Keynes part 2 – internationalist or nationalist?

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Follow this link for part 1: Keynes, Revolutionary or Reactionary

by Michael Roberts

Was Keynes the great internationalist who aimed to make capitalism a stable system through macro management on a world scale?  This is Ann Pettifor’s claim in her recent paeon of praise to Keynes.  Keynes made his name in showing that the policies of penury on Germany after WW1 would be self-defeating for the interests of France and Britain.  And he supposedly was the promoter of “the construction of the international financial architecture at Bretton Woods in 1944. Politicians and economists (if not bankers) had finally come round and endorsed his theory and policies.” (Pettifor). 

Well, yes he wanted to set up ‘civilised’ institutions to ensure peace and prosperity globally through international management of economies, currencies and money. But these ideas of a world order to control the excesses of unbridled laisser-faire capitalism were eventually turned into institutions like the IMF, World Bank and the UN Council, mainly used to promote the policies of imperialism, led by America. Instead of a world of ‘civilised’ leaders sorting out the problems of the world, we got a terrible eagle astride the globe, imposing its will.  Material interests decide policies, not clever economists.  Keynes, the internationalist, gave us the IMF’s penury on struggling emerging economies.

Moreover, Keynes was always more a representative of the interests of the British empire than an internationalist.  After all, he had been in the British civil service in India.  The biographer of Keynes, Lord Skidelsky, entitles the third volume of his biography, Keynes: Fighting for Britain.  At the post-war Bretton Woods meetings, he represented, not the world’s masses or a democratic world order, but the narrow national interests of British imperialism against outright American dominance. After the agreement, Keynes told the British parliament that the Bretton Woods deal was not “an assertion of American power but a reasonable compromise between two great nations with the same goals; to restore a liberal world economy”. Only two nations mattered, the interests of others were ignored.

Was Keynes an internationalist when it came to economics?  He started off as a ‘free trader’ with the traditional neoclassical view that free markets in trade would benefit all.  As an under-graduate he served as secretary of the Cambridge University Free Trade Association and argued for free trade in several debates.  “We must hold to Free Trade, in its widest interpretation, as an inflexible dogma, to which no exception is admitted, wherever the decision rests with us. We must hold to this even where we receive no reciprocity of treatment and even in those rare cases where by infringing it we could in fact obtain a direct economic advantage. We should hold to Free Trade as a principle of international morals, and not merely as a doctrine of economic advantage.”  By 1928, however, Keynes had altered his position by suggesting that “the free trade case must be based in the future, not on abstract principles of laissez-faire, which few now accept, but on the actual expediency and advantages of such a policy.”

The terrible experience of the Great Depression shifted his views further.  In private evidence given in 1930 before the UK’s government-sponsored Macmillan Committee on Finance and Industry, set up to offer economic advice to the British government at the onset of the Great Depression, Keynes proposed import tariffs on foreign goods and subsidies for domestic investment. When asked whether abandoning free trade was worth the potential ameliorative effects of protection, Keynes replied, “I have not reached a clear-cut opinion as to where the balance of advantage lies,” but he saw the merits of tariffs as an alleviation of the slump. “I am frightfully afraid of protection as a long-term policy,” he testified, “but we cannot afford always to take long views . . . the question, in my opinion, is how far I am prepared to risk long-period disadvantages in order to get some help to the immediate position.”

Before long, he went further towards protectionist measures.  In response to questions from the prime minister, Keynes indicated that he had “become reluctantly convinced that some protectionist measures should be introduced.” In a memorandum prepared in September 1930 for the Committee of Economists of the Economic Advisory Council, Keynes elaborated on the benefits of a tariff, which he now described as “simply enormous.” These benefits included solving the basic problem of the misalignment of money costs and the exchange rate: a tariff would raise domestic prices and reduce real wages toward their ‘equilibrium value’, while avoiding a disruptive fall in nominal wages (so real wages would fall without the working class noticing). A tariff would also “restore business confidence and create a favourable climate for new investment”, he stated, “but would not (unless poorly designed) trigger demands by trade unions for higher pay or have adverse employment effects.” Tariffs would thus help British capital against its competitors by squeezing the real incomes of British households. Keynes preferred devaluation of the currency but tariffs would also be necessary.

He now advocated ’beggar thy neighbour’ economic policies to help British capital against its rivals. By 1933 he wrote of his sympathy “with those who would minimise, rather than with those who would maximize, economic entanglements between nations. Ideas, knowledge, art, hospitality, travel-these are things which should of their nature be international. But let goods be homespun whenever it is reasonable and conveniently possible; and, above all, let finance be primarily national.”  However, once the depression and war was over, Lord Keynes in his last speech returned to his support for the theory of ‘free trade’ when he said that “separate economic blocs and all the friction and loss of friendship they bring with them are expedients to which one may be driven in a hostile world where trade has ceased over wide areas, to be cooperative and peaceful and where are forgotten the rules of mutual advantage and equal treatment. But surely it is crazy to prefer that.”

I think what this tells you is that Keynes was an internationalist and free trader when he thought it was in the interests of British capital, but in favour of protection and beggar thy neighbour policies when he thought it was in the interests of British capital. For him, there were only two ‘civilised’ nations, the US and the UK (as junior partner), who could lead the world.  Keynes never criticised the role of the British Empire, on the contrary, he saw it as a good thing and something to be preserved.

Europe as a rival to American imperialism came after Keynes’ death.  With the rise of Europe, British capital began to move towards the continent, joining the Single Market and the EU.  But British capital remained split about where to align.  Within the psyche of the British ruling elite (mainly smaller and domestic-based capital), there has remained a nostalgia for the Empire and a look back across the Atlantic ‘pond’.  With the demise of Europe’s economies after the Great Recession, the reactionary empire loyalists pushed for a break with Europe and a return to the ‘old order’ as junior partner to American imperialism that existed in Keynes’s day.

How would Keynes have reacted to this?  In my view, as he was at the time of Bretton Woods, Keynes was generally in favour of freer trade and international capital flows, as he thought it would be to the advantage of Anglo-American capital.  So he may have supported the UK’s entry into the EU, but not into the euro, because that would have taken away control over the currency and the option of devaluation.  What would Keynes’ view have been on Brexit?  Would Keynes have been a ‘leaver’ or ‘remainer’?  Probably the former as that is where his nationalist inclinations lay. But maybe the latter, as according to his economic rival of the 1930s, Friedrich Hayek, Keynes changed his ideas like he changed his shirts.  Keynes was an internationalist only as long as it did not conflict with the interests of British capital (or American imperialism) – pretty much the same position as Churchill.

Keynes was vehemently opposed to socialist internationalism.  Keynes saw all his policies as designed to save capitalism from itself and to avoid the dreaded alternative of socialism.  As he made clear: “For the most part, I think that Capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways extremely objectionable. Our problem is to work out a social organisation which shall be as efficient as possible without offending our notions of a satisfactory way of life.”  So “the class war will find me on the side of the educated bourgeoisie.”  Was he a fighter for greater equality?  This is what he said. “For my own part, I believe that there is social and psychological justification for significant inequalities of incomes and wealth, but not for such large disparities as exist today. There are valuable human activities which require the motive of money-making and the environment of private wealth-ownership for their full fruition.“  This is Pettifor’s revolutionary.

Keynes reckoned that as capitalism expanded, it would, through more technology, create a world of abundance and leisure.  Because of that abundance, the return on lending money to invest would fall.  So bankers and financiers would no longer be necessary; they could be phased out (‘the euthanasia of the rentier’).  Well, that does not seem to be happening.  The followers of Keynes now argue that capitalism is being distorted by ‘financialisation’ and finance capital – and that is the real enemy.  What happened to the gradual phasing out of finance in late capitalism a la Keynes?

