Budget 2011: Global Economic Outlook

Graham Turner

“It’s not the recovery we wanted. It is a recovery beset by tensions and strain, which could even sow the seeds of the next crisis”

Dominique Strauss-Kahn, IMF chief, speaking in early February

Mr Strauss-Kahn was referring directly to the imbalances that have emerged during the latest upswing, which in some respects are now bigger than before the 2008 credit crunch. The IMF chief cited China and Germany for their over-reliance upon exports. Germany sells BMWs, Mercedes and Porsches to rich Chinese. China continues to industrialise at a frenetic pace, racking up bigger trade surpluses with countries such as the US and UK.

China is not more productive or innovative than the West. However, it has displaced US and UK workers by the use of cheap labour and – critically – through aggressive currency intervention, hitting a record US$393bn in the second half of 2010 alone. All talk of rebalancing in the UK economy is fanciful so long as politicians grovel to China and other Asian mercantilists.

But self-imposed austerity will not secure the much sought rebalancing. Last year, retail sales rose just 0.5% in volume terms in the UK. This was the lowest annual gain since 1995. And yet, UK imports from China rose 25.1%. The UK trade deficit with China hit a record £23.1bn in the year to January.

The UK retail sector is dominated by a small number of monopolistic giants, for whom by-passing the UK worker has become an article of faith, as they seek to widen margins and drive profits – already at record levels – remorselessly higher.

There has been much trumpeting of the recovery in the UK manufacturing sector in some of the less discerning newspapers. But manufacturing output is still below the low point of the dotcom downturn. Manufacturers have reversed less than half the loss in output sustained during the credit crunch. Furthermore, manufactuing employment had barely risen from the new low of 2.53m reached in the recent recession. When the Conservatives came to power in 1979, there were 6.68m manufacturing jobs in the UK.

It is perhaps ironic to hear the UK Tesco chief executive, Richard Brasher, recently fretting over the squeeze on real disposable incomes for the UK consumer, and the impact on retailers’ margins. Mr Brasher seems willfully oblivious to the self-evident contradictions. Even Henry Ford recognised in the 1920s that if the US auto manufacturer wanted workers to buy the cars it was producing, then it had better pay them accordingly.

The Bank of England governor, Mervyn King, might have been too optimistic when he suggested that real wages could stagnate for six years. The imbalances in the global economy, which precipitated the credit crunch of 2008, have now indirectly pushed commodity prices close to the levels reached nearly three years ago. That now threatens to send inflation to above 5% in this country, at a time when the average wage is rising by just 2.2% y/y according to the latest data from the Office for National Statistics.

It is perhaps worth reflecting upon the linkages between globalisation and rising inflation. Critics of the Bank of England and the Federal Reserve have been quick to denounce quantitative easing for the recent surge in commodity prices. In truth, these policies were an unavoidable response to the deep recessions created by the crisis of 2008. Indeed, there was no quantitative easing at the time of the last commodity price ‘boom’ in 2008. Furthermore, both the US and UK have continued to be net recipients of capital from emerging market countries, again contradicting claims that ‘loose’ monetary policies in the West have been responsible for the run-up in inflation.

The cause of the commodity price ‘bubble’ lies on the other side of the fault line – emerging market countries have been running excessive credit policies, reminiscent of Thailand and others in the run-up to the infamous Asian crisis of 1997. China, Brazil, India, and a host of others have presided over double-digit money supply growth and consumer led booms that have fuelled the rise in commodity prices. Time and time again, we have seen countries trying to play catch up with the West lose control over their monetary policy, often as they seek a competitive advantage, intervening in the currency markets to keep their exchange rate too low. As Mr Strauss Kahn warned, herein lie the seeds of the next credit crunch, a potential replay of 2008.

Of course, we should not lose sight of the role played by Peak Oil and climate change in driving inflation higher either. The aggressive promotion of ethanol in the US, which now subsumes 40% of the country’s corn output, has been a major cause of higher food costs globally. But the pressure to develop ethanol stems from the logic of Peak Oil. The failure to develop sustainable alternatives to fossil fuels is hurting the global economy.

Japan’s crisis is a manifestation of the same failings. Japan has relied too heavily on nuclear energy instead of promoting safer, cleaner alternatives. The safety record of the industry has been called into question regularly too, long before the power stations in Fukushima malfunctioned.

The political upheavals of North Africa and Middle East can be traced to the commodity price bubble too. China’s extreme intolerance for dissent in recent weeks also underlines the many contradictions of a global boom, based on the gains that have been eschewed to narrowly in favour of a new class of emerging market billionaires, fuelling popular dissent. Ironically, as geopolitical risk rises, many of these individuals are relocating to the West end of London, creating further distortions in the UK property market.

While the financial sector has at least enjoyed a swift recovery from the dark days of 2008 on the back of business generated by many of the credit bubbles overseas, confidence elsewhere has evaporated. In its latest survey of the UK consumer, the Nationwide reported that confidence had collapsed in February to its lowest level since records began. Respondents were more depressed than even at the worst point of 2008 crisis, and when Northern Rock folded in 2007. The survey’s spending index had tumbled to record lows. The fear factor was likely to be reflected in less spending, which suggests the Q4 contraction in GDP may not have been an aberration.

The fight to defend public services may well dominate the political stage over the coming weeks and months. But a broader issue looms, how to rebuild an economy against the global backdrop wracked by extreme imbalances. Judging by the manner in which the current Prime Minister, aided by the Business Secretary Vince Cable, have traveled the globe touting the UK’s rather limited export portfolio (defence and not a lot else), it is quite clear that the coalition government does not comprehend the monumental challenge it faces trying to achieve the elusive rebalancing.

It is not clear either whether the current opposition party has much of an idea either of the real causes of the crisis. The debate has been too narrowly confined to how quickly it is safe to cut public spending. A serious economic debate over this ongoing financial crisis requires a thorough evaluation of the risks which stem from participating in today’s global economy.

Download this article as a pdf

The real Keynes

Book Review by Graham Turner

Keynes Betrayed, by Geoff Tily, Palgrave Macmillan, 2010

Palgrave Macmillan have republished Geoff Tily’s “Keynes Betrayed” in paperback.

This is an important book because it contradicts so much of the perceived wisdom over Keynes’s policy prescription. And it should be stressed, the errors of understanding Keynes are committed by economists on both sides of the spectrum – right and left – as well as a good chunk of those sitting in the middle.

Keynes was far more concerned about monetary issues than fiscal policy. Unfortunately, most cursory reading of Keynes simply focuses on the General Theory, which was written in 1936. Even then, too many readers of this important book fail to appreciate the chronology of policy advice Keynes was offering in the 1930s – monetary first, fiscal second.

