Last days in the bunker?

As the economic news across the world has turned increasingly ugly since the beginning of 2013, signs of intensifying desperation within the leadership of the industrialised nations are starting to appear. In the face of negative growth of GDP in all major countries (including the supposedly more buoyant US) in the last quarter of 2012 politicians, central bankers, leading economists and captains of finance and industry have all begun to express alarm at the failure of official measures designed to stimulate revival to have any positive impact.

As from the start of the global financial crisis (GFC) in 2007-8, there are two broad strands of official opinion as to how it should be overcome, starting from the common perception that its initial manifestation – the impending mass insolvency of the financial system – had to be averted by unprecedented state bail-outs of (largely private) banking institutions. The first, and predominant, strand of opinion has been that the resulting huge extra burden of public sector debt must be reduced by means of intense fiscal austerity, principally through cuts in expenditure rather than tax increases. The second strand asserts that, in order to reduce the excessive levels of debt in both the public and private sectors there needs to be yet more public sector borrowing – thereby increasing the debt level, at least initially – to finance new capital spending on the basis that this will boost growth throughout the economy and hence raise the extra revenues needed to pay down the debt. Although economists continue to argue about which of these somewhat conflicting strategies is more likely to lead to the desired recovery, most governments have in practice pursued a combination of both. At the same time there has been near unanimity that monetary policy must be extremely relaxed, so that near zero interest rates have been the norm ever since the start of the GFC – on top of which “quantitative easing” or QE (using money created by the central bank to buy government debt and thereby increase liquidity in the economy while also serving to prevent interest rates on the debt from soaring to unsustainably high levels) has increasingly been resorted to by central banks.

In fact at the time these “extraordinary measures” were first widely adopted following the banking disaster of 2008 it should have been obvious, on any objective analysis, that such measures could never lead to anything resembling normality – let alone a sustained revival of growth – while the economies of all major countries remained weighed down with such a crippling burden of debt, and that consequently most of this debt would need to be written off before equilibrium could be restored. Despite this the main organs of establishment propaganda – naturally including the mainstream media – have for the last four years maintained a public posture of confidence that the global economy is on course for recovery.

However, now that it is apparent that all the policy measures, conventional and unconventional, that governments have managed to deploy have predictably left their economies flat-lining at best – with real GDP no higher now than in 2007 and public indebtedness still rising – panic is evidently starting to set in. Thus in Britain two leading establishment economists – Martin Wolf, chief economics commentator of the Financial Times, and Lord Turner, Chairman of the Financial Services Authority – have seemingly joined forces to call for the printing of “helicopter money” (cash freshly minted by the state) to be distributed across the economy in a last-ditch effort to stimulate consumer demand. Yet it must be obvious to them that such an approach, if adopted, would risk much higher levels of consumer price inflation (which is already well above both the official target level and average income growth) and / or a renewed bubble in asset prices, including house prices, which are still well beyond the reach of most first-time buyers five years into the downturn. As it is, one of the few positive symptoms resulting from QE is that, as a result of the extra liquidity injected into the system, stock market prices have risen significantly in recent months, although strikingly the main benchmark indices in the US and UK are still below the all-time high levels reached in 1999-2000. Doubtless Wolf, Turner and their colleagues are also aware that, if they could get away with such an “inflationist” strategy for a few years it could significantly devalue the huge debts still weighing down the economy, albeit at the price of reducing many millions dependent on small savings and low incomes to penury.

At the same time right-wing commentators and Tory politicians desperate for some action to revive growth are calling for huge tax cuts on business and investment (corporation and capital gains tax) to be paid for by even bigger cuts in spending than those already inflicted on the bleeding body of the public sector. This despite the copious evidence from past experience that a) “supply side” measures such as cutting direct taxes tend only to result in only higher public debt (as under Reaganomics in the US in the 1980s) and b) trying to cut one’s way to fiscal balance is equally self-defeating, as most recently demonstrated by Greece and Italy. Yet all the while the inescapable reality remains, as it has been since the start of the GFC, that there is no way of restoring any kind of stability or balance to the global economy without effectively writing off virtually all of the unpayable debt still paralysing the system. However this is achieved – whether through the ending of state support for financial institutions and asset values or via hyperinflation through QE or other forms of money printing – the inevitable outcome will be a market meltdown even more cataclysmic than that of 2008 and a consequent collapse of personal income, wealth and savings such as to threaten social stability and civil order across the world.

This intensified resort to vain fantasies as the inexorable forces of systemic failure close in calls to mind the delusional behaviour of Hitler and his dwindling entourage in the Berlin bunker in 1945, summoning non-existent divisions to be thrown into the Eastern front as the Red Army remorselessly advanced on the capital. For Hitler the stark choice was surrender or suicide. For Chancellor Osborne and his peers in other countries the options may seem almost as unpalatable, although unlike the Fuhrer they may hope to survive capitulation personally.

In contrast to the position facing Germany in 1945, however, there is now no obvious alternative regime available offering a vision of a more humane economic and social order that could restore some degree of stability and hope to the world. This is because, despite the West’s supposed commitment to pluralism and democracy, all our political institutions – including most of the media – have, over the last 30 years, been progressively coopted and absorbed into a monolithic structure committed to sustaining the neo-liberal ideology propagated by and for big business interests.

In this climate of extreme market liberalisation and globalisation – modified by highly distorting government-supported manipulation and subsidy favouring selected groups or individuals – there has been no place for any notion that the resources of the state could or should be deployed to control or restrict economic activity in the wider public interest if that is seen to be at odds with corporate power and private profit maximisation. Hence it seems quite hard to conceive of any major Western government having both the will and the capacity to do what now needs to be done to maintain or restore minimum conditions of survival as the global economy progressively disintegrates. For this would require the creation, at least on a temporary basis, of some form of command economy, involving tight government control over all aspects of the economy – including not only credit but prices, incomes, production, trade, foreign exchange and capital flows – as a prelude to restoring economic life on a more stable long-term basis.

Given the current balance of political forces in the world’s rich countries there is evidently no prospect of any government acting to pre-empt the gathering financial holocaust. Even once it clearly manifests itself – almost certainly in the form of a new round of bank failures – it seems hard to believe that the increasingly criminal ruling élite will easily submit to the need for such a command economy. For this would entail not only a) huge financial losses for themselves (and the rest of the “1 per cent”) as asset values are wiped out on the markets, but b) a demonstrable failure of the dominant neoliberal ideology (if not of capitalism itself) as comprehensive and terminal as was that of Soviet Communism in the 1980s. For the powerful few, therefore, the stakes are high. Yet for the mass of ordinary people round the globe they are higher still, and many may increasingly feel they have nothing to lose but their lives in the struggle for a more hopeful future, as the Arab “Spring” arguably demonstrates. As the world approaches the moment of maximum danger it is crying out for leadership to take it in a different direction.

3 March 2013


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