The emerging market crisis returns

August 1, 2015

The business media is full of the meltdown of the Chinese stock market, the credit bubble and impending crash in the Chinese economy.  But less well announced is the dangerous economic slowdown and already unfolding debt crisis in ‘emerging economies’ in general.

Chinese equities

So for the first time since the emerging market crisis of 1998, all the large so-called BRICS (Brazil, Russia, India, China and South Africa) are in trouble.  And so are the next range of ‘developing’ economies like Indonesia, Thailand, Turkey, Argentina, Venezuela etc.

Previously rising commodity prices in oil, base metals and food led to fast growth in many of these economies.  This in turn led to a flood of capital from advanced capitalist economies by banks and companies looking for higher profits than available in their economies.

But the commodity boom has collapsed.  Global commodity prices continue to plunge. Bloomberg’s commodity price index, tracking gold, crude oil and other raw materials, is down to its lowest point since 2002. It has fallen by 40% since 2011.  It’s another indicator of the long depression and deflationary pressures in the world economy (see my post:…/the-spectre-of-de…/).

That’s partly because of the Great Recession and the weak recovery afterwards has reduced demand for energy and industrial materials.  And it is partly because the biggest consumer of these goods, China, has seen its economy slow in growth from double digits to (just) 7% a year or even lower.  Inflation in many top economies has given way to deflation in prices (in Europe and Japan).

The latest ‘flash’ estimates of business activity globally, based on the so-called purchasing managers indexes, show that emerging economies are now contracting for the first time for over two years.

Business activity index June

Unemployment across emerging markets has risen sharply this year, reversing a six-year slide, even as it has continued to fall in developed countries.  Across emerging markets, unemployment has risen to 5.7 per cent, from a cyclical low of 5.2 per cent in January, the sharpest rise since the global financial crisis, according to figures compiled by JPMorgan.

EM unemployment

During the emerging market boom, capital flowed into the emerging economies and corporations in Asia and Latin America ran up large debts.  Now the money is flowing out, not in and profits are falling as prices for commodities and sales of even for hi-tech goods are falling.  Investors pulled a net $4.5bn from EM funds in the week through July 30, according to data from EPFR, compared with $3.3bn a week earlier. A total of $14.5bn has now been redeemed from EM funds over the past three weeks alone.

em and comm

And currencies across Asia are dropping like stones.

EM currencies

And the US is poised to raise rates in September, so emerging markets could suffer further instability as the cost of servicing that debt rises in dollar terms.  A debt crisis is emerging.

The latest data on foreign exchange reserves show a sharp fall in dollar reserves. The reserves of emerging market governments have slumped as these governments experience declining trade surpluses and weak domestic economies, leading to a flight of money.   The IMF’s COFER figures, the measure for FX reserve data, show that emerging-market reserves have dropped for three successive quarters, from a peak of $8.06trn at end Q2 2014 to $7.5trn by end Q1 2015. These analysts reckon that emerging-market reserves have fallen $575bn since the middle of last year, the sharpest decline in 20 years.  Capital is fleeing these ’emerging economies’ as their real GDP growth slows and investment drops off.

EM FX reserves

Investment bank JP Morgan reckons that the debt of non-financial corporations in emerging economies has surged from about 73% of GDP before the financial crisis to 106% of GDP as of 4Q14. This 34%-point increase is enormous, averaging nearly 5%-points per year since 2007.  In previous research, the IMF has found that an increase in the ratio of credit to GDP of 5%-points or more in a single year signals a heightened risk of an eventual financial crisis. Many emerging market economies have registered such an increase since 2007. Hence the conclusion of the credit analysts, S&P, that “we have reached an inflexion point in the corporate credit cycle”.

Alongside rising debt are falling profitability and consumer demand in emerging markets outside China.

EM profitability

Falling commodity prices for emerging economy exports, rising corporate debt, falling profitability and demand, significant capital outflows and the probability that the US Fed will hike rates this autumn/fall and increase debt servicing costs. It’s a concoction for a serious crash/slump in the great ‘growth’ story of the ’emerging’ economies.

Quarterly capitalism

July 28, 2015

You see what’s wrong with capitalism is that it is short-sighted.  Apparently, corporate chiefs, investment banks and investors are just after a quick buck.  They never look to the long term, to the bigger picture, to a strategy of investment for sustained growth.

This is what budding presidential candidate from the Clinton royal clan, Hillary, told the very eminent New York University Stern School of Business last week.  ‘Quarterly capitalism’, as she called it, just looks at the quarterly earnings results of a company as a guide to investment.  This works against proper investment.  So Hillary proposes to tax short-term capital gains on the stock market more heavily in return for incentives to invest for the long term.

Hillary Clinton did not invent ‘quarterly capitalism’ as a term to describe what previous observers of capitalism have called ‘short-termism’.  This latest slick aphorism came from the head of McKinsey, Dominic Barton.  McKinsey, as the Goldman Sachs of management consultancy, is always looking to discern and explain long term trends of capitalism.  “Lost in the frenzy [of short termism],” wrote Barton, “is the notion that long-term thinking is essential for long-term success.”

What is puzzling and worrying Clinton and Barton is that capitalism is not delivering sustained economic growth and investment in new technology that can raise the rate of productivity of labour.  Last year S&P 500 companies spent more than $500bn on share buybacks, while investment in productive assets remains in the doldrums.  So capitalism is myopic.

Well, this is not a new message.  And it’s partly true.  An economy that is based on making money or profit is inevitably going to face the continual problem that some will take a quick profit at the expense of the development of human capital and technology for the long term.

The evidence for short termism as the reason for a failure to invest is questionable actually.  One study has confirmed that publicly quoted companies with share prices to worry about tended to invest ‘substantially less’ than privately-owned non-quoted companies (John Asker, Joan Farre-Mensa, and Alexander Ljungqvist did a study). But other studies claim that there is no such evidence.

Andy Haldane, the chief economist at the Bank of England, is more convinced.  Haldane has often been ‘off message’ when it comes to defending capitalism, particularly finance capital (see my post,,
going so far as to suggest that the financial sector creates no value at all for the wider economy.  Now in a recent TV interview, he argues that firms are “too short-termist, are not spending enough on investment, are returning far too much money to  shareholders, and that we should consider alternative forms of corporate governance to make sure that the wider social good is served.”

Will Hutton, the promoter of an ‘inclusive capitalism’ (see my post,
that aims to ‘meet the needs of people not speculation’ (an oxymoron, in my view), was quick to latch onto Clinton’s sound bite.  “The market is hopelessly inefficient, greedy and myopic.” Hutton tells us. “Far from market efficiency, the whole system is undermining the legitimacy of capitalism”

Yes, indeed, the legitimacy of capitalism as a productive form of economic organisation is under question.  But Hutton provides a way out.  For him, short termism and financial speculation are products of a deregulated, neoliberal ‘Anglo-American’ model of capitalism. Does that mean there are other more inclusive and productive models that presumably avoid short termism and financial crashes.  What could they be?  Surely not the social welfare model of Europe that has been crushed by the banking scandals there and the subsequent depression?  Or the Japanese corporate capitalist model with its close connections between politicians, the state, the banks and the large corporations that has seen 20 years of stagnation?

Nevertheless, Hutton gushes at Clinton’s radical move.  “She does not want to reinvent the public limited company, but she proposed the most far-reaching tax reforms of any Democrat presidential nominee to change the incentives for shareholders and executives alike.  In American terms, this is a revolution.  It is long overdue and the argument is beginning to get traction in the US.”

But tapering capital gains tax according to the length of holding a share – is that revolutionary?  Actually, it is more likely the Clinton scheme will simply increase profits for long-term shareholders (pension funds) at the expense of short-term holders (hedge funds).  That may even increase the share of capital income going to the top 1%.

The campaign against short-termism is really a diversion from recognising that there is a failure in the capitalist mode of production.  Instead, let’s look for the blame on ‘speculation’ and a bias towards a quick buck.  The fallacy in this argument is that speculation and short termism has always been part of the capitalist accumulation process.  The question is why it is worse now – if it is.

The answer might lie in the failure of the productive sector of capital to deliver high or even rising profitability, thus pushing corporations, banks and investors to speculate in financial assets (fictitious capital) to counteract. The evidence for this is much stronger than the evidence of ‘short-termism’.  See my post,

And compare the rise in financial profits as a share of total corporate profits.  Corporations have been following the money.

US share of financial profits

Although, since the global financial crash, the share of financial profits in total US corporate profits has fallen back.

Grexit, De Long and the wages of Sinn

July 26, 2015

Now that the dust has settled (for a while) in Greece, mainstream economics has been reconsidering what went wrong with Greece and what the best solution would have been.  And it now it seems that both main wings of the mainstream: neoclassical, neoliberal Austerians on one side; and Keynesian on the other side, agree.  Grexit would have been and still is the best solution.

Leading American Keynesian Brad de Long has joined Paul Krugman and Joseph Stiglitz to argue that Grexit is the cheaper option for the Greeks (

De Long is just amazed and shocked that the Euro leaders continue to demand austerity and commitment to Euro rules when it was clearly not working.  It was irrational.  “Because the North Atlantic had lived through the 1930s, I would say, this time we will not make the same mistakes policymakers made in the 1930s. This time we will make our own, different–and hopefully lesser–mistakes. I was wrong. The eurozone is making the mistakes of the 1930s once again. And it is on the point of making them in a more brutal, more exaggerated, and more persistent form than they were made back in the 1930s.  But I did not see that coming. And so, when the Greek debt crisis emerged in 2010, it seemed to me that because the lessons of history were so obvious, the path to the Greek crisis’s resolution would be straightforward.”

