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The global poly crisis is the culmination of the absurdity of neoliberalism

We are used to segmenting destructive episodes as crises – the Mexican debt crisis in 1982, which gave way to the Latin American debt crisis in the 1980s, the East Asian financial crisis of 1997-98, then the Global Financial Crisis in 2008 and beyond, then the pandemic crisis since 2020. Meanwhile, firefighters are dealing with major fires from Portugal, France to Crete; Britain is about to experience 40 degrees Centigrade; Australia is dealing with a sequence of massive floods; corporations are gouging profits and pushing inflation, which is provoking policy makers to take it out on the most disadvantaged in our societies, with no logical link between the policy and the perceived problem, other than deep recessions stop the gouging; nations considered to be ‘middle income and rising’ are now lining up behind Sri Lanka to see who will be the next to basically collapse into anarchy, unable to feed its population; housing shortages are causing havoc almost everywhere; the quality of employment has declined dramatically (job security, worker agency, etc) and the trade unions are a pale imitation of what they used to be; politicians are more self-serving than ever; and people are still dying in the thousands everyday from the pandemic but our leaders insist we are now ‘living’ with Covid (more like dying with it). The reality is that all these events are linked and part of what some might call a poly crisis. Capitalism has failed and the institutions we created to tame the raw-profit greed of capital – the state, trade unions, etc – have also been compromised to such a degree that they, either are no longer effective or work as agents of capital rather than mediating the labour-capital conflict. A poly crisis requires fundamental change. But, such is the dominance of the mainstream, which has created this crisis, that all we get is more of the same. That means the ultimate solutions will be more painful and destructive and lead to conflagration as this period of human civilisation collapses.

The poly crisis has been driven by a planned strategy by capital to increase its power and ability to reap more real income from the distribution system.

It was a response to the gains workers made after the Second World War, as ‘social democracy’ provided conditions for reduced income and wealth inequality, better access to employment, increased access to public health, education and transport systems, increased worker capacity to access real wages growth in line with productivity growth through the agency of stronger trade unions, and more.

Capital clearly felt threatened by these developments and by the late 1960s, even before the OPEC oil price hikes, which set off the inflation that would last for the next decade and a half (only the 1991 recession really ended that), the various employer and industry groups were demanding governments increase unemployment to repress the capacity of workers to enjoy wages growth.

My colleague Victor Quirk documented Australian developments in this regard in his 2004 Working Paper – The problem of a full employment economy – which was part of his doctoral work.

He documents how senior industry leaders “publicly urged” the Australian government “to increase unemployment”. He quotes a journalist at the time, reporting a major speech made by “a central figure within Australia’s corporate establishment”:

Sir Colin warned that Government action to curb over-full employment would be ‘very unpleasant’ but the role of businessmen should be to back the government in the unpopular steps which had to be taken.

It is going to be very unpleasant. All the consequences of deflation are.

And on the global stage, we saw the creation and prosecution of the so called the – Powell Manifesto – which was a strategic document titled ‘Attack of American Free Enterprise System’, written by a US lawyer for the US Chamber of Commerce.

The Memo was a major turning point in the way the corporate sector approached the political system.

Nixon appointed him as a judge of the US Supreme Court soon after his memo was published and history tells us that he (ab)used his position as a Supreme Court judge to put high far right ideological belief into practice.

Prior to assuming that position, Powell had represented the Tobacco industry in many cases.

The book by Clements, J. and Moyers, B. (2012) Corporations Are Not People: Why They Have More Rights Than You Do and What You Can Do About It, San Francisco, Berret-Koehler Publishers – is worth reading in this respect.

I wrote about Powell’s memo and the strategic shift it prompted in this blog post – The right-wing counter attack – 1971.

People accuse those who construct these types of events and shifts as being conspiracy theorists, which is a put down and often related to beliefs in ‘little green men coming to Earth in steel disk-like aviation devices’.

But, the evidence is all there.

History tells us that dominant groups (Capital in this era) are strategic in the way they maintain their hegemony – working through networks, lobbying and the rest of it – to ensure they get what they want.

The social democratic era was a blip where workers had more capacity to moderate the excesses of capital.

