Centrists Cling To Their Failed Dogma Even As It Tears Their Countries Apart

Tony Blair - Hillary Clinton - centrism

In a wide-ranging essay, Michael Lind argues that the elite managerial class have broken their compact with the working classes to the detriment of the country, thus explaining the populist backlashes witnessed in Britain and America

“The New Class War”, an essay in the American Affairs Journal by writer Michael Lind, perfectly captures the intersection between trade regulation, democracy and the interests of the managerial elites which is at the heart of the current debate over sovereignty – and which fuelled the Brexit vote in the UK and Donald Trump’s ascendancy to the presidency in America.

It is necessary to quote at some length from the section entitled “The Politics of Global Arbitrage“, in which Lind discusses the ways in which corporate behaviour has influenced the contours of our democracy:

Even as they have exploited opportunities for international labor and tax-and-subsidy arbitrage, firms in the post–Cold War era of globalization have promoted selective harmonization of laws and rules, when it has been in their interest to do so. In the second half of the twentieth century, successive rounds of negotiation under the auspices of the General Agreement on Tariffs and Trade (GATT) and, more recently, the World Trade Organization (WTO) effectively reduced most traditional tariff barriers. By 2016, when the WTO effectively terminated the failed Doha Development Round of global trade talks, the United States and other leading industrial nations had shifted the emphasis from removing barriers restricting the cross-border flow of goods to harmonizing laws and regulations through “multiregional trade pacts” like the North American Free Trade Agreement (NAFTA), the Trans-Pacific Partnership (TPP), and the Transatlantic Trade and Investment Partnership (TTIP), in the interests of transnational investors and corporations reliant on transnational supply chains.

The areas chosen for arbitrage and harmonization reflect the interests not of national working-class majorities but of the managerial elites that dominate western governments. Harmonizing labor standards or wages would undercut the labor arbitrage strategy, while transnational crackdowns on tax avoidance would thwart the strategy of tax arbitrage by transnational firms. Instead, the emphasis in harmonization policy has been on common industrial standards, the liberalization of financial systems, and intellectual property rights, including pharmaceutical patents. These kinds of harmonization benefit transnational firms, investors on Wall Street or in the City of London, and the holders of intellectual property rights in Silicon Valley and the pharmaceutical industry.

In many cases, this kind of regulatory harmonization makes sense—standardizing product safety measures, for example. But the new regulatory harmonization agreements produce a “democratic deficit” in two ways.

First, they remove whole areas of regulation from the realm of ordinary legislation, replacing it with “legislation by treaty.” Favorable laws and regulations that corporate lobbyists are unable to persuade national democratic legislatures to enact can be repackaged and hidden in harmonization agreements masked as “trade” treaties. These treaties, often thousands of pages long, tend to be drafted in secret by committees involving corporate lobbyists and may be ratified by legislatures without careful scrutiny.

Worse, most of these contemporary regulatory harmonization agreements include “investor-state dispute settlement” (ISDS) provisions that allow individual corporations to sue national governments that change the rules in their countries after the passage of the treaty in private tribunals, dominated by corporate lawyers, with no appeal mechanism. If Congress enacts a statute that adversely affects the interests of Acme Inc., then Acme has few options, other than paying lobbyists and making campaign donations. But if Congress ratifies a treaty, and later changes a provision by passing a new law, Acme can sue the federal government for financial damages. The United States has yet to lose a case to ISDS, but other countries have, and some believe that the prospect of corporate lawsuits has a chilling effect on new laws and regulations of which particular corporations disapprove.

None of this is to imply that the transnational managers of the West and littoral East Asia who control the new global oligopolies are more selfish or less public-spirited than the managers of national corporations during the Second Industrial Era. On the contrary, in personal terms, today’s managerial elite is for the most part less bigoted and often quite philanthropic. The point is simply that the American, German, and Japanese corporations of half a century ago were constrained by kinds of Galbraithian countervailing power and Burnhamite/Moscian juridical defenses that have crumbled. Thanks to globalization, itself a voluntary policy choice enabled but not required by new technology, today’s transnational firms have much more bargaining power in their dealings with workers and democratic nation-states.

