‘We get signals that the
system is under stress’ – leading economist
Ex-Obama adviser Mohamed El-Erian believes
the global system is at crisis point. He
talks to Nils Pratley and Jill Treanor (Observer
May 14th, 2017).
‘He is chief economic adviser to Allianz,
the German financial powerhouse that owns Pimco’ (born in New York to Egyptian
parents, educated at both Oxbridge universities).
Among his pearls of wisdom as a prophet is
the following forecast: ‘We’re either going to turn towards higher growth or
towards recession and unsettling volatility’. As in: ‘Tomorrow will be either
sunny or rainy.’ Predictions like these are never wrong. But Mr El-Erian’s true
wisdom lies in being unafraid to voice the unpalatable, and so avoiding a
reputation for Daily Telegraph-type
boostering. Yet in truth he knows the future no more than I do.
Though Mr El-Erian knows more than I do
about the reasons behind the known unknowns, as Donald Rumsfeld might call
them. Investors today think that the piles of cash on some companies’ balance
sheets will come their way in the form of dividends and share buyouts. ‘You need a major shakeout to change that
mindset.’ (Wot? Capitalism without ‘shareholder value’???) But Mr El-Erian has
a ‘four-point plan’:
The first point: ‘We need to get back to
investing in things that promote economic growth, infrastructure, a more
pro-growth tax system, serious labour re-tooling.’ These are code-words for lower taxes for the
rich and more labour mobility (less security for workers is a sure-fire way of
keeping wage-bills down). So: lower wages combined with less State help for
those who need it. As for youth
unemployment in Europe (which comes up in this part of the conversation): this
is ‘an issue you’ve really got to think about seriously.’ Sage advice. I am
sure we do. If we think hard enough about it, the problem might go away.
Lowering taxes and labour re-tooling might help here, too. Labour being a
machine that can be ‘re-tooled’.
Second, some countries ‘that can afford to
must borrow to invest or cut taxes’. Germany and the US can certainly do this
‘and to a certain extent the UK’. As for Greece, Portugal, Spain, Mexico,
Tuvalu and just about everywhere else all this may not be feasible: at any rate
none of these is mentioned here. So much for them.
Third, ‘pockets of extreme indebtedness
must be addressed’, and debt is a terrible thing to be sure, but perhaps Mr
El-Erian might have proffered a suggestion or two as to how to go about it. It
will be tricky to solve, not only because such ‘pockets’ include the United
States Federal Government, other governments, many business firms and
corporations and millions of individuals and families, but also because one
person’s debt is another’s asset. A wholescale moratorium on all debt everywhere
would bring down the entire world financial system, so presumably that is not part of ‘the plan’.
Fourth, ‘regional and global governance
needs repair’. He instances the Eurozone, which should have fiscal integration
meaning ‘a common budget and political harmonisation’. A magic wand should be sufficient to bring
all this about.
Mr El-Erian is candid that none of this
sounds easy to achieve: it’s ‘a political judgment’.
That is the right way for an economist to
sign off: hand the whole can of worms over to the politicians who will no doubt
say ‘thank you very much’.
Since this is capitalism, which is inimical
to macroeconomic planning and rationalisation of any sort, this ‘plan’ (as is
usual with economists putting forward solutions, such as Ha-Joon Chang in – for
example - 23 Things They Don’t Tell You
About Capitalism,) is a wish-list. This and that should be done, which invariably means that none of it will be
done.
Of course wide swathes of capitalists would
agree wholeheartedly with more tax-cutting and zero-contracting of labour, but
would probably also have to agree, reluctantly, that they are unlikely to bring
about ‘political harmonisation’ of any kind. But that is not an economist’s problem.
This sagacity from an economist is not
without precedent, i.e., passing the buck.
Many years’ ago the eminent Lionel Lord Robbins outlined all the
economic problems facing the Wilson government in a BBC talk. His recommendations
included tax-cuts as well as austerity following from less government
interference in the economy. For Robbins it was ‘up to the politicians’ (I
remember that phrase well) to make his nostrums palatable to the general
public. No doubt all this went down well amongst Lord Robbins’ chums in the
Atheneum.
All in all, Planet Economist appears to
exist in a different eco-system.