In contrast, Marx’s theory of finance capital did not foresee a gradual removal of finance; on the contrary, Marx described the increased role of credit and finance in the concentration and centralisation of capital in late capitalism.  Yes, the functions of management and investment become more separated from the shareholders in the big companies, but this does not alter the essential nature of the capitalist mode of production – and certainly does not imply that coupon clippers or speculators in financial investment will gradually disappear.

Keynes, the supposed radical opponent of neoclassical economics, according to Pettifor, reverted back.  In one of his last articles on the capitalist economy as the Great Depression ended and the second world war began, Keynes remarked that “Our criticism of the accepted classical theory of economics has consisted not so much in finding logical flaws in its analysis as in pointing out that its tacit assumptions are seldom or never satisfied, with the result that it cannot solve the economic problems of the actual world. But if our central controls succeed in establishing an aggregate volume of output corresponding to full employment as nearly as is practicable, the classical theory comes into its own again from this point onwards.” So once full employment is achieved, we can dispense with planning and ‘socialised investment’ and return to free markets and mainstream neoclassical economics and policy: “the result of filling in the gaps in the classical theory is not to dispose of the ‘Manchester System’ (‘free’ markets – MR), but to indicate the nature of the environment which the free play of economic forces requires if it is to realise the full potentialities of production.”

Indeed, economically, in his later years, he praised the very laisser-faire ‘liberal’ capitalism that his followers condemn now.  In 1944, he wrote to Friedrich Hayek, the leading ‘neo-liberal’ of his time and ideological mentor of Thatcherism, in praise of his book, The Road to Serfdom, which argues that economic planning inevitably leads to totalitarianism: “morally and philosophically I find myself in agreement with virtually the whole of it; and not only in agreement with it, but in a deeply moved agreement.”! And Keynes wrote in his very last published article, “I find myself moved, not for the first time, to remind contemporary economists that the classical teaching embodied some permanent truths of great significance…. There are in these matters deep undercurrents at work, natural forces, one can call them or even the invisible hand, which are operating towards equilibrium. If it were not so, we could not have got on even so well as we have for many decades past.”  Thus the ‘(neo) Classical’ economics of the ‘invisible hand’ and ‘equilibrium’ returned after all – the opposite of what Keynesian followers now stand for. Once the storm (of slump and depression) had passed and ‘the ocean’ was flat again, bourgeois society could breathe a sigh of relief.  So Keynes the radical turned into Keynes the conservative.

Yet the myth of Keynes, the radical and revolutionary, is preserved and promoted by the Keynesian left and continues to influence the labour movement (particularly its leaders) as the ‘alternative’ to neo-liberal, ‘austerity’ pro-market economics.  Why is this?  Well, there are theoretical reasons.

Keynesian macroeconomics assumes that capitalism works to develop the productive forces and meet the needs of people. The problem is that occasionally, there is a ‘technical malfunction’ (Paul Krugman).  For some reason (loss of confidence, or animal spirits?), capitalist investment gets stuck in a ‘hoarding of money’ mode that it cannot get out of (liquidity trap).  So it is necessary for government authorities to give it a ‘nudge’ with monetary and/or fiscal stimulus, and then all will be right again – until the next time!  Keynes liked to consider economists as dentists fixing a technical problem of toothache in the economy (“If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid”). And modern Keynesians have likened their role as plumbers, fixing the leaks in the pipeline of accumulation and growth.

What the Marxist analysis of the capitalist mode of production reveals is that capitalism cannot deliver an end to inequality, poverty, war and a world of abundance for the common weal globally, or indeed avoid the catastrophe of environmental disaster (something ignored by Keynes), over the long run.  That’s because capitalism is a mode of production driven by profit not need; exploitation not cooperation; and that generates irreconcilable contradictions that cannot be resolved by ‘technical macro-management’ of the economy.  It can only be resolved by replacing it.  In this sense, Marx, rather than Keynes, is closer to Darwin as a revolutionary in economics.

But there is another reason.  Geoff Mann, in his excellent book, In the long run we are all dead, offered an explanation. Keynes rules on the left because he offers a supposed third way between socialist revolution and barbarism, i.e. the end of civilisation as ‘we’ (actually the bourgeois like Keynes) know it.  In the 1920s and 1930s, Keynes feared that the ‘civilised world’ faced Communist revolution or fascist dictatorship.  Socialism as an alternative to the capitalism of the Great Depression could well bring down ‘civilisation’, delivering instead ‘barbarism’ – the end of a better world, the collapse of technology and the rule of law, more wars etc.

So Keynes aimed for some modest fixing of ‘liberal capitalism’, to make capitalism work without the need for socialist revolution.  There would no need to go where the angels of ‘civilisation’ fear to tread.  That was the Keynesian narrative.  This appealed (and still appeals) to the leaders of the labour movement and ‘liberals’ wanting change.  Revolution is risky and we could all go down with it: “the Left wants democracy without populism, it wants transformational politics without the risks of transformation; it wants revolution without revolutionaries”. (Mann p21).  But we shall indeed all be dead if we do not end the capitalist mode of production.  And that will require a revolutionary transformation. Tinkering with the supposed malfunctions of ‘liberal’ capitalism will not ‘save’ civilisation – in the long run.
 
Podcast: Michael Roberts on Understanding Karl Marx and His Thinking on Capitalism

A Poem For World Food Day

SalimahValiani

a poem for World Food Day

All in a spoon

A small teaspoon,
A teaspoon twice its size:
What can one do
which the other cannot?

A small teaspoon can train the mind to
eat less eat slower
A small teaspoon can stretch
l e s s f o o d f u r t h e r
A small teaspoon leads to a soup spoon,
fork, and other utensils
which narrow the gaps
between adults, older people and children.

Imagine the majority of an entire country
using the small teaspoon
Imagine the majority of another country
using the larger teaspoon
Who provides the spoons on the market?
What is the difference in relative price
(almost none)

The difference is between two economies:
One structured on supplying a minority with plenty
at prices better than affordable
(because everyone else’s wages are so low)
One structured on milking a majority which
is paid just enough to over-consume half-real products
The difference is between
Apartheid capitalism
and
American capitalism

Both of which are still with us today.

*from Letter Out : Letter In (Salimah Valiani, 2009, Inanna)
@SalimahValianiPoet
Salimah Valiani Blog

US Imperialism in Central America; A Legacy of Violence and Murder

Richard Mellor

Afscme Local 444, retired

I sat next to a guy on the plane coming back from Ireland recently and he seemed nice enough and probably was had we continued to talk about superficial issues of little importance when it comes to living or dying on the earth.

I can’t recall how we touched on it but he made some comment about the problems they are having in Europe with immigrants trying to get it to Germany, Italy and other countries.  I discontinued the discussion but ended it informing him that these people were not “immigrants” they were refugees fleeing US bombs and also colonialism and imperialism’s long legacy of plunder in Africa and the Middle East. He had mentioned how Ireland was unable to develop because the British never allowed them to but didn’t seem to see the same process outside of Ireland which I assume was the home of his ancestors. The last thing I recall him saying was he was from Texas and liked wide open spaces.

There was a woman sitting in between us, an urbanite, a New Yorker, but I gathered she was similar in her thinking as when I raised the issue of women and the recent movement against sexual abuse she didn’t disagree but she said something like “It’s all about choices” and then proceeded to tell me how hard it has been for her and she fought basically. It's a bit of a red flag to me that view.

