For the past few years, the self-styled 'Economics profession' has faced a direct challenge from the students who formed the Post-Crash Economics Society in Manchester. Their network is growing and spreading worldwide. Several years before that society emerged from classroom frustration at the real-world irrelevance of much that the professors asserted, George Soros - the man largely responsible for Britain having to crash out of the European Exchange Mechanism [ERM: forerunner to the euro] when John Major was the prime minister - funded an institute for new economic thinking which has dissipated the founder's concept by engaging Economists who have released no significant alternative thought. In recent days a well-funded group of recognised Economists [including a couple of holders of the pseudo-Nobel prize] has been set up in recognition of the fact that Economics as taught by the Econocracy does not offer even a sensible explanation of how modern mass poverty has occurred. There might be a slight hope that this group may provide some new insight that is of practical utility; but the experience of similar initiatives is not encouraging.
There is a widely-recognised perception among the general public and much of the commentariat, that formal Economics does not address the issues of living humans in the real world; but that has not led to mass resignations by professors who have become ashamed to draw salaries for preaching irrelevant dogma. Nor have the professors gone into purdah to think anew and recast their propositions: no, they continue to assert them with absolute confidence in the 'scientific rigour' of their abstractions. There is a widespread assumption that groups like Soros' institute and the new 'commission' might just add something to the existing corpus of Economics that will enable the professors and their students to carry on teaching and learning the same stuff; to which a new wrinkle will be added that vindicates the mass of the subject and resolves the outstanding issues without anybody having to eat humble pie.
That will not happen.
Meanwhile, practical politics is bedeviled by the impact of Economics upon it. The rise of 'populism' in the USA, in Europe and in other parts of the world is largely associated with the failure of economic policies based on established formulas that have been formed with the participation of the Econocracy. It has been manifest in the USA for almost three decades that redundant steel workers in the rustbelt states do not mutate into migrants who mystically acquire the skills to gain employment in silicone valley that pays them all enough to get new houses [at Californian prices] and live a west-coast lifestyle. That is what the professors say should happen in a fully-fledged free-trading economy; but it does not happen. People have families and associations and familiar landmarks in the places where they [or their parents] have been settled since when times were good: so they mostly stay there. The brightest graduates, the prettiest girls and other identifiable groups who have characteristics that support social mobility may move on in significant numbers, but they are a minority; and the core population will be left in misery awaiting a saviour: who appeared in the US rustbelt in the highly improbable shape of Donald Trump. Trump will fail, as both Bushes and Obama and even Clinton failed, to turn round the march of economic events and the persistence of people in refusing to behave as textbook specimens.
In the UK the practical irrelevance of Economics has become acute, as the head-banging Brexiteers [mostly in the Conservative party] cite the views of extreme Econocrats: such as Patrick Minford, a Thatcher guru who has suddenly returned to prominence with his confident assertions about how good the world will be for the UK if we leave the European Union with no deal. Minford and his little friends have claimed that the British economy could grow by some 7% if all the restraints [and advantages] of membership of the Union were simple sloughed-off. People who try to form a mature and balanced view of the probable impact of Brexit see summaries of these assertions, and the fact that their advocate is Professor Minford: and they wonder whether they should just dismiss his propositions; might he be right? Might the UK be passing-up a great opportunity if we try to stay close to the European Free Trade Area?
The answer is, of course, on the ground all over the UK. The factories and mines and dockyards that were abandoned at the behest of the Thatcherites may have been prettified into tourism sites like the Titanic area of Belfast; but even there a significant proportion of the consumer-facing staff on minimum wages are immigrants who came to the UK prepared to do such work [and they are mostly better at it that taciturn under-educated Brits]. There is no well-paid long-term highly-productive employment for the rising generation in any of the despoiled regions that were once world-leading hives of industry. The formula didn't work in the nineteen-eighties or the 'nineties: and it is even less likely to apply to the real world now. if the headbangers win, mass misery is the only probable outcome: and the growth in new, longer-term non-employment will be well over 7% per year for several years.
