On the way down: the erosion of America’s—and Britain’s middle class

Back in the days when I was a postgrad student a wise professor noted that he couldn’t understand why public services in the UK were being slashed. He offered a series of compelling statistics that showed how the first wave of Thatcherite politicians (we’re now experiencing the third wave) was lying through its teeth about the need for what the neocons today describe as ‘fiscal austerity’.

Many years later, Britain is once again in the jaws of a neoliberal crocodile that is about to do another death roll. The United States is in more or less the same position, despite the timid flailings of Barack Obama and his coterie of apparently Rambo-esque advisers. This time, many people wonder whether it will be the neoliberal croc’s last hurrah; a country can take only so many ideological drownings before the social air runs out. Alas, the Thatcherite crocs in both countries may soon find that they too, can be devoured by bottom-dwellers.

This post is simply to say that I’ve finally found an article that represents, in all clarity, what this process is really all about. Have a look at the international edition of Der Spiegel, which provides a razor sharp analysis of who stands to lose—and gain—from the neoliberal spell.

On The Way Down: The Erosion of America’s Middle Class

Teaching the world a lesson: the ‘market’, the media, and the cuts (updated)

Update 8 February 2010. This is an updated version of this post, which addresses some questions quite rightly raised by readers.

The hour of truth is upon us—actually, I should say that the hour of untruth is upon us.

Anyone with a capacity to think clearly, critically, and in a manner not hopelessly distorted by the ideology of neoliberalism will know that the main reason why we are not in the midst of a global economic depression is that governments across the world took the steps they needed to in order to intervene in the national economies, and to spend their way out of the crisis generated by the crash of corrupt financial institutions between 2007 and 2009.

Some economists—most notably, the Nobel Prize-winning Paul Krugman— rightly critiqued neoliberal economists (do read his excellent article for the NY Times, if you haven’t done so already), and warned before and after the Obama administration’s election to power that radical policies would be needed to prevent a 1930s-like depression. Krugman also warned that if Obama let himself be sweet-talked by people like Timothy Geithner into taking half-measures, then we might face years of very high levels of unemployment, and a real risk of a ‘double-dip’ in the economic fortunes. Worse, any weakness in the recovery would be exploited by right-wing politicians and by the economic hawks behind them to claim that the state-led intervention was not only useless, but had actually worsened things.

This, or an even more sinister reality, is unfolding even as I write. As events in Greece, Spain and beyond demonstrate, traders of the so-called ‘market’ are now working, apparently in concert, to try to teach countries with left-leaning governments, but of course not only such governments, a lesson. The lesson is this: unless you engage in brutal cut-backs of the kind being threatened in Britain by David ‘Janus’ Cameron, we will destroy your credit ratings, and with them, any prospects for foreign investment in your economy.

The process is being aided and abetted by media such as the BBC, which are parroting the views of the many economists who, in much the manner of the ‘dogs’ seen in in the early scenes of James Cameron’s Avatar, are circling what they perceive as the most vulnerable governments, snarling and dashing in for a quick bite, closing the circle of right-wing opinion in the hopes that the governments will be cowed into a policy u-turn.

Alas, unlike Avatar‘s Pandora, there will be no Neytiri to come to the rescue (and the dogs are not wild creatures, they are the predatory traders who have been raking in millions). Already Spain’s hitherto defiant José Luis Zapatero has caved in, and is promising the fabled ‘market’—in reality a relatively small, but all-powerful group of investors and financial firms which operate predominantly out of the City of London and Wall Street—that he will force the good people of Spain to retire later, to take huge cuts in their state pensions, and to engage in the kind of slash ‘n burn reduction of the public sector that only months earlier had been ruled out by Spain’s PSOE. If enough governments follow suit, then there can be little doubt that we will face the 1937 scenario which Krugman and other economists have repeatedly warned of.

Readers inclined to believe the fable of neoliberalism may well object that this is not how the market works, and that on the contrary, if Greece and Spain are under threat, it is thanks to objective market forces of the kind pointed out by Krugman himself. (Krugman has recently noted the underlying problems in Spain’s economy, e.g. the relatively high unit labour costs in manufacturing.) No doubt these and other issues have played a role; but Krugman would be the first to agree that such factors do not explain the sudden way in which the dogs of the market have flung themselves at Zapatero’s government. [Update 9 February 2010: See also this latest piece by Krugman]

Anyone who doubts that the traders can and will act in ideological unison—or to put the matter negatively, will not act on purely rational and objective premises—needs to read the Krugman article I referred to earlier. I am, however, making a somewhat more controversial claim: that there is now something not entirely unlike Durkheim’s notion of a ‘conscience collective‘ amongst traders and their managers which would lead them to be particularly inclined to attack ideological targets, e.g. countries perceived to be embracing ‘left wing’ economic agendas. This kind of action cannot be dismissed as being ‘irrational’; on the contrary, it is quite rational in the sense that the traders may well think, ‘we will f**k anyone who opposes our economic interests’. But of course, this policy may be blinded, at one and the same time, by its failure to consider the possibility of a full economic depression. For a good example of this kind of dynamic, see Larry Elliott’s analysis of the state of the Irish economy.