My emphasis in bold.

This perfectly sums up a core part of the democratic case for leaving the European Union as it relates to trade, and is very much in line with the analysis and arguments advanced by Dr. Richard North of eureferendum.com and Pete North.

Lind is quite correct to acknowledge that regulatory harmonisation can be an enormous force for good. In fact, the trouble only really comes about when there is no option for a democratic nation state to “opt out” of a certain regulatory change or edict when its imposition would harm the national interest in some way. Obviously there would be consequences for such an action, such as the non-recognition of standards relating to the product or industry in question. But the opt-out is a vital tool which nation states must possess in order to wield sensibly and with restraint on those occasions when the compromise hashed out by 27 EU member states is unacceptable to the sole outvoted dissenting country.

This is what we mean by the outsourcing of sovereignty. Remainers and assorted pro-EU apologists love to make the glib assertion that EU member states retain ultimate sovereignty at all times because they are technically free to leave the EU, but this is an asinine assertion. Sovereignty should not be a choice between having to go along with every diktat from Brussels or deploying the nuclear option and leaving the European Union. Indeed, how can you call it sovereignty when the choice is between accepting papercut after papercut (grave though the cumulative wound may be) or else enduring the disruption of severing ourselves from the union? This isn’t sovereignty, it is blackmail. Thank goodness that Britain finally called the EU’s bluff.

This section is also instructive:

To obtain social peace and mobilize national populations during World War II, the United States and its allies like Britain brokered business-labor pacts and promised welfare benefits to veterans. In the ensuing Cold War, every major industrial democracy devised some kind of “settlement” or compromise among business and labor interests within the nation.

The postwar settlements were a combination of employer-specific welfare capitalism and universal or means-tested, social-democratic welfare states. In West Germany, welfare capitalism took the form of “codetermination,” or union membership on corporate boards. Japan, following intense labor conflict after 1945, developed a system of corporate paternalism and lifetime employment for many workers. Organized labor was weak in the postwar United States, but the “Treaty of Detroit” negotiated among automobile companies and unions was a successful example of informal business-labor corporatism. Low levels of legal and illegal immigration, and social pressure on married mothers to exit the work force to become homemakers, strengthened the bargaining power of mostly male workers by creating tight labor markets.

These corporatist systems of welfare capitalism made the welfare states of the period from the 1940s to the 1970s much smaller than they would have been otherwise. Wage compression brought about by unions in the welfare-capitalist system made it easier for payroll taxes to fund entitlements like public pensions, which in turn were smaller than they might have been because of the widespread existence of private employer pensions.

The post-1945 settlements in the West and Japan demonstrate countervailing power and juridical defense in action. The result was the golden age of capitalism from the 1940s to the 1970s, combining high growth with a more equal distribution of its rewards than has ever existed before or since.

But Lind sees the end of the Cold War as a turning point when the post-war settlements established in the West and Japan began to be fatally undermined:

Following the Cold War, the global business revolution shattered these social compacts. Through the empowerment of multinational corporations and the creation of transnational supply chains, managerial elites disempowered national labor and national governments and transferred political power from national legislatures to executive agencies, transnational bureaucracies, and treaty organizations.

Freed from older constraints, the managerial minorities of Western nations have predictably run amok, using their near-monopoly of power and influence in all sectors—private, public, and nonprofit—to enact policies that advantage their members to the detriment of their fellow citizens. Derided and disempowered, large elements of the native working classes in Western democracies have turned to charismatic tribunes of anti-system populism in electoral rebellions against the selfishness and arrogance of managerial elites.

