Tuesday, 12 June 2018

The self-perpetuating myths of neoliberalism

Neoliberalism is a self-fulfilling prophecy. Don’t implement it and it predicts gloom doom and disaster. Implement it and it announces that the gloom doom and disaster it produces are due to something else. Possibly the weather.

The current example of thus double edged sword of untruth is the huge effort now being made to blame everything that goes wrong from knife crime to the railway timetable fiasco on Brexit. No medicines. No food. No sauerkraut & Frascati. Dover closed. God help us!

In fact the slow growth of the British economy and our low productivity are largely due to the fact that Osborne dealt with the Great Recession (itself the result of neoliberal de-regulation) by neoliberal austerity which was the exact opposite of the Keynesian expansion that was necessary. The guiding aim of policy from then to now has been getting the debt down, rather than growth and investment up.

Si monumentum requiris circumspice. But the genius of neoliberal double think allows it to be blamed on Brexit with worse to come after the Grand Depart. That prediction comes from a treasury model from whence all miseries flow because it’s built on neoliberal assumptions about “rational choice” , the dangers of debt and the naughtiness of state intervention. Rubbish in rubbish out.

There’s no other way to get growth back on track than by borrowing, spending to invest and stimulating via the multiplier. Keynes lives. That’s also the way to ride out any difficulties due to Brexit. Trade adjusts quickly as it did in Australia and New Zealand in the seventies when  Britain betrayed them by selling out to Europe but it will adjust easier with government help.

 A nation which issues its own currency (which the Euro members can’t) can set its own interest rates and borrowing levels to suit its purposes. It can create the money it needs to invest and grow. If the neoliberals can create £375 billion to  stuff into the banks to improve their balances, and the banks can pour huge sums into mortgages, we can create even larger sums to finance big housing contracts, major infrastructure projects, new factories and a national investment fund.

This will produce neoliberal cries of shock and  horror but why should it? Expanding the economy allows it to bear a greater burden of debt. Interest rates can be kept down and any effect on sterling (and the  great quantitative easing didn’t have much) is welcome to boost exports and tax imports. The comparatively small fall in the pound after Brexit boosted production, manufacturing and exports though the boost is now petering out because manufacturing didn’t seize its opportunity). As for inflation, no past devaluation has produced a serious problem .Until productive resources are overstretched there won’t be one.

More neoliberalism isn’t the answer to the problems produced by neoliberalism. Reversal is. It’s what the electorate voted for when it rejected the EU. It’s necessary if we stay in Europe and more than necessary if we are to ride out the changes and problems arising from coming out. It would be wrong to start difficult negotiations before preparing that, and better to conduct them having triggered it. We mustn’t be so palsied by forty years of neoliberal indoctrination that we miss yet another chance.

1 comment:

  1. In addition to "borrow and spend" Keynes also advocated "print and spend". That was in his letter to Roosevelt in the early 1930s.