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Friday, 23 September 2011

Rerunning the economic crisis of the nineteen-thirties?

What an exciting day Thursday was for the monstrous regiment of economic and business commentators! With stock markets falling at a daily rate of 4%-plus and the eurozone in paralysis, the traders are demanding 'decisive action' from governments; while governments criticise each other for a policy vacuum and the media struggle to explain the fuss to a bemused electorate.
There is a consensus [on the eightieth anniversary of Britain's abandonment of the gold-exchange standard] that the world is facing a serious risk of a re-run of the political and economic disasters of the nineteen-thirties. This is a valid judgement.
The whole paraphenialia of post-war post-Keynesian and monetarist economic policy was supposed to prevent such a possibility: and in the hands of democratic politicians they have brought about a disaster that will - if it materialises - be far more severe for Europe and North America than was the crisis of the inter-war years. In 1935 the vast majority of the global population was engaged in subsistence agriculture that was largely unaffected by the movements of world markets, so they were safe from macroeconomic turmoil. Most urban Europeans were only one of two generations from their rural origins and many of them could still get food from family sources in the event of total economic breakdown.
Also in 1935, the great majority of unemployed in the industrialised regions of the world had trades and skills and experience that could be taken up again into employment in the factories and utilities that were still standing, once the economy was stimulated back into full activity.
In 2011 the mass of the unemployed in the massively-expanded urban majority of the world's population do not have skills that could immediately be applied to producing goods or services. Factories and offices no longer exist in the depopulated former 'smokestack industry' areas. For every job that might be created in 2012, a new workstation has to be created; and more often than not many months of skills training would be needed. The cost of job-creation in the countries that have got used to the highest standards of living is prohibitive for all but the highest-growth and most profitable businesses: so to say that a Keynesian stimulus is needed to resolve the economic crisis in the old, failed industrial countries is mere pie-in-the-sky.
Seventy years of misdirected economic policy - which Keynes would furiously have criticised, had he lived into the era when his name was taken in vain - cannot be corrected in a few weeks.
The formerly rich countries cannot go forward until they have a clear idea of how they come to be where they are: Economics is no help in this exercise because it is a major contributory cause of the current crisis.
For a different basis of understanding, start by reading PERSONAL POLITICAL ECONOMY.

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