Don't Mention the Trade War

Have you ever noticed how your German friends can't pronounce the name of their own country correctly? No doubt grown tired of us correcting their pronunciation, according to Martin Wolf in the FT they have no made an alliance with China and actually become Chermany . I wish this were a joke, or some sort of economic chimera, because the reality of Germany and China turning inwards and offering only stern words to the rest of the world about our budget deficits is a very worrying development.

It is extraordinary how many politicians fail to understand that, in a globalised and interconnected world, running a surplus is just as destructive as running a deficit. It is only when national economies are in balance that all can thrive; large-scale imbalances lead to tension between countries and suffering and strife within them. This is not news: it was Keynes's understanding at the Bretton Woods conference, which is why he proposed a global trading system within which those with a surplus, as well as those with a deficit, were fined by a global regulatory body. At that time it was the US, flourishing as the purveyor of arms to the world, that resisted; now it is Chermany, which is vaunting its economic strength and ignoring the political consequences.

Martin Wolf draws attention to the problem of 'chronically weak aggregate demand'. This is the most frightening code-word that an economist can find: it means people aren't buying enough stuff. From the point of view of a capitalist economy that spells disaster. The shark has stopped moving through the water and will soon expire. The other code-word of note in his piece is 'protectionism', contrary to expectations one of the most threatening words in the economist's lexicon because it means less trade. In capitalist economics, without growth the economy will fail and the best way to achieve growth is to sell stuff to other countries.

The facile posture adopted by Dave and the Boy George at the G20 is almost as laughable as their suggestion of 40% cuts. We are, apparently, to grow our way out of the recession by exporting more. Leaving aside the understanding of readers of this blog that the planetary limit makes any further growth impossible I have two simple questions for the dining-club boys: what are we supposed to export (the demand for financial services having declined rather rapidly over the past two years), and who on earth is supposed to be buying? Tweet

Hope Dawns in Disagreement

Regular readers of this blog will know that a recurring whinge relates to the strict orthodoxy of economics - as taught in universities and advised to governments - and the hegemony which it exercises across the globe in these early years of the 21st century. But first the Queen questions what economists are up to, and now from the pink pages of orthodoxy themselves, comes evidence of the paradigm beginning to crack. When FT journalists bewail the lack of uniformity amongst orthodox economists then times are becoming interesting indeed.

Krugman's questioning of free trade - a concept that traditionally stands alongside economic growth as one of the twin pillars supporting the edifice of the neoclassical catechism - is clear proof that the economists are ruffled. While capitalism is endowed with what my Marxist-Lentilist friend refers to as a Protean ability to adapt, the process is not a painless one. And while it is taking place is the moment of the system's greatest weakness.

Alongside Krugman the article cites Robert Barro, whose work on growth convergence argues that countries and regions within those countries will naturally tend towards similar rates of growth in the medium term. Evidence has failed to support this theory, but that has not held back the eminent economist's career. He is now accusing those economists who support major public spending to prevent a Depression of turning to magic. Once this criticism comes out of the armoury, no economist will be safe. From white-coated scientists to snake-oil witch-doctors, they will lose their sacred status at a stroke. Or am I just attempting to dream new year hopes into reality?

Clive Crook, for that, dear readers, is his name, is most upset by the fact that the politics that has always lain behind the neoclassical hegemony is being revealed as the profession comes under pressure for having allowed massive financial and environmental crises to occur. The consequent cracks allow space for the barbarians to rush in to challenge the citadel. Tweet