I have to say that Lind’s essay has given me pause for thought. This blog has consistently championed the Thatcherite revolution which took Britain from being the sick man of 1970s Europe, seemingly in terminal decline, to a revived and confident global power by the 1990s. I did so while acknowledging the various failures of the Thatcher government to ameliorate the decline of heavy industry outside of the wealthy Southeast and its cost in terms of suffering and wasted human potential, but I nonetheless saw (and continue to see) Thatcherism as a necessary if painful tonic for the economically sick Britain of the 1970s.

Lind, however, sees things differently. From Lind’s perspective, the post World War II settlements established between labour and the managerial classes in various Western countries were responsible for the great boost in productivity and living standards, not an anchor on these metrics (as I have always viewed the post-war settlement in Britain, partially deconstructed by Thatcher). To be fair, Lind pinpoints the start of the unravelling to the end of the Cold War when Thatcher’s premiership was nearing an end, but since many of the tenets of Thatcherism continued through the Major and Blair governments into the 21st century once can reasonably infer a criticism of Thatcher’s policies, which merely took a decade to come to full fruition.

This is food for thought for an unabashed Thatcherite like me, and I need to do more reading to decide how much of Lind’s narrative holds water. The narrative arc he constructs is persuasively argued and passes the “common sense” test, but to my mind Britain’s experience stands as an exception to Lind’s rule. In our case, the post-war settlement we constructed (based on the recommendations of the Beveridge Report) grievously held us back as a country. We did not benefit from enlightened German-style corporate governance or Japanese-style jobs for life in the post-war years, but rather sank into decades of adversarial conflict between unions and (largely state-owned) employers, with government policy repeatedly favouring the interests of the producer over those of the consumer.

Now, this could be because British government policy was particularly misguided and the British managerial class particularly useless (an argument I have some sympathy with), but it seems more likely to me that Lind’s blanket assertion that countries prosper most when there is a powerful countervailing force to push back against the elite managerial class is not always correct – or at least is only one of several other key factors determining economic growth and increases in standard of living. I would posit that Thatcher’s Methodist upbringing probably provided a great moral anchor that prevented excessive self-serving policymaking, while today’s decadent and avowedly secular elites are perhaps more prone to corruption and in greater need of the countervailing force that Lind describes (hence the populist backlashes we have witnessed).

Lind then goes on to discuss how labour arbitrage and tax & subsidy arbitrage in our more globalised world have worked to undermine the nation state and empower the corporation – a line of reasoning which would certainly be familiar to anyone on the Left.

He concludes by looking ahead to the likely geopolitical situation in the year 2050, and considers what will be the best strategy for the West to maintain power and influence:

Great-power competition, even in the form of limited cold wars, is likely to reward nations whose economic model is based on developing productive technology and raising the incomes of domestic worker-consumers, rather than engaging in labor and tax arbitrage, regulatory harmonization, and other schemes that boost profits without increasing productivity. In cold wars and trade wars, even if no blood is shed by the contenders, countries and blocs with empowered and patriotic workers are likely to do better than rival nations crippled by immiserated workforces and selfish, nepotistic, oligarchic elites.


Managerial elites are bound to dominate the economy and society of every modern nation. But if they are not checked, they will overreach and produce a populist backlash in proportion to their excess. By a misguided policy of suppressing wages and thus throttling mass consumption, unchecked managerial elites may inadvertently cripple the technology-driven productivity growth responsible for their rise and accidentally cause the replacement of managerial society itself by a kind of high-tech rentier feudalism.

Managerial society works best when there are not only concessions to national working-class economic interests—the bribes to the “losers” of neoliberalism—but also genuine economic bargaining power and political power wielded by the many. Far from undermining managerial regimes, Burnham’s “juridical check” and Galbraith’s “countervailing power” make them more legitimate and sustainable.

