Wednesday, October 26, 2011

What really went on there? We only have this excerpt.

Why is the economy in a mess? I've seen a number of explanations - some of them more convincing than others.

The first one is the Bad Banks one. Bankers have been bad. They've cooked the books, re-sold thin-air and drawn huge personal bonuses while doing so. They've then socialised the debt at gunpoint.

It's an attractive argument and one with a lot of popular appeal. But I think that focussing on it is a mistake because it's not really that good an account of what happened, and on reflection, most people won't buy it completely. It also gives us an excuse not to deal with the real problems.

The second culprit is the politics of the past thirty years or so. This article on Crooked Timber concludes that...
"the banks aren’t to blame for the crisis; Bush is. And the solution to the crisis isn’t to fix the banking sector, either through regulatory reform or continuing to bail out the banks, it’s to stop Bush-era economic policies."
It's a good line, and one we could extend to the Thatcher / Reagan era - the years when we were softened up for Bush-era economics. Certainly, the underlying problem in which household incomes have stagnated since the late 1970s with the impact being masked by ever-looser credit makes sense to a amateur economist like me.

The third culprit is democracy. Democracy has been degraded to the point at which Parliament is weaker than the well organised pressure groups. David Allen Green writing in the New Statesman today draws out the feeble grasp that many (most?) Parliamentarians now have of what Parliament is for. I know I've used this argument here before, but it's worth rehashing.  As Larry Elliot put it a while ago in reference to puny attempts to rein the finance sector in…. 
"...the exiguous nature of current reform proposals is explained by the institutional capture of governments by the investment banks, the world’s most powerful lobbying groups."
The thing is, all of these arguments are attractive in their own way. But I'd put the empasis somewhere different - somewhere that gives us an indication of what the left can offer by way of a response.

The Thatcher/Reagan era didn't just happen. It was the product of a few factors. There were the oil-shocks of the early 1970s and the subsequent downturn that affected Western economies. This, and the rapid social change that was taking place at the time allowed fiscal conservatism to piggy-back on popular socially conservative concerns (immigration, the breakdown of social heirarchies, the sexual revolution, uppity proles in the Unions, etc). All good stories to mask a ditching of Keynesianism.

But this era was also the product of an effective ideological assault led by deniable right-wing pressure groups (in the broadest meaning of the term) outside of the Conservative Party. The right wing press (even Stephen Glover has noticed now that the press is no longer Conservative, but right-wing) and the trench-warfare merchants of organisations like the Freedom Association and the Institute for Economic Affairs were able to create the circumstances in which the Conservative Party could be dragged to the right.

This tells us all we need to know about how important the manoevering of The Labour Party is at the moment. Until the left can come up with a comparable gravitational force outside of the party, it will continue to be forced to play every game away from home.


Roger said...

Having read somewhere that Italy's economic fundamentals are not by any means as weak as depicted I just checked GDP tables for the EU and OECD and was surprised to see that in the last 17 years during which Berlusconi dominated Italian politics their average GDP growth rate was only 1.0% p.a.

This compares to 1.75% for the EU, 1.58% for the Eurozone (which like the EU is dragged down by Italy's poor figures), 2.27% for the UK and 2.42 for the US.

In fact AFAICS amongst major advanced economies only Japan at 0.88% has performed worse than Italy over the past 17 years.


All of which suggests that to Italian voters it really doesn't all boil down to the economy - or rather at least not whether the economy as a whole is growing fast or slowly.

So was Berlusconi nevertheless able to deliver the goods to enough voters in ways which the headline growth stats don't register?

Or given sufficient charisma and ownership/control of enough of the national media can you really run a country into the ground and remain wildly popular?

Paulie said...

"All of which suggests that to Italian voters it really doesn't all boil down to the economy - or rather at least not whether the economy as a whole is growing fast or slowly."

I'm not sure voters have the perspective to grasp this Roger. They don't compare themselves to other countries. There's the wider argument that since the late 1970s real wages in the West have largely stagnated but the effect has been masked by increasingly easy credit.

Control of the media is the key here.

Roger said...


In America Obama may well lose in 2012 because of poor economic indicators.

But those indicators only have power over American voters because there is a media machine dedicated to constantly proclaiming that they are bad and important.

Has Berlusconi really such power over the Italian media that he has managed to completely obfuscate how bad the figures are?

And are the Italians really as credit-fixated as Anglo-Saxons?

This 2009 table suggests that private households are no more indebted relative to GDP than the French and not that much more than the Germans. -

But Italian household debt as percentage of GDP did double from 22% to 41% over the decade (while the UK and US percentages are much higher they didn't double over the 00s - although this may be an artifact of taking 2009 rather than say 2006 as the terminus) so you are probably right.

I suspect that the media control is important but that at least for the middle class Italians (and particularly Italian males) who vote for B they are judging by their own personal economic circumstances.

If they are still at work in all those corrupt state agencies and inefficient and tax-evading small businesses that represent such a large part of the Italian economy then they probably feel grateful for all of that inertia - a dynamic growing economy may be the last thing many Italians want.