Indeed, Keynes made an enormous – and positive contribution – to policy long before the General Theory was published, as Geoff Tily shows commendably in this book. "Keynes's central policy priority was a permanently reduced long-term rate of interest", Tily argues. Keynes was a leading proponent of central bank long-term asset purchases – today called quantitative easing (QE). Furthermore, he was quite clear about the problem within bond markets which made QE necessary, as shown by his liquidity preference theory. Keynes also understood the importance of targeting the yield rather than merely setting a nominal purchase target for QE.


In all these respects, Keynes had a much greater understanding of the bond market – including the critical role of expectations - than today’s central bankers. The current FOMC has been content to announce an extension of its own, somewhat flawed QE, announcing last November that it would buy a further US$600bn of US Treasuries. Since then, sniping from hawks on the FOMC, a (modest) uptick in economic growth and an unseemly rush to extend tax cuts has sparked a huge sell-off in US Treasuries. And that has occurred just as the S&P/Case Shiller index for house prices is poised to break down to new bear market lows. Federal Reserve chair Ben Bernanke has been forced to admit that the economic recovery in the US is slow. It may well stall, precisely because the Fed chair, and much of the economic establishment, including New York Times commentator Paul Krugman (not to mention the departed, discredited Lawrence Summers and Chrisina Romer) simply do not ‘get Keynes’.

One economist who clearly does is Geoff Tily. His book is based on a PhD thesis, supervised by Professor Victoria Chick at the University College of London. Professor Chick is one of a handful of economists who truly comprehends the importance of monetary affairs in Keynes’s work, and encouraged Geoff to write his thesis.

Geoff provides clear evidence of the role Keynes played in driving the shift towards QE in the early 1930s, long before the General Theory was published. He also dissects the manner in which Keynes’s legacy was traduced by economists, both on the right and soft left in the post-war era, after his untimely death in 1946.

This book is rigorous, and readers will be impressed by the comprehensive manner in which Geoff takes Keynes’s critics to task. It is not the sort of book that can be read in one quick swoop. It is a demanding read, because it is so thorough. It challenges many of the misconceptions over the policies pursued during the 1930s. For these reasons, this book helps to explain why the West has botched its response to the credit crunch.

LEAP Red Papers March 2010: Breaking the Cuts Consensus

The March 2010 LEAP Red Papers: Breaking the Cuts Consensus are published today in advance on the Budget Statement on Wednesday 24th March.

In this edition of the papers, John Grieve Smith argues that the pre-election cuts consensus is driven by misplaced obsession with the budget deficit, and that such cuts would be damage the economy. The 'misplaced obsession' could be countered by an international, government-led mechanism for pricing and trading public sector debt, argues Gordon Nardell.

An alternative to the cuts consensus, based on tax justice and public ownership, is argued for by Andrew Fisher, while Gerry Gold explains why neither the solutions offered by neoliberals nor Keynesians can solve the global crisis.

Graham Turner argues that the crisis in the UK is exacerbated by the decline of manufacturing, on contrast to other countries that have had a clear manufacturing strategy, while Jerry Jones tackles another election issue – migration – arguing that trade union rights are the solution to exploitation and under-cutting.

As John McDonnell MP concludes, no party is adequately addressing these issues because none want a more democratic system

Download the papers in full.

Is Britain turning Japanese?

Graham Turner

A defunct banking system, spiralling government budget deficits and an economy mired in recession. This description of the UK economy sounds all too familiar to those who followed Japan closely during the 1990s. The parallels are indeed troubling.

Japan tried to spend its way out of trouble, incurring record budget deficits that were buttressed by quantitative easing. A brief recovery from 2003 onwards was cut short by the credit crunch. And now, the Japanese government’s public debt burden is racing towards 200% of GDP, nearly three times that in Britain. Deflation has intensified to fresh highs, and wages are being slashed. Property prices across Japan have continued to slide uninterrupted for nearly two decades.

It is a sorry state of affairs that reflects a series of policy mistakes, which are being repeated not just in the UK but also in the US. There is time for policy makers to reverse tack. However, there is a real danger that the 'Anglo Saxon' world will be blighted by the Japan economic disease for years.

For years, Japan was dismissed as an idiosyncrasy by Western commentators. Many claimed the country’s problems were unique and that 'it could never happen here'. Some even revelled in the sudden downturn in Japan's fortunes. The remarkable rise of Japan from its defeat at the end of the Second World War had left many in awe. The spectacular growth of Japanese industry and the world domination achieved by so many of its leading companies had been viewed with considerable envy.

When Japan's bubble burst in early 1990, the Bank of Japan was slow to cut interest rates. Japan's central bank had become obsessed with the spectre of inflation and it failed to cut interest rates quickly. The threat of a deflation spiral was completely overlooked.

Frustrated by the Bank of Japan's inaction, the Japanese government responded by trying to reflate through demand management or Keynesian policies. Virtually every fiscal policy option was tried in a bid to end the decline. The first emergency supplementary budget was introduced in the spring of 1992. A total of ten emergency budgets had been crafted, worth a massive ¥124.6 trillion before Prime Minister Junichiro Koizumi came to power in April 2001, calling a halt to the great ‘Keynesian’ experiment. Large sums were pumped into building new roads, bridges and dams to keep construction companies in business.

But it was all to no avail. No matter how hard the politicians tried, the economy would only respond for a short while before slipping back into recession. The failure of fiscal policy to reverse the decline did not deter them. Politicians reasoned that if they did not try, the situation would be even worse.

The experience of 1997 in particular convinced many that the government had no choice but to keep incurring record budget deficits, otherwise Japan would slip further into difficulty. The tax increases of that year – the consumption tax (similar to VAT) went up from 3% to 5% – were followed by an alarming dip in the economy. The decision to tighten fiscal policy was blamed by many for pushing the country back into recession.

It is an argument peddled by Richard Koo in "The Holy Grail of Macro Economics", a book cited by many commentators today in defence of fiscal profligacy. His analysis is wrong.

A number of economic indicators suggest that the Japanese economy was in trouble well before the tax hikes took effect. And significantly, Japan suffered the first of five major bankruptcies in the life insurance industry. The failure of Nissan Mutual Life Insurance in the spring of 1997 caused people to panic, pushing the savings rate up sharply. The South East Asian crisis then struck. But none of this gets a mention in Koo's book, which has become the bible for those advocating relentless fiscal stimulus to keep the economy on life support.