I figured both of them were at the very last conservative, professionals or comfortably off, and more likely Trumpists. I should add as an aside, that the meme’s I see on Facebook, particularly coming from Democratic sites or Democratic Party apologists often portray Trump supporters as the white working class exclusively but this is mistaken as a huge section of the petit bourgeois and middle class support him including those of color. It’s the Shekels baby as my old human resources nemesis used to say and I had a great deal of respect for him. The Democrats hate workers too so it’s useful to blame “backward” white workers for everything as it also keeps the old “divide and rule” magic alive.

What made me think of them is the ignorance that exists in US society when it comes to the global role US capitalism has played historically. It exists in other countries too but the capitalist mass media in the US is very powerful, controlled or outright censored and this and its powerful economy and ability to feed its population in the main (even if it’s stuff that fills the belly but isn’t food) has left the US population very much isolated with regards to the rest of the world and knowledge of its role in history.

As my fellow passenger correctly sees with regard to Ireland, the poorer countries of Central and Latin America will never really develop, will always remain poor as US capitalism to the north guarantees it. Like Africa to British colonialism, the US has traditionally seen Latin America as its own back yard. The US has invaded Mexico alone many times. The US encouraged Panama, which was a part of Colombia, to secede in 1903 so that US capitalism could build a canal across the isthmus. The French had tried before the US but the death toll was staggering. Some 26,000 workers died building the canal. When the US took over in 1903 it was mostly Afro-Caribbean workers that built it.

See: “White employees of the Canal Commission were given comfortable housing, while many black workers lived in railway boxcars or shacks in the forests bordering the work site. In the early years, malaria and yellow fever were rife and accidents were frequent. Records at the wooden museum show that of 5,600 employees killed by disease and accidents between 1904 and the project's completion 10 years later, 4,500 were black.” http://usslave.blogspot.com/2011/07/panama-canal.html

US capitalism’s dominant economic and military power ensures that the canal, although managed by Panama, is defended by the US military. See Panama Canal

I see now that the Trump administration is concerned about the rise in Guatemalan immigration in to the US and a top border official has been sent to Guatemala to investigate. Trump has even threatened sanctions against the Guatemalan government if it doesn’t stop people heading north. The migration “confounds officials” the Wall Street Journal reports today. I don’t know the level of reporting on this in the mass consumption dailies if it’s mentioned at all, but the WSJ also cannot expose the true nature of history.  The Journal talks of the history of “unrelenting violence” that forced northward, “….roughly 70,000 immigrant families and nearly as many unaccompanied children in 2014.” But is the historic the source of this violence?

But more recently, “The causes have become more elusive”, the Journal adds as 42,000 Guatemalans were arrested at the US border between October last year and this August. The US official has been visiting “US government funded or supported projects…” that are designed to help the local economies such as job training and such. Now considering the US government cannot provide such things for US citizens, it doesn’t take rocket science to figure out that a visit from US government officials is a kiss of death. An indigenous rights activist points out that malnutrition is widespread and access to land for agriculture is very limited and if they can’t grow food they can’t eat.  The situation according to the US representative is “not acceptable.”

US capitalism will never permit, Guatemala or any of the former colonial countries in Latin America to develop independently just as the man on the plane I described above suggested about Ireland. Haiti will always be a basket case, US imperialism cannot have an independent nation, free of US influence near its borders or anywhere in Central America. The history of US capitalism’s intervention in this part of the world is well known; assassinations, occupations, intervention covert and overt, coups, right wing death squads, this is the US legacy in all of Latin and Central America.

In 1954 a CIA sponsored coup overthrew Guatemala’s democratically elected government of Jacobo Arbenz on behalf of the United Fruit Co. and other big landowners. Arbenz had introduced land reforms that threatened the domination of the United Fruit Company over Guatemalan society. Only 2% of landowners owned 72% of the arable land, much of it unused. United fruit alone held 600,000 acres of mostly unused land. The Guatemalan colonel that the CIA selected to replace Arbenz immediately outlawed hundreds of trade unions and returned more than 1.5 million acres to United fruit Co.

Instrumental in planning the coup were the Dulles brothers, Secretary of State John Foster Dulles and his brother, Allen Dulles who was director of the CIA. These two also helped orchestrate the CIA coup that overthrew the secular democratic government of Mossadegh in Iran in 1953 and replaced him with the murderous Shah. They were former partners of United Fruit’s main law firm in Washington. By 1985 some 75,000 people were dead or had disappeared at the hands of the Guatemalan dictatorship; a huge amount in this tiny country. Some 150,000 Indians fled to Mexico and beyond. Many of the brothers and sisters we see on the streets as day laborers are from this area.

This is the backdrop to why people from Central America risk life and limb, face violence and rape, to come to the US.  Guatemalans don’t leave their homes, Mexicans don’t leave theirs, because they want to. As I responded to the woman on the plane I refer to above, people do make individual choices but we rarely if ever, choose the circumstance under which this free will is expressed so it’s not so free.

I am a socialist and do not believe this situation will ever change if capitalism is not eradicated. As workers we know that in the US, the education system does not teach working class history. Their mass media does not report on the heroic struggles of the working class and all oppressed people in an honest unbiased way----it can’t. It doesn’t report on a strike or a labor dispute from our point of view.

It is even more biased when it comes to US capitalism/imperialism’s role abroad. The US bought the Philippines off of Spain for $20 million. The British queen Victoria was the Empress of India. She was declared so by the British Parliament; the Indian people had no say in it, especially the workers and poor people. Is this a history of a civilized world? It is not.

Just like we do, the workers and poor people of the world rise up against this oppression, at least try to escape the consequences of it and more often than not by emigration. This is why there are so many Irish and other Europeans here, their ancestors fled poverty, prejudice and discrimination.

Knowing as we do that in the US we are lied to and victimized by the wealthy and those in power, I want to appeal to my fellow working class sisters and brothers to look beyond out borders, to reject the xenophobic and racist lies that are used to explain immigration and mass migrations of people. To reject the false idea that US capitalism is some egalitarian force in the world. We can reject the history of the powerful, of the ruling classes. The Internet gives us the opportunity to seek knowledge and information about history and global relations. I can sit here in my living room and write my thoughts and with the click of a mouse massive amounts of information not shared in the biased capitalist media are available to me.

We are close to another slump or economic crisis as bad or worse than 2008.  It is in our interests as workers to recognize that other workers within the US and outside of it are class allies, not our enemies.

One immediate example. United Parcel Service is a global corporation, employs workers throughout the world. The Teamster hierarchy in the US has just imposed a contract on the workers there that they rejected by majority vote. The Teamster leadership is supporting the employers as they all do. The rank and file teamsters at UPS can win this battle against our own leaders atop organized labor and they can certainly do it with support from workers internationally. All workers throughout the world have the same interests; we are class sisters and brothers. Seeing foreign workers as enemies and competitors or attacking immigrants and not rejecting the capitalist media's lies about why they migrate is against our self interest.

Reply to Trump: Global warming explained in three easy tweets

We share these comments that were originally published on the Ecosocialist website, Climate and Capitalism

Science 1; Trump 0

Reply to Trump: Global warming explained in three easy tweets
Posted on October 15, 2018

 
A leading climate scientist replies to the world’s leading climate science denier 

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The president of the United States now admits climate change is not a hoax. It is happening, he says, but he doesn’t know what is causing it, and he thinks it might change back. 

Stefan Rahmstorf, head of Earth System Analysis at the Potsdam Institute for Climate Impact Research and professor of Physics at Potsdam University, responded with the three simple tweets published below — an incontrovertible summary of the science that Trump and his fossil fuel backers deny.

You can follow Professor Rahmstorf on Twitter: @rahmstorf

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Tweet #1. How do we know global warming is human-caused? Because we know where the extra energy that heats our planet is coming from. Through changes in the energy budget of Earth – that’s how much radiation comes in, how much goes out. The change in this is called “radiative forcing.”