Showing posts with label rustbelt. Show all posts
Showing posts with label rustbelt. Show all posts
Monday, 23 October 2017
Sunday, 20 August 2017
Why Bannon Had to Go: The Importance of China
On leaving the White House, Steve Bannon promised to wage war on the enemies of the President of the United States. Of course, he means that he is ready to fight anyone who challenges his idea of the 'mission' of the United States: which may now come to include Donald Trump, if Trump can retain the presidency.
The idea of waging a trade war against China, even at the price of ignoring the buildup of North Korea's nuclear arsenal and Kim's development of rockets capable of reaching the continental USA, is far too crude to be practicable.
The rustbelt that provided a huge cohort of dedicated followers of the Trump line was not created by the Chinese. Factory sites became derelict, and lives were 'ruined', in consequence of thousands of decisions that were taken by US Corporations; with the encouragement and support of the Econocracy. Many of those decisions were based on the fact that components for advanced manufacturing could more cheaply be bought from emergent countries - including China - than by building and equipping new factories in the US and training the appropriate workforce. This enabled major corporations to concentrate their investment on the 'top end' of manufacturing, and on research and development for innovative products.
Simultaneously, American retailers found new cheaper sources of consumer products, which could thus be sold [largely under the retailers' 'own-brands'] at prices that could maintain some shreds of a consumerist lifestyle even for the ex-industrial workers and their children who survived on government benefits in the rustbelt. Hence imports from emergent countries, not just China, enabled their mass-producers of such products to expand their capacity and reduce their costs. Hence they improved their competitiveness with surviving US manufacturers of similar goods; many of whom were ruined. This all suited the model of 'free markets' that forms the basis of recent econocratic theory. The fact that it left individuals who were sunk in mortgaged houses without the means [economic or intellectual] unable to move on from where they were, rather than to seek new economic opportunities for themselves, is beneath the radar of the Econocracy. Equally invisible to most Econocrats is the fact that as the proportion of the population who are sunk in misery expands, so the communities in which they live progressively lack the will and the means to renew or replace collapsing infrastructure. Until an urban area falls so far into dereliction that it becomes a source of potential danger to the rest of the country - as happened with Detroit a few years ago - national government ignores the problem, while the bankrupt local government is incapable of tackling it. Even after a major assault on poverty and its causes, large areas of greater Detroit remain deeply depressed; and eyesores have not been removed.
While the rustbelt was consolidating, the lead by which the USA is ahead of the rest of the world in advanced technologies has become greater than ever. America remains the predominant and military power in the world, and even despite Chinese efforts to develop and promote competitors like Alibaba their corporations remain far behind the US in developing intellectual property. And here is the pressure point. Bannon's reason for wanting a trade war with China rests precisely on the point that China is determined to catch up with the USA in all areas, and that China will use fair means or foul: just as the US did in the nineteenth century when piracy of European intellectual property was fostered by state and federal governments, principally by deferring the development of laws to protect alien intellectual property until there was an equal danger of American inventors loosing out in global competition.
Bannon has picked on an aspect of trade policy that is used heavily by China now, and was used in Europe and America over a couple of centuries. This is the requirement that the technology used in imported devices and products should be understood, so that the items can be allowed into the country on health and safety grounds. It involves requiring the intending importer [or the company hoping to open a subsidiary plant in China] to disclose the technical matters that - whether reasonably or not - the Chinese regulators say is necessary for the product to be sold as safe and healthy in China. Once those technological data are disclosed to Chinese authorities, there is a danger that they will be leaked to Chinese competitors for their commercial benefit; as has happened in Europe and North America in the past.
To treat this as an act of war is absurd: it is a matter for patient negotiation, case by case; always remembering that in such issues it is best to speak gently, and carry a big stick. America needs better to coordinate the ambitions of US companies to develop trade with China with the need to protect American intellectual property. Steve Bannon will have done his country a huge service by highlighting the issue; but his use of bellicose rhetoric meant that his role in government had to be brought to an end.
The idea of waging a trade war against China, even at the price of ignoring the buildup of North Korea's nuclear arsenal and Kim's development of rockets capable of reaching the continental USA, is far too crude to be practicable.