Koo and many others also cite the 1930s to support their assertion that big budget deficits are necessary for an economic recovery. Historical evidence does not support their case. The primary tools for reversing the Great Depression were an aggressive monetary policy combined with extensive restructuring of the banking system. The US economy turned up in 1932 in response to quantitative easing. Bank recapitalisations in the spring of 1933 then added momentum to the recovery. The War Loan Conversion in the UK, a similar policy to quantitative easing, was critical in turning the tide in the UK. Abandoning the Gold Standard in both countries helped too.

But the role of fiscal policy was secondary. The budget deficit rose to a peak of just 5.1% of GDP in the US and 5.0% of GDP in the UK, during the early 1930s. The contrast with today is stark. On current projections, the US administration may run a deficit more than double this in financial year 2010. The UK is on track to run a deficit of more than 13% of GDP this year.

Too many economists and politicians have invoked Keynes to justify the aggressive use of fiscal policy, without realising – or admitting – that this was not his prescription. For much of the early 1930s, his time was devoted towards the correct debt management policies that would support a recovery. Keynes was first and foremost a monetary economist. His work on liquidity preference and the difficulty central banks faced getting borrowing costs down when asset prices collapse were the most important of his many practical contributions to economic policy during the early years of Great Depression.

But much of this was overlooked during the post-war era. Keynes was cited by those who wished to promote fiscal stimulus to drive economic growth, while ignoring many of the underlying structural problems, including the persistent downward pressure on wages that ultimately reared their head during the credit crunch.

The Bank of England would rightly argue that its aggressive use of quantitative easing has indeed adhered to the 1930s textbook. Even if the budget deficit has been allowed to rise far beyond that seen in the early 1930s, extensive buying of gilts has produced a powerful monetary response that should, in theory, see the economy emerge from recession in the fourth quarter of this year.

Adam Posen, a recent recruit to the Monetary Policy Committee, gave an articulate defence of quantitative easing in a speech at City University last month, rightly admonishing critics who warn that 'printing money' will inexorably lead to higher inflation. With wages being squeezed so hard, a resurgence of inflation remains a distant prospect. Even though the headline CPI may rise above 3% early next year, this is very modest given the scale of sterling’s decline since 2008.

However, Mr. Posen did also highlight the limits of quantitative easing in an economy like the UK, where too many of its banks are too large – and broken. The UK may be a 'world leader' in international finance but, Mr. Posen warns, the banking system is ill-equipped to support companies that do not have access to capital markets. Quantitative easing works by driving bond yields down, both for the government and for companies. Buying government debt – or gilts in this case – has a very direct impact on yields, if done on a sufficient scale.

GFC Economics has been vocal in its support for quantitative easing. Indeed, when our book The Credit Crunch was published in June 2008, the warning was explicit. "There is only one monetary policy option that is likely to work at this late stage. That is quantitative easing".

When the policy was finally unveiled in March this year, we argued it was necessary, but it would not be a panacea. Two risks were apparent. Borrowing costs might fall, but because the banks were so weighed down by non-performing assets, the recovery might still be slow. Mr. Posen gave a good critique of the structural problems within the banking system that any incoming government will need to address next summer.

The second problem remains entwined with the first. The US Federal Reserve (Fed) has plainly not learnt from the 1930s. The Fed chair, Ben Bernanke, has been widely touted as an expert on the 1930s, but closer inspection of his academic work shows a limited understanding of monetary policy during this era, and in particular the role of quantitative easing.

The Obama administration has failed to address the foreclosure crisis too. The latest National Delinquency Survey in the US made for grim reading. By the end of September, one in eleven homeowners with a mortgage was either in the process of being repossessed, or seriously in arrears (more than three months).

Despite repeated bailouts, capital injections and tax-subsidised incentives, the homeless crisis is intensifying. The banking system is failing to support a recovery in the US too. Real GDP may have risen in the third quarter, courtesy of tax giveaways, but the US faces an economic and political crisis in 2010 if President Obama does not tackle the housing debacle.

That is perhaps ironic, as critics of Japan often claimed banks were too slow in recognising their losses, which exacerbated the deflation spiral during the 1990s. By contrast, it is claimed that the losses have been acknowledged sooner in the UK and US. And yet, credit is still contracting in both countries. Owning up to bad debts does not automatically presage a recovery, if banks are not willing to lend and are busily defaulting on borrowers: in a deflation spiral that simply creates more bad debts. And the UK banks may have more nasty surprises in store for the UK taxpayer, if property prices in the US – commercial and residential – continue to slide next year.

Alternative avenues to get credit flowing are needed if the UK is to avoid a double dip. The current Labour government is trying to inject more competition in to the banking sector, allowing new entrants, but these are long term solutions to a chronic over-concentration of the finance industry – which it has long supported. State backed, democratically accountable institutions offer an alternative route. But again, time is of the essence.

Ultimately, the UK government needs to recognise the role it can and should play as the major shareholder of RBS and Lloyds/TSB, and forget trying to prepare these banks for an early return to the private sector. The banks are currently being run on commercial lines. Shrinking balance sheets and raising margins is the inevitable private sector response to a credit crisis. But more direct control of these institutions might allow the flow of credit to smaller and medium companies to resume, putting the economy in better shape to withstand a double dip in the US, and a necessary tightening of fiscal policy in the UK.

*The LEAP Red Papers 'The Cuts', available to download and discuss in full.

No Way to Run an Economy

I've just got back from the launch of Graham Turner's new book No Way to Run an Economy at Bookmarks, the socialist bookshop.

Thanks to getting an advanced copy I had read all but the last two pages before the launch began (I read the last two pages on the tube back to Charing Cross - like the rest of the book they were excellent).

Graham says he wrote the book - the follow up to The Credit Crunch - out of frustration at the inept handling of the economic crisis (the book is subtitled 'why the system failed and how to put it right') in the UK and US in particular - the book is scathing about the incompetence of the Obama Administration's response.

Turner highlights the misinterpretation and ignorance of Keynes that has exacerbated the current crisis, but also uses Marx to highlight the systemic failings and contradictions in modern capitalism. As Graham joked, "I've heard me be described as a Keynesian because I sometimes use Keynes to demonstrate what's wrong. I've also cited Friedman, does that make me a monetarist? I'm an economist: Marx is useful at looking at the structural problems".

The book does indeed look at the failings of central banks in the US, UK and EU - and invokes Keynes to highlight their mistakes. Likewise though the strength of this book is the more in-depth look at the structural failings and a Marxist critique of neoliberalism. In utilising these two analyses Turner demonstrates an understanding of today's globalised economy that few policymakers have grasped - and it highlights not only what a superb analyst Graham has been throughout this crisis, but how such a thorough understanding of the economy has informed that analysis.

This highly readable book is a comprehensive overview - packed into under 200 pages - of our economy and its current malaise by the most astute chronicler of this economic crisis. Buy it now - and do so from Bookmarks.

