Paul Krugman won the Nobel Prize for Economics, but don’t hold that against him. Unlike the recently trendy classical theorists, Krugman believes that economics doesn’t need to part company with the lessons of history and the intuitions of experience. He might be a professor at an Ivy League university but he makes a point of talking about the economy in approachable language. There’s no jargon on display and none of those impenetrable acronyms that the neo-liberals use to confuse the general reader. This, Krugman’s eighth book directed at the general public, is crisp and persuasive. America might not technically be in depression, Krugman notes in passing. It might not even be in recession. Who cares about these arbitrary definitions? The only thing that matters is that the economy isn’t doing as well as it could. The conventional wisdom, as served up by the policy elites in Washington (and Wellington), is that it’s all too hard. Krugman disagrees. The ills of the neo-liberal economies stem from one simple problem - inadequate demand.

The law of supply and demand is the most basic of economic understandings and Krugman outlines what used to be a consensus view throughout the Western academies. If the economy is doing well, interest rates might go up to slow demand. If it’s struggling, interest rates might fall, to encourage spending. In boom times, the Government has the opportunity to cut spending and reduce any deficits. In slow times, it needs to invest to stimulate demand. In this, as he repeatedly reminds us, Krugman is following the analysis of JM Keynes. He’s a Keynesian. John Maynard Keynes (1863 –1946) advocated government spending on public works to stimulate the economy and provide employment. He was the most influential Western economist for several decades after World War 2, until he was supplanted by the neo-liberal monetarists. Ed

All of the Organisation for Economic Cooperation and Development (OECD) policymakers were Keynesians during the successful post-war years. Wealth increased; inequality decreased. Millions enjoyed a security that their parents and grandparents had never enjoyed. In the US (and in NZ) Keynesian pragmatism was a consensus view - Economics 101. So what happened? Read any issue of Watchdog and you’ll find background discussions about when and why the Keynesian prescription of moderation was replaced by neo-liberalist extremism. Krugman’s immediate focus is on the immediate symptoms of the fever.

Rich Fear Having To Pay Their Share

He starts with the 2001 tax cuts pushed through by President George W Bush, supposedly to encourage the rich to invest, the pretext being that this would help out on the “supply side”. In reality, there has been a historical correlation, in the US and elsewhere, between higher taxes and greater economic growth. Never mind. The real purpose of the tax cuts was to reward the richest 1% or so, while depriving the State of resources. The common aim of the modern Rightwing has been to shrink the Treasury so that it can’t continue its Keynesian role of increasing the buying power of the majority. The rich fear they might have to start paying their share.

 Writing originally in 2012, Krugman notes that in 2011 Republicans tried to stop raising the debt ceiling, a measure that should have been automatic. Faced with a fanatical Republican majority in Congress, Obama gave in, cutting spending.  Since then, as an October 2013 deadline loomed, the Tea Party was at it again, and the whole matter has been put off once more, till early 2014. In 2012, before the latest posturing, Krugman was angry. By now, watching as Federal politicians do all that they can to make their constituents insecure and usher in economic collapse, he must be apoplectic.

Neo-liberals can’t justify their ideas in simple, factual language, so they revert to homely metaphor, typically accusing Keynesians of being wasteful. Popular myths abound. Bad times are “punishment” for past excess. Krugman’s example is even more timely than when he wrote it. John Boehner is the Speaker of the House of Representatives, the man leading the current Republican assault on common sense. People were suffering, he declared as the global economy collapsed, so the Government should tighten its belt too. In this he followed the example of President Ronald Reagan (1980-88), who notoriously set out his stall with the suggestion that Government was the “problem”. They tightened all right, just as Boehner’s and Reagan’s predecessors had done in the 1930s, so the American people suffered more. Other populist appeals are made in the name of reducing debt (that Reagan Himself ran up huge deficits isn’t mentioned because most of it was lavished on the military). This is a crowd pleaser because in our personal lives debt means an out of control credit card. Krugman explains the difference between good and bad debt. It depends. It’s the same with inflation.

