state is being turned round after many years of steaming in one direction and the crew have quite forgotten how to perform the manoeuvre. Underneath the headlines about Brown leading the world into a series of counter-cyclical Keynesian reflation measures are a whole host of more practical problems which New Labour is only weakly equipped to address in this new world. Today reported this morning that Lord Mandelson - now doesn't that name have a ring to it, like a title that was somehow always pre-ordained – was considering shelving the family friendly/flexible working extension proposals for small businesses. Meanwhile Brown and others still plough on in their quest to help 'hard-working families'. Something is going to have to give.

Perhaps some of this is inherent in the nature of politics itself: you deal with one problem and another one pops up somewhere else and you suddenly remember you used a different technique to deal with that one some time ago. 'Events dear boy, events'. But it is also due to the fact that New Labour abandoned politics per se, or at least politics as it was previously understood on the Left of the spectrum. They were and remain essentially technocratic managerialists. They ask not 'What is the Good Society and how can we edge towards it?' as old-style social democrats did, but simply," What Works?" A global recession makes it very, very difficult not to extend this into the obvious next question of "Who do you want it to work for?" and that's a political, not a managerial, question.

There is more than one historic model for Keynesianism. FDR tried it with infrastructure projects – but so did Hitler with his rearmament programme. Dave Osler reminds us that Keynesianism alone is not enough: we need policies for full employment. Will Hutton makes the striking observation that the quickest way to get the economy moving is not pulling forward large scale building projects but raising unemployment benefits. & the Green New Deal people want the infrastructure measures to be ones that leave us better off than before in terms of being able to face the challenge of climate change. But every one of these things involves some renegotiation of the relationship between state and economy, not just technocratic reflation.

New Labour will go down in the history books as the masters of spin - and the original spinmeister is back in the cabinet. But that's not going to be enough now. They need some politics now and I'm not sure they can magic it up without hurting their long time friends.

On Living in the First Days of the Swedish Empire

Even Switzerland is on board it seems: the whole world has turned Swedish. To recap: the Swedish solution is to take failing banks into full or partial public ownership, re-capitalise them and then, when market conditions allow, sell off the government's stake ideally at a profit but certainly without any loss to the tax payer. There are national variations around all this, naturally. American nobel prize winners seem to be queuing up to tell us how dodgy the Bush/Paulson variant is. But the general outline is clear.

The British banks are having a little problem with this, as you might expect. They are the Bourbons of the capitalist world - arrogant, stupid and without the capacity to see themselves as others see them. I think they'd be demanding their bonuses and share dividends even if the cart was coming to take them to the guillotine...

But this new Swedish consensus might not last. I don't say this because stock markets continue to fall - all that would mean, if it goes on, is that we'd all become even more Swedish, in the sense that governments would have to go for full, rather than partial nationalisation. (Did I really just use the dismissive phrase 'all that would mean' in that last sentence? Christ, I am becoming blaise about global capitalist crises...). To some extent the national Treasuries, and certainly the IMF, have contingency plans for this, even if they passionately wish to avoid it.

No - it's the bit about selling the banks back to the private sector and getting at least a break even price that I'm beginning to have doubts about.Or at least doubts about it happening in the medium term. John Ross gives us this splendid graph: the Dow didn't recover its September 1929 value until September 1954: 25 years later.

So perhaps the one recession proof activity to get involved in might be Swedish language evening classes.

The Commentariat Rearranges Itself

The world shifts: even the Telegraph is moved to suggest it would be nice if someone from the banking world said 'sorry'. Ahh, isn't that nice....and John Redwood - he of the Ming the Mekon stare – busies himself with details of the government's action in stabilising the markets, rather than launching a blood and thunder ideological criticism.

Back in the world of the grown-ups, Polly T, nose-peg hawker in chief and once of the Social Democratic Party for christssakes, tells us,

"Brown needs a severe committee of those economists who were right when he was wrong - people to frighten the City, not to soothe its frightened feathers. Appoint the Richard Murphys, Will Huttons and Larry Elliotts not as City tsars but as City Savonarolas to flush out tax avoidance and evasion, to close down tax havens, to appoint honest non-executives to company boardrooms and institute a regime built on public trust." I take this to mean that the principled section of New Labour is now thoroughly disgusted with the City and, finally - finally – prepared to occasionally say 'boo' to this particular goose.

Chris Dillow continues Stumbling and Mumbling towards a theory of market driven mutual ownership. Will Hutton grimly explains how much remains to be done. Richard Murphy unpacks Hutton's idea of 'putting all the debt in a bad bank' might actually work: interestingly, given his association with the Labour Representation Committee, he does seem to call for a fairly rapid sale of the profitable bits of the banks back to the private sector. So we're still talking, even on the apparent 'extreme Left' of the public discussion, about a rebalanced mixed economy.

Which allows Lenin's Tomb to draw a thick red line between his position and mainstream discussion, based on the abolition of scarcity and workplace, rather than representational, democracy. By abolishing scarcity ,of course, one more or less abolishes the need for any kind of 'bourgeois' economics: it's a long way from agreeing that capitalism creates 'artificial' needs , a view which I agree with, and saying scarcity itself can be abolished...which is perhaps why there is only a very desultory discussion over at Dave's Part on whether Marxist economics offers any particular insight to the crisis.