What idiots the Euro leaders were and are.  Surely they should have seen that they would need to “offer Greece enough aid, support, additional money, debt write downs, and debt reschedulings to make Greece better off by staying in the eurozone than it would have been if it had exited, depreciated, defaulted, and restructured back in 2010”?

This is what ex-finance minister Varoufakis and PM Tsipras leading the Greek government were hoping or expecting when they negotiated with the Troika.  As Varoufakis explained his strategy: “a Marxist analysis of both European capitalism and of the Left’s current condition compels us to work towards a broad coalition, even with right-wingers, the purpose of which ought to be the resolution of the Eurozone crisis and the stabilisation of the European Union… Ironically, those of us who loathe the Eurozone have a moral obligation to save it!”

But, as De Long says, “that did not happen”.  So now, says De Long, Grexit is the only way out.  And he cites the apparent success of Iceland, a very small country that is not even in the EU, let alone the Eurozone, and thus was able to devalue and default to solve its debt crisis and is now racing towards prosperity.  “Just look at the relative degree of recovery–essentially complete, and none–in Iceland and Greece, respectively.”  

Really?  Iceland is continually served up by the Keynesians as the model for resolving the debt crisis and the depression that Greece is suffering.  But it is a Nordic myth, as I have explained in several posts.

This story of default and devaluation is just not true. Iceland did not renege on the huge debts that its corrupt banks ran up with foreign institutions (mainly the UK and the Netherlands). It eventually renegotiated them and is now paying them back, like Greece. And devaluation did not mean that Icelanders escaped from a huge loss in living standards. They have done better than the Greeks on that score – but Icelanders started from a much higher standard of living than the Greeks. Even so, in euro terms, Icelandic employee real incomes fell 50% and are still 25% below pre-crisis levels.

Yes, Iceland did nationalise its banks but then privatised them again in record time. Two out of the three collapsed major banks in Iceland are now owned by their creditors, not the state. The third bank, Landsbanki, is still nationalised but that’s solely because of ongoing court cases involving Icesave.  Most of the creditors actually sold their stakes onto foreign hedge funds.  Some of the bankrupt banks only remained in government control for a few weeks.  SPRON, for example, was merged into Arion Bank which in turn was given to its creditors a few weeks later, essentially a free gift to Kaupthing’s foreign creditors.

Iceland’s lauded recovery model involving devaluation of its currency was coupled with capital controls.  And these remain a serious drag on investment for the capitalist sector.   Iceland is growing at 2% a year, faster than much of Europe. But the IMF had originally forecast annual growth of around 4.5% from 2011-2013.

Many Icelanders say they do not ‘feel’ this modest growth. Outside booming fishing and tourism, businesses complain of stagnation.  Some 80% of households are swamped in housing loan debts indexed to inflation. Investment is under 15% of GDP, a record low. Real incomes have dropped sharply for Icelandic households as their mortgage debt is index-linked to inflation.

Iceland real income

And it is not true that through default and devaluation, Icelanders avoided the impact of austerity.  Look at this chart of the degree of change in the budget balance before interest costs as a % of national GDPs made by governments globally between 2009 and 2014. Greece leads the way in the degree of austerity.  But look which country is second: Iceland.

Iceland austerity

Brad de Long now reckons that the cost to the Greek economy of Grexit would be much lower than “the long-run costs of remaining in the eurozone given the required austerity now on offer from Brussels and Frankfurt.”  That may be right, but the example of Iceland does not confirm it.

And neither does the traditional explanation of the Greek depression that comes from Keynesians: too much austerity.  De Long says that “the key reason for the failure of forecasts is, of course, Brussels’s and Frankfurt’s–and Washington’s, both at the IMF and in the Obama administration–underestimate of the simple Keynesian multiplier at the zero lower bound on interest rates.”

Well, the ‘simple Keynesian multiplier’ measures the increase in real GDP growth that comes from a unit increase in government spending. But the evidence that this is decisive is not clear – see my post, .

Moreover, I have shown in previous posts that the impact of austerity on growth in Greece and elsewhere is way less than the impact of the collapse in capitalist investment due to low profitability and high corporate and public sector debt.  As Frances Coppola recently put it,  “the story of the Greek crisis is not really one of fiscal profligacy resulting in a “sudden stop”. It is one of PRIVATE sector profligacy fuelled by rising external debt, itself resulting from (or caused by) falling competitiveness.”

The Marxist multiplier measures the amount of economic growth engendered by investment in the capitalist sector and thus by each unit of extra profitability (see my post,
Greek capitalism took the biggest hit to profitability from the Great Recession and its profitability has recovered the least. In contrast, Ireland suffered the least of three economies below, and recovered profitability the most (although it is still down on its peak).  And this is reflected in economic growth.  This explains Greece’s worse position, not austerity as such or the failure to devalue.

Profitability change

Nevertheless, De Long continues to be amazed at the stupidity of the Euro leaders and the Austerians: “So why have we not learned from our history? I still rub my eyes in amazement: I would have thought that the Great Depression was a salient enough event in European history that we would not be making the same mistakes, exactly, again–and right now it looks like in what will turn out to be a more extreme way.”

Well, now it seems that the Austerians are not so stupid because they agree that the Greek government should opt for Grexit too.  German finance minister, Wolfgang Schauble, during the tortuous negotiations on the ‘bailout package’ with Greece, apparently offered a deal to Varoufakis to stump up €50bn in ‘aid’ if the Greeks opted to exit the Eurozone.

And leading German Austerian economist, Dr Hans-Werner Sinn agrees. “There are not many issues on which I agree with my colleagues Paul Krugman and Joseph E. Stiglitz and the former Greek finance minister Yanis Varoufakis. But one of them is the view that an exit from the eurozone would be advisable for Greece.”

Echoing the likes of Krugman and De Long, Sinn reckons that Greece needs to devalue and this cannot be done successfully by ‘internal devaluation’ ie cutting wages and prices as the current Troika measures are trying to do. “The public credit has delayed a Greek bankruptcy, but it has failed to revitalize the Greek economy. To compete, Greece needs a strong devaluation — a relative decline of its price level. Trying to lower prices and wages in absolute terms (for example, by slashing wages) would be very difficult, as it would bankrupt many debtors and tenants.”

For Sinn, the Keynesian solution won’t work, not because the Keynesians advocate devaluation of the Greek currency to make Greek capitalism competitive, but because they also want to increase public spending.  “What about the solution favored by leftists: more money for Greece? No doubt, enormous government spending would bring about a Keynesian stimulus and generate some modest internal growth. However, apart from the fact that this money would have to come from other countries’ taxpayers, this would be counterproductive, as it would prevent the necessary devaluation of an overpriced economy and keep wages and prices above the competitive level.”

That’s why, for Sinn, Grexit would only work if it makes the Greek capitalist sector profitable and more competitive (at the expense of labour).  Here Sinn spells out the perfectly rational logic of austerity that De Long and the Keynesians fail to understand.  Austerity is not just some stupid ideological prejudice on the part of the likes of Schauble and Sinn (although it may be that too), it is a solution aiming to restore the profitability of Greek capital, just as it offered for other capitalist economies in this depression.  See my post

Sinn offers not the example of Iceland, as the Keynesians do, but the example of Ireland: “The Irish tightened their belts and underwent a drastic internal devaluation by cutting wages, which in turn led to lower prices for Irish goods both in absolute and relative terms. This made the Irish economy competitive again.”  And they sure did ‘tighten their belts’.  In my graph above of changes in government budgets since 2009, Ireland comes next after Greece and Iceland. Indeed, see Michael Taft’s excellent article on the Irish model for Greece:

Sinn also neglects to mention that the main reason that Ireland has become competitive has been the mass emigration of the labour force and the special tax conditions provided by Irish governments for American multi-nationals to operate there.  Irish emigration is now back at levels not seen since the dark days of late 1980s.

irish emigration

It is the same story with Estonia, another example of successful ‘austerity’ and now, of course, in Greece, Spain and Portugal.  The Austerians rest their claims for recovery for these weak capitalist economies on huge reductions in wages and conditions for labour, massive cutbacks in public spending and mass emigration.  All this is to restore the profitability of the capitalist sector.

But, it seems that Sinn and others now reckon that the policies of austerity alone will not be enough to get Greek capitalism back on its feet, however, tottering.  Better now that Greece leaves, devalues its drachma and then carries through austerity measures.  “Greece would have the option to return to the eurozone, at a new exchange rate, after carrying out institutional reforms — such as public recording of land purchases, functioning tax collection, accurate statistical reporting — and meeting the normal conditions for eurozone membership. It could take five or 10 years.”

For as Sinn puts it, “Until Europe is turned into a federal state — as it should become, at some point — it will not have a currency like the dollar. Until then, what is needed is a “breathing” currency union, with orderly entry and exit options, coupled with an insolvency rule for member states.”

So there we have it.  The Keynesians say the way forward is through Grexit and so now do many Austerians.  Both see Grexit as a solution to save Greek capitalism. The Keynesians reckon it will ‘free’ Greek capitalism from austerity. The Austerians reckon it will ‘free’ the Euro leaders from the wasted funding of a failing capitalist economy.  But neither side is right if the profitability of capital does not recover in Greece and in Europe.

Paul Mason and postcapitalism: utopian or scientific?