In other words, the policies favoured by the current dispossessed centrists in Britain and America are not as smart and self-evidently beneficial as their advocates love to claim. Status quo globalisation, which increasingly seeks to leverage labour arbitrage, tax arbitrage and selective regulatory harmonisation to benefit the managerial class while doing little to raise productivity (not to mention leaving millions of people in dead-end jobs or the unemployment scrapheap) is not only selfish on the part of the managerial class, it is also injurious to the future prosperity and security of the country.

In fact, according to Lind, it turns out that having a patriotic population and workers with a commitment to the country they live in, together with some degree of bargaining power (preferably due to their possessing valuable skills rather than the threat of withholding their labour, as deployed in the 1970s), is perhaps a net positive after all, particularly in the long term.

Again: I don’t buy everything in Michael Lind’s essay. But he spins a plausible narrative and argues his case well. And if Lind is correct, how regrettable is it, then, that the populist backlashes on both sides of the Atlantic have been held in check partly through their own incompetence (Donald Trump in America and the Tory hard Brexiteers in the UK) and partly by the fact that the resurgent centrists have effectively ground the respective movements to a halt?

Bear in mind, if and when the centrists retake power, they intend to revert to pure business as usual. They have learned nothing from the comprehensive rejection they received from voters only a short time ago, and think that the world can revert to its previous happy state where they got everything that they wanted while anyone who dissented could go jump off a bridge.

I have long contended that such an overturning of these populist movements by the elite would be poisonous, even fatal, to our democracy. But if Lind is correct, it could also be fatal to the future economic prosperity and national security of our countries.



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Saving The World, From A Swiss Fortress

The wait is finally over.


What do Bono, Eric Schmidt, Matt Damon, Jamie Dimon and David Cameron all have in common?

No, U2 are not auditioning for a new band member. The answer is even more thrilling – the World Economic Forum 2014 is convening for their annual gathering in Davos, Switzerland. The tired, the poor and the huddled masses can rest easy because these luminaries, together with Benjamin Netanyahu, the CEO of Wal-Mart and the King and Queen of Belgium have arrived in full pomp and splendour, to do…whatever it is exactly that they do there every year.

From the WEF homepage:

Profound political, economic, social and, above all, technological forces are transforming our lives, communities and institutions. Rapidly crossing geographic, gender and generational boundaries, they are shifting power from traditional hierarchies to networked heterarchies. Yet the international community remains focused on crisis rather than strategically driven in the face of the trends, drivers and opportunities pushing global, regional and industry transformation.

“The Reshaping of the World: Consequences for Society, Politics and Business” is therefore the thematic focus of the World Economic Forum Annual Meeting 2014. Our aim is to develop the insights, initiatives and actions necessary to respond to current and emerging challenges.

If this sounds to you like something you might hear in a second-tier business school lecture or the opening paragraphs of a particularly bad Tom Friedman column, you would be forgiven your mistake. It’s the year 2014 and our moral, intellectual and financial betters have apparently only just come to the realisation that technological forces are transforming our lives, communities and institutions.

Thank goodness for the sagacity of these wise men (and they still mostly are men), who alone among us have perceived that some kind of shift has taken place in our national economies and personal behavioural patterns since the internet and these fancy cell phones popped into being. It is astounding to witness how some of the brightest, busiest and most successful businesspeople, politicians and artists can sit and listen to so much meaningless garbage, and then come back a year later under the powerful spell of collective amnesia to do it all over again.

And seriously – “networked heterarchies”? All outward evidence suggests that there is but one solitary networked heterarchy that has gained and consolidated power in recent years, and that is the one currently booked into a Swiss convention centre to discuss just how wonderful networked heterarchies are, and to divide up the spoils of another bumper year.

In sessions with meaningless titles such as “The New Digital Context”, the world will be put to rights in Davos 2014 – and any outstanding items from the Bilderberg 2013 agenda will no doubt followed up and neatly resolved by those people privileged to be invited to both.

