The economic crisis discussion meeting 28 September

Don't forget that our first PCLP discussion meeting on the economy takes place Wednesday 28 September at 19.00 in the Labour Offices, Morgan St, Pontypridd. Members, affiliates and supporters are all welcome. See the August postings for more details about this and other meetings and topics throughout the year.

This web blog will remain as an ongoing collective resource that anyone can use and add to.

Rant corner

This is the bit where we can say what we like.

Here is a recent one of my own.

It is possible to suggest a fairly simple explanation for what is happening, although the solution suggested by such an explanation would be far reaching. Anyway, putting my economic historian hat on and as an avid analyser of capitalism over the last 40 years here goes.

1. Value of any sustainable good or service depends on someone ‘adding value’ through labour.

2. Investment in nearly all advanced economies has moved away from this form of production as the rate of profit has declined in these areas of activity relative to profitable in areas like finance. I can suggest an explanation as to why this is so, but just stay with the argument for the moment. Put simply if you can turn money into money and make a profit why bother with the messy business of employing people and investing in equipment.

3. The financialisation of the international economy has grown out of all proportion over the last 50 years. In the stock market valuation of US companies the ratio of financial corporation profits to non-financial corporations’ profits had risen from about 6% in the early 1950s to the early 1960s to around 26% in 2001. Global financial assets were equal to 316% of annual world output in 2005 as against only 109% in 1980.

4. Money to money profitability is very risky however, it is basically a poisonous game of an ever faster ‘pass the parcel’ with the loser who ends up with all the useless investment going bankrupt and having to be bailed out by the state when the crisis hits. The winner meanwhile runs off with massive profits.

5. As the role of financialistion grows in the economy the bigger the risk to the whole economy and this is what happened in 2008. Essentially around $10 trillion in global wealth went up in smoke. A sum greater than the whole output of the EU economy in a single year.

6. Essentially that is a ‘deflationary’ effect. $10 trillion in effective demand is removed from the international economy at may yet translate into actual price falls.

7. Initially governments have printed money ‘qualitative easing’ and borrowed to try to plug the hole left in total world demand. The hope was stimulate a Keynesian economic multiplier effect whereby government spending leads to jobs and wages, which leads to demand and more jobs and wage etc.

8. This was starting to happen but the financial markets already spooked by the higher risk they experienced in 2008 have become wary of government borrowing to fill the demand hole. Hence they stop lending to governments unless at very high rates.

9. So how else do we fill the $10 trillion hole? Well, argue the capitalists, by bringing supply and state spending into line with the decreased money and capacity that is left and at the same time increase the rate of profit to encourage investment. And how is that to be done if not through the multiplier? Making the working class pay in every way possible in terms of jobs, social benefits, pensions, selling state assets as in Ireland, Greece, Portugal, Spain, Italy, UK and the now the US, to again raise the rate of profit on other forms of investment and in the very painful long run, start investment going again. However it will only happen if the goods can be sold for money and that will only happen if effective demand starts to increase again for goods and services. But if the state is not purchasing and real wages of have fallen that can't happen. Ipso facto: back to point 2.above.

10. Capitalism will survive if the working class is now prepared to permanently pay the cost but at an unequal and lower level, hence the fightbacks across the world: they are all about who will pay the cost of the bankers crisis. A crisis they created by chasing money to money profitability. It is their way of life against ours.

11. Answers? Well if we are not to accept the cuts and Keynesian economics are not working we need to consider what the economy should really be about and moving large sections of economic activity, finance and investment out of being used just to increase the rate of profit and orientate it through a democratically controlled planning process into the adding of value for the social and public good: in old fashioned terms production for need and not for profit. Back to point 1.

There we are, now just add yours... 

Questions and jargon

Here is a space to just ask anything.

I'll start:
What is the difference between the deficit and the national debt?
What is quantitative easing?
What is meant by monetary and fiscal policy?
What is the difference between the CPI and the RPI?
Why did we have to bail out the banks?
How do speculators get away with it?

Anything... just add in the comments.

Democratic socialism, Labour and the alternatives?

