Get Red Pepper's email newsletter. Enter your email address to receive our latest articles, updates and news.
As governments and leaders of opinion all over the world struggle to end continuing economic paralysis in the wake of the global financial crisis (GFC), they are unanimous on only one point: the need to revive economic growth. Up to now there have been two mainstream schools of economic opinion as to how this revival is to be achieved. These are identified as a) the ‘Austerians’, who assert that by returning policy to fiscal orthodoxy (moving towards a balanced budget) governments can restore market confidence to the point where businesses will start to expand their operations again, and b) Keynesian, according to which budget deficits, so far from being cut, should be expanded further (along with public debt) so as to boost demand and stimulate private sector activity. Both schools are seemingly agreed that there is no place in such a climate for any restraint on monetary expansion.
Unsurprisingly the Austerian view has rapidly been discredited for the logical nonsense that it is, most obviously by its tendency to exacerbate deficits in a climate of weak demand and thus have the opposite effect to what its advocates claim it should. This predictable failure has induced a kind of schizophrenia on the part of the Coalition in the UK and most other governments in Europe, as doubts about the political sustainability of continued budgetary austerity intensify – especially as voters have given it an emphatic thumbs down in France and Greece. But while most governments in Europe cling to the wreckage of this failed strategy, economists have largely abandoned it, perhaps fearing professional ridicule if they continue to try to defend the indefensible. Thus for example Martin Wolf, chief economics commentator of the Financial Times, who for decades has been a high-profile defender of the neo-liberal, free-market ideology of the ‘Washington consensus’, has felt compelled by the inescapable realities of the GFC to adopt an openly Keynesian position.
It would be wrong, however, to see this apparent shift of opinion as representing any kind of ideological watershed. For in reality the neo-liberal ‘revolution’ of the 1980s did not amount to a complete rejection of the Keynesian consensus that had dominated policy during the post-World War II era. Markets were indeed liberalised and globalised, giving the corporate sector (and finance in particular) much greater freedom to seek out profit-making opportunities. But what did not change was the official presumption that governments need to intervene in markets so as to support economic growth and financial markets. Indeed it is ironic that the ‘supply-side’ strategy – based on cutting direct taxes – which was the core of Reaganomics applied in the US in the 1980s, was essentially a form of Keynesian-style deficit financing designed to stimulate growth, although few noticed this at the time. What is undeniable is that it signally failed to bring about the sustained revival of growth anticipated by its advocates, although it did result in a doubling of US public debt and helped precipitate a financial and property market bubble and bust by 1990.
But arguably the most pernicious aspect of this global liberalisation and deregulation of markets was that it reinforced rather than reversed the culture of corporate dependence on state support which was the legacy of the post-war Keynesian era, when policy makers everywhere were driven by the idea that market intervention and support of the private sector by the state (of which the Marshall Plan of the 1940s is the classic example) was justified in order to sustain growth and employment. Although by the 1980s this view had been ostensibly abandoned – along with the restriction of cross-border capital transfers and regulation of such matters as employment and environmental standards – few were inclined to demand a corresponding withdrawal of state subsidies and protection for the private sector, least of all those corporate interests which benefited from this public largesse and which largely set the political agenda. Hardly anyone appeared to recognise that by retaining such interventionist practices while adopting a more laissez faire ideology, governments were creating a climate of ‘moral hazard’ – encouraging big corporations to take undue risks in full confidence that they could count on the state to help artificially boost their profitability or bail them out in the event of destabilising failure.
By thus acting to institutionalise this systemic conflict of interest Keynesian ideology can be said to have laid the foundation of the massive misallocation of resources which, progressively since the 1980s, has brought the global market economy to the brink of final collapse. Hence it can be concluded that Keynes’ economic theories, so far from saving capitalism – as he himself asserted they would – have ultimately served to propel it towards corrupt and terminal failure.
Yet aside from this moral deficiency, the Keynesian model suffers from a serious practical flaw, which was apparent at the time it was originally discredited following the stagflation of the mid-1970s but which its advocates have persistently refused to confront. This is the assumption that it is actually possible over time to manage demand through fiscal and monetary manipulation so as to assure a high enough utilisation of productive factors (capital as well as labour) to avert significant disruptive imbalances – in other words to abolish the business cycle. In truth there is no proof that the post-war boom up to 1973 was to any significant extent the result of the Keynesian-style stimulus techniques then in vogue, rather than being a largely spontaneous response to the massive pent-up consumer and reconstruction demand after the war, the impact of which had been largely exhausted by the early 1970s. A still more fundamental error – common to virtually all mainstream economists – was their refusal to grasp the impact of accelerating technological change on the demand for both labour and capital, resulting in the rising productivity of both. While this phenomenon is well understood by most people in respect of labour – through the highly visible downsizing of workforces in both manufacturing and service industries such as banking – it is less widely recognised that the capital-intensity of fixed investment is also in long-term decline, thus leading to a lower demand for investible funds (including recycled corporate profits – or ‘surplus value’) needed to generate each extra unit of output (GDP). This tendency has naturally compounded the imbalances created by the unavoidable cyclical downturn in the economy following the boom.