July 21, 2015

Leftist journalist and broadcaster, Paul Mason, has a new book out at the end of this month. It’s called ‘Postcapitalism’.  I don’t have a copy but Mason has written a long article in the British newspaper, The Guardian, outlining his main arguments,

Mason has been a doughty publiciser of labour struggles in his journalism and also offered on occasions a more theoretical and strategic analysis of where capitalism and labour is going.  I think this book is an attempt to sum up his views.  As Mason has some influence among labour activists in Britain and internationally, it’s worth considering what he has to say.

Mason argues that capitalism is set to be replaced by ‘postcapitalism’ (not ‘socialism’, it seems). And this is for three reasons. First, there is an information revolution which is creating a society of abundance in information, making a virtually costless and labour saving economy. Second, this information revolution cannot be captured by the capitalist market and the big monopolies. And third, already the ‘post-capitalist’ mode of production, based on free ownership and cooperation in information, is emerging from within capitalism, just as capitalism emerged from within feudalism.  Is Mason right? Does he make sense?

Well, I have a lot of issues with what Mason argues and concludes.  He starts his article of explanation pessimistically by suggesting that neoliberalism has more or less triumphed in its aims for capitalism leaving ‘old labour’ methods and ideas in disarray: “over the past 25 years it has been the left’s project that has collapsed. The market destroyed the plan; individualism replaced collectivism and solidarity; the hugely expanded workforce of the world looks like a “proletariat”, but no longer thinks or behaves as it once did.”

The first question that springs to mind here is: does Mason think there is still a ‘proletariat’ or not?  Because he is right: far from the working class, even the industrial working class, declining or disappearing, it is growing globally.  See my post,

The proletariat may be getting larger globally but, according to Mason, it “no longer thinks or behaves as it once did.”  What does Mason mean?  Does he mean that the working class is no longer the force for change that Marx and Engels saw it as back in 1848 and has been looked to by generations of socialists since?  It’s true that strikes and disputes have dropped away in countries like the US and the UK.  But let us balance that with the huge rise in the number of strikes and other actions in emerging economies like China, Asia and Latin America, where the industrial proletariat is increasingly now to be found.  Is the working class impotent as a force for revolutionary change?

Let’s leave that argument for the moment, because Mason does offer what he considers is an optimistic alternative to the class struggle.  The forces of labour may have been defeated but within capitalism are new progressive trends that capitalism cannot suppress or control which could achieve a better, freer, more equal society without the need for class struggle, at least as we have known it up to now.  “Capitalism, it turns out, will not be abolished by forced-march techniques. It will be abolished by creating something more dynamic that exists, at first, almost unseen within the old system, but which will break through, reshaping the economy around new values and behaviours. I call this postcapitalism.”

This is not apparently the socialism or communism that the old methods of class struggle and revolution aimed for, because Mason wants to use the word ‘postcapitalism’ as a clear distinction from those old-fashioned terms for a new society.

So what is this ‘unseen’ postcapitalism that (only) Mason sees; what are its distinctive features?  “First, it has reduced the need for work, blurred the edges between work and free time and loosened the relationship between work and wages. The coming wave of automation, currently stalled because our social infrastructure cannot bear the consequences [my emphasis], will hugely diminish the amount of work needed – not just to subsist but to provide a decent life for all.”

Ah!  So the information revolution means that less work will be necessary in order to deliver a ‘decent life’, a world without toil.  But is that true given that the world is still in the grip of a capitalist, not a post-capitalist mode of production?  It would seem to me that people are spending more time at home or travelling working for capital on their computers.  The edges between work and free time are especially ‘blurred’ in knowledge-producing sectors.  People are made to work (solve problems) in their free time more than ever before. See G Carchedi’s groundbreaking paper on how that has panned out – Old wine, new bottles and the internet,

Will the information revolution reduce working time under capitalism and thus lead progressively to post-capitalism?  Well, previous technological changes have not done so.  John Maynard Keynes had a similar idea to Mason back in the 1930s (see my post,

Keynes argued that “for the first time since his creation man will be faced with his real, his permanent problem – how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well.” Keynes predicted superabundance and a three-hour day within 60 years – Mason’s postcapitalist dream.

Well, the average working week in the US in 1930 – if you had a job – was about 50 hours.  It is still above 40 hours (including overtime) now for full-time permanent employment.  In 1980, the average hours worked in a year was about 1800 in the advanced economies.  Currently, it is about 1800 hours.  So, since the great information revolution began under the ‘neoliberal period’ of capitalism, the average working year for an American has not changed.

Mason’s next argument for the move to postcapitalism is that “information is corroding the market’s ability to form prices correctly. That is because markets are based on scarcity while information is abundant.”

Really?  For a start, market prices are not determined by the degree of scarcity of a commodity or service.  That is the essence of the unreality of mainstream neoclassical economics.  The great classical economists, Smith and Ricardo, and above all, Marx, showed that prices of commodities and services are fundamentally determined by the socially necessary labour time taken to produce them.  The great contradiction of capitalism is that, as the necessary labour time falls due to technical progress, it lowers the value of commodities and thus puts downward pressure on the profitability of production.  And under capitalism, it is profit (surplus value) that matters, not more output (use value).

It is fine for Mason to notice that technical advances increase the productivity of labour (although we are not seeing much of that at the moment – but that’s another story).  But that is only one side of the equation.  The other side is the squeeze on profitability, the intensification of the class struggle and the resolution of that contradiction (temporarily and periodically) through slumps and contraction.

Mason ignores the two sides of technical advance under capitalism.  Yes, one side suggests the potential for a super abundant, low labour time world.  But the other suggests inequality, class struggle and regular and recurrent crises.  Mason reckons that automation etc is “currently stalled because our social infrastructure cannot bear the consequences”.  Yes, that is the point, ‘postcapitalism’ cannot emerge without resolving the contradictions of capitalism.

But Mason remains utopian in his hopes that the elements of ‘postcapitalism’ are mushrooming.  “Almost unnoticed, in the niches and hollows of the market system, whole swaths of economic life are beginning to move to a different rhythm. Parallel currencies, time banks, cooperatives and self-managed spaces have proliferated, barely noticed by the economics profession, and often as a direct result of the shattering of the old structures in the post-2008 crisis.”

Mason cites Greece as an example.  “In Greece, when a grassroots NGO mapped the country’s food co-ops, alternative producers, parallel currencies and local exchange systems they found more than 70 substantive projects and hundreds of smaller initiatives ranging from squats to carpools to free kindergartens.”  The trouble with these examples of the new world is that they are more like a desperate reaction to the crisis of capitalist production, as in Greece.  They will remain marginal, or be turned into profit-led operations competing in the market, as has happened to so many cooperatives and localist efforts over the last 150 years.

Mason admits that these ‘micro projects’ can only succeed in changing our world if they “are nurtured, promoted and protected by a fundamental change in what governments do.”  Given that most governments in the world are pro-capitalist and driven by big business and big capital, this makes that outcome pretty unlikely.  Do we not remember what the modern state is really an instrument for nurturing, promoting and protecting capital and the ruling class?  “The modern state, no matter what its form, is essentially a capitalist machine — the state of the capitalists, the ideal personification of the total national capital. The more it proceeds to the taking over of productive forces, the more does it actually become the national capitalist, the more citizens does it exploit.”  Engels, Socialism, utopian and scientific.

Mason then raises what many utopians have advocated before him: that if only we can change the way we think, we can change the structure of economic and social relations.  And this must be driven by a change in our thinking [my emphasis] – about technology, ownership and work. So that, when we create the elements of the new system, we can say to ourselves, and to others: “This is no longer simply my survival mechanism, my bolt hole from the neoliberal world; this is a new way of living in the process of formation.”

So first we must change our mentality and then the state can nurture these micro-level projects.  Cart before horse?  As we are locked within the confines of the capitalist production relations (both private and state), it is these relations that must be changed so that new ways of thinking can bloom.

Mason recognises that his ‘alternative model’ is not yet with us. Instead he forecasts a new capitalist crisis ahead – although this prediction is based purely on a Keynesian analysis of low real wages keeping demand low and a new credit bubble threatening another financial crash.

Mason reckons that neoliberalism “has morphed into a system programmed to inflict recurrent catastrophic failures.”  Well, I thought that it was capitalism that was subject to ‘recurrent catastrophic failures’.  But like other modern revisions of Marxist economics, apparently it is only neoliberalism, a special form of capitalism.  In my view, neoliberalism, a ruling class policy and strategy to drive up profitability by raising the rate of exploitation, is actually the norm for capitalism. It is only in rare and short periods that capitalism looks to invest in new technology to raise profitability, as in the immediate postwar period.

Mason makes much of Marx’s discussion of the role of technology in his Fragment on Machines from the Grundrisse written in 1857 (  Mason suggests that Marx makes the same point as he does: that capitalism expands technology and scientific knowledge to the point that a world of abundance and free time for all becomes reality.

As Mason puts it: “In an economy where machines do most of the work, the nature of the knowledge locked inside the machines must, he writes, be “social”. …“It suggests that, once knowledge becomes a productive force in its own right, outweighing the actual labour spent creating a machine, the big question becomes not one of “wages versus profits” but who controls what Marx called the “power of knowledge”.

But again, this is a one-sided and utopian view of technological progress.  If you read the Fragment carefully, you can see that Marx is not posing some steady and harmonious development of a world of abundance through scientific knowledge embodied in an ‘ideal machine’.  Yes, use values will multiply through technological advance, but this creates a contradiction within capitalism that will not disappear gradually.  Under capitalism, increased knowledge from science and human labour is incorporated into machines.  But machines are owned by capital not society in common.  The class struggle does not disappear under the ‘power of knowledge’.  On the contrary, it can intensify.  For more on this, see G Carchedi’s Behind the Crisis, pp 225-232 (

So it is not true that as Mason argues that “Something is broken in the logic we use to value the most important thing in the modern world.” And that “the knowledge content of products is becoming more valuable than the physical things that are used to produce them. But it is a value measured as usefulness, not exchange or asset value.”  Use values are expanding dramatically in the information revolution, but the law of value still operates.  Information is not free under capitalism.  Indeed, every day, capitalism is trying and succeeding in measuring, capturing and owning information for profit.

