Trumped up and buried under the ashes of neoliberalism


At the time of preparing this talk, January 2017, Donald Trump had just been elected the 45th president of the United States of America.    This talk is not really about the United States under the tutelage of the newly elected American President Donald Trump.  Rather this talk is more about how we arrived here: about the legacy of neoliberal policies that forged the trump card for the explosion of right wing populist movements and their victories across the advanced capitalist zone including in the United States.  As the vivid title of this talk makes clear, I am not arguing that we have moved to a post neoliberal order as of yet–although there are signs we may be in a bad transition out of the neoliberal epoch.  Alternatively, I will argue that we are living with the consequences of neoliberal institutions and policies: suffocating under the ashes of neoliberalism with Donald trump as the brightest burning coal at the top of the ash heap.

As most people know, to play the “trump card” in any game—political, economic or otherwise—confers a decisive advantage to the person who plays it given the right circumstances and timing.  The idiomatic expression “trumped up” refers to situation that has been manufactured to produce one set of outcomes while falsely claiming to produce another.  A trumped up criminal case is promulgated on phony evidence where the wrongly accused faces a criminal sanction while the broader public is misled to believe justice is being done.  There is close analogue here to the phrase gaslighting.  Much of neoliberalism, indeed an important explanation for its ideological spread was the initial promise of employment and renewed economic growth, i.e., what we might call the remedy to economic shame[i].  There is a sense in which neoliberalism is and was a scam and a manipulation of public morale: the difference today is most, including significant sections of the ruling classes admit this. They simply do not care because its all just a contemporary communications game.

If you are on the left it is easy, in this context, to simply be against Donald Trump and the sundry list of right wing populist movements and leaders. Who reading this post is for racism, sexism, xenophobia and soft and hard bigotries of all stripes?

Rather the problem for the putative left, particularly but not solely, its formal parliamentary forms; the Democratic Party in the United States, the New Labour Party in Britain and Australia, the Socialist party in France, the New Democratic Party in Canada, and the Sozialdemokratische Partei in Germany, for example, is to come to terms with what is now 40 years of their own internal drift to the right and their own hand in building the very neoliberal institutions which  created the conditions in which right wing populism and inequality flourish and left wing politics languishes.[ii]

In the above regard, it is my suspicion that it will be much harder for the institutionalized left to come to grips with the folly of neoliberalism than the right.  This is particularly so in the upper echelons of the progressive social structure (intellectuals, academics, politicians and the quasi woke citizenry).

Here is why.  For the right, neoliberalism was an internally motivated project, which sought to roll back, dismantle, and or fundamentally restructure the post World War II social order.   Neoliberalism was never about jobs, productivity, or economic growth for conservative elites: it was about a redistribution of power upwards.  In this regard, the adoption of neoliberalism did not require a conversion of ideological convictions as it did for the left. It was broad and important segments of the left which made the conversion:  It is the Clinton democrats, Tony Blair’s ‘new labour’, Gerhard Schröder’s ‘third’ way, and the legions of intellectuals and academics which made their own accommodations, and indeed in many cases who crafted neoliberal innovations that will have to do the hard work of soul searching, shame letting, and back tracking.

I am not very sanguine about the prospects of the aforementioned coming to pass for three reasons.  For one thing, most left accommodations to neoliberalism were made within the reality of a very constrained political economy characterized by high unemployment,fears of high inflation, and low economic growth and a concomitant ideological restructuring to the right.  For example, Tony Blair inherited Margaret Thatcher’s new United Kingdom, and Bill Clinton inherited Ronald Reagan’s “New Day in America.”  It would be impish to maintain that these were not real reconfigurations to the possibilities facing policy makers—left or right.

The second reason I am not optimistic about the chances of a volte-face on the part of the neoliberal left is quite simply that we are now almost two generations into the neoliberal epoch and easily one generation into its hegemony.  Educational attainment, political identities and careers have been formed and built within a neoliberal cognitive and material framework.  None of which is particularly easy (and in some cases possible) to walk away from.

Third, the left remains fractured between insiders and outsiders.  Because the political insiders on the left will not admit to the paucity of neoliberalism and the role they played in constructing the neoliberal order, the most vigorous and energized elements of the left remain largely outside formal political institutions and the broader public policy processes.  Indeed many insiders on the political left are still gaslighting the outsiders.  And if they are not merely sociopaths, its fairly hard for serial abusers to admit they have a problem…lotta shame needs to be overcome.