So, all in all, I think John Lancaster is probably right: capitalism no longer has a global antagonist.

Except, Monbiot tell us, capitalism and the globe may not be on speaking terms for very much longer...

(Hattip to L+C for the picture)

Dr.Finlay Returns

No more Mr. Bean, no more Stalin:suddenly Brown and Darling have managed to make this government look like Dr.Finlay - that kindly and authoritative Scottish professional of impeccable probity and wisdom who knows and cares about his patients. Suddenly, improbably, they are world leaders in defusing crises of capitalism and the Eurozone and, somewhat less publicly, the States are queuing up to copy their policy proscriptions. Nobel prize winners laud Dr Finlay in the New York Times. Jackie Ashley in the Guardian is cock-a-hoop. Suggestions of a snap election to “re-affirm their mandate during the difficult times to come” can’t be far away.

Well, we’ll see. Richard Murphy is in no doubt: the respite is temporary and full nationalisation will have to follow. (He’s also warned of Ireland ‘doing an Iceland' btw).

Comrade Mason also warns that many economists say that this deal won’t hold and full nationalisation will have to follow across most of the Western world. Both of them are concerned about how governments now change previous commercial practice, whether or not full nationalisation occurs. Business as usual is what got us into this mess - so something has to change, despite Darling’s insistence on the radio this morning that the new state banks be run ‘on a commercial basis’. Murphy has a set of detailed policy proposals here which sound quite sensible to this non banker. Mason puts it thus:

“If you are, say the head of corporate social responsibility at a bank like RBS your main obsessions have been with responding to lobbyists on two of the great issues of our time: climate change and international development. I suggest that this will now lead to a reprioritisation to a third great issue of our time - ending rip-off banking.
Once the wing public realises these companies are being run in part in the public interest there will be an avalanche of campaigns: over small business interest rates, over rip off lending practices, over off shoring. The banks, in other words, will be required to show some social responsibility towards their actual customers.”

Suddenly, the efficiency, ethics and politics of running finance capital come to the fore: it’s not just a technical question any more. TINA is dead, whatever the efforts of Dr.Finlay....

IMF Comrades consider adopting Transitional Demands

An extraordinary week best measured by the fact that the traditional Trotskyite Transitional Demand of nationalising the banks now appears to be the plan B of choice of the IMF. It may even yet come to that if only because G7 appears to be having problems agreeing on a Plan A and the situation is primed to run out of control.

The two most convincing analyses that I have run across from a broadly Left point of view come from Will Hutton and John Ross. Let me simplify horribly their different emphases: For Hutton is it about trust, for Ross it is about power. Hutton is also interested in power, of course -specifically the power of the nation state, and especially national states acting in concert - over unregulated capital, but his main explanation is a lack of trust in the market because no-one actually knows where the debt is and hence no-one will do business with each other. This is called a liquidity crisis. Ross on the other hand, thinks the fundamental problem is one of power – the fact that US (& by implication, British) assets really are overvalued – and have been for a long time because the Americans have been living way, way beyond their means (see graph). So the dollar has to be devalued – and surely that means a significant decrease in American living standards, and a decline in the relative power of American across not just the global economy but 'full spectrum dominance'. To be fair, Hutton also warns that failure to stabilise the current situation will result in a British devaluation of – this is a direct quote – '30 or 40%' - but I would draw the implication from his articles that stabilisation is possible, even at this late hour, and an orderly decline can be organised. In other words: the Anglo-Saxon world, possibly the whole of North America, EU and Japan – are going to have to get poorer. It's a question of at what speed, and whether basic services start 'falling over' if this happens too quickly.

But politics lags behind economics. The global elites may now be ruefully aware that the world has changed – the people clearly aren't. & no-one is going to tell the American people this during an election campaign. Here at home there may be a rising tide of disgruntlement- even the beginnings of real anger – at the actions of 'the bankers' – but we are a million miles away from people really understanding that the whole system is in danger
of collapse. So even as Brown shows an unexpected capacity for leadership in proposing anti-neoliberal stabilisation measures for capitalism, and as the Tories are reduced to 'me-too-ism', the political commentators are still saying, probably correctly, he is likely to get the blame for the unfolding crisis.

P.S. Comrade Mason says there is a power struggle going on between the governments and the bankers over the conditions under which the state(s) support them. This is class struggle behind closed doors. How long can it remain there...
 

The Divide between the Blogosphere & the Staffroom.

As I write Stock Markets all over the world are engaged in yet another round of freefall. This is being attributed to the fact that everyone knows that the US banking system is still broken (and some people are even calling for it be be rescued by, er, China), and the fact that as the credit crunch works itself through into the real economy firms will go bust and banks will start having to pay out on all the insolvency insurance deals they have sold these firms. The reception of Brown's recovery plan is still positive amongst the commentariat and, it seems, the Market itself - but everyone knows Britain is not an island in any kind of financial sense. Or if it is it is a kind of giant offshore deregulated haven. So the recession is coming, whether or not the Brown plan 'works' in the sense of avoiding major bank defaults.