The poly crisis is a demonstration that the gains workers made were limited and have been steadily retrenched as capital reconfigured the state to act in its interests rather than be a more ‘societal’ player.

And the major economic institutions that were erected after the Second World War, ostensibly to aid the social democratic aims, such as the IMF and the World Bank, have morphed into neoliberal attack dogs under pressure from corporations and governments in the thrall of corporations.

On its performance alone, the IMF should be scrapped.

But because it is a totem for corporate power on the world stage it maintains its voice and influence.

Last week (July 16, 2022), the G20 Finance Ministers and Central Bank Governors met in Bali as part of the G20 meetings there.

The IMF Director addressed the group – IMF Managing Director Kristalina Georgieva Urges G20 Leadership to Address ‘Exceptionally Uncertain’ Global Outlook.

One would think we were back in the early 1970s with all the talk about the need to create higher unemployment to discipline the current inflationary pressures.

First, let me just state that we should be celebrating the low unemployment rates that have emerged as a result of the way in which governments initially addressed the pandemic.

I get a lot of E-mails attacking me for refusing to acknowledge that the inflationary pressures are the result of ‘excessive fiscal and monetary stimulus’.

I wrote about that in these blog posts (among others):

1. http://bilbo.economicoutlook.net/blog/?p=49480 (March 28, 2022).

2. Central banks are resisting the inflation panic hype from the financial markets – and we are better off as a result (December 13, 2021).

With the supply-side highly constrained and sectoral imbalances acute (rising demand for goods and collapse in services expenditure early in the pandemic), it is obvious that inflationary pressures would emerge, particularly when corporations have market power to push up margins and use it regularly.

Is that a sign that demand (expenditure) was excessive?

In one way, yes.

But think about the situation.

No-one knew what 2020 would bring as the pandemic spread. We didn’t know what the disease would do and the worse case scenarios were diabolical.

Governments had to intervene with income support measures and bond market disciplines (via central bank bond-buying programs).

Otherwise, the Eurozone would have collapsed, and unemployment everywhere would have gone through the roof.

And all the problems that accompany rising unemployment would have become acute – poverty, sickness, foreclosures, etc.

So in saying that governments should have exerted more fiscal constraint in 2020 and 2021 tells me that proponents of that idea have a warped sense of priorities, especially when it is clear that the inflationary pressures are supply-sourced and will dissipate quickly when supply catches up.

If the governments had have attempted to constrain the demand side to match the supply shortfalls, then we would have been left with mass unemployment once the supply constraints eased.

That would have been highly destructive and counter-productive.

And, of course, when policy makers were dealing with the pandemic in 2020, they had no idea that the Saudi-dominated OPEC cartel would go into gouging mode in 2022 nor that Putin would attack Ukraine and dare the West to retaliate (given Putin knew he had the energy control over Western Europe).

The reason we have low unemployment around the world is because governments took fiscal decisions that maintained incomes.

We should celebrate that.

And now?

The IMF boss reverted to form saying that “the global economic outlook … has darkened significantly, and uncertainty is exceptionally high”.

Which is a statement I agree with.

But what is known is that more workers are now working.

And threatening that state because there are supply constraints and other issues beyond government control (Putin) only adds more uncertainty.

But, of course, the IMF only thinks in linear ways.

They are now demanding that governments:

… do everything in their power to bring inflation down … the good news is that central banks are stepping up.

And:

… fiscal policy must help – not hinder – central bank efforts to tame inflation … So fiscal policy needs to reduce debt.

Can anyone tell me how cutting public debt through fiscal austerity, which is the only way it can happen under the current orthodoxy, will increase factory production in China, reduce the escalating Covid sickness toll around the world, bring OPEC to heel, and persuade Putin that his war is not in the world’s best interest?

We know what fiscal austerity will do – increase unemployment and poverty.

The combination of rising interest rates and fiscal austerity will eventually create recession.

That in turn will pressure corporations to stop gouging.

It will reduce OPEC’s willingness to push oil prices higher.

But it won’t stop the war nor Covid.

So we won’t solve the inflationary pressures and will just inflict more harm.

The poly crisis will worsen.

The last thing that governments should be doing at present is pursuing policies that will add recession to the mix.

