This is a further instalment in tracing through the British currency crisis in 1976 and its retreat to the IMF later in that year. Today we discuss whether it was the IMF that forced the change of direction for British Labour or all their own dirty work with the IMF just being used to depoliticise what Callaghan and Healey wanted to do (and were doing) anyway. We trace through the way the leadership of the British Labour government were building the case for austerity and the path they followed leading up to the request to the IMF for a stand-by loan. Far from being the only alternative available, the course taken by the Government was a triumph of ideology and perception over evidence and reality.
In the last month or so, we have seen the IMF publish material that is critical of what they call neo-liberalism. They now claim that the sort of policies that the IMF and the OECD have championed for several decades have damaged the well-being of people and societies. They now advocate policy positions that are diametrically opposite their past recommendations (for example, in relation to capital controls). In the most recent OECD Economic Outlook we now read that their is an “urgent need” for fiscal expansion – for large-scale expenditure on public infrastructure and education – despite this organisation advocating the opposite policies at the height of the crisis. It is too early to say whether these ‘swallows’ constitute a break-down of the neo-liberal Groupthink that has dominated these institutions over the last several decades. But for now, we should welcome the change of position, albeit from elements within these institutions. They are now advocating policies that Modern Monetary Theory (MMT) proponents have consistently proposed throughout the crisis. If only! The damage caused by the interventions of the IMF and the OECD in advancing austerity would have been avoided had these new positions been taken early on in the crisis. The other question is who within these organisations is going to pay for their previous incompetence?
Sometimes, it is almost as if I have to pinch myself to establish that what I am reading is not a dream. A few reports lately have had that effect, not the least being the latest IMF report – Debt Sustainability Analysis (DSA) for Greece, which is forecasting unemployment will remain above 10 per cent for several decades to come. The latest Eurostat data on gross labour flows also paints a dire picture for a nation that has been deliberately ruined by neo-liberal ideology. And, the latest Eurobarometer studying Europe’s youth in 2016 tells us clearly how the next generation of adults feel about all this – they feel marginalised from social and economic life. The Troika and its corporate pals are doing a great job killing off the prospects for Europe’s children and their grandchildren, and further on – their grandchildren’s children. People in a few hundred years will reflect back on this period of history as being a dark age where power hungry maniacs dominated the people before the latter revolted and mayhem ensued.
This blog continues the discussion of the British currency crisis in 1976. Today we discuss the way the US government was constructing the crisis. They had previously seen Europe in terms of military and political threats and had clearly developed a range of interventions in Europe (NATO, military bases etc) in response to their fear of Communism. But, it was clear that the US began to believe that the on-going financial turmoil that accompanied the OPEC oil shocks at a time when the world was trying to adjust to the collapse of the Bretton Woods system (and the Smithsonian agreement reprise), was undermining what they called their “assumptions of political stability” and increasing, in their paranoiac minds, the threat of the spread of communism. They considered that the IMF would have to be ‘steered’ to take a larger role in this period of turmoil to restore financial stability – a precondition for political stability (in their eyes). And if they couldn’t directly order the IMF to act in the perceived interests of the US government, then they would do it informally – through “‘conversations’ rather than meetings”. It is a very interesting period because the US clearly wanted to use the IMF to influence “the future shape of the political economy of Great Britain”. The ‘crisis’ was, in effect, manufactured to give those ambitions ‘ground cover’. At least, that is one plausible perspective of what happened in 1976.
There was another article in the financial media this weekend running the hypothesis that the stagnant economic conditions that Australia has found itself in is a “new normal”. This is now a repeating theme. I disagree with it. It ignores some basic realities and is ideologically loaded towards an austerity interpretation of the world. The article in the Fairfax press (May 21, 2016) – Low pay growth, price rises and the new normal – claims that the “central question in macro-economics today” is whether we are “waiting … for the economy to get back to normal, or has the economy shifted to a “new normal?”. I would pose the question differently. Waiting implies that we think it is just a matter of time before the ‘market’ does its work and restores normality. Moreover, Australia like most of the rest of the world remains locked in the aftermath of what we call a ‘balance sheet’ recession. As I explained to various audiences in Spain during my recent visit, this type of event is unusual (atypical or abnormal) and requires a quite different policy response to a normal V-shaped recession where private investment spending falls, governments stimulate, confidence returns and growth gets back fairly quickly on its trend path. The losses might be large but the recession and aftermath are short. A balance sheet recession requires elevated levels of fiscal deficits being maintained for many years to support growth as non-government sector spending remains below the norm while it reduces its debt levels (via increased saving). The problem in Australia, like elsewhere, is that governments have been hectored by neo-liberal ideologues to prematurely withdraw or reduce the fiscal support and growth has stalled. A range of problems then follow.
Today I am in Barcelona, Spain after travelling from Trujillo (in the western part of Spain). Today’s blog continues the analysis I have been providing which aims to advance our understanding of why the British government called in the IMF in 1976 and why it fell prey to a growing neo-liberal consensus, largely orchestrated by the Americans. Yesterday, we analysed the way in which the IMF reinvented itself after its raison d’être was terminated with the collapse of the Bretton Woods fixed exchange rate system. Today’s part of the story, is to trace the growing US influence on the IMF and the way it manipulated that institution to further its ‘free market’ agenda on a global scale. We will consider what Jagdish Bhagwati called the “Wall Street-Treasury complex”, which referred to the way in which financial market interests in the US combined with (pressured) the US Treasury Department to advance the myth that liberalisation of global capital flows would deliver massive benefits in the post-1971 period after the convertible currency, fixed exchange rate system collapsed.