 In 2008, the crisis year, Krugman continues, “lack of sufficient demand had become the key economic problem, and … narrow technocratic solutions, like cuts in the Federal Reserve’s interest rate target, were not adequate”. Obama’s response, to “print more money” (“quantitative easing” is the euphemism. Ed.) has averted catastrophe, but it’s been too modest an effort. A favourite metaphor of the policy elites (and, again, this holds true for NZ) is “confidence”. Business – other people don’t have to be confident – is confident when corporate taxes, and workers’ wages are low and regulations are lax. Only at the end of his account, his focus being on policy, does Krugman mention perhaps the worst aftershock of neo-liberalism – sharply increased inequality. Recent numbers reveal that pessimism among white Americans is the highest it’s been since at least 1987 (during Reaganomics). Insecurity, defined as having to cope with some unemployment or public assistance in your working life, hits 79% of Americans by age 60. Among non-whites the rate is 90%. It’s estimated that by 2030 85% of working age adults will experience this insecurity. Here’s the real, silent and anonymous lack of confidence (Press, 30/713).

When the bubble burst Alan Greenspan, the boss of the Federal Reserve, and one of the individuals most closely associated with the deregulation of finance, was - at first - in “shocked disbelief”. You can see why from what he had said three years earlier, when the great man, confidante of all the recent Presidents, let be known that “recent regulatory reform, coupled with innovative technologies, has stimulated the development of financial products, such as asset-backed securities, collateral loan obligations, and credit default swaps, that facilitate the dispersion of risk… These increasingly complex financial instruments have contributed to the development of a far more flexible, efficient and hence resilient financial system than the one that existed just a quarter century ago”.

Here’s a language that resembles English but its meaning was unclear, even to the fast operators who talked the talk. Yet enough can be glimpsed to see the whole scheme was doomed. To equate greater complexity in the form of new, untested procedures with a new efficiency and resilience is to defy logic. So, inevitably, the casino economy went bust. With admirable foresight Keynes himself had used the metaphor of the casino to describe Greenspan’s Depression-era forbears, yet Krugman says his name was greeted with titters at graduate classes in the 1970s, when the neo-liberal project was hatching. In Krugman’s view the underlying reason for the shenanigans is that the professional classes in the leading OECD countries had done so well out of 40 years of increased wealth and security that they took it for granted.

Arrogant Greed

That’s putting the matter as benignly as the facts allow. A more convincing explanation is that profits were falling and global capital needed new markets and new rules to capture them. Krugman’s OK as far as he goes, but that’s never farther than a kinder, gentler corporate capitalism. A second reason is that the new generation, Krugman’s contemptuous colleagues, were arrogant as hell. And, of course, greedy. In 2006 the 25 highest paid hedge fund managers made $US14 billion, three times the combined salaries of New York’s 80,000 school teachers.

These days, after all the lurid headlines, it’s rare to hear a defence of neo-liberalism. Yet OECD governments, with the US, the UK and NZ being obvious examples, press on. Why? Probably no publicly known and respected a critic has been as close to the centres of power as has Krugman, so his views here are significant. Raw corruption is unlikely to be a factor, but the difference between what is expedient and what is principled makes it “hard to tell the difference between what they really believe and what they’re paid to believe”. Being close to wealth “brings access which brings personal influence.”

“National Prime Ministers”, Krugman continues, a phrase with added resonance in NZ, “used to want to be locally popular to be re-elected but in the era of globalisation you want to be esteemed by the Davos* set. Indeed, in some ways being absolutely despised by your fellow countrymen would be a plus”. He quotes a blogger: “The ultimate demonstration of solidarity to the ‘international community’ would be to do what the international community wants even in the face of massive resistance from your domestic political constituency” (Matthew Yglesias, Slate). *Davos is the Swiss resort town that hosts the annual meeting of the World Economic Forum, a gathering of the global neo-liberal elite from governments and business. Ed.

Krugman Lets System Off Lightly

Well, yes, that’s abundantly the case with the National Party, and Labour, eager to disown a blue collar past, is often even louder. Mike Moore, once, briefly, Prime Minister (1990) and a relentless cheerleader for “free trading” globalisation, used to dismiss working class opposition as coming from hicks with their shirts tucked into their underpants. Labour’s other constituencies, urban liberals, were “chardonnay socialists” or – a more recent, Moore-like insider view – “a gaggle of gays”. So there’s no place for traditional social democracy.