Here’s Klaus Schwab (what better name could there be for the leader of such an event?), the Founder and Executive Chairman of the WEF, welcoming the distinguished delegates to the annual shindig. And yes, he does have a symphony orchestra on the stage behind him. Pity them.


At least Schwab has the decency to admit at around the 1 minute 20 second mark that the whole affair is really about providing an opportunity for the global super-elite to relax, do business deals and network. He puts it somewhat more prettily than this, but the meaning is quite clear. This alpine convocation is like a gold-plated version of LinkedIn, with extra snow.

Cardinal Peter Turkson of the Pontifical Council for Peace and Justice also traveled to Davos, and read aloud a message from Pope Francis. Given the Pope’s well known thoughts about conspicuous displays of wealth and false displays of public piety, one must wonder whether poor Cardinal Turkson found himself having to ditch his prepared remarks and speak extemporaneously for fear of being run out of town for speaking truth to power.

On a personal level, I just don’t quite get it. For most of my career I have worked as a management consultant and project manager. But when I went on vacation, I left my work and all the trappings of my professional life behind at home. I didn’t walk the streets of Paris or the hills of the Lake District pretending to still be running IT projects or anything else to do with my line of work. And so if the shining people in Davos wants to have a good shindig in snowy Switzerland, I would have a lot more respect for them if they would just say so, and spend their time skiing rather than propagating the farcical myth that they are bringing their unique professional skills to bear on the problems of the world.

And yet every year we go through this worn-out pretense that the greatest minds of our generation are sequestering themselves in the mountains to hatch new plans to save the world, when really we all know they are there to slap themselves on the back for another successful year, drink glühwein and try to avoid being isolated in a corner and engaged in interminable, pious conversation by Gordon Brown.

So I have a proposal. Let’s test the mettle of these great, good and benevolent people who claim to care so much for us small folk. Let’s hold the World Economic Forum 2015 somewhere different, somewhere cheaper, calculate the difference in cost and give that sum of money to a front-line charity picked at random from a hat.

Let’s hold the World Economic Forum 2015 in my hometown of Harlow, Essex.

Superb transport links. Al Gore and Bono can hop on the 501 bus from Stansted Airport and stay at the new Holiday Inn Express.
Superb transport links. Al Gore and Bono can hop on the 501 bus from Stansted Airport and stay at the new Holiday Inn Express.


Marissa Mayer, Eric Schmidt and Mark Zuckerberg can network and negotiate new business deals at this conveniently located Wetherspoons pub.
Marissa Mayer, Eric Schmidt and Mark Zuckerberg can network and negotiate new business deals at this conveniently located Wetherspoons pub.


Concrete jungle where dreams are made, oh, there's nothing you can't do.
Concrete jungle where dreams are made, oh, there’s nothing you can’t do.


I’ll see you there!


The GOP’s Immigration Reform Game Theory Dilemma

My Nemesis

When I was in primary school, at about the age of eight, we had a class assignment to make our own abacuses out of wood. We lovingly spent ages glueing them together and painting them with bright colours – to this day, I am still quite proud of that piece of craftsmanship.

The next day, we were due to use our homemade abacuses in class as part of the maths lesson, and it was then that I brought disaster upon myself and earned the wrath of my entire class. There was a girl who had been sick at home the previous day when we were engaged in our arts & crafts, and who consequently didn’t have an abacus of her own to use when the time came. Our teacher approached my desk, where I sat with my best friend Scott, and asked us if we could lend one of our abacuses to the girl so that she could participate in the lesson.

Uh-oh. I looked at Scott. He looked at me. I didn’t want to let me new abacus out of my sight – it was brand new and I hadn’t had a chance to use it yet. Scott clearly felt the same way, even though his model was crooked, garishly painted and looked as though someone had taken an axe to it. I broke the silence first: “Scott, do you want to…?” but he countered “Sam, do you want to…?” (originality was never his strong point).