The Credit Crunch – Who Pays?

Graham Turner

The sharp rally in stock markets since March has put a spring in the step of bankers. But unemployment continues to grind higher and the spectre of a full frontal assault on public sector workers looms. The question of who pays for the credit crunch now dominates the headlines.

In essence, all three major political parties believe that public sector workers should bear the price for a huge rise in the government's borrowing. The economy may have been stabilised, but the hit to the public purse has been unprecedented outside of war.

On current projections, the Chancellor may have been too optimistic when he rocked the House of Commons in April, announcing a projected deficit of £175 billion or 12.4% of GDP for the current financial year. The latest data for August show the moving annual total has already risen to £127.3bn. The public sector finances for July were particularly dire.

The best approach to evaluating the data is to consider the annual change in £ terms. July showed a rise in the deficit of £13.0 billion compared with a year earlier. The previous record decline was set in January this year, but that showed a comparatively modest increase in the deficit of £8.5bn on an annual basis.

The deterioration in July was significant because this is seasonally an important month for tax revenues. If the 15.8% y/y drop in tax revenues is repeated in January next year – another big month for the government coffers, the Treasury may be forced to revise its forecast for the deficit higher, to 13.0% or 14.0% of GDP.

With Gordon Brown's reputation for prudence in tatters, the door is wide open for the Conservatives – and the Liberals should they join in a coalition government – to launch savage cuts on public services far beyond those seen under Thatcher, or following the IMF bailout of 1976.

The public sector deficit is unquestionably out of control. But the right wing media and its political allies have been very successful in convincing the wider electorate that public spending is the culprit.

An objective assessment of the data suggests otherwise. During the first five months of the current financial year, tax receipts have fallen by an average of 11.4% y/y (in £ terms). That is significantly worse than the 6.5% y/y decline expected by the Treasury for the full year, set out in the April budget.

By contrast government spending is rising by less than expected. So far, its has climbed by an average of 5.3% y/y (again, in £ terms) compared with a Treasury forecast of 7.7% y/y for the full year.

And it is hard to equate this increase in spending with the media image of waste and profligacy in the public sector. In real terms, it represents a rise of 3.3% y/y, a remarkably low increase given the inevitable pressures on social security payments, in response to rising unemployment.

Indeed, it is quite possible that the ratio of public spending to GDP will be less than the 43.1% projected by the Treasury, and may only be a touch above the 42.3% recorded under Thatcher, during the early 1980s' recession.

Furthermore, it is worth comparing the Tory years from 1979 onwards, with the record under New Labour. The ratio of public spending to GDP has been exactly the same - 37.1%, even with the Treasury's forecast for a rise to 43.1% included.

Much of the onslaught on public sector workers reflects a belief among the right wing press that the UK has become a high tax country. Again, the hard evidence suggests otherwise. Between 1979 and 1997, the ratio of tax revenues to GDP averaged 40.2%. Since then, it has averaged 37.5%.

Unequivocally, the Tories are the party of high taxes. Indeed, the Treasury’s projected tax revenues for this year - just 35.1% of GDP - will be lower than under any year between 1979 and 1997. Furthermore, if the data for the first five months is any guide, the final figure could be around 33.4%. The credit crunch will have indeed turned the UK into a low tax economy.

But we should not expect the public sector deficit to fall quickly even if the economy were to recover. The collapse of corporation tax receipts in particular is not a one-off or a temporary response to the credit crunch. The ability of banks and companies to roll forward their losses implies there may be a structural gap in tax revenues that persists for many years.

US investment bank Merrill Lynch provided a rare insight into this problem in August last year, before it was subsumed by Bank of America in the panic that followed the collapse of Lehman Brothers. In a regulatory filing last year, it admitted that $29bn of losses sustained on subprime mortgages in the US were being routed through its London office. According to the Financial Times, the bank was therefore "unlikely to pay corporation tax for 60 years" - even if it returned to profit levels reached at the height of the boom.

It is clear from any objective assessment of the data that new sources of tax revenue need to be found to fill the gaping hole in the public sector accounts spawned by the credit crunch. Higher income taxes are not the only answer. Companies need to be taxed if they want to do business in the UK. They can try and relocate their headquarters to Ireland, Switzerland or the Cayman Islands. But they cannot physically remove their entire operations. So they need to be taxed on the level of business or turnover. Companies need access to the UK market to sell their goods, and they should not be allowed to operate here if they are not prepared to pay their way. Economically and morally, it is wrong for public sector workers to pick up the tab for a crisis they did not create.

* Graham Turner's new book No Way To Run An Economy, published by Pluto Press is available from Bookmarks Book Shop, price £12.99

Public pensions - the myth

In the ongoing saga of which party can cut most, public sector pensions have come under the attack from both the Tories and the Lib Dems.

Of course the whole terms of the debate are nonsense. The budgetary deficit has been caused by the bank bailout rather than runaway public spending - let alone alleged 'feather-bedded' public sector pensions. This argument was comprehensively dismantled by LEAP's Graham Turner* in an article earlier this year. Public spending has only increased by 1.9% in the last year.

Looking at public sector pensions, the myth that somehow public sector workers are retiring into luxury is somewhat punctured by the fact that over 100,000 retired civil servants are on pensions of less than £2,000 per year. A further 100,000 are on less than £4,000 per year - hardly munching their morning muesli with Moet are they?

TUC research published on Wednesday also shows that 2.5 times as much of public sector money is spent subsidising private sector pensions through tax relief - and that 60% of this tax relief is for higher rate earners.

So yet again, the Tories and the Lib Dems are scapegoating the poorest - without any evidence base. Unusually New Labour has not jumped on this bandwagon yet.

Today's Morning Star highlights where the fat cat pensions really are.

*Graham Turner also has a new book 'No Way to Run an Economy' out now.

LEAP Conference 2009 - this Saturday, 25th April

The LEAP Conference 'Capitalism Isn't Working' takes place this Saturday, 25th April at Birkbeck College, Malet Street, London (map here, nearest tube: Russell Square).

A full agenda is available to download. The day begins with an opening address by LEAP Chair John McDonnell MP, author of Another World is Possible, and also Chair of the LRC and Socialist Campaign Group of Labour MPs.

From there we move into the morning plenary - a panel discussion Who Pays for the Crisis? with panellists including:

• Penny Cole (co-author of Running a Temperature - an action plan for the eco-crisis)
• Rahila Gupta from Southall Black Sisters (author of Enslaved - The New British Slavery)
• Professor Richard Wilkinson (co-author of The Spirit Level)
• Matt Wrack (General Secretary of the FBU).