But Mason continues to pursue his utopian view of the knowledge revolution.  He pleads “If I could summon one thing into existence for free it would be a global institution that modelled capitalism correctly: an open source model of the whole economy; official, grey and black. Every experiment run through it would enrich it; it would be open source and with as many datapoints as the most complex climate models.”  If only capitalism would operate in such a way as to create our superabundant postcapitalist world!  But it won’t.

Mason returns to reality: “The main contradiction today is between the possibility of free, abundant goods and information; and a system of monopolies, banks and governments trying to keep things private, scarce and commercial. Everything comes down to the struggle between the network and the hierarchy: between old forms of society moulded around capitalism and new forms of society that prefigure what comes next.”

But he sees the contradiction, not between capital and labour, but between monopolies and free networking.  This fragments the class struggle (which he seems to deny exists any more) into a battle of individual free minds and the knowledge-controlling forces of hierarchies.  For Mason, the battle is between millions of people on their computers on the worldwide web (possibly in their pyjamas like me now) trying to change the world through the exchange of information against the forces of big business and their controlling structures.  This replaces the old labour versus capital struggles.

Is such a prospect realistic or possible?  The old-fashioned industrial proletariat is still out there and getting larger as more millions are urbanised and brought into factories to make the servers, fibre cables, robots, processors, software and other commodities necessary to create the ‘knowledge revolution’ for those of us in our pyjamas.

If Mason is telling us that the development of the productive forces have now created the pre-conditions for a society of abundance and an end of class exploitation, then that is right but it is nothing new.  It what Marx said 160 years ago.  It is what Engels said in 1880 when he summed up the state of capitalism and Marxism as scientific socialism as opposed to utopian socialism. “The possibility of securing for every member of society, by means of socialized production, an existence not only fully sufficient materially, and becoming day-by-day more full, but an existence guaranteeing to all the free development and exercise of their physical and mental faculties — this possibility is now, for the first time, here, but it is here.” (Socialism: utopian and scientific).

But Mason also seems to be saying that this new information/knowledge revolution is by-passing the contradictions of capitalism, the law of value and the exploitation of labour by capital.  If so, then he is wrong.  The contradiction between socialised production and capitalist appropriation remains.  There is nothing new in the knowledge revolution that can change that.  It requires the conscious action of labour to reconfigure “the social infrastructure”, as Mason calls it, to “make a fundamental change in what governments do”.  Without that, ‘postcapitalism’ will remain a utopian dream.

Postcapitalism is published by Allen Lane on 30 July.

The euro train: going off the rails?

July 19, 2015

So the Greek parliament has submitted to the Troika ‘fiscal waterboarding’ and agreed to the terms of a new ‘bailout’ program that will tie the Greek economy to the rule of the Euro institutions and the IMF for at least three years.  And will mean that the majority of Greeks will have austerity and reduced living standards imposed for the foreseeable future.

The rotten implications of the terms of this agreement have been ably critiqued by ex-Greek finance minister Yanis Varoufakis in a recent post of his (  So in this post I want to consider the wider picture of the Euro project.

Back in late 1989, it was decided by France and Germany that they would go further than the European Union and move to a single currency union that aimed to create a trading and investment currency to rival the dollar and the yen.  This would put Europe – or to be more exact  Franco-German capital – on the global map as a major ‘player’.  To make this work, at first 10 other European countries were persuaded to abandon their national currencies for the euro.

You see, the Euro project is really like a train.  The train has an engine (Germany) and a conductor carriage (France) and then another ten coaches were attached.  France was very keen to get even more coaches onto the train.  Soon it was 15, then 18 and now 19 coaches.

Euro train

The carrot was that these weaker European capitalist states would be able to benefit from integration in the euro area through convergence of their GDPs and living standards with the richer states.  But to do so, the stick was that they first had to get their interest and inflation rates and their budget deficits and public debt ratios into certain agreed levels to ensure that the currency union would stick and the divergence of fiscal and monetary categories was not too great.

But none of them did, including Germany and France. Far from convergence taking place, the uneven development of capitalism merely compounded the divergence of the Euro economies in employment, productivity growth and inflation.

For example, if we look at the real GDP per person for the original Euro-12 states back in 1999 and compare it with 2014, (I’ve used the EU Commission AMECO database), we find that there has been further divergence in the last 15 years of the Euro project between the state with the highest GDP per person (Netherlands) and the one with the lowest (Portugal).  And there has been more divergence because the weakest economies have fallen further behind, not closed the gap.

Slope of divergence

Indeed, since 1999, Italy’s real GDP per head has dropped by 21% compared to the Euro-12 average, while Ireland’s risen relatively by 6%.

Relative gain or loss euro GDP

But the Euro project went ahead anyway.  All seemed well until the Global Financial Crash and the ensuing Great Recession.

euro crash warning

This was like an avalanche that hit the Euro train and filled the coaches with varying degrees of debris.

euro dirt

The whole Euro train juddered to a halt.

screeching to a halt

The weight of the avalanche hit the weaker and tailing coaches more.  Several coaches teetered on the edge of coming off the rails (Ireland, Portugal, Greece and Spain).  Others juddered badly (Italy, Slovenia, Cyprus).

Euro struggling off

The avalanche left a huge pile of debt on the weaker Euro coaches.  But instead of this debt being evenly distributed by the Euro engine and conductor up front so that the Euro coaches at the back could stay on track, the dirt at the front (crashing German and French banks) was bailed out and the burden heaped even more on the trailing coaches.

Eventually at expense of labour and the taxpayers of the weakest coaches, the trailing struggled back onto the track and the Euro train moved off again, very slowly.

But not Greece.  It was just too weak and too weighed down by the dirt of the avalanche.  Clearly it should never have been on the end of the Euro train.  But it was and now it was like a carriage flailing along at the back as the train moved off again.

Euro off the railsInstead of helping it out by reducing the weight of dirt (debt) it had, the German engine and French conductor piled even more debt on it.  Other coaches were pleased because they were weighed down already and did not want any more dirt (debt) from Greece.

Eventually, the German engine started to think the best thing was to just cut off the Greek carriage so the Euro train could get going again.  But it was persuaded by the French conductor (and other worried coaches who thought that they could be next), that the Greek coach should be allowed to stay connected.

Apparently, the German engine and French conductor, along with one set of rail inspectors (EU Commission) are hoping that the Greek coach will get stronger because it must carry more dirt.  But this policy has failed on two previous occasions.

Greece heavy lifting

Another rail inspector (the IMF) now reckons that putting more debt onto the Greek coach will only make things worse.  But the EU Commission and the Germans are resisting their solution of shifting some of that dirt onto the other carriages to lighten the load for the Greek coach.

The latest IMF report on Greek debt sustainability makes it clear that unless the size of Greek public debt is cut by at least 30% of GDP and the time for clearing the rest is put back for up to 30 years, then the burden will be too much for Greece (cr15186).  The debt ratio will actually rise from the current 180% of GDP to over 200% of GDP, or more than double the level that Greece started with in the crisis back in 2010.  The Greek carriage, already flailing at the back of the Euro train, will fall off.

In contrast, the latest EU Commission report argues that things are not that bad
That’s because the debt repayment burden has already been put back until 2022 and annual debt servicing costs for Greece are only 2% of its GDP, very low and even lower than other coaches like Portugal or Ireland are paying.

The problem with this argument is that even 2% of GDP servicing a year requires at least 2% growth a year and even that would only stabilise the debt, not reduce it.  The weight of the dirt on the Greek coach would remain the same.  But the Greek economy is not growing at even 2% a year.  On the contrary.

Greece back in recession

The Troika is demanding that the Greek government run a surplus on its budget before those debt interest costs of 3.5% of GDP a year.  This is so it can repay the debt owed to the ECB and the IMF by 2018.  And the latest Troika package imposed on the Greeks includes €13bn of government spending cuts and tax rises (VAT) etc.  This will only drive the economy even further down.   One estimate is that the Greek economy will be 4.8% smaller than it otherwise would have been by 2018 (the end of the new bailout program) because of the new austerity measures.

Yet again the cruel irony of the latest Troika package is that 90% of the huge €82bn of bailout funds will be used to recapitalise ailing Greek private sector banks; repay the IMF, the ECB and other creditors.   Only €8-12bn will be available to fund the government budget deficit over three years.  So, of a bailout fund of nearly 40% of annual Greek GDP, only 4% will go to the Greek people over three years.

Some argue that the bailout will work as some of the money will go to Greek banks and they can start lending again; bank deposits will come back; capital flight will reverse and government arrears will be paid up.  Maybe so, but that will only get things back to where they were before the tortuous negotiations began last February.  From then on, the issue of faster growth will depend on Greek capitalists investing, along with an influx of foreign capital.  Can we really expect that?  The EU says it will provide up to €35bn in new investment.  But most of this would come from existing funds anyway – it’s not new.  And it constitutes at most just 3-5% of GDP a year if it materialises, while austerity measures are hitting the economy at 3-4% of GDP for the first two years.