Moreover, it is by now blatantly apparent in American politics that the political process is over-determined by campaign and party financing—with the democrats still requiring that some professional politicians and administrators be the front for the donors and with Trump era republicans increasingly disposing of the political ‘middle men’ (sic) and opting instead to just put the donors in power. That is, within American politics it is increasingly the case that the Democrats and Republican parties do not merely represent different fractions within the haute bourgeoisie–they are the haute bourgeoisie.  There is, therefore, a toxic stasis on the European and North American left facing a dynamic, well funded, and popularly organized right.

Afterword to the introduction

It has been almost a year since I gave this talk and there is reason today to feel a bit more sanguine than one may have felt in the morning after Trump was inaugurated.   The British labour party had a major coup d’état with the victory of Corbyn. Equally positive has been the increasing traction of non normie style democrats.  Moreover, and I think more importantly, there are some positive signs that that the non parliamentary left is finally working through some of its major dysfunctions of which I will just touch on two below.

First, there are strong signs that the non parliamentary left intelligentsia is moving beyond the internecine, unproductive and self defeating debates of the naughties and teenies.  I think Trump’s election was a brutal wake-up call signalling that the prosaic and bitter debates of grad school educated lefties had become a waste of real resources.  Do not get me wrong, I think those debates had to be had, but they went beyond their best before date and ossified  into petty silos.  It was as if by sitting in grad school seminars and by standing giving grad lectures we were going to change something all on our own, as if the logical consistency of our interior ontological righteousness could alone change the world:  to be sure a much more meaningful exercise than Dynamic Stochastic General Equilibrium models, but often not much (there is a future post in this analogue, someone remind me of it).

Second, while we were busy, people like Jane McAlevey and countless others were actually being a part of helping communities organize.  Her title gets right at the problem, there are no shortcuts to the real work of organizing: there is no one big existential idea, no coupling of mobilizing and online communication hubs (often falsely called communities) for living in, and being a part of, organizing ourselves in the broader (as in not self selected) communities we live in.  Life has an unavoidable spatial context and real social complexity.  Organizing involves dealing with both.  I think the non parliamentary left is finally getting this.

[i]   See Arlie Russel Hochschild, “Strangers in their Own Land: Anger and Mourning on the American Right”, (2016), The new press.
[ii]  It remains to be seen if Jeremy Corbyn marks a shift in English politics.


Should Ontario Become an Independent Country?

Ok just forget how crazy the question sounds.  The recent wrangling between Ontario and Alberta over the value of the Canadian dollar, oil output and the decline of manufacturing in Ontario (and other provinces east of Ontario) raises some reasonable questions about the Canadian monetary and fiscal union, aka the Confederation of Canada, aka, British North America, aka Canada.

Critics have long argued that the Bank of Canada’s single minded attention to price stability, i.e., inflation, and to a single policy instrument, i.e., the interest rate, was both too crude and too cruel.  Too cruel because it makes unemployment the site of dynamic economic dynamic adjustment and too crude because it is both geographically insensitive and structurally daft.

Here I will put the cruel to one side and consider the crude.  Interest rate adjustment is a crude way to attempt to manage the macro-economy.  Think about the regional dimensions.  If you exclude Western Canadian growth the beavers teeth look not nearly so sharp, or as long.  The present interest rate regime is probably too low for western Canada and too high for eastern Canada.  Suggesting that, all things being equal, the Canadian dollar is probably too high and too low.  Too low for the resource sector and too high for manufacturing.

Federal tax policy has not helped either.  The unilateral decrease in corporate income tax rates deprived the federal government of resource revenue while having little if any impact on investment in the manufacturing sector.   The west did not need a GST rebate the east did.  And to add insult to injury, the Federal government has decided to move to an austerian footing.  Again viewed through the lens of the west probably not a totally idiotic position to take (countercyclical one might say).  Viewed from the east, however, a completely counter-productive, pro-cyclical policy.

All of which raises the question if Ontario, or indeed if all of the provinces east of Manitoba, would not be better off with their own federal government and their own central bank.

O.k. time to remember how crazy the question was.  Not that crazy after all.  But it is only a sane question because macroeconomic policy (fiscal and monetary policy) is so cruel and crude.

