Marxist Moments

‘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 14^th, 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.