In this context, EcoLogics joins those who argue that there are three more fundamental, and inter-related motivations which are guiding the economic dogs of the right, and their less–than–disinterested mouthpieces in the media.

The first is that, following the financial crash of 2008, neoliberalism and its agents faced a challenge which, if successful, would undermine everything that the high priests of the most voracious form of capitalism have been preaching since the time of the great experiment in Milton Friedman’s (and Cesar Augusto Pinochet’s) Chile. Efforts to put an end to the crash by way of state-led investment would, if successful, demonstrate that the market dogma is just that: a dogma (no pun intended).

The second is that already it is clear that despite the severe downturn, the financiers and their cronies have done rather well from the crisis. The last thing that they want is to be made to pay higher taxes in order to level off the huge debt which they themselves forced on the people of the U.S., Great Britain, Spain, Greece and many other countries across the world. Further state investment would increase the likelihood of higher taxes for the rich in societies in which the poor can hardly be squeezed further. So beyond the ideological motivation, or rather, working along with it, there is a very practical, ‘rational’ and deeply selfish motivation which involves kicking the poor so as to avoid paying more taxes oneself. Wealthy former, or practicing economists acting as correspondents for the BBC, CNN, Sky News and many other media are, unfortunately, seldom an exception to this rule.

The third motivation returns us to the first: lest socialism make a come back, countries with governments disposed to help the poor—and indeed now the middle classes—must be taught a brutal ‘lesson’, and quickly. The ‘curriculum’ for that lesson is the one now in evidence in Zapatero’s Spain. The outcome is, almost without a doubt, that Zapatero will lose the next elections to the PP, the same party that sought to blame ETA for the bombing in Madrid when its leaders knew full well that the horrific bombing was a response to José María Aznar’s enthusiastic support for the Bush-Cheney war on Iraq.

These are dark days, days that will define the course for generations to come.

Confirmed: world heading for economic depression

Two economists, Barry Eichengreen of the University of California at Berkley and formerly the senior policy adviser at the IMF, and Kevin H. O’Rourke, Professor of Economics at Trinity College Dublin and CEPR Research Fellow, have put together some statistics that would appear to confirm that the global economy is heading for another economic depression. Whereas many previous analyses had focused on data for the U.S. economy alone, the aforementioned economists have compiled data from around the world, and then compared it to similar data beginning 1929. Assuming that Eichengreen, an expert on the Great Depression, and O’Rourke, the president-elect of the European Historical Economics Society, have put together a valid comparison, the results suggest that the global economy is falling off an even steeper cliff than it did in the 1930s:

How the stock markets compare

How the volume of world trade compares

These and other graphs, as well as the full analysis can be found in an April 6, 2009 article by the authors titled ‘A Tale of Two Depressions‘ in  Voxeu.org. (The article does not indicate what the unit of measurement is for the x-axis.)

As the authors of the article note, it is to be hoped that economists now know what it takes to avoid a full-blown economic depression, or at least, what mistakes not to repeat.

The questions that anyone with a critical mind would still have to raise are: 1) what happens in a situation in which publics (or so-called ‘consumers’) are informed in the way that they/we are (i.e. what are the implications of this ‘psychological factor’ for comparative analyses such as this one)? 2) even if some economists know what mistakes to avoid, is the same true for politicians—in particular, politicians like Gordon Brown, who are still trapped in the vicious circle of neoliberalism? Indeed, is there any reason to believe that Obama will be able to resolve the problems by including in his government some of the people who were arguably responsible for this fiasco in the first place?

Update April 14, 2009: an article recently published in the Guardian would appear to confirm the idea that now, perhaps more than before, the question of a social psychology is key to the economic recovery: see ‘Nation’s Growing Unease Hindering Recovery‘, in which the Mental Health Foundation and Anxiety UK link consumer responses to the UK government’s obsession with terrorism and other ‘security threats’.