Tweet #2. Possible causes of radiative forcing: changes in solar activity, in volcanic activity or greenhouse gases. The latest US Climate Assessment shows how much each of these contributed. See https://science2017.globalchange.gov/  The human contribution is about 100%. That is: all of it.


Tweet #3. How do we know the rising CO2 in the atmosphere is 100% human-caused? Because we’ve added about twice as much fossil CO2 to the atmosphere as is needed to explain the observed increase! The rest that’s not in the atmosphere was taken up by forests and the ocean. End.

Keynes: revolutionary or reactionary?

John Maynard Keynes

by Michael Roberts

Keynes: revolutionary or reactionary? – part one: the economics

Was Keynes a revolutionary in economic thought and policy?  Was he at least radical in his ideas?  Or was he a reactionary opposed to the interests of working people and a conservative in economic theory?  Ann Pettifor is a leading economic advisor to the British leftist Labour leaders, Jeremy Corbyn and John McDonnell.  She is director of Prime Economics, a left-wing economics consultancy and author of several books, in particular the recent The Production of Money.  And she has just won Germany’s Hannah Arendt prize for political thought – for focusing on “the political and societal impact of the current money production system, mainly operated by banks through digital lending” and as effective critic of “the global financial industry, which operates outside of the scope of political influence and democratic control”.

So Ann Pettifor is an undoubted battler against the austerity economics of the neoclassical school and a promoter of government measures to restore public services and boost the economy.  But to achieve that, she relies entirely on the theories and policies of JM Keynes and ‘Keynesianism’.  Recently she published a short article for the prestigious Times Literary Supplement, entitled The indefatigable efforts of J. M. Keynes. This is part of Footnotes to Plato, a TLS Online series appraising the works and legacies of the great thinkers and philosophers.

In this article, Pettifor compares Keynes’ theories as being as game-changing in economics as the discovery of evolution by Charles Darwin in biology.  In her view, Keynes ‘invented’ macroeconomics, the study of trends in economies at the aggregate level, escaping the stifling neoclassical obsession with microeconomics (the study of value and markets at the level of the individual unit).  She concurs with Keynes’s theory of money and his explanation of crises under capitalism as being caused by ‘hoarding’ money rather than spending it; and she praises his ‘internationalism’ in arguing for international financial institutions to control financial speculation and avoid instability in market capitalism.  She finishes with the concern that Keynes’ ideas and policies have been reneged on and rejected and there has been a return to ‘decadent’ capitalism, far removed from the golden age of the post-1945 period when Keynesian policies were applied to make capitalism work effectively for all.  She concludes with the call that “It is time to restore the revolutionary Keynes.”

Well, I beg to differ on this view of Keynes and Keynesian theories and policies.  For a start, it is inflated to suggest that Keynes’ ideas are on a par with those of Darwin.  Yes, there may be a few creationists who reckon that God designed the world and its living beings in his own image and preserved it accordingly.  But no sane person thinks this has any validity.  The evidence is overwhelming that Darwin was broadly right on the evolution of life.  But can we say that Keynes is broadly right about the laws of motion and trends in the capitalist economy?  I don’t think so – and I’ll briefly attempt to show why.

For a start, Pettifor is wrong when she says that ‘classical economics’ was microeconomics as we know it now.  The use of the term ‘classical’ used by Keynes bunched all the great early 19th century economists like Adam Smith, James Mill and David Ricardo and their grand studies of economies with the reactionary marginalist, subjectivist, equilibrium theories of the mid to late 19th century of Jevons, Senior, Bohm-Bawerk, Walrus and Mises. Keynes rejected the former while continuing to accept the microeconomics of the latter.  For the classical economists of the early 19th century capitalism, there was no distinction between the micro and the macro.  The task was to analyse the motion and trends in ‘economies’ and for that a theory of value was a necessary tool but not an end in itself.

Microeconomics became an end in itself as a way of combating the dangerous development in classical economy towards a theory of value that implied the exploitation of labour and conflicting social relations.  So the labour theory of value was replaced with the marginal utility of purchase by the consumer as a result.  ‘Political economy’ started as an analysis of the nature of capitalism on an ‘objective’ basis by the great classical economists.  But once capitalism became the dominant mode of production in the major economies and it became clear that capitalism was another form of the exploitation of labour (this time by capital), economics quickly moved to deny that reality.  Instead, mainstream economics became an apologia for capitalism, with general equilibrium replacing real competition; marginal utility replacing the labour theory of value; and Say’s law replacing crises.

Macroeconomics appears in the 20^th century as a response to the failure of capitalist production – in particular, the great depression of the 1930s.  Something had to be done.  Keynes kept marginalist theory from his mentor, Alfred Marshall, but dynamically moved it beyond supply and demand among individual consumers and producers onto the aggregate. Mainstream ‘bourgeois’ economics could no longer rely on the comforting theory that marginal utility would equate with marginal productivity to deliver a general equilibrium of supply and demand and thus a harmonious and stable growth path for production, investment, incomes and employment.  The automatic equality of supply and demand, Say’s law, was now questioned.  It had to be recognised that capitalism was subject to booms and slumps, to (permanent?) disequilibria, and thus to regular crises.  And these crises had to be dealt with – to be ‘managed’.  That required macroeconomic analysis.  In a sense, bourgeois economics had to put back the economic clock to classical economics – the study of aggregate trends – but without returning to ‘political economy’, which recognised that economics was really about social structure and relations (class exploitation) and not a theory of ‘scarcity’ and ‘market prices’.

Contrary to Pettifor’s account, it only appeared that Keynesian macroeconomics had done the trick in saving capitalism.  In the ‘golden age’ of post-1948 capitalism, economic growth was strong, employment was full and incomes high.  So (macro) economics could appear to provide policies to ‘manage’ capitalism successfully.  But this was just a momentary illusion.  The golden age soon lost its glitter.  Keynesian theory and policy was exposed with the first simultaneous international recession of 1974-5 and was followed by the deep slump of 1980-2.  Remember these major collapses in production and investment internationally took place during the supposed operation of Keynesian policies of macroeconomic management, in Pettifor’s account.

Pettifor says the crises of late 20^th century were the result of “the decision by public authorities the world over to abandon the regulation of credit creation and capital mobility after the 1960s and early 70s”, in other words, a lack of regulation over the reckless bankers.  But the question not answered is: why the strategists of capital dropped Keynesian-style management and control and opted for de-regulation etc if it was all working so well in the 1950s and 1960s?  The reason that pro-capitalist governments swung to monetarism and neoliberal policies was that Keynesianism had failed.  And it failed in the most important area for capitalism – in sustaining the profitability of capital.

The big change from the mid-1960s onwards up to the early 1980s was a collapse in the profitability of capital in the major economies leading to a succession of slumps in 1970, 1974 and then 1980-2.  This is what provoked capitalist theorists and policy makers to break with Keynes.  Public services, the welfare state, good wages and full employment could no longer be ‘afforded’ and, as Pettifor says, Keynesianism was seen to be “state interventionist, soft on government deficit spending.”  But all these policy reversals came after the slump of the 1970s before which finance capital was ‘regulated’, currencies were ‘managed’, trade unions had rights, the government could intervene fiscally, and there was little privatisation.  It was the failure of capitalist production and the inability of Keynesian ideas to work that caused the change in theory and policy, not vice versa.