Notwithstanding these failures Keynesians stand by their commitment to sustaining the rate of economic (GDP) growth – or preferably raising it to the kind of levels achieved before 1973, the minimum needed to absorb the growing excess capacity. It is the desperate pursuit of this unattainable goal which has generated the present massive distortions and imbalances in the economy, particularly the unprecedented burden of unserviceable debt – private and public – now weighing down the global economy. Even now, amid the total paralysis induced by this debt, Keynesians insist that an essential prerequisite of any recovery strategy must be to increase public borrowing still further, thus digging us into an even deeper hole – a reality underlined by the abject failure of the Obama administration to stimulate any meaningful recovery despite successive trillion-dollar deficits. Their obduracy even extends to giving their blessing to the utterly reckless policy of Quantitative Easing (money printing by any other name) in the US and UK. Despite claims to the contrary the only real purpose of this mechanism is to enable the government to buy up its own increasingly worthless debt and thereby artificially hold down the effective market interest rate closer to 1 per cent than the 6-7 per cent currently being paid by equally bankrupt Eurozone states such as Spain which do not have the luxury of being able to print their own currency. The obvious danger is that this unsustainable strategy will end in currency collapse and hyperinflation.
Cynically, however, most Keynesian economists dismiss the threat of inflation or claim it is a price worth paying for recovery, even though they know it would hit the poorest hardest. If they were truly concerned to advance public welfare they would abandon the doomed struggle to ‘save capitalism’ and demand that the whole financial house of cards be allowed to collapse. Clearly such a development, which is anyway ultimately inevitable, will be traumatic and fraught with peril. Only once this nettle is grasped, however, will it be possible for a more stable and sustainable economic order to emerge in which the toxic shibboleth of perpetual growth is abandoned and the security and aspirations of the vast majority of ordinary individuals are given priority over the pursuit of profit by a few.
Under such a sustainable new order resources would be allocated in line with more collectively determined priorities, with enterprise (private or public) being allowed to function only within parameters democratically established by the community – whether at national or local level. In order to minimise destructive and wasteful competition some degree of planning would be unavoidable. In place of the futile and damaging pursuit of maximum GDP growth and the increasingly meaningless goal of ‘full employment’ economic welfare would in future be measured in terms of social indicators such as those of public health (physical and mental) and levels of crime. In the absence of significant growth in GDP (value added) income would need to be equitably distributed on the basis of a) a flat rate basic income paid to all citizens as of right (guaranteeing minimum security for all) and b) limiting additional earning opportunities to individuals either through maximum hours / years of work and / or highly progressive taxation. The distribution of a greater share of national income to the masses – which should be seen as their share of the value generated by the community’s ‘capital’ (social, physical and intellectual) accumulated over centuries rather than something to which they can only gain entitlement by doing paid work that is no longer either available or necessary – could be readily financed from the huge share that presently goes in returns to ever more redundant capital.
It is a measure of the backwardness of thinking and debate within the Labour movement that such alternatives can still hardly be discussed in what pass for the progressive media. Perhaps it is significant, therefore, that such an eminent Keynesian economist as Robert Skidelsky has recently concluded that endless growth is not sustainable and that new approaches to achieving equitable income distribution – including a universal basic income – must be considered. If the Left is to chart a way out of our present chaotic misery it must come into the 21st century and start debating such alternatives seriously as a matter of urgency.
What if it's not us who are sick, asks Rod Tweedy, but a system at odds with who we are as social beings?
Survivors of the fire are still relying on thousands of community volunteers, writes Dan Renwick - but the failed council is plotting a comeback
The people could reach a democratic and non-violent solution if they were freed from US meddling, argues Boaventura de Sousa Santos
A decade after the start of the crash, economic power is in our hands – we must take it, writes Ann Pettifor
Nick Dowson looks at the new wave of co-ops and community groups where people are building their own truly affordable homes
Hsiao-Hung Pai meets people affected by the fire, and finds sadness and suffering mixed with a continuing wariness of the official investigations
Chris Williamson MP, winner of the election's tightest marginal, Derby North, and recently reappointed shadow minister for fire services, talks to Ashish Ghadiali about Jeremy Corbyn, the housing crisis and winning from the left
The Corbyn-supporting group is preparing for another election at any moment, writes Adam Peggs – and now has the potential to create powerful training initiatives, union links and party reform efforts
With the rise of Corbyn, is there still a place for the Green Party?