After a break for lunch, in which there is a free fringe with Richard Wilkinson, about his pioneering research on inequality for The Spirit Level - why more equal societies almost always do better, we break into four sub-plenary workshops:

1. Resisting the Recession & Defending Jobs will be facilitated by Professor Gregor Gall and Jerry Jones (author of Halting the Decline of Britain's Manufacturing Industry) and will look at the industrial agenda during the recession. Download the LEAP Factsheet for this session.


2. Where's our bailout? will be facilitated by Andrew Fisher (LEAP Co-ordinator) and Colin Hampton (National Unemployed Centres Combine). Download the LEAP Factsheet for this session.


3. What to do with the City? will be facilitated by John Christensen (Tax Justice Network), and Gerry Gold (co-author of A House of Cards - From Fantasy Finance to Global Crash). Download the LEAP Factsheet for this session.


4. Neoliberalism Isn't Working - fighting the ideological battle, facilitated by Paul Feldman (co-author of A House of Cards - From Fantasy Finance to Global Crash) and social psychologist Rosamund Stock. Download the Factsheet for this session.

Then it's the final plenary session - a panel discussion on The Economy We Want & How to Get There, with panelists including:

• Bob Crow (RMT General Secretary)
• John Hilary (War on Want)
• John McDonnell MP (LEAP Chair)
• Graham Turner (author of The Credit Crunch)

Then we start fighting for it, maybe via the pub first . . . hope to see everyone there on Saturday.

p.s. I recommend two very good articles in Friday's Morning Star - one's my own: 'Devil in the Detail' and the other by Gregor Gall 'How to fart and chew gum', both analyses of this week's Budget.

Budget 2009: Analysis

John McDonnell MP, LEAP Chair, warns of a package of cuts buried in the Budget and "trivial" concessions.

Graham Turner, author of The Credit Crunch, gives his take on the Budget.

Mark Serwotka warns that public services will suffer.

Richard Murphy on how the Budget fails the environment.

Jeremy Corbyn MP, writing in the Morning Star, in advance of the Budget.

G20: The IMF consolation prize isn't enough

Graham Turner (Graham will be speaking at the LEAP Conference 'Capitalism Isn't Working' on 25th April)

In the end, Brown and Obama could not get the Europeans to agree on yet another fiscal boost at the G20 meeting. But the consolation prize – an infusion of $500bn into IMF coffers – gave the Anglo Saxon leaders something to trumpet.

Their brand of casino capitalism may have spawned multiple credit bubbles across a wide swathe of emerging market economies. But as eastern Europe and many other countries slide towards depression, their governments can rest assured. The global cop of last resort, the IMF, will come to the rescue.

Many will shudder at the thought. When the SE Asian bubble burst in 1997, IMF staffers were sent to Bangkok, Seoul, Kuala Lumpur and Jakarta to impose tough conditions for loans that still failed to prevent exchange rates from collapsing.

In return for emergency loans, they demanded a draconian and anti-Keynesian tightening of fiscal policy that drove the Asian economies deeper into recession.

We wait to see if similar terms and conditions will be applied today. Judging from the myriad bailouts launched by the IMF since last year, nothing has changed since 1997. It is still one rule for the west, another for the rest.

Indeed, it was the IMF intervention in 1997 that persuaded central banks across developing countries never to be left so dependent upon the west again. They vowed to drive their foreign exchange reserves higher, to provide a cushion against financial crises. But that merely aggravated trade imbalances and provided the fuel for the global credit bubble of 2004-2008.

When it all came crashing down, record reserves were still unable to cushion these countries from the incompetence of western governments.

And trebling the IMF's kitty will not resolve the core immediate problem facing the world economy – a collapsing US housing market. Ironically, the Bank of England's rapid fire rate cuts are gaining traction, with some signs of a stabiliation in the UK housing market.

Obama can only dream. The US took the world into recession, and it may take many countries into depression yet. The collapse of the US housing market is accelerating because, for ideological reasons, the Obama administration will not nationalise its banks and intervene to stabilise its housing market. Obama's plans are little different from those seen in the final months of the Bush administration.

February saw a record decline in house prices across 20 major US cities, because banks are unable and unwilling to pass on rate cuts to homeowners. Average property values are now 30% below their peak, but they could easily fall that far again.

Unemployment in the US is soaring. March could be the worst month yet for job losses, as the wider "U6" unemployment rate, including discouraged and involuntary part-time workers, soars to 20% and beyond.

One in eight homeowners with a mortgage will have been in arrears or in default by the end of March. That could climb to one in seven or one in six over the summer. Obama is not facing up to the scale of economic and social catastrophe facing his country.

And not even a bigger IMF will be able to fix that.

The Credit Crunch – Causes And Resolutions

A lot of ink has been spilt analysing the causes of the Credit Crunch. Much of the discussion has understandably focussed on the culpability of financial institutions, regulators and even central banks.

There is no question all three must take their share of the blame for bringing the world economy to the brink of depression. Financial institutions were reckless, regulators asleep at the wheel, while central banks were at best naive, at worst, complicit in the creation of grotesque credit bubbles.

And in one respect, Prime Minister Brown is right when he claims this crisis is global.

Based on IMF data, there are over a hundred countries which have seen private sector borrowing rise faster than the UK since the millennium. Many have seen increases that are multiples of the rise in UK debt. Top of the poll goes to Ukraine, where private sector debt has jumped by an astonishing 5671% since the turn of this decade.

From the Baltics, down to the Balkans and across to Kazakhstan, eleven countries are in more trouble than Thailand during 1997, in the midst of the infamous SE Asian crisis.

Another nine countries are on the critical list. Eastern Europe is the fault line of a global capitalism that is badly ruptured.

And one Eastern European economy has already slipped into depression. The accepted benchmark for a depression is a contraction in real GDP of 10%. Latvia passed that unwelcome benchmark in the fourth quarter of 2008. Many more will follow.

They will be quickly matched by the major manufacturing exporters. Japan is likely to report a decline in GDP of 10% or more from its 2008 peak, when it publishes first quarter data for 2009. The collapse in exports – down 45.7% in January from a year earlier - has been astonishing. The February report on manufacturing production is expected - by the government – to show a decline of 37% from a year ago.

These rates of decline are easily comparable to the Great Depression. Indeed, in the worst year of the US slump, manufacturing output fell 21.0%. From peak to trough, it shrank 47.9%. That was over three years, between 1929 and 1932. In Japan, we have seen a large proportion of that decline in just one year.

Other big manufacturers are suffering too. Taiwan, South Korea, Germany and Sweden have all seen a collapse in exports, and will soon be in depression.