The rustbelt that provided a huge cohort of dedicated followers of the Trump line was not created by the Chinese. Factory sites became derelict, and lives were 'ruined', in consequence of thousands of decisions that were taken by US Corporations; with the encouragement and support of the Econocracy. Many of those decisions were based on the fact that components for advanced manufacturing could more cheaply be bought from emergent countries - including China - than by building and equipping new factories in the US and training the appropriate workforce. This enabled major corporations to concentrate their investment on the 'top end' of manufacturing, and on research and development for innovative products.
Simultaneously, American retailers found new cheaper sources of consumer products, which could thus be sold [largely under the retailers' 'own-brands'] at prices that could maintain some shreds of a consumerist lifestyle even for the ex-industrial workers and their children who survived on government benefits in the rustbelt. Hence imports from emergent countries, not just China, enabled their mass-producers of such products to expand their capacity and reduce their costs. Hence they improved their competitiveness with surviving US manufacturers of similar goods; many of whom were ruined. This all suited the model of 'free markets' that forms the basis of recent econocratic theory. The fact that it left individuals who were sunk in mortgaged houses without the means [economic or intellectual] unable to move on from where they were, rather than to seek new economic opportunities for themselves, is beneath the radar of the Econocracy. Equally invisible to most Econocrats is the fact that as the proportion of the population who are sunk in misery expands, so the communities in which they live progressively lack the will and the means to renew or replace collapsing infrastructure. Until an urban area falls so far into dereliction that it becomes a source of potential danger to the rest of the country - as happened with Detroit a few years ago - national government ignores the problem, while the bankrupt local government is incapable of tackling it. Even after a major assault on poverty and its causes, large areas of greater Detroit remain deeply depressed; and eyesores have not been removed.
While the rustbelt was consolidating, the lead by which the USA is ahead of the rest of the world in advanced technologies has become greater than ever. America remains the predominant and military power in the world, and even despite Chinese efforts to develop and promote competitors like Alibaba their corporations remain far behind the US in developing intellectual property. And here is the pressure point. Bannon's reason for wanting a trade war with China rests precisely on the point that China is determined to catch up with the USA in all areas, and that China will use fair means or foul: just as the US did in the nineteenth century when piracy of European intellectual property was fostered by state and federal governments, principally by deferring the development of laws to protect alien intellectual property until there was an equal danger of American inventors loosing out in global competition.
Bannon has picked on an aspect of trade policy that is used heavily by China now, and was used in Europe and America over a couple of centuries. This is the requirement that the technology used in imported devices and products should be understood, so that the items can be allowed into the country on health and safety grounds. It involves requiring the intending importer [or the company hoping to open a subsidiary plant in China] to disclose the technical matters that - whether reasonably or not - the Chinese regulators say is necessary for the product to be sold as safe and healthy in China. Once those technological data are disclosed to Chinese authorities, there is a danger that they will be leaked to Chinese competitors for their commercial benefit; as has happened in Europe and North America in the past.
To treat this as an act of war is absurd: it is a matter for patient negotiation, case by case; always remembering that in such issues it is best to speak gently, and carry a big stick. America needs better to coordinate the ambitions of US companies to develop trade with China with the need to protect American intellectual property. Steve Bannon will have done his country a huge service by highlighting the issue; but his use of bellicose rhetoric meant that his role in government had to be brought to an end.
Sunday, 21 May 2017
Trump Triumphs?
President Donald Trump is having a great time in the Arab world. His hosts, led by Saudi Arabia, expect that he will reverse President Obama's raprochement with Iran [which will cause problems for the newly re-elected President of that country] and open up trade and other relations - including access to US territory - to some of those who would have been excluded from the US if Trump's attempted decree to 'ban Muslims' from the US had not been stymied by the lawful authorities.