Gordon V Jackson: the corporate tax cut myth

Apparently Stephen Gordon is having a hard time figuring out where Andrew Jackson, the chief economist for the CLC, got the bizarre idea that:

The argument for corporate income tax cuts has been that increased after-tax corporate profits would be re-invested in company operations, boosting economic growth, productivity, and jobs.

Stephen replies in the comments section:

No. That’s not the argument. At least, I’ve never heard anyone make it.

No one, ever, anywhere, has insinuated or made that argument.  Really?  To continue reading and comment click.

NGDP targeting: wither monetarism?

Monetarism is like a Zombie: it can be found theoretically wanting, empirically false and technically infeasible but in one form or another it just soldiers on.  In some ways the hype surrounding the conversation about the possibility of moving from an inflation based paradigm to targeting NGDP could be read as the end of monetarism.  But viewed from another angle it (NGDP targeting) can also be read as the latest reincarnation of monetarism.

Purists will of course bulk: monetarism died along time ago as central banks realized they did not control the money supply as private banks also create money all the time in the form of credit.  But if in narrow technical terms monetarism died soon after its birth, in broader political terms it came of age in the ensuing years.  As I see it there were three initial pillars to monetarism only one of which technical.  First, the CB can control the money supply (false) and thereby inflation; second, the CB should be independent (from democratic influence) to pursue price stability (not amenable to boolean operators); third, monetary policy is the preferred technocratic as opposed to democratic policy (fiscal) lever.  Even though the first be dead the second and third live on.

My problem with NGDP targeting is threefold.

First, proponents of of inflation targeting like the quasi monetarists are want to argue that the last twenty years of  inflation targeting has been a dizzying success.  As per Nick Rowe:

 We have 20 years of empirical evidence showing how inflation targeting works to stabilise expected and actual inflation.

Not so fast.  We have twenty years in which many things were happening: a move across the advanced capitalist zone to flexibilise labour markets and the incorporation of broad swaths of eastern European and Asian, and south Asian labour reserves into the global market; and increasing trade liberalisation and capital mobility. So I am not sure the CB’s should get all or even most of the credit for price stability over the last twenty years.  Although they may warrant some of the blame for higher average unemployment than the pre-monetarist CB regime.

Second, I remain to be convinced that the CB’s can actually target NGDP.  They, the CB,s, have a limited range of arrows in their tactical quiver.  If anything the present crisis has taught us (like the crisis of Keynesianism) at such periods in the micro-economic motivations swamp the thinking of businesses.  I suspect the BOC could announce tomorrow that it had raised its inflation target to 6% and not much would happen in real or nominal terms.  Defeating inflation was a rather simple exercise even if politically difficult.  All the CBs had to do was to put interest rates through the roof and kill off every marginal producer of goods and services.  Similarly keeping inflation in check (on target) was and is a relatively easy affair when one simply has to throw sand in the financial gears.  It becomes a problem of second order magnitude to target NGDP growth when everyone who counts knows you do not really have the ability to independently bring it about.

Nominal growth targeting means nominal investment targeting and in the context of already hyper low interests rates it is hard to see where the CB has a viable policy lever.  They can play around with quantitative easing (as they have already done) but all that appears to have done is set a soft floor on some classes of asset values.  And it is an open question as to whether or not this is a good thing.  On what rational basis was it decided that some asset values were worth preserving and others not?  More importantly putting a soft floor under some classes of asset values has done next to nothing for investment rates which is after all how you target underlying economic growth even when not discounted by inflation.

Third NGDP targeting is opaque in a way that inflation targeting is not.  There is a relatively decent link between the credible threat of high real interest rates and the threat of low real interest rates.  The former pushes noun against a verb the latter not so much.  Without the direct ability to determine aggregate investment rates the CBs are forced into much more cloistered channels with little to no capacity to sanction the relevant actors should it not get what it wants.

My critique probably boils down to the following.  It is only under a supremely unique set of circumstances that CBs found their targeting regime and interest rates to have such a profound positive influence on the level of economic activity.  In capitalist economies it is businesses that invest and hire (something both liberal and Marxist economists agree on) interest rates and asset valuations play only a small part of the calculus to invest.  The government on the other hand can use fiscal policy to indirectly stimulate investment through tax policy and directly control aggregate investment and thus employment via direct spending.

