{"id":3349,"date":"2013-12-10T23:28:53","date_gmt":"2013-12-10T22:28:53","guid":{"rendered":"http:\/\/www.theoillamp.co.uk\/?p=3349"},"modified":"2014-06-04T18:48:36","modified_gmt":"2014-06-04T17:48:36","slug":"new-economics-2","status":"publish","type":"post","link":"https:\/\/www.theoillamp.co.uk\/?p=3349","title":{"rendered":"New Economics"},"content":{"rendered":"

Economics students at the University of Manchester<\/a> have demanded that after the 2008 financial crash new economics thinking is taught as part of their degree course. They complained that neo-liberal economics is taught \u201cas if it was the only theory\u201d. Their call has been taken up by other students at other universities and also a number of famous economists.<\/p>\n

Up until the 1990\u2032s when the US thinker Francis Fukuyama wrote “The End of History <\/em>and the Last Man<\/em>” there were basically two economic systems, capitalism and Marxism.\u00a0 Both however had variations in the way economists thought about them and how they were implemented.\u00a0 Severe economic problems in the 1930’s led many economists to believe that rise of Hitler and hence the second world war had its roots in German hyperinflation and international currency devaluation.\u00a0 Economists such as John Maynard Keynes believed a new economics was called for.\u00a0 In 1944 as the second world war still raged, economists and officials (including Keynes) from\u00a044 countries met in New Hampshire at a place called Bretton Woods.\u00a0 (Interestingly India was allowed to attend as it was preparing for independence.)\u00a0 They thrashed out an agreement named after its meeting place.\u00a0 The Bretton Woods system called for currencies to tie themselves to the US dollar and the dollar to link itself to gold.\u00a0 In addition institutions such as the International monetary fund (IMF) were created.<\/p>\n

For the next 30 years many parts of the global economy prospered.\u00a0 The boom was driven by both post war reconstruction and cheap energy.\u00a0 Even the communist block boomed.\u00a0 In the early 1960’s it looked like the Soviet Union might even overtake the USA in GDP.\u00a0 This prompting Nikita Khrushchev to boast “We will bury you”.\u00a0 In the West what became known as the post war consensus dominated.\u00a0 This had the following characteristics;\u00a0 high social spending, government intervention in markets, low inflation and full employment as a political priority. Inequality fell.<\/p>\n

However,\u00a0 problems were being stored up for the future.\u00a0 In the UK and other countries the unions became very powerful, driving up wages and costs.\u00a0 After all if you didn’t like your job you could walk across the road and get another one, as I heard one ex car worker from Linwood in Scotland recall on the radio.\u00a0 Meanwhile in the developing world the postwar boom had little effect.\u00a0 They remained poor.\u00a0 The Soviet economy tanked due an attempt to keep up with Western arms spending.<\/p>\n

All this came to an end in the 1970’s.\u00a0 As the cost of the Vietnam war escalated the US pulled out of Bretton Woods unilaterally in 1971. The agreement collapsed.\u00a0 In 1973 the oil crisis partly driven by cold war tensions, erupted.\u00a0 The era of cheap energy that had driven the boom started to come to a close.\u00a0 Inflation rose and labour unrest grew as unions tried to maintain the standard of living of their members.\u00a0 A number of right wing economists such as Milton Friedman became very influential.\u00a0 They called for another type of new economics.\u00a0 The characteristics of this new economics were the opposite of the postwar consensus.\u00a0 They included rigorous control of inflation at the cost of unemployment, privatisation of state assets, a minimal role for the state, low taxation and control of trade unions.\u00a0 If this new economics had a name, it was the “Washington consensus” or “neo-liberalism”.<\/p>\n

These economists found willing acolytes in the form of Reagan and Thatcher in the 1980’s.\u00a0 In the UK (which had had to be bailed out by the IMF) union legislation was introduced.\u00a0 Privatisation took place.\u00a0 Taxes were cut in the US and UK.\u00a0 Government spending was cut.\u00a0 Unemployment and inequality rose. Bill Clinton was persuaded to repeal the banking act that separated the high Street and investment arms of banks.\u00a0 In the UK banks were allowed to offer mortgages.\u00a0 The UK government scrapped exchange controls allowing the free movement of money out of the country.\u00a0 It also liberalised the city of London.\u00a0 In the period of 1989-91 communism collapsed. These changes plus information technology advances and the opening up of China, Russia, India to capitalism in the 1980-90’s led to huge capital flows around the world.\u00a0 This began the process of globalisation.\u00a0 By the noughties a vast middle class had been created in India, China and other developing countries. Global inequality fell.\u00a0 As more and more off-shoring took place the cost of almost anything dropped. However in the West inequality did not fall.\u00a0 Median wages in the US, UK and other countries stagnated.\u00a0 The oil price also started rising around 2000.\u00a0 By 2007\/8 it looked as if neo-liberalism had won.\u00a0 Most people were better off in the West despite falling wages and a huge new middle class had been created in the developing world.<\/p>\n

In 2008 everything changed, or should have.\u00a0 An economic collapse as severe as that in the 1930’s occurred.\u00a0 This time the economic problems were not created by government mismanagement or trade unions, but by greedy and under regulated banks.\u00a0 And a record oil price.\u00a0 Briefly the new economics that had become the default setting was forgotten.\u00a0 Governments spent money to reflate their economies.\u00a0 The UK and US introduced unconventional economics (quantitative easing) which continues to this day.\u00a0 Most governments (apart from the US) under pressure from rising debt then reverted, cutting public spending.\u00a0 This led to the Euro zone crisis.\u00a0 Greece, Ireland, Portugal and Cyprus had to be bailed out by the European and World banks.\u00a0 As I write this the global economy is struggling to recover.\u00a0 However, neo-liberalism that led to the near collapse of the global economy is not dead.\u00a0 Hence the complaints of the Manchester and other students. Neo-liberalism works for some people in China and India.\u00a0 Even there it could be argued it fails many.\u00a0 However,\u00a0 in the West it really only works for the super wealthy.\u00a0 It also takes no account of limits to growth (ecological considerations).\u00a0 We need a new economics.\u00a0 Something I will return to in another post.<\/p>\n

Neil<\/p>\n

This is a rewrite of a post I lost due to server problems.\u00a0 My fault but very annoying all the same.\u00a0\u00a0 I think this rewrite is better.\u00a0 However, if you have read it before you must judge for yourself.<\/p>\n","protected":false},"excerpt":{"rendered":"

Economics students at the University of Manchester have demanded that after the 2008 financial crash new economics thinking is taught as part of their degree course. 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