Nevertheless, Pettifor argues, dropping Keynesianism was a mistake for the ‘powers that be’ because Keynes had all the answers to avoid crises and get capitalist economies going. You see Keynes had developed a “revolutionary theory” of money – his Liquidity Preference Theory.  This explained that crises occur when investors or holders of money do not spend it, but hoard it.  They do this for some subjective reasons – a lack of ‘animal spirits’, a loss of belief that any spending or investing will deliver sufficient return.  So a surplus of money builds up that is not spent.  The answer, claims Pettifor, is for the monetary authorities to intervene and drive down the cost of borrowing by ‘printing’ money, so that interest rates on borrowing fall below the perceived return on investing.  This will encourage money hoarders to invest.  Such policies are “still considered too radical to be acceptable today”.

In her book, The Production of Money, Pettifor tells us that “money is nothing more than a promise to pay” and that as “we’re creating money all the time by making these promises”, money is infinite and not limited in its production, so society can print as much of it as it likes in order to invest in its social choices without any detrimental economic consequences.  And through the Keynesian multiplier effect, incomes and jobs can expand.  And “it makes no difference where the government invests its money, if doing so creates employment”.  The only issue is to keep the cost of money, interest rates, as low as possible, to ensure the expansion of money (or is it credit?) to drive the capitalist economy forward.  Thus there is no need for any change in the mode of production for profit; just take control of the money machine to ensure an infinite flow of money and all will be well.

Well, capitalism is a monetary economy but it is not a money economy (alone).  Money cannot make more money if no new value is created and realized.  And that requires the employment and exploitation of labour power.  Marx said it was a fetish to think that money can create more money out of the air.  Yet this version of Keynesianism seems to think it can.  When central banks expand the money supply through printing ‘fiat’ money or creating bank reserves (deposits), more recently so-called ‘quantitative easing’, this does not expand value.  It would only do so if this money is then put to productive use in increasing the means of production or the workforce to increase output and so increase value.

But, as Marx argued way back in the 1840s against the ‘quantity theory of money’, just expanding the supply of ‘fiat’ money will not increase value and production but is more likely to inflate prices and thus devalue the national currency, and/or inflate financial asset prices.  It is the latter that has mostly happened in the recent period of money printing.  Quantitative easing has not ended the current global depression but merely sparked new financial speculation. This version of Keynesian economics is thus hardly ‘revolutionary’ or ‘radical’ at all, as it was adopted by all central banks after the Great Recession in 2008 and has failed to restore economic growth, productive investment and average incomes.

Actually, during the Great Depression of the 1930s, as it worsened, Keynes himself came to dispense with monetary solutions to the slumps and opted for fiscal stimulus and even proposed the ‘socialisation of investment’, a much more radical policy than the production of more money.  In his Treatise on Money, written in 1930 at the start of the Great Depression, Keynes argued that central banks would have to intervene with what we now call ‘unconventional monetary policies’ designed to lower the cost of borrowing and raise sufficient liquidity for investment. Just trying to get the official interest rate down would not be enough.  But by 1936 after five more years of depression (similar to the time since the Great Recession now), Keynes became less convinced that ‘unconventional monetary policies’ would work.  In his famous General Theory of Employment, Interest and Money, Keynes moved on.

Why did just the production of more money fail, according to Keynes?  The problem was that ““I am now somewhat sceptical of the success of a merely monetary policy directed towards influencing the rate of interest… since it seems likely that the fluctuations in the market estimation of the marginal efficiency of different types of capital, calculated on the principles I have described above, will be too great to be offset by any practicable changes in the rate of interest”.  And so Keynes moved on to advocating fiscal spending and state intervention to complement or pump-prime failing business investment.  Pettifor has latched onto that part of Keynesian macro theory and policy, monetary easing, to the neglect of fiscal stimulus, let alone the more radical policy of the ‘socialisation of investment’ (not even mentioned by Pettifor).  Thus Pettifor’s account of Keynes’s economics is at his least ‘revolutionary’.

Part Two: Was Keynes a revolutionary internationalist or reactionary nationalist?

Cathy Harkin Street Derry. A Working Class Heroine. October 5th 1968.

Cathy Harkin

by John Throne.

I see that there is now a street in Derry named after Cathy Harkin. I do not know if this is "official" in the eyes of the city. However that is not so much here or there,  it is "official" in the history of Derry, it is inseparable from the hearts of all who knew and were influenced by Cathy. I was one of those. Cathy made my life immeasurably better. Inspiring me, teaching me, telling me off now and then when I deserved it. Thank you Cathy.

I have recently written a book called "We'll Take A Cup Of Kindness Yet".  It covers my days in Derry my involvement in the civil rights movement and "The Bogside Uprising". Below is a short excerpt from this where I describe my visit to Cathy on the morning of October 6th and how on that morning my life was given direction, was changed for the better. How on that day outside Cathy's door on Butcher Street I drew conclusions that would guide me for the rest of my life. I weep here as I see this wonderful photo of Cathy. Thank you Cathy. * 

Excerpt from  "We'll Take A Cup Of Kindness Yet" By John Throne. 

"The US civil rights movement had inspired a civil rights movement in Northern Ireland against the discrimination suffered by the Catholic minority there. A civil rights march was organised in Derry for 5th October 1968. The Northern Ireland police viciously attacked this march. This was recorded by a TV crew and within hours was being watched in millions of homes around the world. These events changed my own world. I vowed I would never again let the threat of a conflict with my family stop me from fighting for what I believed.

The next morning, 6th October 1968, I drove to Derry at the crack of dawn. It was Sunday and the roads were deserted. I drove fast. I was on my way to see Cathy Harkin, the secretary of the Derry Labour Party. Cathy lived on Butcher Street in the Catholic enclave inside the city walls. The roadway and sidewalks outside her door were littered with stones, rocks and broken bottles from the previous night’s battle with the police. I picked my way through this debris, this symbol that a new era had begun in the North.

Cathy was a smart, strong, combative, working class woman and one of the leaders of the Derry Labour Party. She spoke her mind and fought for her beliefs. She was a dedicated socialist. She also fought for women’s equality, she fought against the special oppression of women. She was a founder of the Women's Aid Centre. Cathy was a pioneer, a leader and a fighter. She would die young from cancer. This was a tragedy. I knew Cathy through my friend Dolores who lived in the Bogside, the main Catholic area of the city.

Cathy answered my knock with sleep in her eyes. She must have thought I was mad waking her up at that hour. But what I was feeling had been building in me for years and could not wait. Contrary to my usual politeness I did not even say hello. Instead I said, ‘Cathy I have to get involved in this.’ These were my exact words. Cathy gave me the date of the next meeting of the Derry Labour Party. I thanked her and let her get back to bed.

Before I left the sleeping city I drove over through the Fountain, the main Protestant enclave inside the city walls. The contrast was stark. There were no stones or rocks or broken bottles littering the streets and sidewalks. There had been no battle with the police in that area. I looked at the curtained windows and the closed doors and wondered what the people inside were thinking as they lay in their beds or made their breakfast. Did they realise that the events of the night before had changed their lives forever?

I knew they had changed mine. That morning at Cathy’s door on Butcher Street, inside the walled City of Derry, under the impact of the events of the day and night before, I found my role in the world, my place in the world. I found my bearings. From then on I would be a conscious, active fighter against injustice and to try to change things for the better. During the rest of my life the conclusion I came to that day would remain my guiding principle. 

That conclusion was: Whenever I saw things that I thought were wrong I would speak out and try to organise against them; whenever I saw things that I thought were right I would speak out and try to organise for them. I would never again be a passive, inert member of society. Cathy helped me come to this conclusion. Thank You Cathy.   I grieve that you are not here with us today. 

* The Donegal Woman, the author's account of his grandmother's experience hired out to work under the Irish "Hiring Fair" system and We'll Take a Cup of Kindness Yet can be purchased here at Books.ie

Driving Trump from Chicago Was a Magic Moment for Workers.

