Hutton’s prescription for the global
economy is a Keynesian one with a ‘credit creationist’ twist, attempting to
iron out the boom and bust inherent in capitalist production. J.M. Keynes (writing in the slump of the
1930s) saw the instability of capitalist production, its tendency to boom and
bust, as due to the fact that investment tends to stall because not every
seller in a market becomes a buyer as there is a tendency for businesses to
hoard a portion of profits rather than to reinvest it all in new production,
which creates a deficit in market demand.
For Keynes, the state needed to step in order to provide the demand that
was missing through direct investment and through redistributive taxation.
To overcome the crises such as that of 2008
and the current crisis in China and other ‘emerging market economies’, Hutton
urges international banking reform and demand stimulation in western
economies. He argues that global banking
needs to be regulated by a ‘reinvigorated IMF’, reconfigured so as not to be
dominated by western political right (those marauding Anglo-Saxons) in order to
ensure ‘proper surveillance of global finance’.
This would involve restrictions on capital flows between countries and
ensure that central banks regulate banks reserves to prevent banks ‘creating
money’ by lending multiples of what they hold as fractional reserves. This assumes that global banking has not
arisen hand in glove with global trade and that banks can lend what they don’t
have (which they can’t).
In
order to divert ‘excess credit’ from flooding ‘emerging market economies’
Hutton also calls for western governments to ‘launch massive economic stimuli,
centred on infrastructure’ and ‘new smart monetary policies that allow negative
interest rates.’ This is Keynesian
economics designed to stimulate demand by direct government investment and
kick-starting investment by making it expensive for banks not to lend. The problem with the first suggestion is that
Quantitative Easing inflated the value of asset prices (stock-market prices)
without stimulating inflation (because the new money created – by the Bank of
England which can create money - did not enter general circulation as notes and
coins). The ‘economic stimuli’ mentioned
by Hutton (what has been called ‘People’s QE’ by Jeremy Corbyn), on the other
hand, would involve the creation of new money that would enter circulation as
notes and money and therefore run the risk of creating high inflation (a rapid
rise in the general price level). The
problem with the second proposal of negative interest rates (which is happening
in several European countries) is that in the absence of the opportunities for
profitable investment (i.e., in a recession) banks may not lend more but simply
hoard, accentuating the fall in investment.
Keynesian economists often point to the
post World War 2 period as evidence of the success of their policies of state
intervention in the economy to increase demand.
However, sustained post war growth was due to the recovery of the global
economy following the slump of the 1930s and reconstruction following the World
War 2. When this growth stalled in the
1970s Keynesian attempts to stimulate demand created double digit
inflation. This and high rates of
taxation tended to stall investment even further and state borrowing came with
conditions to reduce the policies that necessitated the borrowing. These problems were faced by all governments
following Keynesian strategies once the post war boom was over. It was not Thatcher but Dennis Healey who
started the process of spending cuts in the late 1970s. In France Mitterand was elected in 1981 on a
platform of increasing consumption through state intervention. The higher taxation, government borrowing and
inflation led not to stimulation of the economy but to lower growth - by 1983
the Mitterand government had taken the ‘austerity turn’ in an attempt to
restore favourable conditions for profitable investment. Bang up to date the failure of the Syriza
government in Greece to reverse austerity in Greece by renegotiating the terms
of its borrowing failed ignominiously, the government backing down rather than
face even more uncertain prospects outside of the EU. Austerity is not being imposed by the
political right as Hutton would have it.
It is being enforced by the need to create conditions favourable to
profitable investment. Trying to go back
to a time before Thatcher and Reagan to get to a non-austerity future is going
back in time to face the same problems, pursuing policies that will require the
same policy reversals enacted by Healey and Mitterand. Hutton’s Keynesian and currency proposals to
calm global economic turbulence could not be enacted (say by a Corbyn Labour
government) without worsening the prospects for productive investment,
requiring a return to the very policies blamed by the left for causing current
economic stagnation. A real end to
austerity requires the success of the socialist campaign to abolish capitalism
itself not repeating the disillusion of past attempts to save capitalism from
itself.
CSK
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