So the Greek coach is likely to remain an annoying burden at the end of the Euro train.  German finance minister Schauble is right in one way.  It should be detached so that the Euro train can move on.  But that argument could also be applied to other coaches.

And here is the rub.  The Euro train is struggling to move along the track anyway.  Real GDP growth is weak, even at the front of the train.  And there is no intention of sharing the burden of recovery or future crises with fiscal transfers from the richer states to the poor, as in a proper federation or fiscal union (see my post,

Worse, it’s now seven years since the start of the Great Recession that exposed this Euro train mess.  Recessions seem to come along pretty regularly every 8-10 years.  So the Eurozone could be heading for a fall again well before the Greek bailout program is completed in 2018.

Moreover, the problem of poor profitability of capital remains – indeed, profitability of capital in the Eurozone states has dropped dramatically in the last 15 years.  Only Germany has benefited from the Euro train.

change in net return on capital

Private and public sector debt remains at record levels.  If the Euro train stays in the tunnel of depression and even hits a new blockage on the track….

Tunnel of depression

…. it may not stay as one unit any longer.

Euro crash


Profitability, crises and inequality: some heterodox views

July 11, 2015

Last weekend, I presented two papers at the conferences of the Association of Heterodox Economists (AHE) and the Society for the Advancement of Socio-Economics (SASE).

The AHE paper was Revisiting a World Rate of Profit and was a follow-up to my previous paper, A World Rate of Profit, presented to the AHE conference in 2012 (

The 2012 paper made a tentative estimate of what had happened to the rate of profit on capital in the G7 economies and the so-called BRICs.  It was not the first attempt to measure a world rate of profit, but it was a more up to date attempt, using more comprehensive data made available from the Extended Penn World Tables of global economic data.

The 2012 paper recognised that measuring a world rate of profit was problematic.  First, capitalism is not a ‘world economy’ as projected in Marx’s law of value and profitability, but still a bunch of national economies with barriers to the flow of capital, trade and labour that would distort a measure of world profitability using national data.  Second, the available data for a comprehensive analysis of a world rate of profit are inadequate and vary from country to country, making it difficult to estimate Marxian categories of value and surplus value.

However, capitalism has become hugely more ‘global’ in just the last 40 years and neo-liberal ‘reforms’ have opened up trade and deregulated capital flows.  And there has been an emergence of new capitals onto the world stage. So a ‘world rate of profit’ has become more realistic by the day.

What encouraged me in my original paper was that other estimates of global profitability were broadly similar in their results as my own attempt.  Even more encouraging has been work done by other scholars since my effort in 2012.  In particular, Esteban Maito published a paper that looked at the rate of profit on capital for 14 countries going back, in some cases, to 1855 (  He found that there was a discernible fall in the rate of profit on capital over the period, as Marx’s law predicted.  But this secular fall also contained periods when profitability rose according to Marx’s counteracting factors coming into play for periods.

In my new paper, I revisited the old data but also presented a new measure of a world rate of profit based on using the Penn World Tables for all the top economies of the world, the so-called G20, going back to 1950. I found that the rate of profit for the G20 economies since 1950 exhibits a similar secular decline as does the Maito data.  Also, like the US and the UK, there is a significant fall from the first simultaneous international economic slump in 1974-5 to the early 1980s, then a modest recovery before another fall coinciding with the world 1991-2 economic recession.  There is a mild recovery in the 1990s until the early 2000s.  Since then, the G20 rate of profit has slumped, both before the 2008-9 Great Recession and after, with only a tiny recovery up to 2011.

G20 rate of profit

Marx’s law of the tendency of the rate of profit to fall does not imply that the rate of profit will fall in a straight line over time. Counteracting factors come into play that, for a period of time, can overcome the tendency.  My results show that this was the case between the mid-1970s or early 1980s up to the late 1990s or early 2000s (depending on the measure).  The neoliberal period of recovery in profitability did take place but it came to an end well before the Great Recession.  World profitability was falling by the early to mid-2000s on most measures.

The changes in the rate of profit in the post-war period follow Marx’s law, namely that the secular decline was accompanied by a rise in the organic composition of capital that outstripped any rise in the rate of surplus value achieved by capitalists, at least in the G7 economies.  Profitability rose in the neo-liberal period because the counteracting factor of a rising rate of exploitation dominated.

There were several other interesting papers at AHE (apart from mine, of course).  They can all be found at

Of particular note was the paper by Steve Keen, head of economics at Kingston University and the leading proponent of the post-Keynesian/Minsky view that crises of capitalism are caused by an inevitable tendency for the financial sector to expand private sector credit excessively.  I have commented on Keen’s arguments in several posts on this blog, but his latest paper is the most comprehensive in arguing this case.

I also liked the paper on Kondratiev cycles by Leo and Dianad Nefiodow

They presented some interesting arguments to justify the existence of this series of long-term cycles and the reasons for them – namely the cycle of bunches of innovation a la Joseph Schumpeter (Business Cycles).  I have also looked at the role of Kondratiev cycles in my book, The Great Recession and also in a past AHE paper cycles-in-capitalism.

My big difference with the Nefiodow paper is that they consider that the global economy is already in the upswing phase of a ‘sixth Kondratiev’.  On the contrary, I think we are still in the ‘winter’ depressionary phase of the Kondratiev where inflation and real GDP growth are low and profitability has not been restored yet sufficiently for a new innovation upswing.  Also, there is no mention in their paper about AI and robots, an innovatory development that I see as key to the next stage in capital accumulation – more on that on another day.

The main theme of the SASE conference was rising inequality in modern economies.   I presented an updated paper of my critique of Thomas Piketty’s book on inequality, Capital in the 21st century, called Unpicking Piketty (Unpicking Piketty – SASE).

Readers of this post will know that I have covered this issue in some detail in various posts and in my collection of essays on inequality.


or Kindle version for US:
and UK

My main argument is that Piketty had not really proved that inequality of wealth in modern economies would continue to rise inexorably or that his explanation of rising inequality as due to the return on capital will be higher than a slowing rate of growth in national income per head in the major economies was right.  By conflating ‘wealth’ with productive capital, Piketty’s prediction was really founded on a continuation of the property and stock market bubbles of the last 25 years.  And that could easily change in the next 25 years.  The paper contrasted Piketty’s r (rate of return on personal wealth) with Marx’s r (rate of profit on productive capital).  In my view, the latter is a much better indicator of the direction of capitalism and its underlying contradictions.

In the same session, Robert Boyer presented a paper on global inequality.  Boyer is one of the members of what are called the Regulation School, who argue that capitalism goes through different stages or structures of regulation which leads to different causes of crises  Boyer’s argument on rising inequality was that there was no one cause: it depended on the different regimes and stages of development for an economy.  Inequality rises when an economy is industrialising and urbanising fast, as in China now, it also rises when there is a deep depression that hits the poorer parts of an economy, as in southern Europe now; and it rises when the financial sector dominates an economy as in the US; but it can fall when governments of a more leftish persuasion take over, as in Latin America in recent years.

There may be some truth to this view.  But perhaps it is simpler put to say that rising inequality of income (or in Marxist terms, a rising rate of surplus value) is more to do with the balance of forces in the class struggle between capital and labour.  The stronger capital is, the more it can get the rate of surplus value and this acts a counteracting factor to the tendency for Marx’s r to fall.  And that is what has happened in many countries since the 1980s.

SASE was a huge conference attended by 1200 academics and graduate students all with their specialised research subjects.  So there were innumerable papers on inequality seen from various angles, mainstream and heterodox.  The best I can do for readers of this blog is to give you the place to read what you want.—london/sase-27th-annual-conference-theme_fr_202.html


UK: a big business budget

July 9, 2015

UK finance minister George Osborne presented his first budget since the Conservatives won the UK general election last May.  Most readers of my blog who are not British may not find this interesting.  But in some ways it is.  That’s because the UK budget reveals the economic and ideological beliefs of a pro-capitalist government as it looks out towards the end of this decade.

This was a blatant big business budget.  Taxes are being cut for capital, while they are being raised for labour.  Taxes rates for corporations, already the lowest among the G7 economies, are to be cut further; companies will be able to invest up to £250,000 a year and set it off against tax; and special levies on banks are being reduced.  And those who own expensive properties and have significant financial wealth are having inheritance tax reduced.  Next year will see the largest privatisation proceeds of state assets (state equity in public banks sold at a loss) in a single year ever, over £10 billion higher in real terms than the previous record in 1987-89.

These corporate tax reductions according to Tax Research are worth £28bn over five years, along with a large reduction in local council tax for companies (George Osborne’s £27.8 billion give away to business). And this is at a time when hidden subsidies, direct grants and tax breaks to big business already amount to £93bn a year, or £3,500 per UK household, according to a new report by Kevin Farnsworth of York University.  This shows that British governments spend more on grants and loans to big business than they raise in corporate profit taxes. And direct grants to business (big ones) are larger than the planned cuts in welfare
And we are not even talking about tax avoidance and evasion on an industrial scale.

On the other hand, Osborne aims to cut ‘welfare’ benefits by £12bn over the next five years in order stop ‘scroungers’ and force people into work.  But the reality is that most of these benefits go to people who are already in work but earn so little that they need state aid to survive in order to pay their rent, utility bills and bring up their children. Yet tax credits for the ‘working poor’ are being cut savagely; and a range of tax increases are being made on insurance premiums, cars etc.  All this hits the less well-paid.  Working-age benefits are to be frozen for four years.  Allowances for rents in social housing are to be reduced by 1% a year over next four years, while the government plans to sell off such housing. The last vestiges of student grants are to be scrapped in favour of loans.