By Richard Mellor

Afscme Local 444, retired

I was motivated to make this comment by a statement on this blog here.

Myself and others at Facts For Working People blog, have commented many times on the failure of the self-styled revolutionary organizations to build any significant presence or left current within the workers’ movement. There are many reasons for this; sectarianism, the twin evils of ultra-leftism and reformism, as well as a refusal to openly challenge and confront the catastrophic policies of the union hierarchy that have contributed greatly to the decline of our living standards. Benefits and rights that took decades to win through heroic rank and file struggle have been handed over to the bosses by the labor hierarchy as part of their strategic retreat policy.

The inability of the socialist left to adapt to the present situation and to reflect on its own failures and mistakes in a serious way has left it further isolated from the workers movement in my opinion, unable to adapt to the immense changes that have taken place over the past period and in the age of Trump.

While not all left groups appear to have been affected by these events in the same way, they have all been affected by them and the Socialist Workers Party’s position on the driving of Trump out of Chicago is exceptionally tragic.

Any class-conscious worker would revel in delight that the degenerate racist and misogynist Trump was driven out of Chicago by black youth in particular. But the SWP’s candidate for president Alyson Kennedy in a leaflet published after the Predator in Chief was denied an audience, called this action a “blow to free speech.”.  She basically accused this section of our class that kept Trump from inciting racial hatred in Chicago of an attack on the working class as a whole and the “…vital conquest of working people---of our right to speak, organize pickets, and mobilize protest rallies and marches.”

“Efforts to shut down those you disagree with set back workers’ struggles. The working class must defend free speech for all.”, the Socialist Workers Party argues here. The SWP also refers to this attack on Trump and his apparent right to racist speech as “thuggish actions” which is a bit of a red flag for the black worker as it is a term often used by the ruling class to describe black males in particular. I seem to recall Hillary Clinton was somewhat more cultured in her racist language fond of the term “predatory” with regard to some black males.

Nazi’s fascists, the KKK, racists, misogynists like Trump use the right of free speech in order to build a movement to deny the rest of us the right to free speech in a society that places one ethnic group or culture above all others. We have witnessed fascism at work in recent history and the 50 million or so victims of it. Fascism or the concept of white supremacy has not been good to the white worker.

That is why we deny them the right to use free speech to mobilize for this movement. But we do not call on the capitalist state to enforce this ban with their police and security forces. We call on the working class to mobilize against them. In Boston we saw some 40,000 march against the fascists that drove them off the streets there. Does the SWP think that was harmful to the workers' movement?  This is not denying free speech, it’s fighting fascism, nationalism and a philosophy that weakens working class unity and we can’t win, we can’t provide a decent future for our children without working class unity.

Driving Trump out of Chicago was a victory for all workers. If gang members stopped their activity against each other to battle fascists and racist elements this is not an attack on free speech. It’s defending free speech.

I was a rank and file union activist for many years. We had a lot of success in the workplace and the movement. Two of the strongest fighters and defenders of workers on the job, all workers regardless of their views, color, race, sexual orientation, and who had my back personally were both Christian as they saw themselves and one still attends his church and plays music in the church band. In 30 years, the self-styled revolutionary left played no role whatsoever in fighting on the job where the rubber meets the road. It’s time wasted fighting for workers rights at work when the revolutionary vanguard has to be built.

I still believe that a revolutionary current or leadership has to be built in the working class in order for the transformation of society to be successful. But I do not believe it can be built using the old method. I also know there are many serious and dedicated members of these organizations who were honest and believed in what they were doing. But I also believe there are far more socialists outside of these organizations than in them. Many of them burned out and turned off by the undemocratic patriarchal and middle class (petit bourgeois) culture of these organizations.

Driving Trump out of Chicago was a great moment in recent history and I am grateful to those that did it.

You can read or download the SWP leaflet here 

Brutal killers Become Saints in the Trump Era

by Richard Mellor
Afscme Local 444, retired

This character and her party is who many people in the US are looking to as the voice of reason.  She praises Churchill and Thatcher. Thatcher wreaked havoc on working class people and working working class women. She smashed the miners and their union destroying entire communities in the process., I was on those picket lines staying with a family in Barnsley and we ate out of soup kitchens provided by the local Labor Party branches.  There were 18,000 police on those picket lines in the Yorkshire area, some of them badgeless as they were brought over to smash that strike which was all about the right to work and feed their families. I say "brought over" as many of them were fresh from brutalizing Catholics in Northern Ireland.

She talked of black males in the US as being predators, not her husband or her, not her family friend the Egyptian dictator Mubarak. She laughed at the murder of Gadaffi and look at that country now which had one of the higher standards of living in North Africa. She earned millions giving speeches, was on the board of WalMart, she's a nasty one alright. In the video she talks of "migration" as if it's an issue of people just wanting to leave their home and pop over to Germany, Britini or other first world countries and get free health care. They are not migrants. They are refugees, victims of US and western imperialism's massive destruction of their lands and homes. They are running from US bombs.

Churchill was a racist and an enemy of the working class. He hated the Irish and the Indians saying of them, with regard to the famine, “The famine is Indians’ fault because they Breed Like Rabbits. I hate Indians. They are beastly people with beastly religion.”. He said of Palestinians that they were, "barbaric hordes who ate little but camel dung." He used poison gas against the Russian people in an effort to defeat their revolution much as the British did against Native Americans, infecting blankets with typhoid. "I am strongly in favour of using poisoned gas against uncivilised tribes," Churchill boasted calling those that objected "squeamish".

In 1937, he told the Palestine Royal Commission: "I do not admit for instance, that a great wrong has been done to the Red Indians of America or the black people of Australia. I do not admit that a wrong has been done to these people by the fact that a stronger race, a higher-grade race, a more worldly wise race to put it that way, has come in and taken their place."

Thatcher was hated by the British working class and rightly so. Churchill is more complicated as his one shining moment was in war time. After that he was a failure. The rise of the degenerate Trump has turned many US citizens in to zombies.  John McCain, the once ridiculed fool is now a hero. Powell, Clinton, George Bush and Obama and others of their class colleagues are now  our saviors.

It's as if this country, the USA has gone mad.

Climate change and growth – Nordhaus and Romer

by Michael Roberts

It is both appropriate and Ironic that, on the day that William Nordhaus should get the Riksbank prize (also called Nobel) for his contribution to the economics of climate change, the top scientific body, the Intergovernmental Panel on Climate Change (IPCC), should release its latest update on global warming.  The report sets out the key practical differences between the Paris agreement’s two contrasting goals: to limit the increase of human-induced global warming to well below 2℃, and to “pursue efforts” to limit warming to 1.5℃.

The IPCC says that if we are to limit warming to 1.5℃, we must reduce carbon dioxide emissions by 45% by 2030, reaching near-zero by around 2050. Whether we are successful primarily depends on the rate at which government and non-state bodies take action to reduce emissions. Yet despite the urgency, current national pledges under the Paris Agreement are not enough to remain within a 3℃ temperature limit, let alone 1.5℃.

Rapid action is essential and the next ten years will be crucial. In 2017, global warming breached 1℃. If the planet continues to warm at the current rate of 0.2℃ per decade, we will reach 1.5℃ of warming around 2040. At current emissions rates, within the next 10 to 14 years there is a 2/3 chance we will have used up our entire carbon budget for keeping to 1.5C.  Global emissions of carbon dioxide, methane and other greenhouse gases need to reach net zero globally by around 2050. By 2050, 70-85% of electricity globally will need to be supplied by renewables. Investment in low-carbon and energy-efficient technologies will need to double, whereas investment in fossil-fuel extraction will need to decrease by around a quarter.

