People who would want to avoid reading my dissertation or anything about neoliberalism but nonetheless would like to have some idea about what has been going on in the world of public policy and economic policy in particular ought to read the 24 page special publication by the OECD “Evolving Paradigms in Economic Policy Making.” It is a fairly interesting document given its understated criticisms of macroeconomic policies and downright silences on key policies which it had a hand in crafting and popularizing. The document is filled with tap dancing around the elephants in the room. Here is how they deal with the last crisis:
Indeed, the repetition of bubbles and busts from the late 1980s until the early 2000s, such as the Savings and Loans, LTCM, Asian and dotcom crises, had not only macroeconomic origins, but was also associated with, partly misguided, financial innovation…..With hindsight the dotcom bust in 2000-01 should have been taken as a warning signal that systemic risk was unduly increasing…..Monetary policy appeared to be generally successful in this period, with low and stable inflation and generally well-anchored inflation expectations. But it was not sufficiently recognised that this outcome was helped by globalisation, a positive aggregate supply shock that kept inflation low – at least until oil and
commodity prices surged……Fiscal consolidation also looked successful, but – as has been a recurrent theme in the OECD’s economic history – failure to attain sound underlying public finances was masked by very favourable cyclical developments…..While structural policies had been successful in several countries, there was little international coordination on policy choices, contributing to the persistence of cross-country imbalances in savings and investment and widening global imbalances (Figure 4)…..Finally, the potential for systemic financial risks was not effectively monitored, such risks being viewed as low as long as stability-oriented macroeconomic policies were pursued and micro-prudential regulation was conducted effectively.
OK now pay attention because here is the conclusion drawn from the above:
All this [the above] explains how problems in a small corner of US financial markets (subprime mortgages accounted for only 3% of US financial assets) could infect the entire global banking system and set off an explosive spiral of falling asset prices and bank losses in 2008 and 2009. Consumer and investment demand quickly started to fall in the United States. As the US financial crisis intensified, weakness spread globally. With wholesale money markets freezing up, companies started to liquidate inventories and in late 2008 world trade nose-dived. The sharpest contraction since the Great Depression of the 1930s unfolded (p.12).
Wha? First off, government fiscal policy had nothing to do with it. Even if they had run super macro-prudential budgets that would not have stopped the financial markets from imploding. And why is the OECD arguing that governments should have been running their budgets as though they were in a permanent recession? So that line is just a sop to austerity ville and its citizens. Second, I can’t get to global financial meltdown from their list. If they really believe that just 3% of US financial assets under management were the cause of the global crisis they need a much braver laundry list. In any case, one word you will not read is “neoliberalism”. Instead you will be treated to vague sentences which read: “The prevailing paradigm largely survived the post-dotcom experience” (p. 11). It is odd that a prevailing paradigm should not have name. What prey tell came after Keynesianism?
And here is the problem with this retrospective on changes in macroeconomic paradigms. Namely, it is yet another instance where one of the leading institutional protagonists of neoliberalism is simply dodging its responsibility. Nowhere is there even a hint of contrition that labour market policy was exactly the least significant area that should have been paid attention to. The OECD spent the better part of 10 years focussing advanced capitalist policy makers on the need to flexibilize labour markets to almost the exclusion of all else. Indeed, in Alan Greenspan’s famous phrase, they spent from the mid-1990s to the mid 2000s ‘traumatizing workers’. One would be hard pressed to find any research during that time frame coming out of the OECD cautioning about systemic risk, regulatory capture (corruption is the word we Europeans use for the third world), or the dangers of financial deregulation. If the researchers at the OECD are suppose to be guiding policy makers towards best practice they did a horrible job. Not only did they cut your unemployment benefits they did nothing to help make sure you would not need them.
To add insult to injury, as Paul Krugman notes, in their 89th economic outlook they are pushing for the further traumatization of workers via higher interest rates and fiscal austerity.
For fiscal policy, exiting from crisis measures and restoring sound public finances is likely to continue well into the medium term. The pace of the exit should be commensurate with the state of public finances, the ease of sovereign funding, the strength of the recovery and the scope for monetary policy offsets. It should also take into account that delays in fiscal consolidation might increase interest rates and future growth. A credible fiscal consolidation will likely improve financial market conditions and hence the monetary transmission mechanism.
Furthermore, fiscal consolidations in which expenditure reductions have a high weight are more likely to result in durable retrenchment (Guichard et al., 2007) and more likely to be accommodated by monetary policy once it has departed from the zero-rate bound. Even so, tax increases look unavoidable in view of the size of the consolidation requirements. It is important that consolidation be growth-friendly. For example, raising the retirement age could bring long-term gains while having only limited effects on near-term growth. Priority should be given also to reducing the distortions created by subsidies and tax expenditures, and tax increases should be focused on the least distortive taxes such as on overall consumption and immovable property (p.14).
What is that about never letting a crisis that you helped create go to waste? I am just going to call this tax paradigm what it is (if your under six close your eyes): Fuck the fixed or FIF. Say it with a crappy mob accent and pretend you are an OECD economist acting macho. Next time you see a house or a worker with medium to low portable skills just say FIFem. There is of course never any mention of policies that would arrest mobile factors from playing the arbitrage game. That would of course be downright un-neoliberal and certainly too much to ask of one of the central institutional protagonists of the paradigm which dare not speak its name.
Relentlessly Progressive Political Economy 