The teacher became impatient and told us to make up our minds who would lend out their abacus, or the lesson would go ahead sans abacuses for everyone in the class. And still we prevaricated. Even though both Scott and I knew that everyone else in the class was getting increasingly pissed off with us, and that we were in grave danger of ruining the fun lesson for everyone, we couldn’t compromise. So the lesson was cancelled, and Scott and I sat alone at lunch that day.

I recall this long-winded story because the Republican Party is currently making the exact same error that I made when I was eight years old and in primary school, with respect to their stance on immigration reform. Only they have infinitely less excuse, because they are not eight years old (perhaps in mental age) and are paid handsome federal salaries to produce legislation to solve problems.

The Huffington Post reports:

Many House Republicans are chilly or openly hostile to the bipartisan bill before the Senate, embraced by President Barack Obama. Even substantial changes to the bill may do little to placate these lawmakers, who demand strict crackdowns on unlawful border crossings and no “amnesty” for people here illegally.

These Republicans don’t deny that weak support from Hispanic voters is hurting GOP presidential nominees. And they concede the problem may worsen if Latinos think Republicans are blocking “immigration reform.”

These House members, however, worry much more about their own constituents’ opposition to the proposed changes. And they fear a challenge in the next Republican primary if they ignore those concerns.

“It’s hard to argue with the polling they’ve been getting from the national level,” said Rep. Kenny Marchant, R-Texas, referring to signs of serious problems for Republican presidential candidates if immigration laws aren’t rewritten. “I just don’t experience it locally.”

Even the house members themselves admit this gap between the interests of the national party and their local districts. The article goes on to explain the reasoning behind House Republicans’ stances in more detail:

House Republicans, however, spend far more time talking and worrying about their own election prospects, not the next presidential nominee’s.

“It’s a classic challenge when the best interests of the party are at odds with the best interests of the majority of the members individually,” said Rep. Tom Cole, R-Okla. He is close to Speaker John Boehner and other Republican leaders who want a major immigration bill to pass.

“What it takes to get a deal with a Democratic Senate and a Democratic president makes it extraordinarily difficult for a lot of (House) members,” Cole said, “because it can cause you a big problem in your primary.”

Ah yes, the much-feared Tea Party challenge from the right. That nagging fear in the back of the minds of all Republican congressmen and women in this age of the Unreasonable GOP. The fear that leads to gems like this:

Rep. Paul Broun, also seeking Georgia’s Senate nomination, said any immigration deal “must make English the official language of the country.” The U.S.-Mexican border, he said, must be secured “totally, whatever it takes. A double fence high enough to make sure it’s secure.”

Some Republicans wince at talk of massive double fences and making English the official language. They say it fuels arguments that the GOP is unwelcoming to all Hispanics, legal or not.

Hispanic voters are not a homogeneous block, and it would be patronising in the extreme to assume (as many do) that Hispanic disenchantment with the GOP is exclusively due to their policy on immigration reform and what to do with illegal immigrants already settled in the country. Hispanics, like every other voter block, have a whole web of different voting priorities. But with language like this from Rep. Paul Broun (incidentally nominated as America’s Craziest Congressman by Bill Maher), it is not hard to understand how the Republicans managed to lose the Hispanic vote 27-71% in 2012.

I generally don’t like to write articles about process, i.e. the mechanics of how a particular bill gets passed, or the ways in which parties and politicians manoeuvre for advantage. That stuff is usually personality-based gossip of secondary importance, and is covered more than enough by the likes of Politico. But in this case, the process is genuinely interesting and has ramifications that go way beyond who wins the news cycle on a given day, and therefore I decided that it is worthy of comment and discussion.

At some point the Republicans are going to have to make a choice. They cannot claim to be a national party with aspirations of winning future presidential elections without addressing the fact that they overwhelmingly lost the Black, Hispanic, Asian and Female vote in 2012. Yes, in the immediate aftermath of Mitt Romney’s implosion there was a little bit of hand-wringing and soul-searching, but we are now very much back to business-as-usual.