Although the Paris Agreement aims to hold global warming as close to 1.5℃ as possible, that doesn’t mean it is a “safe” level. Communities and ecosystems around the world have already suffered significant impacts from the 1℃ of warming so far, and the effects at 1.5℃ will be harsher still. Poverty and disadvantages will increase as temperatures rise to 1.5℃. Small island states, deltas and low-lying coasts are particularly vulnerable, with increased risk of flooding, and threats to freshwater supplies, infrastructure, and livelihoods.

Warming to 1.5℃ also poses a risk to global economic growth, with the tropics and southern subtropics potentially being hit hardest. Extreme weather events such as floods, heatwaves, and droughts will become more frequent, severe, and widespread, with attendant costs in terms of health care, infrastructure, and disaster response.

This is where William Nordhaus, a professor of economics at Yale University, comes in.  He pioneered the economic analysis of climate change. He is also a leading proponent of the use of carbon taxation to reduce emissions, a policy approach preferred by many mainstream economists.  Nordhaus’ contribution was to develop a model that could supposedly gauge the likely impact on economies from climate change.  Nordhaus constructed so-called integrated assessment models (IAMs) to estimate the social cost of carbon (SCC) and evaluate alternative abatement policies.

And this is where it becomes ironic.  Nordhaus’ IAMs have flaws that make them close to useless as tools for policy analysis. The IPCC pointed out  that estimates of losses resulting from a 2 °C increase in mean global temperature above pre-industrial levels ranged from 0.2% to 2% of global gross domestic product.  It admitted that the global economic impacts are “difficult to estimate” and that attempts depend on a large number of “disputable” assumptions. Moreover, many estimates do not account for factors such as catastrophic changes and tipping points ie where global warming gets out of control and damages economies much more quickly and deeper than forecast.

Most IAMs struggle to incorporate the scale of the scientific risks, such as the thawing of permafrost, release of methane, and other potential tipping points. Furthermore, many of the largest potential impacts are omitted, such as widespread conflict as a result of large-scale human migration to escape the worst-affected areas.

IAMs are also used to calculate the social cost of carbon (SCC). They attempt to model the incremental change in, or damage to, global economic output resulting from 1 tonne of anthropogenic carbon dioxide emissions or equivalent. These SCC estimates are used by policymakers in cost–benefit analyses of climate-change-mitigation policies.

Because the IAMs omit so many of the big risks, SCC estimates are often way too low. As the IPCC acknowledged², published SCC estimates “lie between a few dollars and several hundreds of dollars”. These values often depend crucially on the ‘discounting’ used to translate future costs to current dollars. The high discount rates that predominate essentially assume that benefits to people in the future are much less important than benefits today.

These discount rates are central to any discussion. Most current models of climate-change impacts make two flawed assumptions: that people will be much wealthier in the future and that lives in the future are less important than lives now. The former assumption ignores the great risks of severe damage and disruption to livelihoods from climate change. The latter assumption is ‘discrimination by date of birth’. It is a value judgement that is rarely scrutinized, difficult to defend and in conflict with most moral codes.

The other role of IAMs — to estimate the costs of climate-change mitigation — also suffers from major shortcomings. The IPCC’s mitigation assessment concluded from its review of IAM outputs that the reduction in emissions needed to provide a 66% chance of achieving the 2°C goal would cut overall global consumption by between 2.9% and 11.4% in 2100. This was measured relative to a ‘business as usual’ scenario. But growth itself can be derailed by climate change from business-as-usual emissions. So the business-as-usual baseline, against which costs of action are measured, conveys a misleading message to policymakers that fossil fuels can be consumed in ever greater quantities without any negative consequences to growth itself.

The discount rate used to calculate the likely monetary damage to economies is arbitrary.  If we use a 3% discount rate, that means the current rise in global warming would lead to $5trn of economic damage (loss of GDP), but the cost in current money of global warming would be no more than $400bn, about what China spends on hi-speed rail.  So, on this discount rate, global warming causes little economic damage and thus the social cost of carbon (SCC) is only about $10/ton, so mitigation action can be limited.  This is what Nordhaus uses in his model.

But why 3%?  Nicholas Stern, of the famous Stern Review on climate change, took Nordhaus’ data and applied a 1.4% discount rate.  The SCC then rises to $85/ton – meaning that it costs economies $85 for every ton of Co2, or closer to $3trn now!  If you take a median range discount rate on likely damage, the SCC is probably about $50/t.  But the current carbon price is about $25/t.  So the social cost is not being ‘internalised’ in any market prices.

The argument about the discount rate exposes the argument about the future.  The IAMs assume that the world economy will have a much larger GDP in 50 years so that even if carbon emissions rise as the IPCC predicts, governments can defer the cost of mitigation to the future.  And if you apply stringent carbon abatement measures eg ending all coal production, you might lower growth rates and incomes and so make it more difficult to mitigate in the future.  Yes, that is what Nordhaus’ IAMs can lead us to conclude.

These models exclude the obvious and now empirically backed evidence that slower growth actually leads to less global warming.  Tapia Granados points out that “the evolution of CO2 emissions and the economy in the past half century leaves no room to doubt that emissions are directly connected with economic growth. The only periods in which the greenhouse emissions that are destroying the stability of the Earth climate have declined have been the years in which the world economy has ceased growing and has contracted, i.e., during economic crises. From the point of view of climate change, economic crises are a blessing, while economic prosperity is a scourge.”  Inexorable march toward utter climate disaster [f] (1)

And IAMs also exclude the feedback – namely that global warming leads to more natural disasters, droughts and floods and thus to massive disruption and migration of affected populations and thus a sharp reduction in GDP growth rates.  The world will not be much ‘richer’ in the next generation if global warming goes unchecked. Finally, as with all these neoclassical growth accounting models of which the IAM of Nordhaus is one, there is no allowance for recurring crises of production in capitalism or rising inequality of income and wealth.

Growth accounting is the mainstream version of explaining long-term economic growth.  Neoclassical theory assumes perfect competition and free markets and it assumes what it should prove that capitalist economic expansion will be harmonious and without crises as long as markets are free and competition is operating.

Applying these microeconomic assumptions to long-term growth was the province of factor productivity models, originating with Solow and Swan in 1956.  Based on marginal utility theory, each factor of production (capital and labour) contributed to growth according to its marginal productivity.  The problem with this factor accounting model was two-fold.

First, the nature of ‘capital’ could not be defined or measured – what was it: numbers of different machines or the present value of the interest rate for borrowing ‘capital’?  This led to the so-called Cambridge controversy, where the neoclassical school was confounded by those who showed that you needed a common measure of value (labour?), otherwise the definition of capital was circular (namely its marginal productivity was the rate of interest on borrowing, but the amount of capital was the present value of the rate of interest!).

The second problem was that adding up the marginal contributions of capital and labour factors to GDP growth would lead a ‘residual’; which was designated as ‘technical innovation’, the productivity growth of all the factors.  This appeared to be ‘exogenous’ i.e. from outside the market system of marginal productivity.  Mainstream economics had no explanation for technological innovation!

This is where the contribution of Paul Romer comes in.  He developed an “endogenous growth model”, where long-run economic growth is determined by forces that are internal to the economic system, namely the ‘knowledge’ incorporated in the workforce of an economy. Technological progress takes place through innovations, in the form of new products, processes and markets, many of which are the result of economic activities. Thus there are constant or increasing returns to factors, not diminishing marginal ones.  This theory became popular with many reformist economists and politicians – apparently, former adviser and minister in the British Gordon Brown Labour government, Ed Balls, was a keen promoter.