But it is wrong for Mr Brown to take comfort in the travails of Britain’s partners. The global credit bubble was a manifestation of economic policies he espoused. And Adair Turner and Hector Sants, respectively chair and chief executive of the Financial Services Authority, have come closer than most to recognising an important truth: politicians were ultimately responsible for allowing banks to lend freely.

However, even they are reluctant to admit to an even deeper and politically more uncomfortable explanation. As we argued last year in our book The Credit Crunch, the growth in lending was a necessary antidote to the pernicious effects of globalisation.

Shipping jobs abroad to cheaper locations, from China, to Eastern Europe to Turkey and India, has been a fallacy. The median wage has been relentlessly squeezed, not just in the UK, but in the US and other European countries too. If there had been no credit boom, GDP growth would have been almost negligible after the collapse of the dotcom bubble. Deflation would have become entrenched.

Led by their obsession with free trade, politicians in the West were happy to preside over the resulting housing bubbles, believing that low inflation would sustain the extreme house prices. For a while, it did.

But it is perhaps ironic, that when inflation did eventually accelerate, it was never likely to last precisely because of globalisation. Wages were being squeezed even during the boom, and as oil prices rose, there was not the slightest chance that inflation pressures would become embedded, as seen in the 1970s and 1980s. Tragically, central banks in the West could not see that. They kept interest rates too high for too long. They misjudged, because they did not understand the forces of globalisation that gave rise to the credit bubble in the first place.

Indeed, it is quite possible to show that a more timely response on interest rates, particularly in the US, but also in the UK and in Euroland, would have alleviated much of the distress we are now seeing.

But that is for the history books. What matters now is the response of central banks and governments to a looming depression.

The Bank of England’s decision to embrace quantitative easing should be welcomed on one level. This in essence involves a central bank targeting long term interest rates. The base rate may be 0.5%, but it is only one borrowing cost. There are many more interest rates, and the most important of these is the long term rate on government debt. This underpins all other credit costs. If a central bank drives the long term rate down, it can have a demonstrable impact on other borrowing costs.

This policy has many critics, but the recovery in the US from 1932 would never have happened without quantitative easing. Indeed, had the Federal Reserve in particular followed this policy more aggressively, the recovery would have been more robust.

Unemployment would have come down more quickly. It is beyond dispute that quantitative easing is a powerful monetary weapon.

There are however, several problems. The Bank of England cannot reflate in isolation. The Swiss Central Bank has joined the along with the Federal Reserve. But it remains to be seen how far the Fed, the most important central bank of all, is prepared to push this policy. It may yet fail if not used radically enough.

And it should not be seen as an excuse for profligate fiscal policies. Quantitative easing does make it easier for a government to expand its budget deficit to support an economy.

But the funds should still be used judiciously. The debt still has to be paid back.

Japan’s experience illustrates the pitfalls. Eleven emergency government budgets stretching over ten years pushed the public debt burden up from 64% to 175% by 2005. Quantitative easing has pinned down the long term interest rate – it has not been above 2% this decade, and is currently languishing close to 1%. But the sheer scale of the rise in the government debt means that 46% of tax receipts will be used to cover interest payments this year.

In this respect, we have to be alarmed that the UK budget deficit has raced towards 10% without the increased funding being put to more effective use. A bigger budget deficit tied towards an industrial strategy based around alternative energy, green technology, biotechnology and new growth sectors, would represent a sound investment in a UK recovery.

Instead, the deficit is being driven higher in part by the cost of bank bailouts. The government claims that banks have to be rescued otherwise the credit lifeline to companies would be severed, and many more would default pushing unemployment up even faster.

But the banks should have been nationalised from the outset. The government may still have needed to recapitalise the stricken financial institutions. But once nationalised, the banks could have been turned into utilities. Instead, they are being driven on commercial grounds to increase margins, to repay their loans to the taxpayer.

This way spells disaster. Loan rates need to be lowered, not maximised. Bankruptcies need to be minimised. With banks under full public control, they can be used as an extension of monetary policy, ensuring credit flows on terms that ensure companies stay afloat.

State supervised banks can also provide the support needed to allow many companies to restructure towards the new products that will help to combat climate change. The alternative technology already exists to generate a new wave of green industries.

The proposed rescue of LDV, the troubled van maker, is an acid test of the government’s willingness to marry the preservation of jobs with its carbon emission targets. It is unconscionable that LDV is on the verge of default for want of such a small capital injection, jeopardising the company’s plans for an expansion in battery powered vans.

The Bank of England's recent shift to quantitative easing will not be enough. Now is the time for an industrial strategy to reverse the huge job losses in manufacturing, which have disproportionately hit Wales, the Midlands and the North East. The 138,400 increase in the claimant count for January may have come as a shock to some. However, this could be a long way from the peak.

The Government must use its control of banks to support industry, otherwise vital skills and manufacturing capacity needed to sustain any recovery, will be lost.

The Government needs also to take proper, effective and accountable control of banks, to arrest the wave of business foreclosures. Banks need to be run as utilities and not on the basis of profit maximization, otherwise soaring defaults will entail huge social costs.

The UK is danger of following the US into mass unemployment. The wider measure of US unemployment - the so-called U6 rate - has already soared to 14.8%. This includes those who have given up looking for work and thus do not count in the official rate, and it also includes involuntary part-time workers, many of whom may lose their job. The U6 rate is heading for 20% by year-end, and could top 25% next year. It is a warning to New Labour. If it does not intervene to support industry, unemployment will soar here too, topping 4.0 million by next year.

Graham Turner is an Economist and Author of The Credit Crunch, from Pluto Press. Available from Bookmarks The Socialist BookShop, for £10 plus postage and packaging. Phone 020 7637 1848. Or www.bookmarksbookshop.co.uk

Unemployment rockets through 2m

Figures released yesterday show that UK unemployment has reached 2.03 million, up by 165,000, by the end of January 2009. The number of people receiving Jobseeker's Allowance has added a record 138,400 to reach 1.39 million.



John McDonnell MP, LEAP Chair, said: "Behind every one of these devastating figures is a story of mounting human suffering across the country. It is clear now that the Government's package of bailing out the banks is not working."

Graham Turner, author of The Credit Crunch, said:

"We should not be surprised that the claimant count rose 138,400 in January, nor that the December increase was revised up, from 73,800 to up 93,500. Indeed, the slew of job layoffs announced by companies suggests this will not be the peak. The monthly increase is certain to accelerate even further beyond the 118,700 increase recorded at the worst point of the 1990/91 recession. On that occasion, the monthly increase in the claimant count eased to 50,000 within five months and carried on falling. This time around, any reversal, whenever it materialises, will inevitably be protracted. There is every chance that the unemployment on the ILO measure will rise to 4.0m by the end of 2010 unless the Government intervenes quickly to save jobs.

