Wednesday, 22 April 2009

I Can’t Do Instant Commentary, but I Can Wonder What Age We’re Living In...

Those bloggers who, quite unlike me, don't have to take their socks off to count up to 20, are fast coming into the fray with instant budget commentary. I marvel at their ability to absorb and assess so much stuff so quickly. Duncan the Labour Fund Manager delivers a 'on the right lines but could do better' sort of end of term report, and then moves into a pragmatic defence of the 50% tax rate. Meanwhile Richard Murphy is moving from initially positive coverage to a series of critical, detailed notes on taxes, anti-tax avoidance measures and the limitations of the 'greenspray' Darling has slapped onto his plans.

Over on the right-hand side end of the playground, Alice tells us we're all doomed because of the size of the gap between tax take and spending; Chris Dillow says there's loads of money sloshing round the globe wanting to buy gilts to cover that gap; from the Left AVPS breaks into uncharacteristic purple prose to tell us that the ,"...twitching corpse of neoliberalism has been stitched together with the cadaverous remains of disinterred Keynesianism" with the aim of making the working class pay for the crisis.

I respect all of these bloggers a lot, but I can't help thinking that these are responses 'prepared earlier', like a half built Blue Peter project pulled from under the presenters table. But - hey, what do I know? I've still got both my socks on, after all...

But even as an economic ignoramus I have a hunch that two things are true, one to do with low down politics and one with our perceptions of the Age itself.

Firstly, this is a pre-election budget so it is voter friendly as it is possible to make it in the circumstances.(Just because the rest of us think the prospect of a Labour victory at the polls is vanishingly small doesn't mean that Darling and Brown have accepted the fact). So whoever wins the next election is going to introduce a more severe budget shortly after they move into Downing St.

Well, at least they will if we really are living through a crisis. From the unorthodox left, Boffy argues that not all of us actually are, and the effects of the credit crunch might be quite short lived, though severe in those age and geographical sectors most affected. But there's another view: the Keynesian Left have rediscovered both long waves and Schumpeter, now joyfully reunited by Carlota Perez,

"...growth in the world economy takes place by successive surges of about half a century, each driven by a technological revolution. The massive changes that this brings each time around... involve great behavioural upheavals in the economy and society. For that reason, the difficult process of unlearning the old and absorbing the new takes twenty or thirty turbulent years of "creative destruction." It is after the massive paradigm shift has been basically achieved, that the fruits of the new technologies in higher productivity and widespread innovation can be reaped and socially shared.

Historically, the first half of each surge -the Installation Period- has been the time when financial capital shapes the economy, while the ideology of laissez faire shapes the behaviour of governments. It is a grand experiment when unrestrained finance can override the power of the old production giants and fund the new entrepreneurs in testing the vast new potential. Finance then helps the new giants emerge, enables the modernization of the old industries with the new techno-economic paradigm and facilitates the necessary overinvestment in the new infrastructures (so coverage is enough for widespread usage). Thus the extreme "free market" ideology has a role to play in the early decades of each surge.

The Installation period has led each time to a major bubble followed by a major crash (canal and railway manias ending in panics, the roaring twenties ending in the crash of 1929). The collapse reveals the need for regulation to restrain financial excesses and to favour the real economy, usually under political pressure for reversing the income polarization and other negative consequences of the bubble times. If adequate policies are put in place to facilitate and develop the conditions for healthy market operation and social fairness, what follows is a Golden Age -the Deployment Period- when production (rather than finance) leads the expansion, the benefits of the new technological potential are fully realized across the economy and its social benefits better spread (the
Victorian Boom, the Belle Epoque, the Post War Golden Age)."

Fascinating – but shot through with technological determinism, if the quote above is typical. Schumpeter himself had a rather brilliant protégé who would have dismissed this with a snort: Paul Sweezy. He might, plausibly, have accepted a lot of Perez's analysis, but he would have insisted on the importance of the relations of production as well as the forces of production. & it is Sweezy's own protégés who, to my mind at least, have produced the most interesting analysis of the crisis from the Marxist Left so far. They say there is a systematic crisis, and that socialism is the answer- but Perez's analysis points to the possibility of a kinder, gentler capitalism. So what is the nature of this crisis, and of the Age we're living through?


  1. My career has given me a good grounding in 'instant response' :)

    Long waves and technology is a most interesting area. There's a great interview with Galbraith in the Journal of Post Keynesian Economics by Stephen Dunn on this sort of issue.

  2. Annoyingly hard to get access to, but very good:

  3. Thanks Duncan. I'm really glad you took my comments in the humorous way they were intended.

    You might want to check out these Perez articles:'m slowly working through them myself.