Today I am in Granada, Spain having an interesting time. Nothing public to report. I will be here until Thursday morning upon which I travel back to Madrid and the public events begin (see below). Today’s blog continues the analysis I have been providing which aims to advance our understanding of why the British government called in the IMF in 1976 and why it fell prey to a growing neo-liberal consensus, largely orchestrated by the Americans. The current book I am finalising with my Italian colleague Thomas Fazi, is tracing the way in which the Right exploited the capacities of the ‘state’ to advance their agenda and how they duped the Left into believing that globalisation had rendered the nation state powerless. There were several turning points in this evolution, and one of those key moments in history, was the assertion by British Labour Prime Minster James Callaghan on September 28, 1976 that Britain had to end its ‘Keynesian’ inclinations and pursue widespread market deregulation and fiscal austerity has been taken to reflect a situation where the British government had no other alternative. His words have echoed down through the years and constituted one of the major turning points in ‘Left’ history. Successive, so-called progressive governments and politicians have repeated the words in one way or another. The impact has been that they have forgotten that their were options at the time that the British government rejected, which would have significantly altered the course of history. Today, we consider the role way in which the IMF reinvented itself after its raison d’être was terminated with the collapse of the Bretton Woods fixed exchange rate system. The next part of the story will examine the growing US influence on the IMF and the way it used the IMF to further its ‘free market’ agenda on a global scale.
Today, I take a further step in advancing our understanding of why the British government called in the IMF in 1976 and why it fell prey to a growing neo-liberal consensus, largely orchestrated by the Americans. The assertion by British Labour Prime Minster James Callaghan on September 28, 1976 that Britain had to end its ‘Keynesian’ inclinations and pursue widespread market deregulation and fiscal austerity has been taken to reflect a situation where the British government had no other alternative. His words have echoed down through the years and constituted one of the major turning points in ‘Left’ history. Successive, so-called progressive governments and politicians have repeated the words in one way or another. The impact has been that they have increasingly imbibed the neo-liberal Kool-Aid and have, seemingly forgotten that their were options at the time that the British government rejected, which would have significantly altered the course of history. The rejections were ideological rather than based on substance. For all intents and purposes, the British Labour Party, in government, had become the first practising neo-liberal government in British history. Britain just became a part of the US-led policy move that aimed to tilt the world economy heavily in favour of the profit-seeking aspirations of the corporate sector and the financial market sector (‘Wall Street’), in particular. The US government became the international political conduit for ‘Wall Street’ influence and the growing influence of the ‘City’ in London, also allowed these neo-liberal ideas to permeate the policy making circles in Britain. But it wasn’t just a permeation that was going on. The US used institutions such as the IMF to conduct brute force attacks on the prosperity of nations to undermine the viability of their public sectors and to shift more of the national income and national assets into the hands of capital. It was a brazen and very determined shift in world affairs. The ‘Left’ should never hold the decisions that were taken by the British government at the time as an inevitability of global capitalism.
It is easy to get distracted by other important events in the last week by the enormity of the information that has been released in the so-called – The Panama Papers – which document around 40 years of secretive banking deals, tax dodging, criminal money laundering and political corruption. The information shows that “major banks are big drivers behind the creation of hard-to-trace companies” in tax havens and once again demonstrates the urgency of root-and-branch banking reform to wipe out their ‘non-banking’ businesses. The revelations from that leak (‘hack’) will continue for some time given the size of the data. But the world keeps turning and the IMF keeps informing us, either through their own voluntary statements or through information that they clearly don’t want us to know about, which gets leaked, just what a rotten institution it has become. Read on and feel sad.
Sometimes we have to take a longer look at things to see the present in perspective. Greece has been a living experiment for the neo-liberal Groupthink machine that is the Troika. We rarely experiment on humans on any sort of large-scale if there is the likelihood of adverse result. That would breach any notion of human ethics. It is a pity that we relax those standards when dealing with other animals, but that is another story again, which I will leave silent here. The Nazis certainly conducted large-scale experiments on humans and we vilified them for it. The Troika is conducting different types of experiments on the citizens of Greece, which defy reason, and which also have had devastating effects. But still the mantra continues from the babbling mouths of the political leadership in Europe and its technocratic squawk squad (SS) embedded in the European Commission bureaucracy, the ECB, the IMF and various so-called ‘think tanks’ that continually pump out pro-Euro propaganda disguised as research – more structural reform, more fiscal austerity. Apparently, this scorched earth approach is the only alternative and will deliver higher productivity, increased international competitiveness and underpin a return to prosperity. Greece is on the front line of this approach. I never believed it would work because it defies economic reason. Economic reason that is not blighted by the neo-liberal Groupthink. It hasn’t worked. And now, the IMF, or at least segments within the IMF, are admitting that and producing research that supports the opposite case – the Modern Monetary Theory (MMT) case – that expansive “fiscal policy is a potent instrument for productivity growth through innovation”. Correct!