What cowboy put this fiscal deficit in?

9 06 2010

That Cameron and Osborne should blame the previous administration for the mess they have inherited is hardly a surprise. It should also not be a shock that Cameron is painting the future as black. He then has the dual advantage that if things turn out badly he can say he told us so and if they do not he can claim the credit for turning the economy round.

What is more interesting is that beneath the rhetoric there does seem to be a genuine belief that the state in Britain should be smaller and have less role to play in all aspects of life. In this respect Cameron has been aided by the addition to his ranks of a section of the Liberal Democrats who believe in the free market. Clegg, Cable, Huhne and the (now departed) Laws were the four LibDems appointed as ministers in the cabinet. All of them contributed to the ‘Orange Book’ in 2004 which espoused the free market as a solution to the problems of the economy and which provoked controversy within the LibDems.

Having come late to the free market philosophy, and at a time when most other politicians and economists were moving away from it, they have some of the fervour of  the convert. Cable in particular, whose formative experiences were in the 1970s when the UK government failed abysmally to prop up failing businesses such as British Leyland, is possessed of a fierce belief that the state has only a limited role to play in the economy. He has promised to overturn Mandelson’s nascent attempts at reviving an industrial policy for the UK.

So now the government has both pragmatic and quasi-ideological reasons for cutting public spending and reducing the size of the state. Pragmatic in order to avoid a collapse of the confidence in those lending money to the UK and quasi-ideological through the concept of the ‘big society’ rather than the ‘big state’.

The problem with this approach is that it flies in the face of the history of capitalism over the past 100 years. The role of the state, in every developed and developing country in the world, has come to play a bigger and bigger role as time has gone by. Outside of the aftermath of wartime no state of any consequence has succeed in cutting public spending absolutely. Certainly no state has managed to do so after a recession. Even under Thatcher, in the supposed brutal period of the 80s, public spending overall continued to rise.

Why is this? Essentially because the free market has proved incapable of fulfilling many different and essential functions of society. No modern state for example has ever had an education system which is run as a private business. No modern state has had an entirely private health system. Even in the US, which is most committed to the free market, state funding of Medicaid is an essential part of health provision. In addition, individual national insurance schemes have never been able to pay entirely for payments to the unemployed.

Private businesses depend  on the state to provide cheap education, health care and unemployment benefits. To some extent the role of the class struggle in earlier periods was important in establishing the levels of provision of benefits from the state, but the elite as a whole understood that the state needed to subsidise welfare in order for the economy to function effectively. It was not the post war Labour government, for example, which architected the welfare state in the UK but the National Government under the Conservative Churchill which did so through the production of the Beveridge report in 1942.

The state has also had a key role in the building and maintenance of transport and other key infrastructural projects, which are too big for any individual private company to develop but which all businesses benefit from. Roads are one good example of this, but virtually all communication systems and infrastructure projects require massive state involvement and investment in their production or maintenance.

It is also the case that the state is now so large and so intertwined with private business that many companies depend on government contracts. The IT business in the UK, for example, has benefited over the past twenty years from many large projects in the NHS and in other government departments.

There are those who argue that it is the increasing role of the state which has stifled private enterprise, but the reality is that without ever-increasing state involvement modern economies could not survive. Capitalism is too feeble and unproductive in most modern economies to operate on its own two feet without massive state assistance.

 So what does this mean for the present UK government’s plans to cut spending? Firstly they will struggle to make any impact on the overall scale of public spending without doing huge damage to the way our society works. Secondly, whatever their pretensions to the opposite, the axe will fall hardest on those least able to defend themselves.

A version of this article appeared on Spiked

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The great social paradigms are dead, long live the next ones (whatever they are)

16 02 2010

Are we witnessing a paradigm change? I suspect not. Remember Kuhn’s assertion that a paradigm does not truly collapse until another is ready to take its place. China does provide an alternative, apparently successful, model, but it is difficult to see it succeeding in many other countries.The free market will accommodate its lessons and find a way to survive. The Chinese model will continue for some time too. I don’t see business’s Copernicus. Kuhn was probably right: lessons from the history of science are hard to apply elsewhere.

Michael Skapinker’s article, from which the above quote comes, asks whether the creation of paradigms, that is of unifying if transitional theories, which are vital to scientific development, is applicable to social and economic questions. His answer is probably not as these ‘these other areas are more fragmented’.

