On June 15, 2018, the OECD released their report – A Broken Social Elevator? How to Promote Social Mobility – which provided “new evidence on social mobility in the context of increased inequalities of income and opportunities in OECD and selected emerging economies”. If you are still wondering why the mainstream progressive political parties have lost ground in recent years, or why the Italian political landscape has shifted from a struggle between ‘progressive’ and conservative to one between anti-establishment and establishment (the latter including both the traditional progressive and conservative forces which are now virtually indistinguishable) then this evidence will help. It shows categorically that neoliberalism has failed to deliver prosperity for all. While the full employment era unambiguously created a dynamic environment where upward social mobility and declining inequalities in income, wealth, opportunity were the norm, the more recent neoliberal era has deliberately stifled those processes. It is no longer true that ‘all boats rise on a high tide’. The point is that this is a situation that our governments have allowed to arise and which they can alter if they so choose. We should be forcing them to restore the processes that deliver upward mobility. And that is where the “truth sandwich” comes in. Progressive politicians that bang on about ‘taxing the rich to deliver services to the poor’ or who ask ‘where is the money going to come from’ or who claim the ‘bond markets will rebel’ and all the rest of the neoliberal lying drivel should familiarise themselves with the way the sandwich works. It is a very tasty treat if you assemble it properly.
The Europhiles have been tweeting their heads off in the last week or so thinking that the corner has been turned – by which they mean that Germany is about to get all cuddly with France and agree to fundamental shifts in thinking which will make the dysfunctional Economic and Monetary Union (EMU) finally workable, without the need for the ECB to break Treaty law by propping up the private bond markets. The most recent incarnation of the ‘saviour’ is a few words that the new German Finance Minister, Olaf ‘Wolfgang Schäuble’” Scholz said during an interview with Der Spiegel (June 8, 2018) – ‘Germany Has a Special Responsibility’ – about his support for a new unemployment insurance scheme for the Eurozone. It seems even the smallest things excite those who remain in denial about the long-term viability of the common currency. The proposal that Scholz was advancing has been out in the public debate for some years and is nothing like an effective solution to the terminal design flaws in the EMU. It is just an application of the same thinking that led to the creation of that flawed architecture in the first place and reinforces the conclusion that the main players in Eurozone policy setting have no intention of creating an effective federated monetary system. Just more of the same. Tomorrow, the tweets will be extolling the virtues of some other erroneous plan that some Europhile has come up with to save the system. And so it goes.
This is Part 2 in my two-part series analysing the 354-page report from the Scottish Growth Commission – Scotland – the new case for optimism: A strategy for inter-generational economic renaissance (released May 25, 2018). In Part 1, I considered their approach to fiscal rules and concluded, that in replicating the rules that the European Commission oversees as part of the Stability and Growth Pact, the newly independent Scotland would be biasing its policy settings towards austerity and unable to counter a major negative shock without incurring elevated levels of unemployment and poverty. In Part 2, I focus specifically on the currency issue. The Growth Commission recommends that Scotland retain the British pound, thereby surrendering its independence. Moreover, while it is part of the United Kingdom, the British policy settings have to consider the situation in Scotland. Once it leaves, it will still be bound by British fiscal and monetary settings but those settings would be designed to suit the remaining British nations. So if the British government continues with its austerity obsession, Scotland would be forced to endure that end. Hardly, the basis for an independent nation with progressive aspirations.
The 354-page report from the Scottish Growth Commission – Scotland – the new case for optimism: A strategy for inter-generational economic renaissance (released May 25, 2018) – could have been published by the IMF given its adherence to the flawed neoliberal macroeconomic framework that that institution imposes on everything. It is too generous to call the Growth Commission’s work ‘analysis’ – a series of unfounded assertions with logical extrapolation from that flawed basis is more accurate. If Scotland were to create an independent nation on the basis of the ‘blueprint’ outlined in the Growth Commission’s Report then it would soon be heading into a mediocre oblivion – a future where it would be unable to effectively counteract the fluctuations of non-government sector spending and a future where fiscal policy was forced to be pro-cyclical. Scotland would end up another failed austerity state. This is Part 1 of a two-part series where I examine the Report and its implications. In Part 2, I will examine the currency issues in more detail. I hope to be in Scotland in early October as part of my next speaking tour of Europe – more details later.
The UK Guardian has its ‘Brexit Watch’ page, which is regularly updated with commentaries from this and that ‘expert’, purporting to provide a sort of on-going scorecard of what is happening on that front. Many commentaries usually include some statement to the effect that “Brexit is a disaster”. That particular opinion appeared in the header of the most recent ‘Brexit Watch’ update (May 29, 2018) – ‘Brexit is a disaster’ – experts debate the latest economic data – which followed the release by the British Office of National Statistics (ONS) of the – Second estimate of GDP: January to March 2018 (released May 25, 2018) – which showed that the British economy (based on the latest updated data) increased by 0.1 per cent in the first-quarter 2018 and ONS said that “we see a continuation of a pattern of slowing growth, in part reflecting a slowing in the growth of consumer-facing industries”. One contributor to the ‘Brexit Watch’ article (David Blanchflower) had his wind-up ‘Brexit is Bad Doll’ working overtime blaming the Referendum vote and the uncertainty that has followed for the poor GDP performance, particularly the decline in business investment. So if its bad its Brexit is the repeating message. If its good, just wait, it will be bad again soon and then it will be Brexit. That is the repeating message. However, if you read the New York Times article (May 28, 2018) – In Britain, Austerity Is Changing Everything – you get a very different narrative. You can guess which one I think is more accurate.