The inflationary pressures are not triggering of wage explosions.

Long-term expectations are still not seeing entrenched inflation.

We should be dealing with the causes of the pressures – reducing Covid infections, supporting those with Covid to ensure transmission is muted, funding better public transport systems to reduce reliance on OPEC oil, tightening regulations of house construction to reduce carbon use, encouraging more local production to reduce the reliance on complex supply chains, and things like that.

We should not be creating unemployment deliberately.

Why isn’t the IMF demanding corporations stop gouging profits?

Why isn’t the IMF demanding that governments do more to reduce Covid infections, like provide free vaccines to Africa etc?

Why isn’t the IMF demand that OPEC behave itself?

The answer is because it is part of the problem.

The IMF boss’s final comment to the G20 was “we cannot lose sight of the most pressing crisis of all: climate change”.

Indeed.

And “Scaling up financial resources” will be required. Except the IMF boss is referring to financial markets rather than public finances.

The reality is that if the financial markets take over the funding of the transitions the poly crisis will worsen.

Conclusion

I am working on a manuscript about the rise of the poly crisis at present.

I will have more to say about it later but I hope to have a new book out sometime later this year or early next year.

That is enough for today!

(c) Copyright 2022 William Mitchell. All Rights Reserved.

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    This Post Has 17 Comments
    1. Hello. I would like to request from you to write a good analyse about Venezuela and Sri Lanka if it’s possible?

      This kind of articles allow me and others convince people with good intentions on the left about how the neoliberal framework is distorting reality.

    2. I believe that globalization has caused more damage to the West than it was worth.

      With the new geostrategic situation that is emerging, globalization is being weakened.

      This will drive the re-industrialization of the West and hopefully reverse the damage done to the working people of the West and halt the trend in support for right wing political groups that have appeared in the last 20 years.

      The capitalist class has dominated in the West because it has been allowed to. Focus has to be on reform, not socialism which has no credibility with the masses.

    3. This post is a historical signpost of our perverted neoliberal times. Thanks so much Bill for always presenting truth as a weapon for us all to fight the lies, corruption and greed that have taken over a large share of the capitalist economic system and most of the mainstream political parties that get an opportunity to form government.

    4. Very important post today, Bill. There should be much more focus from politicians, economists and the media on the fact that the current high inflation is the lesser of evils and is the result of keeping people in work and (relatively) healthy and out of poverty – compared with the other option; which, as you note; would still likely have resulted in inflation due to geopolitical events outside our control.
      As you say – we should celebrate the current employment levels, and acknowledge that the inflation problem is not so bad as mass unemployment would be.

    5. Portuguese liberals (meaning neoliberals) are finding new guises to cling to power.
      As the older political parties loose votes, new parties arrive in the scene.
      But the narrative is the same old trope: “liberalism works” is written all over the country, in small bilboards, placed by the road, where the traffic is intense.
      They even feign old left propaganda, scoffing the left (an old tactic from the right-wingers).
      But, the country has been (and is beeing) ruled by liberals since, at least, 1980.
      And as good students, they have been busy privatizing everything.
      The government is no more.
      Now, we elect governors.
      The government is a no-country-no-federation thing that sits in Brussels, or Berlin, or Frankfurt or whatever.
      The markets are the rulers.
      And the markets ruled to cover 10% of the territory (It’s not a typing mistake – it’s really the territory) with an exotic tree species: eucaliptus.
      It’s the larger in the world, a long distance apart from the second post – Índia.
      Eucaliptus beat pine trees, as it grows a lot faster and it gives a good return to the timber industry, that sells the timber to the paper industries.
      The traditional species, like the oak tree, are now a rarity.
      They take many years to grow – they’re no use for the markets
      But they burn a lot slower than the super-energetic eucaliptus.
      No problem: if small villages burn to the ground, more area will be available to plant more trees.

    6. Very good but depressing post.
      Inflation really is a serious threat to working people as it gives the rich the opportunity to give
      Working people a really good seeing to.
      It was by stoking the fears of inflation in the seventies that the ‘ monetarists’ as they used to be called
      Ushered in a new era( maybe sign posted by the powell manifesto) Decades of gains working people
      Had managed to secure in the post war settlement reversed.
      Inflation reveals the conflict in the (political )economy.Petrol and energy suppliers are the big winners
      The rich are making sure it’s the workers that are the losers.
      With the climate crisis accelerating and monetarism still dominant deeply pessimistic times.