How, amid this hegemony, this puerile bullying, this suffocating conventional (lack of) wisdom, to reverse the trend? Krugman thinks what used to be conventional Keynesian measures would do the trick, but how likely is even that modest response? As he points out, Obama’s stimulus since 2009 has been the biggest job creation programme in American history but it’s “woefully inadequate”. Yes, but why has it been, and with what likely results? The Tea Party is an easy and obvious target for blame, but its’ not the only problem. For all his incisive attack, Krugman lets the system off lightly. As he says, poor and average people need more money, so he might have looked in more detail at who is benefitting from Obamanomics. Recent figures reveal that 95% of increased wealth in America over the last four years has accrued to the top 1%, the very people whose past excesses were the problem.

Prosperity, Poverty, Or Extinction?

Humanity's Choices

by Allen Cookson, Xlibris Corporation, 2012

It’s a big title and a big book, at 590 pages. Allen Cookson is a retired NZ secondary science teacher who’s always had a keen interest in economics. As a qualification for looking at the health of the planet, a combination of science and economics is a good starting point. Cookson’s assumption “is that the Earth can support only a limited, though debatable, number of people in a healthy prosperous State…. The intellectual and emotional impasse … is the obsession with economic growth and the failure to recognise the finiteness of the physical components of the biosphere that humans inhabit. Few scientists are unaware of this limitation. However, among the business, economics, farming, and political communities, it can be difficult to find people who believe that growth must stop…”

So Cookson pitches his tent firmly in the environmentalist camp. He argues that the planet can’t sustain more development or more people. He does so, he insists, as a Keynesian. Unlike the NZ government, he sees prosperity as living in harmony with our surrounds, but rather than opting out of the conventional economy, he wants to reform it. He’s not at all into alternative lifestyle stuff but he does want to tame the economy, not nature. We’ve been disrespecting the planet for 200 years and it can’t take any more abuse.

In a word, this book is about sustainability, and it’s not his fault that that’s an often loose buzzword. If it sounds as though Cookson is like your cousin setting the world to rights at the Christmas barbeque, it’s only fair to point out that he’s been thinking about matters economic and ecological for a long time, and he has buttressed his argument with extensive examples, quotations, mathematics and statistics. (I have no idea if his equations are accurate). As a general account, he offers a lot to think about. The research is extensive and the basic case it confirms, that we’re degrading our world and must stop doing it, is both unarguably true and urgent.

Almost Infinitely Wide Topic

It’s also an almost infinitely wide topic, as can be seen from Cookson’s chapter titles, which include “Food”, “Energy”, “Land”, “Population”, “Defence” and “Money”. There are 20 such categories and even at 590 pages, it’s possible only to skim the surface. This, Cookson freely admits, whilst providing suggestions for further inquiry. As an introductory account, it has its merits. An added virtue is an adroit linking of global issues to the local. Cookson is always chipping in with NZ examples. One salient example comes in a discussion about the “happy planet index”, a measure of our success in achieving a steady, sustainable economy - a “prosperous” economy. The New Economics Federation defines this sustainability as one that meets “the needs of the present without compromising the ability of future generation to meet their own needs”. On a scale of 0, dissatisfaction, to 10, satisfaction, NZ comes out well at 7.8, when it comes to “happy life years”, but our footprint, our impact on the environment, is heavy. Of the ten representative countries on display we’re second only to the USA (though we should always be sceptical about the precision of such numbers). The implication here – backing the central thesis - is that NZ has natural advantages of having being, shall we say, up to “100% pure”, but we’re becoming an impure lot.

Cookson doesn’t mind arguing the toss with a lifetime’s ideological opponents. When he’s dealing with science, this is a virtue. For instance, there’s a discussion about climate change, and why it’s commonly but irrationally denied. But when the topic becomes more political or social, he invites criticism.  As a self-declared Keynesian, Cookson cites Paul Krugman’s views on debt (see the above review). Cookson disagrees, arguing that debt is always wrong. That’s an unusual view for a Keynesian, but in such a ranging discussion, there will always be bones for the reader to pick over.