Ironically if the government was to monetize the debt by putting Peter in bed with Paul (the CB and the treasury) it would inadvertently give some real teeth to the CB’s ability to prove to the relevant economic actors that it was serious about targeting NGDP growth.  But I suspect Tory New-Keynesians like Rowe and Sumner would not abide.  For once you show that fiscal policy is in fact a powerful force for economic regulation the last two pillars of monetarism come a tumbling down.  Some version of industrial democracy would be back on the table.

Hardly what a Tory goes shooting for when they wake up early in the morning.

Stimulative austerity bearing fruit in Britain? Not. Nor globally

George Osborne was quick out of the gates with the austerity as stimulus gambit.  Which as everybody from myself to Paul Krugman predicted was going to be a flop.  Osborne has been trying to save face by arguing that his government’s austerity package saved Britain from becoming Greece  (the most disingenuous piece of clap trap coming from the other side of the Atlantic since Tony last spoke of the need to go to war in Iraq).  The bond vigilantes are not swarming in on fully sovereign countries (i.e., those with the power to go around the bond market if they so choose; see almost any post by Bill Mitchell).  Indeed, Japan has a debt to GDP of over 200% and is issuing ten year bonds with great fan fare at below 2%.

Meanwhile Cameron has been trying to save face with an alternative: namely, that it is the crisis in the Eurozone that is to blame.  As Bill Mitchell points out the Eurozone was in crisis before Cameron pushed through austerity.  That is to say, if the British economic recovery hinged on a buoyant Europe it was a silly plan.

Now some fair-minded reader might insist that neither Osborne or Cameron could have known that the crisis in Europe would go from bad to worse and they are therefore the victims of optimism but not stupidity.  Not so.  Like the Canadian Finance Minister, Osborne has been preaching austerity and public sector restructuring to all and sundry.  The problem is that the austerity gambit requires that exports do the heavy lifting in terms of dragging the domestic economy up, up and away.  But if all the countries that buy your imports are also trying to do the same then in the aggregate we all loose: a in an anchor cut loose.

Canada and Britain could have perhaps used austere means to jump start their domestic economies by free riding on a massive stimulus in the US and Continental Europe.  Again it has been clear for some time that was not going to happen.  So even if austerity could have worked its funky magic it would have been because Europe was doing stimulating fiscal stimulus.

Gangster Capitalism: Same as it ever was?

If you are going to read one thing and just one thing on the financial crisis and how it is working itself out you need to read this blog post at naked capitalism:  the one stop shop for understanding contemporary finance.

After the September 2008 crash, Iceland’s government took over the old, collapsed, banks and created new ones in their place. Original bondholders of the old banks off-loaded the Icelandic bank bonds in the market for pennies on the dollar. The buyers were vulture funds. These bondholders became the owners of the old banks, as all shareholders were wiped out. In October, the government’s monetary authority appointed new boards to control the banks. Three new banks were set up, and all the deposits, mortgages and other bank loans were transferred to these new, healthier banks – at a steep discount. These new banks received 80 percent of the assets, the old banks 20 percent.

Then, owners of the old banks were given control over two of the new banks (87% and 95% respectively). The owners of these new banks were called vultures not only because of the steep discount at which the financial assets and claims of the old banks were transferred, but mainly because they already had bought control of the old banks at pennies on the dollar.

The result is that instead of the government keeping the banks and simply wiping them out in bankruptcy, the government kept aside and let vulture investors reap a giant windfall – that now threatens to plunge Iceland’s economy into chronic financial austerity. In retrospect, none of this was necessary. The question is, what can the government do to clean up the mess that it has created by so gullibly taking bad IMF advice?

In the United States, banks receiving TARP bailout money were supposed to negotiate with mortgage debtors to write down the debts to market prices and/or the ability to pay. This was not done. Likewise in Iceland, the vulture funds that bought the bad “old bank” loans were supposed to pass on the debt write-downs to the debtors. This was not done either. In fact, the loan principals continued to be revalued upward in keeping with Iceland’s unique indexing designed to save banks from taking a loss – that is, to make sure that the economy as a whole suffers, even suffering a fatal austerity attack, so that bankers will be “made whole.” This means making a windfall fortune for the vultures who buy bad loans on the cheap.

Go read the whole article.

Occupy Movement: Inequality in Newfoundland and Labrador

Apparently the policy brief I wrote for the Newfoundland and Labrador Federation of Labour has been picked up by the Occupy Wall Street movement.  The brief can be found here.  The money shot from that brief would be the graph below.