Neo-liberalism is a direct challenge to democracy and socialism. It seeks to offer an alternative to political democracy as we understand it substituting it with consumers through the market. As far as possible, they argue, state provision needs to be replaced by private provision accountable only through purchase and contractual relationships. It is a hollowing out of democracy as we know it and as such is a direct challenge to the democratic state route that Labour has largely supported. Privatisation is also a direct challenge to socialism through restrictions on state aid in the EU and the World Trade Organisation (WTO) and in particular the General Agreement on Tariffs and Services (GATS) which lock provision into the market once it is de-nationalised: you cannot go back. So it seems any challenge to private ownership and the market which is implied by democratic socialism is a structural challenge to how capitalism now works as a whole.

What do we do about this as a Party?

Here are some sources which refer to alternatives:
http://falseeconomy.org.uk/files/brighter.pdf
http://www.neweconomics.org/press-releases/alternative-manifesto-calls-government-make-us-happy
http://www.neweconomics.org/blog/2011/08/31/is-this-the-new-economics-utopia
http://www.neweconomics.org/publications/new-economics

This is just the tip of the iceberg - please add more.

Climate change and a green economy?

Again, apologies to purists but Wikipedia is still a good start: http://en.wikipedia.org/wiki/Green_economy

The New Economic Foundation website is also full of amazing stuff, particularly on the issue of whether the steady state (no growth) economy is possible: http://www.neweconomics.org/
They produced the Green New Deal in 2008: http://www.neweconomics.org/projects/green-new-deal
and a good publication on the steady state economy: http://www.neweconomics.org/publications/enough-is-enough

See also Molly Scott Cato who keeps a regular flow of comment and updates in this area:  http://gaianeconomics.blogspot.com/

Again any further contributions in comments.

Marxism - can the bearded one still be relevant?

Again lazy start Wikipedia: http://en.wikipedia.org/wiki/Karl_Marx

Then really back to Harman and Harvey - both excellent introductions.

Good link to Stewart Lansley while strictly not Marxist actually makes a number of similar points with a contemporary relevance: http://www.guardian.co.uk/commentisfree/2011/oct/04/global-recession-wealth-inequalities

Who and what is Keynesianism?

Sorry about this but real lazy Wikipedia as a start again: http://en.wikipedia.org/wiki/Keynesian_economics

Hugely funny video which covers the Hayek / Keynes debate: http://www.youtube.com/watch?v=S77BiQWqES4

Paul Krugman who is currently the most forthright defender of Keynes speaks at Yale University on Keynes and the current crisis: http://www.youtube.com/watch?v=RFZz0vPX6jA

See also the recent edition of the New Statesman which provides a classic Keynesian analysis of the current situation:

http://www.newstatesman.com/economy/2011/08/interest-rates-debt-government 

Please add in the comments section

What is neo-liberalism?

Just to get the ball rolling I though I'd suggest some of the type of things you may wish to add.

I know I shall be criticised but Wikipedia happens to be a good starting point so take a look at: http://en.wikipedia.org/wiki/Neo-liberalism

David Harvey has written recently and extensively from a left critical perspective his book is: (2005). A Brief History of Neoliberalism. Oxford University Press. ISBN 0199283265
And there are some online lectures that you may be interested in: http://chiasmos.uchicago.edu/events/harvey.shtml

An animated version of his ideas (really animated): http://comment.rsablogs.org.uk/2010/06/28/rsa-animate-crisis-capitalism/

13 free lecturers that have had an international audience of over 700,000: http://davidharvey.org/

Chris Harman from an SWP perspective but his book on the current economy and a left critique of neo-liberalism is excellent: Zombie Capitalism: Global Crisis and the Relevance of Marx (London, 2009) ISBN 978-1-905192-53-3

Chris Harman and David Harvey video debate: http://www.youtube.com/watch?v=O3PbELn0q2o

John Cassidy I would suggest has written one of the most accessible books taking apart the classical economic theories that underpin neo-liberalism from a critical but not necessarily left perspective: Cassidy, John (2009). How markets fail : the logic of economic calamities. Farrar, Straus and Giroux. ISBN 9780374173203.

Professor Richard D Wolff an American Marxist who writes and speaks very accessibly. These are audio recordings of his talks to students and staff at the University of Vienna and I found them both insightful and inspiring: http://www.rdwolff.com/content/crisis-and-decline-us-economy-audio

See his website: http://www.rdwolff.com/

And a cracking video: http://www.rdwolff.com/content/presentation-capitalism-hits-fan-brown-university

And an entire course of 38 videos: http://www.rdwolff.com/content/university-massachusets-online-course

Well this is my personal selection. Please add whatever you like in the comments.