I would argue the opposite. The creation of  paradigms in politics and economics is vital to progress. Humans do not live by bread alone. We require an overarching view of the world within which to locate our own feeble individual efforts. This role has been played throughout human history by various religions. In more modern times it has taken the form of economo/political movements like the bourgeois individualism of nascent capitalism and the reaction against this in the form of  both romantic conservatism and the communism of Marx and Engels.

While it is true that these paradigms never became universally accepted in all sections of society at all times they nevertheless played a key role in creating a world view within which adherents could comfortably operate. Crucially they also  allowed those who believed in the paradigm to take action and make things happen which required very tough decisions and were often to the detriment of other human beings. The driving of peasants from the land in the various forms of land enclosure is one example of this. These were acts which caused enormous hardship to many, but as Marx recognised  

They conquered the field for capitalistic agriculture, made the soil part and parcel of capital, and created for the town industries the necessary supply of a “free” and outlawed proletariat

The point here is not whether these things are right or wrong, but that without the firm belief in capitalism and the market of those who perpetrated the enclosures they would not have happened.

Skapinker acknowledges that we are a bit short on political or economic paradigms today. The ‘free market’ of  Thatcher and Reagan appears discredited. Communism is extinct.Skapinker  dismisses China as a possibility, although there are those in the west,as we have noted here, who seem to aspire to a Chinese model of political concensus and more centralised state control.  How is it that we seem to have reached this paradigm free state?

The answer lies in understanding how paradigms are created. In historical terms they are the product of historical developments. The paradigm of bourgeois individualism was the product of the development of the free market and an assault on the privileges of the landed aristocracy. Social change became embodied in the person of the new middle classes. The paradigm of communism was the product of the development of the working class, free of the means of production and therefore with no stake in the existing paradigm.

Today there is no rising historical force which can embody a new paradigm. In that respect history appears to be exhausted. The paradox of this development is that in the absence of a paradigm with historical force it appears to be impossible even to imagine that one could exist. We are suffering from a failure of historical imagination about the possibilities of social change because human history has reached an impasse. That is why politics everywhere is in disarray and confusion. It is also why throwbacks like islamic fundamentalism or the religious right in the US can appeal to people who need some kind of world view to give their lives meaning.

Perhaps the only comfort here is that history, like nature, abhors a vacuum. Our individual life spans are short but seem to encompass eternity. In historical terms the period since the collapse of communism and the discrediting of its only apparent alternative is very brief. It would be a mistake to think that we have reached the end of paradigms. As with science, it is just when we think that we know everything that something new comes along to reveal a new and higher truth.





On Davos and the crisis of global leadership

27 01 2010

Even if economic issues are more central to politics than ever before, argument today is less about the nature of economic systems than about the relative abilities of different politicians to administer a system on whose basic structure all are in agreement. In both Europe and the US, party identities are not now principally defined by economic differences but by questions that always crossed class lines and economic interests – nationalism and cultural identity, social liberalism versus social authoritarianism, and religious affiliation – a list to which we might now add environmental awareness. John Kay

As the international political and business elites gather in Davos for their annual away day, John Kay neatly sums up the state of modern politics.  While politicians focus on social, cultural and environmental issues, their discussion of the economy is restricted to the management of the latest crisis.

Yet at the same time there is a palpable sense that something important is missing. The FT’s Davos feature, the World in 2010,  is full of references to the failures and weaknesses of leadership at both a global and a local level. Nearly two years after the onset of the recession the world is still grappling unsuccessfully with the problems which created the financial crisis. Just to recap, here are three key issues I identified nearly a year ago in The Three Interlocking Crises of Global Capitalism.

Firstly;

The recession is severe, but what makes it worse is that it is happening when the coherence and the credibility of the political elites is at an historical low ebb.  The coexistence of a political with an economic crisis is what makes this recession so dangerous.

This has been born out completely. Remember a year ago Obama was in the first flush of his popularity and there was a sense in some quarters that new leadership had appeared to set the world on a different and better course. One year on and while the leadership of most western countries has struggled on in the same way, the big hope that Obama brought has been dimmed. Global leaders are still squabbling about the best way to constrain banking activity if at all, accompanied by a concerted campaign to ‘punish’ bankers for their supposed role in causing the crisis.

In the UK we are faced with an election choice between three parties which have little discernable differences. The main point of contention is over how far and how fast to cut public spending and introduce austerity measures. It is no wonder that a record number of people see voting as irrelevant.