Hats off to the Newfoundland Federation of Labour for broadening the conversation about economic inequality and development.


Delicious and dangerous irony: China to buy Italian bonds

How much of a disaster is the EMU?  Look no further than the spectacle of the Italians going cap in hand to the Chinese for a bail out.  The fact that the Italians are tapping the Chinese is not the issue.  The issue is that they cannot tap the EU or the by now ideologically impotent ECB.  I have always thought of neoliberalism as the ideological gloss on an accumulation strategy.  Me thinks I might have it exactly backwards.

The irony of greed: The end game for Neoliberalism?

The global economy is in the toilet and the Boomers’ representatives are chanting: “flush, flush, flush.”  Me? I am eating cigarettes and wine while admiring the remarkable consistency in the myopia of all of it.

In the name of fiscal prudence the whole of the advanced capitalist zone is in engaged in austerity budgeting and calls for more of the same.  Even Martin Wolf, in his otherwise insightful column in the FT online today, felt the need to tap his hat and nod in the direction of the genteelism of supply.  Exhibit A, the conclusion to his incisive intervention:

Reconsidering fiscal policy is not all that is needed. Monetary policy still has an important role. So, too, do supply-side reforms, particularly changes in taxation that promote investment. So, not least, does global rebalancing. Yet now, in a world of excess saving, the last thing we need is for creditworthy governments to slash their borrowings.

As is widely acknowledged, monetary policy has little outside of conciliatory role to play at this time.  In so far as the CBs should not make the mistake of tightening policy as the ECB and the BoC did.  But apart from the role of spoiler there really is not much left for the CBs to do.  The problem is squarely fiscal.  As Wolf himself went to pains to argue.  Why then the conclusion given that further tax reductions are not only going to make the fiscal positions of governments worse they will also likely have the same effect as lowering interest rates at this time:  Nadda, ziltch, rien, nothing?  The problem is that Wolf has to tip his hat to conventional wisdom.  If not; he has no hope of bending the ears of policy makers.  Oh well, that is his plight not mine.

Here, given none are listening we may speak frankly.  The world economy is in the toilet because free trade, tax cuts, deregulation and above all the liberalization of finance over the last thirty years let loose a Tsunami of forces both economic and political.  The liberalization of finance and production allowed for the national gutting and then global whipsawing of labour.  As the profiteers profited and retired workers slept while the assets they had built were being systematically stripped and the fortunes being amassed were then turned to the seedy business (although a time honoured practice if one cares to actually read Smith) of buying off the government–and it must be stressed the intelligentsia too–broadly understood.

We now have the perfect storm.  A generation of public and private sector functionaries has been trained to believe that the market can do no wrong and the government no good.  As a corollary is of course the proposition that monetary and regressive tax policy is everything.

The irony, of course, is that any credible account of the present crisis would have to admit that we are here because free trade, tax cuts, deregulation, the flexibilization of labour markets  and above all the liberalization of finance brought us here.  How odd it is then that we should be treated to more of  the same as the cure for what ails us.

The Right Wing Commentariat is getting Desperate

Just go read Terence Corcoran’s latest in the National Post.  Never mind that the world was plunged into economic crisis by unregulated financial institutions and near fully captured regulators; never mind that by most accounts the financial regulatory reform that has taken place since has been mild and the regulators are still, for the most part, in the hostage room.  Terence tell us that one of the central reasons for the continuation of the slump is:

Banks are being regulated to an extent never seen before, forcing the world’s core providers of credit for business expansion to curb their appetite for risk. Confusion reigns as global and trans-national regulators blunder their way to impose ill-conceived rules and policies. The hard reality of new rules, ­especially new capital requirements, is that it forces banks to accumulate risk-free liabilities while curbing risk-taking loans.

For the right it is always the same villain: the government.  During the crisis they blamed the government because…wait for it…they did not regulate properly and the crisis was therefore evidence of state not market failure.  Now, as then, it is the state that is failing, not markets.

To wit, Terence finishes with:

Similar government interventions, bolstered by constant calls for more spending and taxes, are the norm through most of the G20 membership. To end the many debt crises, the first step should be to abandon growth-killing policies. With growth, even debts cease to be a problem.

Just where is Terence getting his information from?  The G20 is busy doing austerity across the advanced capitalist zone and not in the form of tax increases.  Does he even read his colleagues blogs?