    7. Okay,

      So now add in the geopolitical map. Which is missed quite often because so much focus is put on domestic economic policies. When you view the geopolitical map, start from the viewpoint that of course they know how monetary systems work. it would be impossible and completely absurd to think that they don’t know how how it works, after running central banks and treasuries and commercial banks for 100’s of years.

      Yet, when voices are raised suggesting that’s exactly why the EU was set up the way it was, that NATO has adopted the stability and growth pact and debt rules in their charters using a different language. All based on Mercalist, gold standard, colonial real resource rent extracting policies. You are attacked for saying it.

      Both the EU and NATO are sacred cows to the liberal left. When voices are raised against both, it is as if you have attacked the NHS, gay pride, or the colour of somebody’s skin, or religion.

      The IMF, the world bank, the EU and NATO are the corner stone institutions that promote both globalism and neoliberalism. How can the liberal left not see that ?

      Isn’t it all clearly obvious from the viewpoint of the MMT lens ?

      Yet, the liberal left have been potty. trained from a very early age to defend the EU and NATO as if they were a family member. It has to change, the reason it has to change is these are corner stone institutions of the current economic paradigm. The driving force behind globalism and neoliberalism.

      If you want to change the current economic paradigm then you have to remove the corner stones on which this paradigm has been built upon. Right and left wing voters get it and see it through the haze of their own political views. The liberal left are under attack by both, as the left and right wing voters are no longer waiting patiently until the liberals finally get it and catch up.

    8. We’re also heading into a major food crisis as a consequence of the collision of these conditions: the lack of gas for fertilizer, climate change affecting agriculture, lack of market access due to economic crisis, and Mr. P along with Mr. B playing the great game with grain stocks hostage, even some locusts, all come together to create world hunger for a few years. And I think what we all know what happens when there is no food, the interesting times, and very quickly a that.

    9. “tightening regulations of house construction to reduce carbon use”

      Curious, I would say we need more housebuilding to increase housing supply and reduce housing costs.
      And reduce the power of Landlord over tenants.

    10. The UK went into a sort of war economy mode to deal with the pandemic.

      Some 20% of the work force worked to preserve the nation’s health by staying at home. Typically this 20% would have spent some 80% of their wages buying goods from those who could continue to work. But by staying at home the 20% would have had no income. Furlough was a device for maintaining demand for goods and services from those who could continue to work and also to stave off political revolt by those who were forced to stay at home.

      Keynes wrote his well known pamphlet ‘How to Pay for the War’ before WWII. He should probably have called his pamplet ‘How to Pay for the War without creating Inflation’, since he knew that a currency creating government would have no problems paying for the war.

      But he realised that those working (rather than in the army) would not be able to spend all their income. This might leave them feeling dissatisfied and damage the war spirit. By allowing them to put their forced savings into interest earning war bonds, dissatisfaction could be limited.

      Tax increases could also have been used to destroy money but that might have created dissatifaction so was limited.

      Keynes perceived a problem when the war ended. People would want to start spending their war bond savings. He saw this as potentially inflationary and concocted various schemes to limit peoples ability to spend their savings.

      Sunak and the treasury must have at least discussed similar sorts of issues post pandemic. But they probably dismissed it on the assumption that supply issues would be quicly resolved post pandemic. I think the public took early post covid inflation in its stride because it was an inflation in the price of non-essentials and they saw it as being covid related. Had Ukraine not happened they would probably have been right.

      The current inflation is of a different sort. It is an inflation in the price of essentials like energy and food and its cause is political – the boomerang effect of sanctions on Russia. There has been no surge in demand for essentials which it is necessary to cut. Rather supply has been cut.

      The important thing is to resove supply issues to deal with the inflation. Central banks increasing interest rates will damage the effort to resolve supply issues by reducing investment.

      It will also increase unemployment and thus reduce the ability of the working class to defend itself against the reduction in its standard of living thus avoiding the dreaded wage-price spiral of the 70s. This seems to be Abdrew Bailey’s main concern.