Public sector employment will be reduced further and a pay limit of 1% a year for public sector workers will be imposed for the next four years.  Given that inflation is expected to rise at 2% a year, that will mean millions of public sector workers will have experienced a sharp drop in living standards for over ten years.

The announcement of what Osborne called a compulsory national living wage of £7.20 an hour rising to over £9 an hour by 2020, or a rise of 6% a year, is supposedly to compensate for the loss of income caused by the welfare cuts on working poor.  But it applies only to over 25s.  If you are starting work at 18 years, you don’t get paid this ‘living wage’ for seven years!  So millions will take a hit.  For example, according to the independent Office for Budget Responsibility, after taking into account the new living wage and the cuts in tax credits and other benefits, an out of work couple with children, living outside London, will lose 28% of their income!

The budget thus achieves a clear shift of incomes from labour to capital, the aim of any pro-capitalist government, namely to boost profitability.  The Conservative government reckons that by doing so the British capitalist economy can achieve sustained economic growth through rising business investment and productivity, freed from the burden of taxes and a ‘bloated’ public sector through ‘balanced budgets’. “We are giving businesses the lower taxes they need to grow with confidence. Britain is open for business.”  Osborne.

But can it?  Osborne boasted that the UK economy was the fastest growing of the top seven capitalist economies in 2014 at 2.8% real GDP growth.  And that the UK economy was now larger than before the 2008 Great Recession began (at last).  Business investment was rising, employment was up hugely, with an influx of immigrants mainly from southern Europe and real wages were now rising as inflation drops to zero.

UK real wages 3m

No doubt these developments helped to convince enough in the general election that things were improving (see my post,  But this story hides the reality that the UK has had one of slowest recoveries of all the major economies since the end of Great Recession in 2009; that real wages for the average household fell further and for longer than at any time since the Great Depression of the 1930s.  British households are still £500 a year in real terms worse off than before the financial crisis in 2008.  Real GDP may have surpassed the 2008 peak but net national income per head has not.


Budget deficits and public debt run up, as a result of bailing out the banks and from the Great Recession, remain near post-war highs.  Osborne’s government is still running a budget deficit of 4.2% of GDP, much higher than that of Greece and the public sector debt to GDP ratio has doubled since 2008 and will still be rising this year.  Given the poor export performance of British industry, the UK economy runs the biggest ‘twin deficit’ (current and budget accounts) in the G7.

UK twin deficits

But the key question is productivity.  Sustained economic growth depends on two factors: more employment and higher productivity per worker.  Up to now, it is the former that has delivered growth since 2010 in the UK.  Osborne recognises though that there will be a limit to this employment growth.  Eventually a tight labour market could induce rising wages and labour costs and then increased productivity will be necessary to maintain profitability and growth.  And UK productivity up to now has been truly awful.

UK productivity

The latest official figures last week showed productivity, measured as output per hour, picked up in the opening months of this year. But the remarkable absence of productivity growth in the seven years since 2007, has left output per hour 15% below where it would have been if pre-crisis trends had continued.

UK productivity trend

So Osborne wants to raise productivity and this is to be done by incentives to big business to invest.  He also plans to try and increase the skills of the workforce through more apprenticeships, but levying the very companies that are supposed to agree to higher minimum wages and invest given lower corporate taxes.

UK apprenticechip

And when we analyse the rise in business investment since 2010, we find that most of the increase has been in ‘real estate’ purchases and there has been no rise at all in hi-tech investment.  As Chris Dillow has pointed out (, for every pound UK banks lend to manufacturers, they lend almost £36 to home-buyers: £35.3bn vs £1264.8bn in 2014.

So far, UK businesses have invested not in productive capital that could boost productivity and sustain economic growth and rising living standards but in speculative non-productive capital.  Profitability has improved as a result, although it is still below levels before the crisis.

UK profitability 2015

Can Osborne’s corporate handouts, to be paid for by a reduction in the living standards of the working poor and the vulnerable, work to put British capitalism on the road to sustained health?  The evidence is not there so far.

No! But what now?

July 5, 2015

So Greeks have voted NO by a significant majority in the referendum on the Troika conditions for bailout funds to repay Greek government debt. Given the scare tactics of the EU Commission and the German politicians, the might of Greek pro-capitalist media noise and the closure of the banks making it difficult, if not impossible, to conduct daily business, the majority ‘no vote’ is a huge defeat for the Troika and big capital in Europe; and a victory for the Greek people and European labour.

But, in a way, the result of the Greek referendum does not make any difference to dealing with the problems ahead. Tsipras and Varoufakis say that the vote will now enable them to negotiate a better deal with the Troika for a new bailout package that will, they hope, include some ‘debt relief’.

But that assumes the Troika will be prepared to negotiate at all with Syriza.  Look at this comment from German economy minister Sigmar Gabriel (a social democrat!) who told the Tagesspiegel newspaper that this no vote makes it hard to imagine talks on a new bailout programme with Greece. And he accused Alexis Tsipras of having “torn down the last bridges” which could have led to a compromise: “With the rejection of the rules of the euro zone …negotiations about a programme worth billions are barely conceivable,….Tsipras and his government are leading the Greek people on a path of bitter abandonment and hopelessness.”

Even if they do, they may not offer any better conditions. Remember, Syriza had already agreed to raising social security contributions and VAT, to reducing pensions over time and to privatisations across the board (see my post

To quote Larry Elliot in the Guardian: “Greece’s membership of the euro hangs by a gossamer thread after the victory for the no side in the country’s referendum. The cash machines are running out of money and the economy is in freefall. The fate of the home of democracy is not in its own hands. If it chooses to do so, the European Central Bank could force Athens to default on its debts and issue its own currency on Monday morning by withdrawing emergency support for the Greek banking system.”

And “Whether they will do so remains to be seen. Indeed, the relentless mishandling of Greece ever since the crisis first flared up in 2010 suggests that blunder will follow blunder. It doesn’t help that relations between Greece and the other 18 members of the euro zone are now so sour. The chances of Greece leaving the euro by mistake, just as Lehman Brothers went bust by mistake in 2008, are reasonably high.”

But longer term, the real issue is that Greece’s public and private debt burden is just too large for the Greek capitalist economy to service, despite already squeezing Greek labour to the death – literally. The Greek public debt burden arose for two main reasons. Greek capitalism was so weak in the 1990s and the profitability of productive investment was so low, that Greek capitalists needed the Greek state to subsidise them through low taxes and exemptions and handouts to favoured Greek oligarchs. In return, Greek politicians got all the perks and tips that made them wealthy too.

Greek rate of profit

This weak and corrupt Greek economy then joined the euro and the gravy train of EU funding was made available and German and French came along to buy up Greek companies and allow the government to borrow and spend. The annual budget deficits and public debt rocketed under successive conservative and social democratic governments. These were financed by bond markets because German and French capital invested in Greek businesses and bought Greek government bonds that delivered a much better interest than their own. So Greek capitalism lived off the credit-fuelled boom of the 2000s that hid its real weaknesss.

But then came the global financial crash and the Great Recession. The Eurozone headed into slump and Eurozone banks and companies got into deep trouble. Suddenly a government with 120% of GDP debt and running a 15% of GDP annual deficit was no longer able to finance itself from the market and needed a ‘bailout’ from the rest of Europe.

But the bailout was not to help Greeks maintain the living standards and preserve public services during the slump. On the contrary, living standards and public services had to be cut to ensure that German and French banks got their bond money back and foreign investment in Greek industry was protected.

When it was suggested that German and French banks should take the hit, the ECB president at the time of the first bailout, Trichet responded that this would cause a banking meltdown as Lehman’s had done in the US in 2008. He “blew up,” according to one attendee. “Trichet said, ‘We are an economic and monetary union, and there must be no debt restructuring!’” this person recalled. “He was shouting.” By this, he meant no losses for the banks as ‘reckless creditors’, instead the Greeks must take the full burden as the ‘reckless borrowers’.

So through the bailout programmes, foreign capital was more or less repaid in full, with the debt burden shifted onto the books of the Greek government, the Euro institutions and the IMF – in other words, taxpayers. Greece was ultimately committed to meeting the costs of the reckless failure of Greek and Eurozone capital.

The Troika’s plan was to make the Greeks pay at the expense of a 25% fall in GDP, a 40% drop in real incomes and pensions and 27% unemployment rate. The government deficit was turned into a ‘primary surplus’ within the shortest period of time by any modern government. Greece has reduced its fiscal deficit from 15.6 percent of GDP in 2009 to 2.5 percent in 2014, a scale of deficit reduction not seen anywhere else in the world. Total public sector employment declined from 907,351 in 2009 to 651,717 in 2014, a decline of over 255,000. That is a drop of over 25%. Greece has gone from one of the lowest average retirement ages to one of the highest. In this sense, Greece had undertaken the most significant pension reform in Europe even before the latest demands of the Troika. This was austerity at its finest.

But the horrible irony is that this policy failed. Far from recovering, the Greek capitalist economy went into a deep depression. The supposed export-led economic recovery did not materialise. Instead the austerity measures have only made things worse.

So whatever the vote in the referendum, Greece cannot pay back the public sector debt, 75% of which is owed to the Troika of the Eurozone loan institution (EFSF) , the IMF and the ECB. And with the banks closed and credit withdrwan by the EB and the rest of European capital, the economy is in meltdown.

greek debt

That the debt cannot be repaid is now openly admitted by the IMF in its latest debt sustainability report on Greece (here). The IMF now recognises that it got its forecasts of recovery hopelessly wrong.