Former Green principal speaker Derek Wall says the party may struggle in the battle for votes, but can still be important in the battle of ideas
Fearless Cities: the new urban movements
A wave of new municipalist movements has been experimenting with how to take – and transform – power in cities large and small. Bertie Russell and Oscar Reyes report on the growing success of radical urban politics around the world
A musical fightback against school arts cuts
Elliot Clay on why his new musical turns the spotlight on the damage austerity has done to arts education, through the story of one school band's battle
Neoliberalism: the break-up tour
Sarah Woods and Andrew Simms ask why, given the trail of destruction it has left, we are still dancing to the neoliberal tune
Cat Smith MP: ‘Jeremy Corbyn has authenticity. You can’t fake that’
Cat Smith, shadow minister for voter engagement and youth affairs and one of the original parliamentary backers of Corbyn’s leadership, speaks to Ashish Ghadiali
To stop the BBC interviewing climate deniers, we need to make climate change less boring
To stop cranks like Lord Lawson getting airtime, we need to provoke more interesting debates around climate change than whether it's real or not, writes Leo Barasi
Tory Glastonbury? Money can’t buy you cultural relevance
Adam Peggs on why the left has more fun
Essay: After neoliberalism, what next?
There are economically-viable, socially-desirable alternatives to the failed neoliberal economic model, writes Jayati Ghosh
With the new nuclear ban treaty, it’s time to scrap Trident – and spend the money on our NHS
As a doctor, I want to see money spent on healthcare not warfare, writes David McCoy - Britain should join the growing international movement for disarmament
Inglorious Empire: What the British Did to India
Inglorious Empire: What the British Did to India, by Shashi Tharoor, reviewed by Ian Sinclair
A Death Retold in Truth and Rumour
A Death Retold in Truth and Rumour: Kenya, Britain and the Julie Ward Murder, by Grace A Musila, reviewed by Allen Oarbrook
‘We remembered that convictions can inspire and motivate people’: interview with Lisa Nandy MP
The general election changed the rules, but there are still tricky issues for Labour to face, Lisa Nandy tells Ashish Ghadiali
Everything you know about Ebola is wrong
Vicky Crowcroft reviews Ebola: How a People’s Science Helped End an Epidemic, by Paul Richards
Job vacancy: Red Pepper is looking for an online editor
Closing date for applications: 1 September.
Theresa May’s new porn law is ridiculous – but dangerous
The law is almost impossible to enforce, argues Lily Sheehan, but it could still set a bad precedent
Interview: Queer British Art
James O'Nions talks to author Alex Pilcher about the Tate’s Queer British Art exhibition and her book A Queer Little History of Art
Cable the enabler: new Lib Dem leader shows a party in crisis
Vince Cable's stale politics and collusion with the Conservatives belong in the dustbin of history, writes Adam Peggs
Anti-Corbyn groupthink and the media: how pundits called the election so wrong
Reporting based on the current consensus will always vastly underestimate the possibility of change, argues James Fox
Michael Cashman: Commander of the Blairite Empire
Lord Cashman, a candidate in Labour’s internal elections, claims to stand for Labour’s grassroots members. He is a phony, writes Cathy Cole
Contribute to Conter – the new cross-party platform linking Scottish socialists
Jonathan Rimmer, editor of Conter, says it’s time for a new non-sectarian space for Scottish anti-capitalists and invites you to take part
Editorial: Empire will eat itself
Ashish Ghadiali introduces the June/July issue of Red Pepper
Eddie Chambers: Black artists and the DIY aesthetic
Eddie Chambers, artist and art historian, speaks to Ashish Ghadiali about the cultural strategies that he, as founder of the Black Art Group, helped to define in the 1980s
Despite Erdogan, Turkey is still alive
With this year's referendum consolidating President Erdogan’s autocracy in Turkey, Nazim A argues that the way forward for democrats lies in a more radical approach
Red Pepper Race Section: open editorial meeting – 11 August in Leeds
The next open editorial meeting of the Red Pepper Race Section will take place between 3.30-5.30pm, Friday 11th August in Leeds.
Mogg-mentum? Thatcherite die-hard Jacob Rees-Mogg is no man of the people
Adam Peggs says Rees-Mogg is no joke – he is a living embodiment of Britain's repulsive ruling elite
Power to the renters: Turning the tide on our broken housing system
Heather Kennedy, from the Renters Power Project, argues it’s time to reject Thatcher’s dream of a 'property-owning democracy' and build renters' power instead
Your vote can help Corbyn supporters win these vital Labour Party positions
Left candidate Seema Chandwani speaks to Red Pepper ahead of ballot papers going out to all members for a crucial Labour committee
Join the Rolling Resistance to the frackers
Al Wilson invites you to take part in a month of anti-fracking action in Lancashire with Reclaim the Power
The Grenfell public inquiry must listen to the residents who have been ignored for so long
Councils handed housing over to obscure, unaccountable organisations, writes Anna Minton – now we must hear the voices they silenced
India: Modi’s ‘development model’ is built on violence and theft from the poorest
Development in India is at the expense of minorities and the poor, writes Gargi Battacharya