Scarcely a week passes without some new Republican (male) politician deciding to hold forth on the topic of rape in front of a live microphone, or accuse American Muslims of being complicit in terrorist attacks when they don’t denounce them as loudly as is apparently required, or talking about the superiority of a “man’s brain” when it comes to analysing the implications of laws such as ObamaCare.

These cheap, nasty little stunts might play very well back home in their heavily gerrymandered conservative districts, but they will be fatal for the Republicans in 2016. But right now, the party that likes to campaign under slogans such as “Country First” is fragmented, self-serving and unable to step back and solve any problem bigger than avoiding a Tea Party primary challenge.

The Fallacy Of Stimulus vs Austerity

We are now six years into our global economic crisis which began in 2008, and from which most western countries still suffer acutely to varying degrees. And yet our political leaders are still having the same argument that they were having when the crisis began. The argument has not matured, developed or sprung new offshoots; it remains exactly the same.

Austerity versus Stimulus. With deficits exploding as government revenues collapsed during the great recession, should we spend more taxpayer money to create new demand in the economy, or tighten our belts and trust that an immediate return to fiscal rectitude would be the answer? Should we be Keynesians or not? And, whatever ones personal point of view, we have pretty much stuck to them since that time; and by and large we have trodden a middle ground that has delivered at best anaemic growth rates and jobless recoveries, or at worst has failed to stem the tide altogether.

Those on the left, such as Guardian columnist Polly Toynbee, castigate the British conservative-led government’s efforts to do anything to reduce the deficit – not to eliminate it so as to begin paying down the national debt, but just to reduce the deficit – as heartless and cruel. Not a day goes by without some new stricture on the harm that government spending cuts (read: reductions in the rate of increased government spending) will cause to the weakest and most vulnerable in our society.

Conservative politicians on the right, such as German Chancellor Angela Merkel, bristle at being labelled dispassionate and unsympathetic to those in need, and claim that their harsh medicine is the only way of saving the ailing economic patient.

Semi-partisan people such as myself tread an unpopular middle ground, arguing that this time of weak to negative growth is the worst possible time to be cutting spending (though radical rethinking of spending priorities is certainly needed), but worrying that moderate left-wingers and fair weather conservatives will not fulfill their end of the bargain and actually begin rolling back government spending and the boundaries of the state when healthy economic growth is eventually restored.

And so we all sit in our respective ideological trenches, lobbing the occasional rhetorical grenade into no-man’s land, and nothing changes.

Enter Shinzo Abe, prime minister of Japan.

Japan has been wrestling with stagnation and it’s terrible consequences for much longer than most western countries, and after 20 or so lost years, have come up with a new solution which might just actually work.

The Guardian reports:

Japan’s central bank has been ordered to print money at twice the rate that even the US is doing, to go on more spending by government and private firms. It must get inflation up by two percentage points at once. Firms must increase wages. Taxes will come down before rising to ease the deficit. Structural change will impede inflation and short-term debt may rise, but the risk must be taken. The economy must grow, at all costs.

Wow, growth at all costs rather than half-hearted measures and finger-pointing when it doesn’t work.  What a novel idea. The report continues:

As David Graeber put it in the Guardian this week, austerity is no longer an economic policy but a moral one in which someone must be found to pay for past profligacy. It is “a politics of crime and punishment, sin and atonement”. It seems almost to appeal to Protestant countries. They regard Greeks and Cypriots as singular sinners, but are all guilty.

Britain has less excuse. It could print money, inflate like Japan and let the exchange rate take the pressure. The government has already printed about £375bn, but has given the money exclusively to banks. The money has vanished on boosting bank reserves, inflating the stock market and buying more government debt. None of it has “pumped”, or even leaked, into the productive economy, whatever Bank of England handouts say.