Secondly;

The imbalance between productive economies like China and the less productive economies in the west lies at the heart of the recession…changing the way the world is run will be a tricky process as there will be losers as well as winners.

Events since then have reinforced this point. China in particular has come to the fore and its economy has proved much more resilient to the recession than any in the west. The stagnation of western economies and the growth of  China, India and others have added weight to the global political crisis, as agreement over issues such as rebalancing the world economy or tackling global warming have proved so far impossible.

The Chinese have continued to finance US consumption throughout the recession and western debt levels at a governmental and personal level have continued to grow. With all of the world’s major economies hoping for export led recoveries from the recession, as Martin Wolf has pointed out, there is much more scope for conflict over trade than has been the case before.

Thirdly;

The absence of opposition of any kind to capitalism today has contributed to a sense of drift and general loss of impetus in society in general and has also affected the political elites.

The absence of any alternative has been a mixed blessing for the economic system. There is no doubt that in the UK and elsewhere the absence of any kind of alternative vision has worked to the benefit of the status quo. It has been possible for employers to introduce wage freezes or cuts and short time working with little or no resistance. This  widespread acceptance of cuts in living standards has minimised social conflict and helped to stabilise society through a period of economic uncertainty.

But the problem remains that in the absence  of  any sense of a different way of organising society, the western world has become more and more conservative. This conservatism is increasingly taking the form of an anti -growth sentiment. It is important that we see this for what it is, at heart an abdication of the necessity for human development and the forward march of science and technology. People look at the failure of the market to be able to deliver consistent growth and improvement in living standards, and draw the conclusion that not only is it impossible to do so but it is probably the wrong objective anyway. In other words we are becoming resigned to a world of low growth and stagnation, causing negativity which then spreads out from the economic into the cultural and social spheres of life.

One commentator on the Davos meetings makes the point,

If the Davos crowd cannot identify a workable way to rebuild and reinvigorate the international system, it is hard to think where else the ideas will come from.

This is a question that all of us with pretensions to political change need to consider.





Economic growth and its discontents

2 11 2009

Speech given by me at Battle of Ideas Conference 31 October 2009 in debate with Lord Skidelsky and others

Continued economic growth is important because it means that the productivity of labour increases, we get more for less, we get more control over our lives and we become less vulnerable to the vagaries of nature and of fortune.

The whole idea of economic growth is under attack from many quarters. Sociologists such as Richard Layard represent an anti-consumerist trend. Layard argues that economic growth and its consequent material benefits do not make us happy. I would like Layard to do a survey of the millions made unemployed through this recession to see how much happier they are now that they have lost the benefits of a wage. Do we really think that poverty will make us happier?

Environmentalists argue that economic growth is inducing climate change and irrevocably damaging the world around us. These people are in reality scientific progress deniers. They do not believe that we can grow our way out of problems. Yet it is China, the fastest growing economy in the world, which is adopting and developing alternative forms of energy at a faster rate than anywhere else. It is economic growth that is driving this and making it possible.

There are also those who argue that scientific and material progress are too prone to risks and dangers to pursue safely. They question whether such things as GM foods, nuclear power or the pharmaceutical industry are not doing more harm than good. Their campaigns against scientific progress slow down and discourage investment and development delaying the benefits that progress can bring.

All of these trends have one thing in common. They represent a loss of belief in humanity and its  ability to change, adapt and grow economically and materially. Why is continued economic growth so essential? I would argue that there is a necessity argument but also  philosophical and social reasons why we need to push for further and faster economic growth.

When is enough enough? Not yet! The average global wage according to the World Bank was around £5000 before the recession began. This means that were growth to stop now and everybody to receive the average wage we would all have the standard of living of a UK pensioner without any savings. Just to get to the reasonable but not luxurious average wage in the UK of £25,000 would mean a fivefold increase globally. This means that we need of necessity further economic growth to raise the average standard of living.

Of course, many millions of people in the developing countries are way below even the average wage and require a bigger leg up. But even in the developed western economies there is still a need for the creation of extra resources. Poverty, deprivation and lack of sufficient services exist in many areas of life. My father-in -law for example was recently refused a life saving operation from the NHS essentially because it was too expensive.