Less welcome are the forays where Cookson seems to be riding hobbyhorses. Chapter 20 is called “The Human Species”, which is, you might think, a topic best left for another day from another pen.  It is one thing to analyse specific topics, but quite another to take on viewpoints as a whole, and it’s a brave man who pontificates on who is rational and who isn’t. As it is, we get to hear about a couple of personal tiffs, detracting from the balance and width of all that has gone before. The topic was ambitious enough to begin with.

World Investment Report 2013

United Nations Conference On Trade And Development, United Nations, New York and Geneva, 2013

The United Nations Conference on Trade and Development (UNCTAD) annual reports are always given a subtitle, possibly because their numerous authors want to suggest they have something new to say. This time it’s “Global Value Chains: Investment And Trade For Development”.  In fact, every report is a compilation of facts and figures revealing flows of investment. Specialists will find much useful detail here, but for the layperson, the content is daunting. The general trend for foreign direct investment (FDI) was down, reflecting the global economy’s lurch on the brink of disaster, but “FDI flows to developing countries proved to be much more resilient than flows to developed countries, exceeding flows to developed countries for the first time ever”. Lots of this investment went to Asia and Latin America, but the only region that saw an increase was Africa. The biggest source countries for these poorer parts of the world were the BRICs – Brazil, Russia, India and China. UNCTAD of course sees all this as self-evidently a good thing, just as it assumes any and all “development” is a blessing.

In this context “the growth of international production by the top TNCs (transnational corporations); which are mostly from developed countries (would you believe!) stagnated in 2012. However, the 100 largest TNCs domiciled in developing and transition countries increased their foreign assets by 20%…” To translate: a developing country is what used to be called “Third World”, while a “transition economy” denotes south-east Europe and ex-Soviet bloc places, the likes of Albania or Belarus (which used to be called Second World, a phrase never heard now). The biggest corporations from the rich world took advantage of the global financial crisis (GFC) to pour into the rest of the world. While the immediate effect of plunging assets has been to subdue takeovers in OECD countries, with TNC profits up by only 5%, profits from the “developing” and “transition” economies were up by between 8 and 15%. So it’s always business as usual, with the rich getting richer at an ever-quickening rate and inequality stretching.

For the exploited world – or “host countries” – there have been “concerns about excessive rents for foreign firms”, especially in “extractive industries”. Think mining. “High rates of return”, UNCTAD suggests, are typically found in “FDI projects that require high upfront investments in economies that provide relatively little opportunity for follow-up investment in the same industry” In other words, extractive industries are big extractors. The hosts, UNCTAD notes, worry about the effects of these extractions on long-term balance of payments. “Profits generated by foreign affiliates and repatriated earnings are a more general concern for policy makers, to the extent that they may be perceived as ‘income leakage’ for the domestic economy”.

Full Speed Ahead!

New Zealand, which has been leaking like the Manapouri power station’s Deep Cove water race, wants to open the spillway yet wider. The emphasis in the negotiations over deals like the Trans Pacific Partnership Agreement (TPPA) is relatively more on services, an increasingly important aspect of the global economy. At the World Trade Organisation NZ is one of 22 countries frustrated by the failure to wrap up a global neo-liberal constitution. We are apparently represented by people who like to brand themselves as “Real Good Friends Of Services”. Many of our 21 mates, listed in a footnote, are from Latin America. Others include Singapore, the European Union, Hong Kong and Taiwan – but not China. The common factor seems to be adherence to the US-inspired neoliberal agenda.

Then there’s the Regional Comprehensive Economic Partnership Agreement (RCEP) a grouping within the Association of South East Asian Nations (ASEAN), officially since November 2012. It’s a gang of more real good friends. “The RCEP seeks to create a liberal, facilitative and competitive investment environment in the region. Negotiations on investment will cover the four pillars of promotion, protection, facilitation and liberalisation”. All these words are codes for unchecked corporate power. These mates are Australia, India, Japan, South Korea and - this time – China. Despite the temporary slowdown, the overall pace of the “free trading” speeds. All told, in 2012, 53 countries adopted 86 policy measures affecting foreign investment, a 30% increase over the previous year. The news is all bad.