      The main result of the increase in interest rates will be that working people will bear most of the cost of the drop in the standard of living. How should the British TUC and unions address this issue?

      The TUC and the unions must avoid fighting the cost of living crisis we have today in the same way that they fought it in the 1970s. The RMT and other unions need to make much more explicit the distributional nature of this struggle if they are to fight it effectively. It may have to be accepted that some drop in the standard of living will be unavoidable if the current disruption in the supply of goods and energy continues. The TUC and unions must demand that they be active participants in determining how any drop in the standard living is distributed through society. The TUC had an active input into the design of the Furlough scheme to deal with the pandemic. They should insist on an equally active role in designing a response to the cost of living crisis.

    11. The paper by Quirk referenced above is an interesting, albeit succinct, study of the modern social, economic and political history of Australia.

      It opens with a quote from Phil Lynch, who I believed to be the arch neo-liberal, expressing his satisfaction with full employment. He must have been momentarily overwhelmed by his catholicism.

      The paper takes the line that, post WWII, business was more interested in control of labour than it was of maximizing profits. Perhaps this has something to do with the vestigial concerns about socialization of Australian society (given the Cold War was still in full force). It is always puzzling that business would eschew the maximization of profits that full employment of labour and capital would bring. Unemployment entails lost output, lost capacity utilization, lost profits. Profits could be maintained at a high level with reduced inflation if profits push (as in profit margin) was moderated, reducing the pressure for wages push.

      There were times when the trade union movement did push beyond what was responsible and at times industrial action was deployed for political ends, disquieting the business powers that be, contributing to reactionary attitudes.

      Quirk, however, neglects completely the history of the dismantling of the Australian manufacturing industry by the tariff reduction policies of the Whitlam and Hawk governments. This had a profound long term effect on the Australian economy and seriously weakened the power of the trade union movement. Globalization writ large on the Australian economy.

    12. In Australia the defeated right wing government left a few landmines for the new Labor government, a trillion dollars in debt. The neoliberal lite Labor government has already made it clear they think they must reduce spending due to this “eye watering” debt and no one in the MSM is questioning the validity of the narrative. No one other than bank economists or Business Council reps gets air time, with the possible exception of Alan Kohler and agareth Hutchins .

      So the TINA narrative is still very much entrenched. I’m not sure if we will reach a point where something will change but I fear a dystopia or collapse is quite possible. Very dispiriting,

    13. It was Winston Churchill who in 1940 said: ” never let a good crisis go to waste” which was repeated by Rahm Emmanuel in 2008. This saying can have various interpretations obviously, but it seems relevant to today’s discussion.

      There are geopolitical moves afoot and there seems to be supranational forces behind it. Surely our elected officials and trusted academics can’t be responsible for the numerous crisis we’re currently in? There is a tremendous amount of blame that falls squarely on that. Expect further misery before the culprits are properly identified, and their crimes codified and prosecuted.

    14. @Arri mundee, regrettably, Alan Kohler is a fail as he has denied reality by recently saying “Look I understand MMT perfectly well, but it’s pointless clamouring in a parallel universe. As far as the government is concerned, the budget is shot. That’s what matters.” Just another rollover financial journalist who is not prepared to challenge the status quo when he knows otherwise. Heart may be in the right place but the head isn’t.

    15. We are in the middle of a major conflict between industrial capitalism and financial capitalism, the latter has essentially de-industrialized the collective west.

      The societies that have not followed this neoliberal finance capitalist plan. And the most successful economy, obviously, has been China.

      The neocons have tried to bring the other camp to heel with a proxy war in Ukraine to weaken Russia and then go after China ! It is a major miscalculation.

      China has done exactly what 19th-century United States, Germany, England, and France did. It has kept basic utilities, basic needs, housing, and above all, finance and banking, in the public domain, as public utilities.

      Instead of having an independent financial sector operating on its own self-interest, the Bank of China creates the money. And the Bank of China lends money by deciding, where do we need to have investment in real estate to provide housing for the population at as low a price as we can make it? How do we build up the industry? How do we provide an educational system with training? How do we provide health?