I decided to write an extended blog post today (Wednesday) because events in Italy are so interesting. My usual short post on a Wednesday will resume next week. George Soros is now saying that “everything that could go wrong has gone wrong” in Europe and a financial collapse is in the wind (Source). I doubt the latter but agree with the former assessment. All the flaws in the original neoliberal design of the Eurozone have been revealed and all the reasons why those flaws were created in the first place remain in place. Nothing has changed since 1977 when the MacDougall Report concluded that the cultural and national differences between the (then) Member States of the European Communities were too great to allow an effective monetary union to be created. That assessment and the earlier work of Pierre Werner in his 1970 Report were ignored as the neoliberals in France and Germany rushed headlong to Maastricht. France thought it would have a chance to dominate and Germany was distracted by unification but still firmly in charge of what would be allowed in the new monetary system and what would not. Now, one of the biggest nations – Italy – is is turmoil as the damage of being part of the Eurozone slowly but surely erodes its capacity to deliver anything remotely like prosperity and its social and political system starts to collapse. Italy must leave the Eurozone – the sooner the better. And, that will bring a reality check for the whole disaster and encourage other nations to push for an orderly dissolution.
Regular readers will recall that Thomas Fazi and I published an article in the Jacobin magazine (April 29, 2018) – Why the Left Should Embrace Brexit – which considered the Brexit issue and provided an up-to-date (with the data) case against the on-going hysteria that Britain is about to fall off some massive cliff as a result of its democratically-arrived at decision to exit the neoliberal contrivance that the European Union has become. There was an hysterical response on social media to the article, which I considered in this blog post a few days later – The Europhile Left loses the plot (May 1, 2018). In recent days, two British-based academics have provided a more thoughtful response in the Jacobin magazine (May 18, 2018) – Caution on “Lexit”. Here is a response which was co-written with Thomas. As a general observation, I noted some prominent progressive voices citing their attack on us enthusiastically, one even suggesting it landed “some good punches” after taking “a while to warm up”. Well, I can assure Andrew that my face (nor Thomas’s) was the slightest bit puffy after reading the critique.
Last Tuesday (May 15, 2018), the new German Finance Minister Olaf Scholz stood up in the German Bundestag and delivered his first fiscal policy presentation. Not only was “die schwarze Null” (Black Zero) sustained but in his address, the new German Finance Minister made it clear that Germany would not entertain any expansion of the EU fiscal capacity (thus rejecting Emmanuel Macron’s proposals) and wanted to delay other ‘reforms’ that Germany had previously suggested they would support (beefing up the Single Resolution Fund and the creation of the European Monetary Union). For those Europhile progressives who have been hanging their hat on the hope that the takeover of the German Finance Ministry by the SPD would be the deal breaker that the Scholz’s presentation was nothing short of a disaster. He reiterated Germany would not be shifting in any major way and that Member States just had to buckle down and follow Germany’s fiscal example – surpluses as far as the eye can see. None of this was a surprise to me. It has been clear for some time that Scholz is just a continuation of Schäuble. Indeed some pointed statements from Bundestag politicians next day in their responses suggested just that.
Regular readers will know that I have delved into social psychology in the last decade or so as a way of educating myself on why ideas survive when their logical consistency is lacking and their empirical content is zero. I have gained a good understanding of this phenomenon by exploring the literature on patterned group behaviour and the work by Irving Janis in the early 1970s on Groupthink. While I usually demonstrate instances of this destructive group behaviour on the part of the Right, it is also clear that that the Europhile Left is riddled with the problem. To the point of not even valuing debate anymore. At the weekend (April 29, 2018), the excellent Jacobin magazine published an Op Ed piece by myself and Thomas Fazi – Why the Left Should Embrace Brexit – which considered the Brexit issue and provided an up-to-date (with the data) case against the on-going hysteria that Britain is about to fall off some massive cliff as a result of its democratically-arrived at decision to exit the neoliberal contrivance that the European Union has become. The article was rather moderate in fact and considered the on-going failure of the apocalyptic arguments that have been introduced against Brexit, both before and after the Referendum. But the social media response (negative) has been at elevated levels of hysteria. Inane claims. Groupthink in action. And it is why the progressive cause is such a push over by the organised Right.
Australia is currently being shocked on a daily basis with the revelations in our Royal Commission on Banking, which show that our financial services sector (banks, insurance companies, financial planning, etc) is deeply corrupt, with criminal behaviour clearly rife. Hopefully, many of the top executives and board members of these firms will be prosecuted and do time. Another ‘bank’ that has totally lost any sense of moral compass, not to mention effectiveness, is the World Bank. Its behaviour over the years has been scandalous. Earlier this year we learned that its so-called ‘Doing Business’ strategy deliberately manipulated its reporting to undermine a democratically elected government (Chile). And, last week (April 26, 2018), the World Bank released the Working Draft of its upcoming – World Development Report 2019: The Changing Nature of Work – where it attempted to pressure governments into widespread labour market deregulation, which if carried through would further disadvantage workers and further redistribute national income towards profits. The World Bank has outlived its purpose. It is now a seriously dangerous international institution and progressive governments should set about defunding it.