From a philosophical point of view it is important that we understand how inimical anti-growth sentiments are to the whole tradition of western civilisation. The Book of Genesis says that man shall have dominion over nature and urges us to ‘go forth and multiply’. We are turning our back on what has enabled us to crawl from the swamps and into the relative comfort of the modern world, our ability to tame the hostile environment we found ourselves in. David Attenborough made this about turn explicit when he blamed the Bible for climate change earlier this year.

Many of the discontents that people have with economic growth are connected to failures of the market economy rather than growth itself. The market is often an inefficent producer and distributor. It is a system based on production for profit rather than to meet the needs of society. The market can create environmental problems and pollution. It is unstable and contains within it continued recessionary tendencies as we are experiencing now. It is often wasteful and irrational and it produces and reproduces inequality because of the division between those who own wealth and those who do not.

But the problems of how the market economy works should not blind us to the benefits of continued economic growth. We could end up throwing away the growth baby with the market bathwater.

Anti-growth sentiments turn reality on its head. Far from creating problems all human civilisation, culture and progress have been built on economic development. The most economically dynamic and successful countries have always been the most innovative, the most culturally dynamic and the most progressive in every way. The alternative is also true, that economically stagnant or backward countries have less going for them across the board. Turning our back on growth means turning our back on what makes us most human, our ability to exercise dominion over the world we live in.





Why has there been no social response to the recession?

15 09 2009

images[2]When Lehman brothers collapsed a year ago, a credit crunch turned into a full blown panic. The result has been recession and a collapse in world trade. But there the similarities (with the thirties) end. Growth is returning. Stock markets are booming. Democratic government survives.

Today’s Times editorial sums up the mood of many in the elite after a turbulent year. It has been tough but capitalism survives more or less intact. Perhaps the most striking aspect of this recession has been the lack of any serious questioning of the market system, despite the negative impact of unemployment and the collapse of world trade on millions across the world.

In the past, recessions have been met with widespread social disorder, even in developed countries. In the thirties of course the recession played a big role in the rise to power of Hitler and the Nazis. But even as recently as the  early eighties there were  large scale strikes and riots  in the UK which had an economic background to them. Why is it that this recession has been met with quiescence across the world?

During the summer I read Tristram Hunt’s biography of Engels. The most poignant section dealt with the forty years or so that passed after the 1848 revolutions in Europe which helped to inspire Marx and Engels to develop their critique of capitalism. For most of this time the two revolutionaries, Marx in London and Engels running the family firm in Manchester, wrote letters to each other pointing out what they hoped were signs if incipient insurrection around the world. A strike here, an outbreak of political radicalism there, all enough to raise hopes that something big was about to happen. In fact they were living through a period of relative social peace as capitalism began to expand around the world. How many times must each of them pondered on Marx’s profound words from 1852

Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past.

We appear to be living through a period of history in which the question of profound social change is no longer on the agenda. Does this matter? Most people in the world are much better off than ever before. Even in India, China and other traditionally poor countries living standards are rising, although from a very low base.

Yet there is a profound sense of unease running throughout western society. It is not the spectre of communism which is haunting Europe, but the actuality of capitalism. Many people now feel uncomfortable with the benefits which it has brought with it. The French government is leading the way in trying to replace the traditional yardstick of progress, economic expansion or GDP, with a ‘happiness’ index. This is part of a broader backlash against materialism and economic progress exemplified by the influential Green movement. Even in a recession, when many people in the west have experienced directly the misery that comes from lack of jobs and money, these voices have not been stilled.

It would be a terrible thing if mankind turned its back on material progress while so much remains to be achieved in raising living standards around the world to a tolerable level. Marx and Engels objected to capitalism because they did not believe that it could raise the living standards of all in a consistent way andf that it was prone to violent crises. We have seen their critique vindicated once again in the current recession. The truly radical approach today is to insist on the necessity for continued economic growth, and to deal with any obstacles to that. At some point this may mean that people begin to question the ability of the market to deliver that growth and a search for alternatives can begin again. But at present the most important thing to do is to challenge the anti-growth sentiments which are occupying the hearts and minds of many.

It was only at the end of Engels life on the last decades of the 19th century that the new socialist movement began to make itself felt in the world. History does not run in straight lines and is not predictable. Neither does it repeat itself and we should not be deluded into thinking that the mass socialist movements of the past will reappear. But neither should we think for one minute that human social history is over. As long as we want things to change then we can make them do so-but not necessarily in circumstances of our own choosing.