    16. There have been a lot of good comments that I would like to respond to but I like most of us I guess have many demands on my time so I will just rebut the last point given in Michael’s comment above and blab a little about speculation.

      I agree with all points except on the issue of housing in China where my understanding is that speculation has been allowed to run riot and commercial bank lending for dwelling buyers and property developers has been very deregulated and often reckless. This sounds more like economic management by Goldman Sachs rather than a central government serving the public purpose.

      Japan went equally mad with property speculation a few decades earlier. One can argue that property speculation increases investment and the building of more housing stock but what instead usually dominates is the ponzy scheme of new money driving up prices which then attracts more money which again drives up prices which then gets to the point that most people can no longer afford a mortgage to buy housing and rents also increase to very high levels leading to a two tier society of rentiers and tenants with an underclass of the homeless while beautiful new housing towers and even whole suburbs or towns stand empty. Sometimes this ends with a crash or government’s step in to rescue the rich yet again using the government’s or central banks money.

      My understanding is that Germany almost alone in the developed world managed to avoid the excessive levels of speculation in housing and most people rent local government owned flats and the rents are quite low by international standards. Which is odd as neoliberalism is alive and well in all other respects in Germany and it’s empire Germania that we call the EU.

    17. I agree with every word in Bill’s post. Absolutely correct summation of the whole situation, including the characterization of it as a poly-crisis. It is indeed a poly-crisis. It is the last poly-crisis of capitalism because capitalism, in its current form at least, will not survive this. However, this poly-crisis could last a long time. There’s “a lot of ruin in a nation” (as Adam Smith said) and a lot of ruin in capitalism. But getting back to “capitalism will not survive this”. Capitalism will either have to be reformed, into democratic socialism basically, or it will collapse utterly.

      Capitalism in its current form is demonstrating that it is completely unsustainable. Now, it is not only destroying the biosphere (as a place where humans and many other meso-sized and macro-sized animals can live) but it is also destroying its own human population with its complete unwillingness to control pandemics.

      By the third COVID-19 infection, people of all ages begin to suffer, on average, higher rates of morbidity (illness) compared to the first infection. Since being vaccinated and boosted now seems to be only moderately protective against infection and since this protection against infection and bad outcomes wanes VERY rapidly, these rapid consecutive infections are becoming more common and a real problem.

      We are heading for a tsunami of deaths and disabled people in Australia. COVID-19 is already or very soon will be the number one cause of death in Australia. This pandemic is completely out of control and without added and/or re-added controls, new pharmaceutical approaches plus better NPIs, our hospitals will functionally collapse before the end of this year. This will mean no safe emergency or medical procedures will be available for anyone (except perhaps the super rich).

      Deaths from causes other than COVID-19 will skyrocket as all these people will not be able to get safe medical help or even any medical help. Deaths from COVID-19 caught in hospital while trying, mostly unsuccessfully, to get other help will also skyrocket. The Monkey-Pox pandemic will also take off on current indicators. There is currently nothing in place to stop any of these things happening. Neoliberalism refuses to protect its population from decimation and collapse.

      Australia faces an utter disaster which will rack this nation for decades to come. This is unless we act firmly and act now to eliminate COVID-19 is Australia, prevent Monkey-Pox getting a foot-hold and re-institute full public health and infectious disease controls in this country. Our spending on medicine and hospitals needs a massive increase. To pay for this we need to use MMT principle plus tax the rich hard and reduce spending on all non-essentials. Non-essentials include negative gearing, fossil fuel subsidies, big business subsidies in general, stadiums, professional sports, Olympics and other games. Non-essentials also include luxuries, including excessive entertainment, alcohol, tourism and travel which all need to be taxed hard in a Pigovian fashion.

      At the same time as taking action on the new pandemics (plural and with even more coming as we are now in the pandemicine as well as in the anthropocene), we need to take emergency action on climate change and saving Australia’s environment plus assisting people to live in places and ways where they are not subject to recurrent floods and/or bush fires. Demand can be maintained by switching from non-essential and destructive consumption to essential consumption and productive investment. Greater consumption of health, welfare, education adnd public housing goods and services can lead the way as greater investments in these arenas are desperately need.

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