Greek real GDP

Now, in its new report, the IMF reckons that the creditors must write off debt equivalent to at least 30% of Greek GDP to even begin to be able to sustain its debt servicing without default. As it puts it, “It is unlikely that Greece will be able to close its financing gaps from the markets on terms consistent with debt sustainability. The central issue is that public debt cannot migrate back onto the balance sheet of the private sector at rates consistent with debt sustainability, until debt-to-GDP is much lower with correspondingly lower risk premia”. Of course, any write-off must be on loans already made by the Euro Group. The IMF and ECB still expect to paid back in full!

Why cannot the debt on the Greek government books be serviced and repaid in full? It’s very simple. The Greek capitalist economy is just too weak, too inefficient and too unproductive to grow fast enough. Greek wages have been slashed, public sector spending has been cut savagely, pensions have been reduced sharply. Plans to improve tax collection and end avoidance and evasion are being put in place. But by IMF estimates, tax revenues will still not be enough to deliver a sufficiently large surplus before interest payments on existing debt for Greece to pay down its debt. Indeed, the IMF estimates are probably way too optimistic and the level of debt haircuts on the Euro institutions should be much higher than the IMF estimates.

So if the Syriza government or any other Greek combination government is forced into a new ‘bailout’ package in order to try and get the government to service its debt, the Alice in Wonderland scenario of more loans to pay for previous ones will continue – a true Ponzi scheme The more austerity and cuts in living standards are applied, the more difficult it will be for Greek capitalism to grow.

Whether there is now a deal with the Troika or alternatively, Grexit, the Greek economy needs to grow. Onlty this can make any public or private debt burden disappear. Take the US. The US public sector debt is huge at nearly 100% of GDP. But the US can service that debt easily because it has nominal GDP growth of just 4% a year. And the interest costs on its debt are very low at just 3% a year. As growth is higher than the interest cost on the debt, the US government can run a deficit of taxes versus spending (before interest) of 1% of GDP a year, and its debt ratio will still stay stable (but not fall).

Greece, on the other hand, in 2011, had interest costs of over 4% on its debt and nominal GDP of -5% a year, so it needed a government surplus of 9% of GDP just to keep the debt from rising. The government was applying austerity but still a deficit. Even the small debt restructuring of 2012 in the second bailout program did not stop the rise in the debt ratio. It is still rising.

In the 2012 bailout package, the Euro group agreed to put off repayment of its loans until 2022 and reduce the interest payments on them to just 2%. So, to stabilise the debt, the Greek economy now needs to grow by only 2% a year in nominal terms and balance its budget. But it cannot even do that yet. And even if it could, that would mean the debt ratio would just remain at 180% of a still contracting Greek GDP. So everything depends on restoring growth, much faster growth. That means more investment, new jobs, rising incomes and tax revenues and the ability to pay debt.

How can the Greek economy be made to grow? There are three possible economic policy solutions. There is the neoliberal solution currently being demanded and imposed by the Troika. This is to keep cutting back the public sector and its costs, to keep labour incomes down and to make pensioners and others pay more. This is aimed at raising the profitability of Greek capital and with extra foreign investment, restore the economy. At the same time, it is hoped that the Eurozone economy will start to grow strongly and so help Greece, as a rising tide raises all boats. So far, this policy solution has been a signal failure. Profitability has only improved marginally and Eurozone economic growth remains dismal.

The next solution is the Keynesian one. This means boosting public spending to increase demand, introducing a cancellation of part of the government debt and leaving the euro to introduce a new currency (drachma) that is devalued by as much as is necessary to make Greek industry competitive in world markets. This solution has been rejected by Troika, of course, although we now know that the IMF wants ‘debt relief’ at the expense of the Euro group (ie Eurozone taxpayers).

The trouble with this solution is that it assumes Greek capital can revive with a lower currency rate and that more public spending will increase ‘demand’ without further lowering profitability. But the profitability of capital is key to recovery under a capitalist economy. Moreover, while Greek exporters may benefit from a devalued currency, many Greek companies that earn money at home in drachma will still be faced with paying debts in euros. Many will be bankrupted. Already over 40% of Greek banks loans to industry are not being serviced. Rapidly rising inflation that will follow devaluation would only raise profitability precisely because it will eat into the real incomes of the majority as wages failed to match inflation. There would also be the loss of EU social funding and other subsidies if Greece is also ejected from the EU and its funding institutions.

Eventually, perhaps in five or ten years, if there is not another global slump, either the first or second solution can restore the profitability of Greek capital somewhat, on the back of a Eurozone economic recovery. But it will be mainly at the expense of Greek labour, its rights and living standards and a whole generation of Greeks will have lost their well-being (and their country as they go elsewhere in the world to make a living). Both these solutions mean that Greek labour will still be poorer on average in 2022 than it was in 2008.

The third option is a socialist one. This recognises that Greek capitalism cannot recover to restore living standards for the majority, whether inside the euro in a Troika programme or outside with its own currency and no Eurozone support. The socialist solution is to replace Greek capitalism with a planned economy where the Greek banks and major companies are publicly owned and controlled and the drive for profit is replaced with the drive for efficiency, investment and growth.

The Greek economy is small but it is not without an educated people and many skills and some resources beyond tourism. Using its human capital in a planned and innovative way, it can grow. But being small, it will need like all small economies, the help and cooperation of the rest of Europe.

The no vote at least tells the rest of European labour that the Greeks will resist the demands of European capital.  That could encourage others in Europe to throw out governments in Spain, Italy and Portugal that continue to impose austerity at the dictate of the Troika.  That, in turn, could bring to a head the future of  the Eurozone as a Franco-German project for capital.

Transhumanism, malinvestment and instability

July 2, 2015

Camp Alphaville (, the FT’s one-day jamboree on all things economic and financial, had all sorts.  There was a session by Zoltan Istvan, a ‘futurist philosopher’ who has formed a party to stand in the US presidential election to promote ‘transhumanism’, using science and technology to overcome human mortality. According to Istvan, he wants to promote technologies such as bionic hearts, mind uploading, exoskeleton technology, robotics, nootropics, 3-D printed organs, and cranial implants. They also aim to use Artificial Intelligence to reach the Singularity – a point where intelligence is so advanced it becomes unrecognizable to humans. Collectively, these technologies and ambitions will forever alter the human species and make human life on Earth transhuman. Subsequently, they will also create vast amounts of new wealth, commerce, and industry.

Indeed, exotic technological developments was a theme of the FT’s day. But of course, there was a discussion of how to use AI, not in meeting the necessities of humanity but in how to make money from it: how it might soon be deployed in the financial market and how hedge funds are employing machine learning experts and neuroscientists!  AI, robots, singularity and the extension of human life is something I shall try and consider in a future (!) post.

More immediate was the question of whether the world economy, particularly its financial sector, was heading for another fall. There were two interesting points of view: that coming from the Austrian school of economics and that coming from the post-Keynesian Minsky school. Alas, yet again, no Marxist economic alternative got a hearing – perhaps not surprising in a City of London event.

The Austrian school was represented by Claudio Borio.  He is head of Monetary and Economics Department at the Bank for International Settlements (BIS). In 2003, Claudio Borio was one of the few to warn that excessive borrowing, partly encouraged by monetary policy, could lead to a devastating crisis in the rich countries. Since then, he has researched how conventional measurements of “potential” growth fail to take account of unsustainable financial risk-taking, hidden fragilities that can be spotted in the gross flows of the balance of payments, and why consumer price deflation is harmless compared to falling asset prices.

I have commented on Borio’s work before in various posts and his position is really the classic one of the Austrian school, that crises are caused by central banks artificially lowering interest rates below where they should ‘naturally’ be and by pumping in extra liquidity. This creates ‘malinvestment’ by companies and banks because projects that are not really viable become so with less than ‘natural’ costs of borrowing. This malinvestment in property and stocks etc rather than productive investment leads to low productivity growth and stagnation.

Borio presented evidence to suggest that when credit gets very high relative to trend GDP growth over a period, there was an 80% chance of financial crash (see the paper, The financial cycle and macroeconomics: What have we learnt? borio395). Borio predicted the financial crash of 2007, one of the few economists to do so. Now Borio has claimed to have identified what he calls a ‘financial credit cycle’, similar to the cycle of boom and slump in capitalist economies, or to the pr0fit cycle that I have identified (see my book, The Great Recession). Borio argues that “it is not possible to understand business fluctuations and the corresponding analytical and policy challenges without understanding the financial cycle.”

Borio points out that, as traditionally measured, the business cycle (by which he means the cycle of boom and slump in modern capitalist economies) involves frequencies from 1 to 8 years . By contrast, he finds that there is a financial cycle in seven industrialised countries since the 1960s of around 16-18 years. The length of this cycle is similar to 16-18 year profit cycle that I have identified for the US economy (with slightly different lengths for other capitalist economies), although with different times for turning points.

The BIS under Borio has been pushing the prospect of a new crash in financial markets. The unending printing of money and credit injections was creating financial and property asset ‘bubbles’ that would eventually burst and renew the financial crash of 2008 (

Jaime Caruana, head of the BIS, has said recently that the international system “is in many ways more fragile than it was in the build-up to the Lehman crisis”. Debt ratios in the developed economies have risen by 20 percentage points to 275pc of GDP since then. Credit spreads have fallen to wafer-thin levels. Companies are borrowing heavily to buy back their own shares. Caruana correctly pointed out how stock and bond markets were racing up to new highs but the ‘real economy’ of output and investment was stuck in very low rates. This suggests a dangerous bubble as higher risk corporate leverage (debt) has risen to new highs.  Indeed, in its very latest report, the BIS argues that a bursting bubble is not far away.