Why the behavioural economists are wrong, a review of ‘Animal Spirits’ (Part Two)

1 07 2009
  
Animal Spirits: How Human Psychology Drives The Economy, And Why It Matters For Global Capitalism, by George Akerlof & Rober Shiller

Animal Spirits: How Human Psychology Drives The Economy, And Why It Matters For Global Capitalism, by George Akerlof & Robert Shiller

BOOK REVIEW (Part Two)
Animal Spirits: How human psychology drives the economy and why it matters for global capitalism, by George Akerlof and Robert Shiller (published by Princeton University Press)

“Animal spirits…is an economic term, referring to a restless and inconsistent element in the economy. It refers to our peculiar relationship with ambiguity or uncertainty. Sometimes we are paralyzed by it. Yet at other times it refreshes and energises us, overcoming our fears and indecisions.” [1]

The first part of this review contested  Shiller and Akerlof’s claims that the recession is caused by the irrational behaviour of individuals. There is however much more in their book to challenge.

I once talked to a behavioural psychologist whose job was to improve the behaviour of children in the classroom. The first thing he told me was that to do his job properly he had to completely ignore the, often tragic, social backgrounds of the disturbed children. Instead, he focussed entirely on strategies for changing their behaviour by psychological tricks which were akin to those used to train dogs. I was reminded of this when reading Shiller and Akerlof’s approach to some major economic and social issues. They too ignore the historical and social factors which have led to many of the phenomena they discuss and instead present them as merely behavioural oddities.

Their view is that human economic behaviour is determined by a combination of five things: confidence, fairness, corruption, money illusion, and storytelling.

These are all relatively straightforward concepts, except perhaps for money illusion. Money illusion is a term used to explain why people will oppose wage cuts, even if the prices of what they buy are falling in deflationary times, more than they will fight for wage rises at a time of inflation when everything is getting more expensive.

Why do workers resist wage cuts and not fight as strongly for indexed linked rises?  Rather than a psychological reason, is it not more likely that workers understand that once they have conceded the need to accept pay cuts that they will have handed power to their bosses to do so again, to keep coming to the well? Is it not also likely that compared with this, the need to combat inflation, a future event which like all future events is uncertain, will seem less of a vital issue? The authors approach to this is typical of many of the points they make. They persistently choose to interpret attitudes arising from social and historical experience as hard wired psychology. Often this leads to observations which are so stunningly banal that you are left wondering whether these authors simply need to get out more. Take the following examples:

‘people rarely quit their jobs in recessions’[2]

‘people tend to want to work in higher paid industries’[3]

‘students…really don’t seem to care how much they save’ [4]

Their emphasis on the importance of storytelling also takes them away from understanding what is perfectly clear and rational behaviour based upon experience. They claim that the high savings rate in China and other new economies is down to the ‘story’ that ‘there is no shame in being poor in China, since this is viewed as a transitional state’[5], therefore people do not consume. However as many people have pointed out, in a country with often rudimentary social and medical insurance[6], savings are an essential to fall back on when times get tough.

The answer to most of the problems the authors riase is state action of one kind or another. For example, a discussion on racial discrimination in the US describes the situation of black Americans thus,

‘there is the notion among both blacks and whites that there are two groups, we and they. This very notion is part of daily reality. This notion – as much as low financial assets and skill levels – is responsible for the continued poverty of African Americans.’[7]

The experience of racism in the US is reduced to a ‘story’ which reinforces social stereotyping. The authors do not recognise that racism, where it exists, needs to be combatted through political means. Their suggestion instead is positive discrimination, action by the state.

Of course, there are many aspects of human behaviour which appear to be irrational. We can usually see them more clearly when we look at other people’s cultures rather than our own; and there’s the clue. Generally speaking these types of behaviour are the product of a specific cultural and social experience. Sometimes it is also true that we take our lead from what other people do, as in buying houses or shares in a rising market. But this is a perfectly rational thing to do in the absence of information as to why this is a bad idea.  Very few people can call the top or the bottom of any market, and those that do are often just lucky. In the mean time we all try to take as much advantage of it as we can.

The rise of behavioural economics is a symptom of the paucity of proper historical, political and economic analysis of society. In that sense it is just as much part of the voodoo culture of the day as the types of behaviour it disparages.

