Tuesday, January 22, 2013

Rent boys

What strikes me as interesting about today's penchant for austerity, particularly in the Eurozone, is the way it has united a range of classic liberal economists with Keynesians in opposition to it. Both agree from different premises that the policy is a dismal failure and there is a measure of consensus between them about the need to maintain demand in times of recession. Whilst recognising that sovereign debt is a real problem, they are clear that it cannot be reduced without a healthy, productive real economy. Thus, they focus their critique on the extraction of rent from the real economy and the damage it causes. Here are a couple of examples.

Aditya Chakrabortty, from the social democratic left, revives the work of Michał Kalecki and in doing so stresses the importance maintaining expenditure and investment in a recession. An equitable distribution of wealth is of particular importance for maintaining demand and a healthy economy, providing the resources for the erosion of sovereign debt levels. This is something that, as Will Hutton reports, even the IMF has woken up to. Austerity certainly redistributes wealth, only it does so inequitably, filling the pockets of the rent seekers. Earnings and benefits are squeezed, depressing consumption and damaging the wider economy. He concludes, "… austerity is just code for the transfer of wealth and power into ever fewer hands."

In a longer piece, rooted in economic history, Michael Hudson argues that the interests of a rent seeking class are embedded in an ideological hegemony, often justified by false historical analogies, that is shaping the political economy of European nations to the detriment of the wider economy. I won't repeat his full argument, the piece is worth reading in its entirety, but the following illustrates what I mean by the extent of the opposition consensus.
A political and ideological coup d’état is replacing democracy with financial oligarchy, transferring government power to banks and bondholders. The new policy is not for governments to tax the wealthy but to borrow from them – at interest, which is to be paid by taxing labor, consumers and industry all the more. To proceed down this path would reverse Europe’s Enlightenment and the past three centuries of economics. It is called classical economics – and even “free market economics” – but it is a travesty to impose this policy in the name of the patron saints of classical political economy. The Physiocrats, Adam Smith, John Stuart Mill, Wilhelm Roscher, Friedrich List and Progressive Era reformers urged just the opposite path of what now is being taken, and indeed which the world seemed to be following until World War I and for a few decades after World War II.
So far, there is little sign of this counter argument having the slightest impact on our austeritian rulers. In the meantime there are consequences. Aristos Doxiadis and Manos Matsaganis have written a stimulating pamphlet on National Populism and Xenophobia in Greece, where they look at the interaction of the notion of Greek exceptionalism with the crisis to produce a nationalist populism that blames the crisis on a variety of external forces (including the bogeymen dreamt up in the wilder fantasies of conspiracy mongers) whilst absolving themselves from any responsibility. Of course, much of the responsibility for the crisis does lie outside Greece, as emphasised in the other pieces, but another dimension is the product of Greek governance, institutions and attitudes. The rise of populism is not happening only in Greece. UKIP is a comparatively mild example in this country, but is cut from the same cloth. A much more virulent version is to be found in Hungary and it is possible to argue that both German popular discourse and, more alarmingly, EU institutions seem to be more comfortable with a morality drama about the puritan north against the hedonistic south as an alternative to examining the real consequences of monetary union.

This nationalist populism could be a genuine threat to the European Union, one that it seems unwilling to recognise as it insulates itself from reality with the self-reinforcing dogma of austerity economics. What is certain is that the social stability offered by EU membership looks less secure as the undercurrent of violence, discussed here by Maria Margaronis, begins to seep from the margins. Doxiadis and Matsagianis stress the need for,
A growing economy providing good jobs, and a welfare state geared to the needs of the weakest. The most effective therapy of the underdog mentality is hope and economic security. Hope will not be created by Greeks alone: Greece’s European partners must help
It seems no nearer. But just as they call for reform, they also "…call on those who feed the paranoia and the illusions to consider the consequences." In short, their pamphlet calls for mental honesty and self-criticism at a time of increasingly deluded certainties. We can only hope that such sanity prevails.

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