Actually Romer was not the first to come up with this ‘endogenous’ model.  That honour goes to the recently deceased Kenneth Arrow, the doyen of neoclassical economics.  Arrow recognised what any fool could see: that supply was affected by demand but also demand was affected by supply.  Innovation did not come out of the sky but from the drive of companies to grow (or in the case of Marxist theory, to make more profit and reduce labour costs). Of course, the mainstream version of growth theory did not consider profitability relevant to innovation but instead looked at aggregate output.

However, the endogenous model is little better (and may be even worse) than the exogenous model in explaining and accounting for long-term growth in economies.  Romer argues that the explanation for why some countries grow faster and get richer than others is not more investment in machines, or more labour power and skills; but more ‘ideas’. Whereas the old exogenous model predicted that growth would slow as new investment in skills and capital yielded diminishing returns, Romer’s New Growth Theory opened the window onto a sunnier world view: a larger number of affluent people means more ideas, so prosperity and population expansion might cause growth to speed up.

This is nonsense, of course.  Capitalism does not work like that.  ‘Ideas’ or innovations become the property of individual capitalist companies; IPRs, patents etc are applied.  The general distribution of innovation only takes place through the rough and tumble of competition and the battle for profit and market share.  Innovation under capitalism depends on profitability and if that is low or not there, or to be given to all, then it won’t be applied. As one critic has pointed out, Romer was very much a profit-making ‘entrepreneur’ himself, having founded and sold on an online economic teaching company – so no open spillover of ‘ideas’ there.

In a way, Romer recognises market forces and argues that governments need to intervene to foster technological innovation, for example, by investing in research and development and by writing patent laws that provided sufficient rewards for new ideas without letting inventors permanently monopolize those rewards.  Thus we must correct and manage the competitive struggle.

Romer is a professor of economics at New York University, but recently he became chief economist at the World Bank for a short and chequered period.  It was a surprising appointment for an organisation that is supposed to help poor countries end their poverty.  That’s because one of the conclusions that Romer took from his endogenous model of ‘knowledge’ was that developing countries would benefit from creating pockets within urban areas that are administered by a more advanced country, so-called ‘charter cities’. The advanced country would develop a small part of the country by introducing ‘good institutions’ and the benefits of development will spill over into the rest of the economy.

Romer’s ideal example was Hong Kong. Rather than seeing Hong Kong’s signing away to Britain as unjust or humiliating for China, Romer saw it as an ‘intervention’ that has done much more to reduce poverty than any aid program and at a much lower cost. Therefore, he concludes that the world needs more Hong Kongs.  The whole approach is that a country would gain from giving up sovereignty to a more advanced nation that can better administer its affairs.

But has China’s phenomenal growth over the last 40 years, taking 800m people out of World Bank-defined poverty, needed ‘charter cities’ and ‘knowledge’ kindly administered by ‘advanced ‘ economies like the US.  Indeed, keeping imperialism out of China is part of the reason for China’s growth success.  Romer actually persuaded the government of Madagascar to apply his development plan.  It led to massive popular uprisings against the President after he agreed to lease a part of Madagascar to a South Korean corporation for 99 years!

Both the long-term growth models of Nordhaus and Romer rest on neoclassical free market theory.  As Ben Fine pointed out nearly 20 years ago in his analysis of endogenous growth theory, it has “nothing to do as such with an economy as a whole, other than in the trivial sense of requiring at least two economic agents in order for exchange to arise. Indeed, often implicitly and sometimes explicitly, the literature takes a microeconomic theory and simply interprets it as macroeconomics…In short, endogenous growth theory is heavily implicated in the traditional and strengthening microeconomic foundations of neoclassical economics.” Romer himself has recognised the failure of mainstream economics in his paper The trouble with macroeconomics, In that paper he goes on to trash all macroeconomic models for being unrealistic in their assumptions.

Both Nordhaus and Romer start with neoclassical theory and apply it to analyse long-term growth.  Their contributions are therefore stunted for that reason.  Factor of production models do not explain growth – they leave ‘residuals’ and they cannot account for the nature of ‘capital’ – it’s either just things (machines) or accumulated interest.  And there is no connection between these models of growth and the reality of capitalist accumulation for profit and the recurring crises in investment and production in capitalist expansion.

Nordhaus and Romer are aware of these contradictions at the heart of capitalism. They know that ‘free markets’ bring pollution and global warming; and ‘markets’ will block innovation if left alone. But their answer is to manage capitalism and try to persuade governments to do so. As the world gets hotter faster, and growth gets slower, good luck with that.

Football: Sunderland fans must unite and take a stand against racism

The following was sent to Facts For Working People by a reader and avid football fan. It was originally published at the SBNATION Roker Report

OPINION: This isn’t the 1970s - Sunderland fans must unite and take a stand against racism

Anyone old enough to remember the 1970’s and 1980’s - when black footballers and black people were abused systematically in football grounds, and indeed anywhere - surely wouldn’t want to see a return to those days of hate and division on the terraces.
By David Holloway Oct 1, 2018, 11:49am BST

Sunderland AFC via Getty Images

Anyone old enough to remember the 1970’s and 1980’s - when black footballers and black people were abused systematically in football grounds, and indeed anywhere - surely wouldn’t want to see a return to those days of hate and division on the terraces.

Organised groups who targeted football supporters, distributing racist literature, were seen outside of many football grounds up and down the country - this movement wasn’t necessarily caused by football supporters but football supporters were the target, and unfortunately many were willing participants.

Sunderland never seemed to be breeding ground for these organised and bigoted groups. They tended to go for the bigger cities and maybe areas who had experienced more immigration, playing on the people’s fear and ignorance.

Having traveled the country over the years watching football I have never seen a widescale problem at Sunderland - certainly not at the scale of certain London clubs in the 1980s, and certainly I have never seen racism as bad as at Newcastle in the 1985 derby at St James’ Park.

That’s not to say we as a fan base were or are innocent - clearly and inevitably we have our share of idiots who spout nonsense, and we have those whose attempts at humour spill over the line, but to my knowledge there has never been organised racial targeting in or outside of the football ground element.

We all know the progress that has been made in this area over the years and we all know that whilst the attitudes of the 1970s and 1980s haven’t been completely eradicated - that is sadly just not possible - those attitudes are much less prevalent.

It’s well documented that there has been an apparent shift from what has become the accepted societal norms over the last few years, fueled by domestic and worldwide political events and narrative.

That is just the way it seems to be - that’s the danger of the world that we now live in. Over the last couple of weeks and before that there have been marches in Sunderland that are, in all honesty, frankly uncomfortable. On the way into one of the home games earlier this season, leaflets were handed out along Sheepfolds as fans walked to the ground urging people to attend.

This brings back memories of times that we all thought were long gone.

Photo by Jack Thomas/Getty Images

Now we as football fans could take the attitude that none of this has anything to do with us.

Everyone that I saw just walked on by taking little notice. But it seems that Sunderland, and other large towns or small cities, are targets for these groups. They have been for a while now - we know the politics we know the groups, but that is not for comment here.

If they gain confidence will they continue to target the young on the way to the ground like they did at certain clubs all those years ago? Will they make attempts to bring their messaging back into football stadiums, taking advantage of large crowds at a large venue with fewer TV cameras, less media attention in and outside of the stadium?

We need to maintain our reputation for humour, for passion, for our city, our team and we need to walk on by but should this lot try to infiltrate we need to challenge those ideas, they are not mainstream, they are not us and no good will come of them.

Sunderland have long been a great force for good in the community - the caring club, the one club philosophy, the foodbank initiative and the Foundation. Let us be vigilant, let us beware, let us protect our good name, just in case others have any other ideas of stealing it.