The Left blogosphere is going bonkers with excitement at all this. & I do mean all sections of the Left. So we have my favourite Kautskyite gloating at the death of neoliberal free market ideology; we have a hugely fractious debate on Socialist Unity over whether the Brown plan is straightforward corporate welfare or a necessary staving off of an Icelandic situation; we even have dependable voices from the New Labour stable (who I don't regard as part of the Left under any possible definition) telling us the world has changed. What they all seem excited about, in their different ways, is that Left politics can once more 'hold its head up' in public debate and isn't simply crushed by the historic shift against us of 1989. The overwhelming feeling is "people will listen to us now, we always said this sort of thing was intrinsic to capitalism, and especially neo-liberalism". Some on the Red Pepper discussion boards are - albeit it very hesitantly – beginning to clear their throats and talk once more about the problems of the transition to socialism.

But what of ordinary people? I say they are, in the main, still experiencing all this as a spectator sport. Certainly that was the mood last night amongst a totally unrepresentative group of teachers, school governors and teaching support staff I ran into at a school reception. (Yeah, I know – I live a really rock'n'roll life, don't I?). People knew what was going on was important- but didn't understand the detail or comprehend the sheer scale of the problem implied by Brown betting a third of the national income on his recovery plan. No one was moving house, no one ran their own construction business and no one was being made redundant - so it was all a problem which felt somehow 'over there somewhere' and deeply mysterious.

So I do wonder how far this Left triumphalism is justified, as yet. I wonder how far the general population is actually, in reality, in an anti-capitalist mood. I regard this as an open question as most people won't feel the effects of mass unemployment and foreclosures for some months. There is anger - but it could be Brown corrals the anger into supporting him, on the grounds he seems so much more decisive than the Americans. Certainly Osborne and Cameron seem rather pathetic when interviewed. So I'd bet on a New Labour bounce in the polls – at least in the short term. I don't necessarily believe people, as yet, are willing to turn to the Left for answers. We still seem like a bunch of overheated losers with totalitarian instincts to the general populution I fear.

But over the coming 2 years there is much hay we can make.

Afterthought: If we're going to go to war with those despicable financial terrorists in Iceland can we please start by seizing Upton Park and holding a fire sale of Craig Bellamy & Co?

Yesterday was Dunkirk – it’s a long way to D-Day

Yesterday saw the largest scale government intervention in the UK Stock markets ever undertaken, plus a cut in interest rates on an unprecedentedly global scale. Brown and Darling were greeting with a wartime spirit in the Commons, and cheered to the rafters. There are calls for the US to follow the British plan. So has it worked?

Perhaps it is too early to tell. But the FT grimly records:

"News of the scheme failed to calm the stock markets. Amid massive share trading volumes, the FTSE 100 index of leading shares closed at 4,367, down more than 5 per cent, marking its worst three-day run since October 1987. Yet the cost of insuring the debt of Britain's largest banks against default dropped, suggesting that the credit markets had been reassured by the scheme."

Some technically well informed people on the left tell us that it's a wasted opportunity – we could have acquired more of the banks for this amount of money, and began the inevitable turning around of a failed 'business model', if that is quite the right way of describing how an economy should be run. Larry Elliot certainly agrees that it a plan to stabilise, not reform, the system which brought us the mess in the first place. But this hardly a surprise: no one imagined that Brown and Darling did this as a first step towards setting up a socialist economy. Nor, to be frank, is anyone suggesting that these moves alone will mean we avoid a severe recession if not an actual depression. Indeed some people – like VoxEU.org, with their frightening graphs - tell us we're still heading for a 1930s type crash.

Never mind, though: in his 'day job' Stumbling and Mumbling tells us at least some things are still working: outside the financial sector, corporate profitability is still healthy, at least in the US.

So – what's my gut feeling about all this? Simply that this is genuinely a '1940' moment for Britain. Either these moves stave off the 'threat of invasion'- for which read the collapse of the banking system - or they don't. Given the reception by mainstream economists I suspect there is a fair chance this will be realised. But 'staving off an invasion' is a long way from 'wining a war', as it were. The economy survives - we're not in the strange Icelandic world of national bankruptcy –but turning this around will require huge further shifts, which almost no-one in power seems presently to even be prepared to contemplate. What the economists call a structural adjustment is required - a different way of running the economy because it's broken for most of us. There is no way of getting there painlessly and we can certainly expect higher prices, more unemployment and lower standards of living.

The 1983 Manifesto was right: Britain as a country needs to use its financial sector to support the gainful enterprise of its citizens by directing investment to areas where meaningful jobs, ideally with a greenish tinge, are created . We need to move away from an economy based on casino capitalism because the net result is disaster. Yet the problem, 25 years on from 1983, is that all the metal bashing jobs have either migrated to the BRIC countries or been made redundant by the march of automation and technology. We need a new plan which not just socialises more of the economy, but projects a new vision of how we're going to make a living. In other words: a national-popular programme, however weird and old fashioned that sounds in what we've been told is a globalised world.

But we're not going to get it anytime soon.