In a similar vein, but from the other end of the heterodox economics rainbow, post-Keynesianism, Steve Keen, head of economics at Kingston University UK, was also at Camp Alphaville. For Keen, a future financial bust would not be due to central banks and ‘malinvestment’, as Borio and the Austrians argue, but because of ‘excessive private sector debt’ which has not been deleveraged since global financial crash. This debt causes financial instability and could lead to a new crash, if not globally, but in Asia, for example.

For my take on Keen’s views, see my recent post on Rethinking Economics (, where Keen also appeared. Clearly, the Minsky (debt instability) view of crises has become popular in both heterodox and mainstream economic circles and even in the City of London.

Rethinking economics: value, irrationality and debt

June 30, 2015

I had to cut short my attendance at this year’s Rethinking Economics conference in London (  That was because of the surprise developments in Greece which required my attention under the instructions of the God Mammon.

So I was deprived the opportunity of attending a number of presentations and seminars.  Here is the agenda of the two-day conference
Also, here are my previous posts on last year’s London and New York conferences.

Rethinking Economics is an international organisation of academics and graduate students in economics seeking to develop an alternative and pluralist economics discipline beyond the stifling orthodoxy of mainstream neoclassical theory that dominates nearly all economics departments in universities and colleges.

This year’s looked well attended to me.  The opening contribution was by France Coppola, an economist from the financial sector who regularly blogs at

Coppola treated us to a short lecture on value theory.  She criticised Adam Smith’s distinction between use value and exchange value from his famous example of water having great use value but no exchange value and diamonds having low use value but high exchange value.  She pointed out that the use value of water is much lower in Scotland which is abundant with water than in the Sahara where water is scarce.  Thus the degree of scarcity will affect the level of use value and also the exchange value, as the cost of water has been rising faster than the value of gold in recent years.

Coppola sought to expose Adam Smith’s value theory in this way and thus presumably pose more heterodox alternatives.  The problem with this is that scarcity is not Adam Smith’s value theory.  Smith held to a labour theory of value, as did all the classical economists.  The diamond-water example is, in a way, exceptional to the classical or Marxist approach to value, namely that, under capitalism and market forces, the value of something depends ultimately on the labour time expended to produce it.  It was the neoclassical counter-revolution in economics that turned this objective theory of value into a subjective psychological one of marginal utility (or use value) based on individual consumer ‘preferences’.  I’m not sure Coppola was helping the audience on this question with her approach to value.

Talking of the psychological approach to economic behaviour, the conference was honoured to get Daniel Kahneman, the veteran Nobel prize winning behavioural economist, to speak at a plenary session.  Kahneman is an Israeli-American psychologist, notable for his work on the psychology of judgement and decision-making. His empirical findings challenge the assumption of human rationality prevailing in modern economic theory. In 2015, The Economist listed him as the seventh most influential economist in the world.  Thinking, Fast and Slow is his best-selling book, which summarizes research that he conducted over decades.

Kahneman developed what he called ‘prospect theory’ in criticising the traditional utility theory of value promoted in all the mainstream economics textbooks.  Kahneman’s research has shown that people do not behave as mainstream marginal utility theory suggests: namely making ‘rational’ choices.  Instead people have ‘behavioural biases’.  For example, they are more likely to act to avert a loss rather than look to achieve a gain in any investment or spending decision.  In other words, people have higher utility in avoiding losing than in winning; there is not equal utility, as marginalist theory assumes.

Kahneman argues that there is “pervasive optimistic bias” in individuals.  They have an irrational or unwarranted optimism.  This leads people to take on risky projects without considering the ultimate costs – again against rational choice assumed by mainstream theory.  In an echo of the famous saying by George W Bush’s neo-con defence secretary, Donald Rumsfeld, Kahneman reckons that people usually just make choices on what they know (known knowns), sometimes even ‘known unknowns’, but never consider unknown phenomena, ‘unknown unknowns’, like a financial crash.  People do not consider the role of chance and falsely assume that a future event will mirror a past event.

Kahneman’s work certainly exposes the unrealistic assumptions of marginal utility theory, the bedrock of mainstream economics.  But it offers as an alternative, really a theory of chaos, that we can know nothing and predict nothing.  This was a ready excuse used by the bankers and monetary policy officials to explain the global financial crash in 2008. The official leaders of capitalism and the banking ‘community’ then fell back on the argument of Nassim Taleb, an American financial analyst, that the crisis was a ‘black swan’ – something that could not have been expected or even known until it was, and then with devastating consequences: an ‘unknown unknown’.

Before Europeans ‘discovered’ Australia, it was thought that all swans were white. But the discovery in the 18th century that there were black swans in Australia dispelled that notion.  Taleb argues that many events are like that. It is assumed that something just cannot happen: it is ruled out. But Taleb says, even though the chance is small, the very unlikely can happen and when it does it will have a big impact.  The global credit crunch (and the ensuing economic crisis) has been suggested as an example of the Black Swan theory.

From a Marxist dialectical point of view, the Black Swan theory has some attraction. For example, revolution is a rare event in history. So rare that many (mainly apologists of the existing order) would rule it out as impossible.  But it can and does happen, as we know. And its impact, when it does, is profound. In that sense, revolution is a Black Swan event. But where Marxists would disagree with Taleb (and Kahneman?) is that he argues that chance is what rules history. Randomness without cause is not how to view the world. This is far too one-sided and undialectical. Sure, chance plays a role in history, but only in the context of necessity.

The credit crunch and the current economic slump could have been triggered by some unpredictable event like the collapse of some financial institution or the loss of bets on bond markets by a ‘rogue trader’ in a French bank. And the oil price explosion may have been the product of the ‘arbitrary’ decision of President Bush to attack Iraq.  But Marxists would argue that those things happened because the laws of motion of capitalism were being played out towards a crisis. Similarly, the recent spout of natural disasters like tsunamis, earthquakes, flooding etc are not an act of God.  Global warming is man-made.  The current economic crisis was no chance event that nobody could have predicted.

Kahneman’s work leads to that of behavioural economists like Nobel prize winners, Robert Shiller and George Akerlof.  This school argues that changes in a capitalist economy can be best explained by changes in the unpredictable behaviour of consumers and investors.  This is the inherent flaw in a modern economy: uncertainty and psychology.  It’s not the drive for profit versus social need, but the psychological perceptions of individuals. Thus the US home price collapse came about because consumers have a bias towards precaution and savings as debt mounted – just like that.

Shiller argues that investors and economic agents are so irrational that speculation, ‘herding’ and uncertainty can lead to instability and economic crisis. He wrote a book with George Akerlof, called Animal Spirits, the Keynesian term for investment motivations.  Akerlof is married to Janet Yellen, the successor to Ben Bernanke as head of the US Federal Reserve (see my posts

What worries me with the ‘irrational exuberance’ theory of crises is it leaves economics in a psychological purgatory, with no scientific analysis and predictive power.  Also, it leads to a utopian view of how to fix crises.  Shiller says markets can get out of line and then cause busts.  This is due to the irrational behaviour of human beings, not to the drive for profits by private capital.  The answer is to change people’s behaviour; in particular, big multinational companies and banks need to have ‘social purpose’ and not just want to increase profits.  That is really like asking a lion if he would keep his claws in while stroking the lamb (see my recent post on Inclusive capitalism,

In contrast, in another keynote session, Will we crash again?, Professor Steve Keen, now head of Kingston University economics, presented an objective and empirically testable theory of crises based on the excessive growth of private sector debt.  Keen is noted for his strong post-Keynesian critique of mainstream marginalist equilibrium economics in his excellent book, Debunking Economics and also for being one of the few economists to predict the 2008 crash (I would claim to be another – but that is another long story!).

Keen went through the conditions that led to the current crisis and showed that the conventional wisdom got the crisis back to front – in effect, they blamed the symptom for causing the disease. The real cause – the bursting of a private debt bubble – still hasn’t been addressed and lies in waiting ready to cause the next crisis in the next 2-5 years. To escape, economists need to embrace unorthodox thinking and so must policymakers, but the odds are that they will not.

I have written on Keen’s views in several places on my blog.  See

Keen’s focus on the growth of private sector debt as a key trigger of financial crashes (following the work of Hyman Minsky), is very relevant.  Take the new evidence going back to 1870 on where the dangerous concoction of excessive debt and asset price bubbles can lead (

However, both the Keen-Minsky debt school and the behaviourist ‘animal spirits’ school have one thing in common.  They see the flaws of capitalism in the financial sector only. In contrast, Marx posits the ultimate cause of capitalist crises in the capitalist production process, specifically in production for profit.  That does not mean the financial sector and, in particular, the size and movement of credit does not play any role in capitalist crises.  On the contrary, the growth of credit and fictitious capital (as Marx called speculative investment in stocks, bonds and other forms of money assets) picks up precisely in order to compensate for the downward pressure on profitability in the accumulation of real capital.

And that’s the point. Capitalism only grows if profitability is rising.  In the US, with profitability declining after 2005, the huge expansion of credit (or what Marx called fictitious capital) could not be sustained because it was not bringing enough profit from the real economy. Eventually, the housing and financial sectors (the most unproductive parts of capitalist investment) stopped booming and reversed.

Rethinking Economics is a very good development, opening the doors to more heterodox thinking in academic economics.  But all the conferences that I have attended have been dominated by the views of orthodox Keynesians (Robert Skidelsky was there this year) or post-Keynesians (Keen, Ann Pettifor etc).  The views of Marxist economics were notable by their absence.


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