It’s Wednesday and my snippet day, which just means I don’t write as much so that I can write more elsewhere. But today, I summarise some research that has just been released which seeks to assess the sensitivity of the commitment by the Italian population to the euro to tolerating further austerity. The research finds that if the technocrats start forcing Italy into austerity measures via a return to the Excessive Deficit Mechanism (and enforcement of the Stability and Growth Pact fiscal rules) then the majority will prefer to leave the Economic and Monetary Union. The majority are happy to retain the euro but only if there is no austerity and structural reforms imposed on the nation. This is a big swing in public sentiment and will give the neoliberals in Brussels one huge headache. Either their neoliberal monetary union is done, or they will face instability from one of the largest euro economies.
The IMF recently updated their – World Economic Outlook database – April 2021 – which allows for quick cross country comparisons. Some of the data series are suspect (like structural deficit estimates) for reasons that I have explained before, but many of the national accounts series are useful. I have been doing work on the relative responses to the pandemic and the impact on economic performance as well as researching the next chapter of one of the current book chapters. So today, I just present some interesting graphs and calculations. Nothing deep but the figures then provoke some deep thinking. The lessons are pretty clear: Covid elimination strategies protect health and the economy better; Austerity is highly damaging; and there is a massive shift in the world order going on and we should be learning from that. And all of the trends I examine are ultimately the result of political choices. That is the important point to keep in mind.
The European Union officials seem to be ‘playing violins while the nations burn’, given Covid-19 is running out of control still (another wave coming) and new variants are outpacing the vaccine rollout (which wouldn’t be hard given how slow it has been). New extended lockdowns are coming, mass insolvencies are coming (once the relaxation of rules occurs), unemployment remains at obscene levels, and the whole show is lurching into stagnation, of the type only the EU elites can create. But what isn’t going wrong is the welfare system for the financial elites. They are rushing to purchase government bonds as if there is no tomorrow despite the deep crisis that the Member States are mired in. The bond investors are warmed by the knowledge that the ECB will do whatever it takes to keep bond yields low for fear that one or more Eurozone nations will become insolvent. The dysfunctional architecture of the common currency has ensured that the ECB has to keep buying government debt in large volumes to fund the growing fiscal deficits (despite their denial). The consequential outcome of this is that bond investors make tidy capital gains and the whole risk structure of investment in the EMU is corrupted.
One of the problems of neoliberalism is that it is anti-people. This makes it hard for governments to actually impose austerity and so they work out ways to lessen the visibility of their pernicious policy choices, except if you are in Greece that is. The ways they deflect the political fall out are many and include use the depoliticisation strategy – like appealing to TINA demands from external bodies such as the IMF (circa British Labour Party 1976), claiming central banks are independent, and hacking into expenditure items that delay recognition in the public eye that damage is being done. This blog post focuses on the latter. I have been studying the shifts in government spending in the European Union since the GFC and it is apparent that final consumption expenditure and outlays on social benefits have not been the focus of the austerity to the same extent as government spending on capital formation (public infrastructure). It is much harder politically for governments to cut recurrent spending because it usually impacts on people straight away. Cut a pension and the hurt is visible. Cut lots of pensions and there is a political problem. But cutting back on public infrastructure is less visible and the damage takes time to manifest as the depreciation process sets in, maintenance delayed and additional new capacity is lagging. But make no mistake – cutting capital spending undermines the future productivity of the nation and paves the way for a diminished future for our grandkids, the very ones, mainstream economists claim they are protecting by advocating austerity.
Yesterday, apparently I disappointed several people by analysing the Australian National Accounts release instead of concentrating on what ripper music release we could discuss. Well, I cannot stop the ABS releasing the GDP data on a Wednesday. But I can call Thursday Wednesday when they do release the data and so here we are. I also have to travel a lot today so it is good that I don’t have to spend much time writing this blog post. The music tribute today is to the famous Bunny Livingstone, one of the best Jamaican musicians who died earlier this week. What else could it be. I also have some other snippets that interested me, including a rather interesting BBC video short which well and truly tells us that Modern Monetary Theory (MMT) ideas are invading the mainstream even if they would never care to admit that publicly. Happy days.
What simple measures might we use to see whether a system is working or not? Well that depends on the objective of the system. For me, one of the worst things that can happen in a social context is a capitalist system is involuntary unemployment because work is intrinsic to our beings. From the time we crawled out of the slime we have had to transform nature in order to survive. That reality goes to the heart of human existence and gives us purpose and builds our sense of network and cooperation and giving. I know all the arguments – this is a filthy capitalist system and why would we want people to be wage slaves – I am older now. I have been a left-winger all my life. I heard these arguments decades ago. And until those revolutionary armies that are apparently hiding out in the suburbs arms themselves and appear in the streets, I am thinking of the actual societies we live in and have to make the best of. We would spend our whole life times talking about revolution while workers around the world are being made to bear the costs of the failing neoliberal system.
The tensions in the public policy debate between economists is intensifying and on show in Europe, where these sort of obvious conflicts between adherence to dogma and a recognition that ‘out-the-box’ solutions are not only possible but preferred. More of these latter thought offerings are starting to appear as more people come to understand that the mainstream dogma has become more of a security blanket for reputations rather than saying anything about reality. One such proposal emerged last week in the form of a letter to the major European newspapers signed by more than 100 economists and politicians calling for the ECB to write-off its massive public debt holdings, which currently amount to around 25 per cent of total outstanding public debt. It is a good idea but some of the framing leaves a lot to be desired. At any rate, central banks everywhere should be buying up massive amounts of government debt and hitting the keyboard with zeros and writing it off. The world would be a much better place if they did that.
There is a new variant of the global virus spreading again after being subdued throughout 2020. This is a very dangerous variant and if it takes hold will guarantee massive human suffering, and, a further, substantial shift in national income towards the top-end-of-town. I refer to the creeping infestation that is starting to pop up claiming that austerity will be required to pay for all the “profligacy” associated with government approach to the pandemic. I have seen this virus in the wild and it is creepy and being spread by those who seem to want to gain attention as time passes them by. Overheating threats, austerity threats – it is all part of the economics establishment trying to remain relevant. A vaccine will not work. They need to be permanently isolated.
On Monday (February 1, 2021), I wrote about recent developments in the EU, which make it hard to argue that it can be reformed in any way that would deliver progressive outcomes. There was also a good article in the London Review of Books (January 7, 2021) – Ever Closer Union? – by veteran British author Perry Anderson, which, while long, is worth reading if you somehow still think the EU is a haven for democracy and progressive potential. It provides a massive body of evidence that reinforces the view I presented in my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015). It amazes me that the EU is held out as something progressives should aspire to be members of.
Since Britain left the European Union, the Remainer Woke Brigade (RWB) has associated every little bit of bad news that has been published about that nation to the decision to leave the EU. Op Ed articles, Tweets and the like. All scathing of the decision, indicating a failure to accept the democratic volition of the 2016 Referendum. They lost. They can’t get over it. But in the last few weeks there has been an extraordinary silence from this media ‘traffic’. It is of no surprise to me that this should be so. Their beloved EU has been demonstrating across multiple fronts why no sensible nation would want to be part of it bungling and dysfunctional membership. I also admit that I have been astounded how bad things have become under this European administration. Britain did the right thing in getting free of it even though its political scene is not yet capable of dealing with the new scope it now has. But the events of the last few weeks in Europe have been nothing short of breathtaking in their hypocrisy, incompetence and venality. The cosmopolitan progressive set have surely now realised that their dreams of pan-national workers paradise led by Brussels is just a figment of their own imagination.