"The Bank of England's recent shift to quantitative easing will not be enough. Now is the time for an industrial strategy to reverse the huge job losses in manufacturing, which have disproportionately hit Wales, the Midlands and the North East. The alternative technology already exists to generate a new wave of green products, critical in the battle against climate change. The government must use its control of banks to support industry, otherwise vital skills and manufacturing capacity needed to sustain any recovery, will be lost. The proposed rescue of LDV, the troubled van maker, is an acid test of the government’s willingness to marry the preservation of jobs with its carbon emission targets.

"The Government needs also to take proper, effective and accountable control of banks, to arrest the wave of business foreclosures. Banks need to be run as utilities and not on the basis of profit maximization, otherwise soaring defaults will entail huge social costs."

Gordon Brown - different planet

In June 2007, just as he became Prime Minister, Brown said in his Mansion House speech that we were witnessing "the beginning of a new golden age for the City of London."

You may think that the collapse of many high street and investment banks would have shaken Brown's faith in free markets, but at the Lord Mayor's Banquet in November last year he said, "I want this to become the moment when together we rise to the new challenges by purposeful visionary and international leadership . . . not as the victims of history but as shapers of an open, free trade, flexible globalisation."

I quoted this head-in-the-sand 'neoliberalism or bust' attitude (it's gone bust, Gordon!) when I addressed a meeting organised by The Commune last night.

This morning, there's an excellent article by Graham Turner in The Guardian cataloguing the effect of neoliberalism throughout the globe. Graham makes the sound point that "A new world economic order requires protectionism - for workers".

Meanwhile, Richard Murphy reports on his blog that word has reached him from the G7 that Brown has blocked reforms to to create transparency, enhance regulation, and crack open the tax havens.

What must life be like in the Gordon Brown bunker?

LEAP comment on rising unemployment

New unemployment figures released today show that those claiming Jobseeker's Allowance rose to over one million, with the claimant count growing at its fastest rate for nearly 18 years. As Graham Turner points out below, this figure is likely to be even higher once the benefit office backlog is cleared. ILO unemployment rose to 1.86 million - an unemployment rate of 6%.

John McDonnell MP, LEAP Chair, said:

"Rising unemployment will have disastrous consequences, ravaging communities and destroy hope for individual lives.

"Today's figures show that Brown and Darling's package is not working. The banks are still not co-operating, and we should nationalise them now.

"Instead of attacking and stigmatising those out of work, we need a huge capital investment programme of public works to create jobs - including on rail, alternative energy and council housing."

Graham Turner said:

"The claimant count accelerated up sharply in November. The October figure was revised up from 36.5k to 51.8k. This has been a persistent pattern since the labour market started to deteriorate. The lack of staff in benefit offices due to ‘efficiency drives’ means not all the claimants are processed in time. And the backlog appears to be growing.

"The upward revision for October was the largest yet. That suggests November could be nudged up significantly, even though it was already the biggest rise since March 1991. And predictions of a rise in unemployment [on the ILO measure] to 3 million look more than realistic."

Download Graham's briefing on UK unemployment in full.

It's worth noting that since 2004, the DWP has sacked 30,000 staff in 'efficiency savings'. In November 2008, the Secretary of State James Purnell announced that DWP would be hiring an additional 6,000 staff to work in Jobcentre Plus . . . See PCS's take on today's unemployment figures

This slump will overwhelm Brown

Graham Turner

The tax cuts unveiled by chancellor Alistair Darling on Monday were cheered by the Labour Party faithful. But one only has to cast a glance at the recent shocking turn of events in the US to see why these tax cuts will fail to rescue the economy.

The US Federal Reserve has slashed interest rates to around 0.5 percent. It can hardly go any lower. Yet the slide in the US housing market shows every sign of accelerating. Banks are losing so much money that they will not cut the cost of mortgages.

The most prescient indicator for the US housing market is a monthly survey by the National Association of Home Builders. Its November report shows housing demand falling faster than ever.

The weekly report from the Mortgage Bankers Association, another US organisation, reinforces the point. It shows that demand for mortgage loans has also tumbled since last month's stock market collapse.

The October crash on Wall Street was a belated response to downturn in the US housing market that started three years ago. But now the slide in share prices has in turn undermined confidence in the housing market.

It's a vicious circle that the Federal Reserve seems powerless to stop it. And it means that the losses on mortgage-backed bonds — losses that precipitated the failure of Bear Stearns and Lehman Brothers — are now multiplying.

These losses have now come close to bringing down Citigroup, one of the US's largest retail banking groups. The US administration had to step in with a $300 billion bailout to save it.

The biggest falls in these mortgage bonds are now being seen in the “triple A” sector of the market—supposedly the safest possible form of debt. This crisis has moved far beyond its roots in the subprime mortgage market and is migrating up the chain.

As unemployment rises, more homeowners are falling behind on their mortgage payments. Repossessions are already running at over three times the peak of the last housing recession in the early 1990s.

Corporate borrowing costs have also soared. Many companies are unable to borrow except at penal rates. This is making it difficult for them refinance their already onerous debt burdens.

General Motors now has to pay interest rates of over 50 percent to refinance existing loans and may soon collapse. One of the most vital cogs in the capital markets has utterly broken down.

Ben Bernanke, the hopelessly inadequate chief of the Federal Reserve, claimed last week that the liquidity crisis had eased. And the Libor rate — the rate that banks lend to each other at — has indeed fallen.

The problem is that ordinary companies cannot borrow at Libor rates. Many of them finance their balance sheets through the corporate bond market. And the collapse in stocks and mortgage bonds means that investors are too frightened to lend.

That is why corporate bond yields — which measure the borrowing costs for corporations—have risen. And as existing loans come up for renewal, companies will default—unless they can somehow slash costs.

That means job losses. And we should now be very worried. Monthly job losses in the US may reach 700,000 next year. That compares with to a September loss of 240,000. The current post-war record monthly loss is 602,000 jobs, set in December 1974.

The US unemployment rate could surpass the 1982 high of 10.8 percent by the end of next year. And it will carry on climbing, possibly reaching 15 percent or more by 2010.

The resulting social upheaval will pose a grave challenge for Barack Obama's incoming administration. But the paucity of his economic strategy should concern us too.

Obama's current plan is heavily influenced by Lawrence Summers, the former US treasury secretary. It amounts to little more than a rehash of the post-war "Keynesian" consensus that failed to resuscitate Japan's economy in the 1990s.

Increases in public spending or tax giveaways will not solve the core problem, which is how to stop borrowers from defaulting.