If every pound George Osborne had printed had gone on consumer spending, it defies belief that the British economy would be still be in acute recession. As in Japan, sales would be rising, order books filling, jobs returning, tax revenues expanding and the deficit shrinking. Banks are not stupid. They lend against profits, not against Vince Cable speeches. Their retail customers need real rising demand to restock, instead of relying for turnover on benefit recipients. Austerity in recession is the nadir of economic illiteracy.

The wisest words on economic policy that I have heard in a long time, and I have to hear them from a left-leaning newspaper. Conservative outlets, talking heads and think tanks should be ashamed.

The reason that “stimulus” has failed (or at least has not resulted in a return to robust growth) is because we have been attempting to stimulate the wrong thing. If we are going to print money and run the risk of inflation, is it not far better to put that money into the hands of actual citizens, taxpayers, who need it and who will immediately go out and spend it, rather than using it to shore up the balance sheet of a bank that was probably involved in all manner of dodgy activities leading up to the financial crisis, and which has no intention of lending that money to individuals and businesses who want it?

But the killer lines from the article are these:

Japan is taking a gamble. The gamble is not with inflation but whether state spending and bank lending will actually get money into rapid circulation. The country’s past experience with big infrastructure projects (as favoured by Osborne) is that they yield little short-term stimulus. More roads and railways are a glacier when what is needed is a torrent. The torrent comes from consumer wallets, filled by lower taxes and higher wages. It comes from the fastest possible cash infusion. Any resulting inflation is a problem for the day after tomorrow.

The joy of a country with its own currency is that it can handle it as it wishes, not as eurozone leaders wish. It need not increase government debt but just print money to distribute for as long as it thinks necessary. This could be through higher benefits, higher wages, higher tax thresholds or lower VAT. For that matter, the Treasury could add £10,000 to every adult’s bank balance – a giant version of the pensioners’ Christmas fuel allowance – and still have spent less than it has handed to the banks in the past four years.

Think on that for a minute. If the government had given all the money it gave to the banks over the last four years to private individuals instead, it would be the equivalent to putting £10,000 into the bank account of every adult in the UK. Even if you argue that the financial sector required a cash injection in order to prevent a calamitous collapse of the system, if the government had lavished just half as much on the banks, we could all be receiving a £5,000 cheque in the mail.

Yes, there are arguments to be had about how we put the newly printed money into the hands and bank accounts of the citizenry. Should it be equally per person (no), equally per taxpayer (no), based somehow on one’s past tax contributions (yes, probably), or some other means of allocation? We can have those arguments once we accept the reality that the current course of action is not working, and as we move to follow Japan’s lead and implement their real stimulus policy. We need to face facts and acknowledge that printing money and giving it to the banks has not worked; perhaps giving the money directly to the consumer will.

The economic news emanating from the US and the UK continues to be bleak, and our leaders keep offering the same solutions and hammering out the same compromises between themselves.

In the final, desperate hope of avoiding another lost decade, let us at long last now try something new.

Cracking Down On The Black Economy

The Minister of the Bleeding Obvious states the bleeding obvious in this story from The Telegraph.

Treasury minister David Gauke informs us that it is “morally wrong” to pay tradesmen (plumbers, builders, electricians etc.) with cash in hand, as this makes it easier for them to evade VAT or income tax. Aside from the fact that every cabinet member from Cameron on downwards needs to quit the moral preaching (why can’t you just say “illegal” or “wrong”?), his basic point is right. Until he goes on to say: “Getting a discount with your plumber by paying cash in hand is something that is a big cost to the Revenue and means others have to pay more in tax”.

Seriously, Mr. Gauke? You expect us to believe that the black economy makes our taxes higher? You would tax us just as much as you already do even if you could get your hands on this missing slice of revenue – you would just find new ways to fritter it away on pointless, undeserving goals and beneficiaries. So let’s not pretend that the cash-in-hand job that your local plumber does on the sly is the one thing standing between us and an actual competitive tax code.

You must think we’re all really dumb.