 

[1] Animal Spirits p4

[2] Ibid p103

[3] Ibid p103

[4] Ibid p116

[5] Ibid p128


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Why the behavioural economists are wrong, a review of ‘Animal Spirits’ (Part One)

24 06 2009
 

Animal Spirits: How Human Psychology Drives The Economy, And Why It Matters For Global Capitalism, by George Akerlof & Rober Shiller

Animal Spirits: How Human Psychology Drives The Economy, And Why It Matters For Global Capitalism, by George Akerlof & Robert Shiller

BOOK REVIEW (Part One)
Animal Spirits: How human psychology drives the economy and why it matters for global capitalism, by George Akerlof and Robert Shiller (published by Princeton University Press)

 

“Keynes appreciated that most economic activity results from rational economic motivations-but also that much economic activity is governed by animal spirits. People have non-economic motives. And they are not always rational in pursuit of their economic interests. In Keynes’ view these animal spirits are the main cause for why the economy fluctuates as it does.” [1]

One of the most frustrating aspects of the recession has been the absence of serious examination of its causes. Of course, there has been huge coverage of the events of the recession. But at the level of serious analysis there has been a dearth of proper public discussion. The political and public domain has been dominated by trivia such as bankers’ salaries or MPs’ expenses. Public debates have been restricted because there are few people who are able to discuss the economy and politics in the same breath. Yet it is impossible to make sense of one without the other.

The demise of politics and the political sphere as a meaningful forum for discussing the economy has encouraged the search for other explanations, outside the sphere of politics or traditional economics. Some people, including influential people within the Conservative Party in the UK, have turned instead to the behavioural economists (BEs), like Robert Shiller and George Akerlof, for explanations and guidance. Shiller and Akerlof’s case is that it is the behaviour of individuals within the market system and their psychology which explains much of what has gone wrong.

 Behavioural economists reject the view that the recession can be explained in traditional economic terms. In particular they have in their sights the rational market theorists, more commonly known as the free market proponents who have been influential since the time of Thatcher and Reagan, who argue that free markets can regulate themselves.  The upheavals of the past two years in the world economy have discredited the rational market theorists, as the blame for the recession has fallen on to the unregulated  nature of the financial markets. The BEs conclusion is that markets are susceptible to the irrational behaviour of individuals. This irrational behaviour requires state intervention to counteract it and to reintroduce stability. In the wake of the global recession this explanation and remedy is falling on fertile ground.

But the recession is not a crisis inflicted on an otherwise stable system by the behaviour of irrational individuals, as ‘Animal Spirits’ suggests. The problems of present day capitalism are the product of historical and economic developments within the system itself. The idea that anybody can say, as Gordon Brown did, that we can have neither boom nor bust, is plain wrong. The recession is just as intrinsic to modern capitalism as the boom which preceded it.

Whether it is the overdependence of the UK on financial services and public spending, the lack of any underlying productive dynamic to western economies in general, the crisis of the political class and its impact on the economy or the likely effects of the rise of China, none of these developments are explained or accounted for by Akerlof and Shiller. Their argument is that capitalism can work fine if it only had a little more regulation:

Capitalism can give us the best of all possible worlds, but it does so only on a playing field where the government sets the rules and acts as a referee.[2]

We can agree with the BEs that the market, or capitalism, is not rational in the way that rational market theorists claim. The most singularly irrational aspect of capitalism is that decisions to invest are made by individual or groups of capitalists rather than by or in the interests of the majority of people. If the prospects for profitable investment look poor, because the expected rate of profit is too low or too risky, then money flows elsewhere. In the past ten years money flowed instead into apparently safe areas such as financial derivatives based on assets like housing etc . This created an unsustainable asset bubble which inevitably crashed and burned. Phil Mullan [3] calls this the financialisation of the western economies, the tendency for money to try to beget more money without going through the process of productive investment in new businesses.

In addition, capitalism is less and less able to stand on its own two feet as it becomes more and more established. The state often has to step in to try to prop up ailing industries, as the US government recently did with General Motors, or to subsidise whole ones, as the EU does with farming. The growth of financialisation and state support together represent the throttling of dynamic economic development in the west. The truly dynamic parts of the world economy are now in the east.

The approach to explaining the recession taken by the BEs turns reality on its head. Capitalism as a system with inbuilt tendency to crisis is let off the hook and the individuals who suffer from the recession are blamed for it.

Part two of this review will follow shortly

 


[1] Animal Spirits p ix

[2] Ibid p173

[3] http://www.spiked-online.com/index.php/site/article/4244/

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