In 1932 the Federal Reserve drove interest rates down aggressively, which helped turn the tide. Corporate borrowing costs fell. It was still
not enough — but it was more proactive than the botched policies of today.

By the time the Obama camp realises the error of its ways, even the more radical policies of the 1930s may well be insufficient. Interest rate controls, unparalleled intervention and a state of emergency may eventually be the belated response to stem the slide into depression.

A deep and prolonged contraction in the US will hurt the rest of the world. Britain's top heavy financial sector will be hit even harder. The FTSE 100 stock index may slump to levels not seen since the early 1990s, tumbling 2,000 points.

Financial institutions will be forced to shed even more workers. The impact on consumer demand will be immense, leading to more layoffs across the manufacturing and service sectors. And that will utterly overwhelm the short term benefits of this week's tax cuts.

Graham Turner, Author of "The Credit Crunch", published by Pluto Press and available from Bookmarks for £12.99

Cutting interest rates a vital first step, says LEAP

On Thursday 9th October the Bank of England's Monetary Policy Committee will meet to discuss the whether to keep interest rates on hold at 5% or to cut them. The Left Economics Advisory Panel (LEAP) is calling for a significant cut. This follows a call from the TUC for "aggressive" rate cuts.

John McDonnell MP, LEAP Chair, said:

"To avert the prospect of the longest and deepest recession in living memory, the Government must reassert democratic control of economic policy by overriding the Bank of England Monetary Policy Committee (MPC) and cutting interest rates significantly, if it does not act to cut rates hard and fast.

"The remit of the MPC should be widened to advising on the wider economic health of the country, but the Bank’s policy role should revert to being one voice among many others to be taken into account when democratic Government, not bankers, determine our economic policy."

Graham Turner, economist and author of The Credit Crunch, said:

"Following the nationalisation of Bradford & Bingley, the case for an early and decisive rate cut in interest rates is overwhelming. The collapse of the Congress bailout and the persistent upward pressure on borrowing costs have also heightened the need for swift action from the MPC.

"Repeated liquidity injections are not the answer to the current banking crisis. The core problem is one of solvency, not liquidity. By failing to cut interest rates, the MPC has ensured the housing market will continue to slide into 2009, endangering more banks.

"And unemployment is set to rise sharply. Wages have not responded to the spike in headline inflation, as feared by some members of the MPC. With the honourable exception of David Blanchflower, the MPC has overstated the second-round effects from rising energy prices, exposing their lack of understanding over how globalisation has fundamentally changed the world economy.

"Furthermore, the sharp downturn in the Industrialised West has spilled over into emerging market economies, precipitating steep declines in commodity prices. Inflation will fall quickly next year, and could even be back within target by the mid-point of 2009. The Bank of England should not wait for confirmation of this swift reversal. It should act now in accordance with its mandate.

Graham Turner @ Bookmarks tonight

Graham Turner will be discussing his new book 'The Credit Crunch' at Bookmarks bookshop in Bloomsbury Street, London.

The current financial crisis has shaken globalisation and challenged the free market economic model. This book shows that the housing bubbles in the West were deliberately created to mask the damage inflicted by companies shifting production abroad in an attempt to boost profits.

Bookmarks Bookshop, 1 Bloomsbury Street, WC1B 3QE

All these events are free with refreshment provided however we do ask that if you’re coming you reserve a place in advance if possible.

To book or for more info call 020 7637 1848, email enquiries@bookmarks.uk.com or see http://www.bookmarks.uk.com/

Read Graham Turner's article from Monday's Guardian.

A policy error too far

It’s good to see praise for the work of contributors to LEAP such as Andrew Fisher’s warm welcome to Graham Turner’s new book The Credit Crunch. But, in the spirit of comradely debate, here are some comments which show that Graham’s book raises as many questions as it answers.

The book correctly chastises the mainstream press for failing to address the underlying causes of the massive accumulation of debt that exploded in the sub-prime crisis of 2007 and the credit crunch that followed, and he is right to say that this is “out of fear that the contradictions and flaws with the economic philosophy they have espoused will be exposed”. Graham is right again in his critique of the neo-liberal philosophy of unrestricted free trade which has dominated the global policy agenda for the last period.

It’s also true, as Andrew points out, that Graham talks about the growing power of the corporations during the period of globalisation. But there’s hardly a mention of it in the main parts of the book, and any deeper analysis of the underlying causes of corporate growth is absent. Rather than tracing the ballooning of credit and debt as the necessary expression of, and complement to the relentless expansion of capital, as is shown in my book, A House of Cards, Graham’s subsequent interpretation claims the whole problem is the result of policy errors by governments.

While others have traced the growth of a global network of transnational corporations which have transformed the role of national governments, and some even, like Leslie Sklair, have shown the development of a transnational capitalist class, Graham tends to take an anti-historical view, preferring to see the world as it was when Keynes lived and breathed. His is a macroeconomic world of nations competing in a system of more or less free markets. If only they’d followed the interventionist theories and advice of the economist and Lord John Maynard Keynes, governments could have kept the corporations under control and sustained a nice balance between corporate power and workers’ interests.

Graham’s account of the historical build-up to the current crisis takes in the 1920s and 1930s Great Depression, but leaps over the Second World War and the destruction of capital made necessary by the investment frenzy that led to overproduction and the 1929 crash. The creation and elimination of surplus productive capacity is an essential component determining the boom-bust trajectory of the capitalist economy and Graham sidesteps this question.

In my view, seeing the present crisis as a result of “policy errors” is itself a profound error. Policy-makers and corporate power represent a division of labour within the capitalist system as a whole. The globalisation process propelled them into each other’s arms, transformed the roles of the IMF and World Bank, institutions created at the post-second world war Bretton Woods to manage relations between nations (in which Britain was represented by Keynes, but largely sidelined by US interests), and created a process which led to global institutions like the World Trade Organisation. All now became subject to legions of corporate lobbyists serving the self-developing expansion of capital. If mistakes were made their origin actually lies in the accumulation process of capital itself, an objective process reflected in the heads of policy-makers obliged to serve its interests.

Graham’s proposal to rebalance the power relationship as a way of keeping profit levels high assumes that governments are in control, when they are patently not. It’s why he ends his book with a despairing hope. Even as domestic and commercial property prices tumble around the world, Graham’s hope is that central banks and governments can prevent the debt-induced collapse of asset prices by issuing even more credit. He calls it ’quantitative easing’. In my view, this policy is not only unrealistic but also ties us into the retention of the fundamental, exploitative relationships of capitalism as the biggest economic disaster of all times looms. That indeed would be a major policy error when a bold leap to social ownership as the solution to the crisis seems a more progressive way forward.