The upside from all of this, besides The Donald getting a 'very heavy' gong from the King of Saudi Arabia, is that the Gulf States will buy advanced American weapons [some of which Obama refused to let them have], thereby increasing the profitability of the arms industry - including its British contractors; and the Arab states promise to invest heavily in the next generation of US technology and production. President Trump, of course, is claiming that this is a very quick response to his campaign promises to regenerate the rustbelt: which was a major factor in delivering him the election victory last year. But it is clear that the Arab managers of sovereign wealth funds, who have decades of shrewd investment behind them, are not going to invest in steelworks and metal fabricating factories in the midwest that will not have a chance of profitability in competition with low-wage output from emergent economies. The Arabs will select the knowledge industries and high technology projects that will have a very high probability of being doubly productive: they will have high productivity which means a high turnover per employee; and great productiveness which means that they will generate large profits for the firms that own them, that can be allocated to further projects and to high shareholder payouts and to rising wages for employees [which will raise the general level of demand in the US economy]. Trump and his colleagues may be able to offer incentives [such as have existed through the Obama presidency] for some of the investments to be located in the midwest, rather than on the Atlantic or Pacific coasts; but the plant will not offer mass redeployment of the horny-handed sons and daughters of toil who voted so enthusiastically for Trump. There will be a few posts for janitors, car park attendants, caterers and cleaners: but the tragedy of middle-age uemployment will not be removed by the direct outcome from the President's trip.
Other outcomes from the middle-east leg of this tour will be irritation in Iran, an escalation of the conflicts in Yemen, in Syria and possibly in Iraq, and deeper disillusion on both sides in the Palestine conflict and among the US Jewish population that has hitherto backed Trump enthusiastically. The tour goes on to the Vatican [a photo call], to Belgium [ a meeting of NATO which Trump appears to be learning to love: in contrast to his rhetoric on the campaign trail], and to a high-finance gathering at which he will be, at best, a passenger.
The pot of dissent from his actions as President is bubbling on in the US, and may overboil at any time.
I read that US Psychiatrists maintain strict patient confidentiality, and there is a rule against any doctor with specialist skills publishing any speculative piece about the mental state of a currently-serving officer of state. On the other hand, there are just the beginnings of breaches in that rule as the antics of a very non-standard head of state cause more embarrassment. I am sure that the top women and men in the profession will hold to its highest standards; but as international incredulity expands, there will be more speculation on every level.
The deals that the Donald has done this week are between the US and other governments: they will stand; and that should benefit some few of the American long-term unemployed, as well as the rising sectors of the US economy.
The upside from all of this, besides The Donald getting a 'very heavy' gong from the King of Saudi Arabia, is that the Gulf States will buy advanced American weapons [some of which Obama refused to let them have], thereby increasing the profitability of the arms industry - including its British contractors; and the Arab states promise to invest heavily in the next generation of US technology and production. President Trump, of course, is claiming that this is a very quick response to his campaign promises to regenerate the rustbelt: which was a major factor in delivering him the election victory last year. But it is clear that the Arab managers of sovereign wealth funds, who have decades of shrewd investment behind them, are not going to invest in steelworks and metal fabricating factories in the midwest that will not have a chance of profitability in competition with low-wage output from emergent economies. The Arabs will select the knowledge industries and high technology projects that will have a very high probability of being doubly productive: they will have high productivity which means a high turnover per employee; and great productiveness which means that they will generate large profits for the firms that own them, that can be allocated to further projects and to high shareholder payouts and to rising wages for employees [which will raise the general level of demand in the US economy]. Trump and his colleagues may be able to offer incentives [such as have existed through the Obama presidency] for some of the investments to be located in the midwest, rather than on the Atlantic or Pacific coasts; but the plant will not offer mass redeployment of the horny-handed sons and daughters of toil who voted so enthusiastically for Trump. There will be a few posts for janitors, car park attendants, caterers and cleaners: but the tragedy of middle-age uemployment will not be removed by the direct outcome from the President's trip.
Other outcomes from the middle-east leg of this tour will be irritation in Iran, an escalation of the conflicts in Yemen, in Syria and possibly in Iraq, and deeper disillusion on both sides in the Palestine conflict and among the US Jewish population that has hitherto backed Trump enthusiastically. The tour goes on to the Vatican [a photo call], to Belgium [ a meeting of NATO which Trump appears to be learning to love: in contrast to his rhetoric on the campaign trail], and to a high-finance gathering at which he will be, at best, a passenger.
The pot of dissent from his actions as President is bubbling on in the US, and may overboil at any time.
I read that US Psychiatrists maintain strict patient confidentiality, and there is a rule against any doctor with specialist skills publishing any speculative piece about the mental state of a currently-serving officer of state. On the other hand, there are just the beginnings of breaches in that rule as the antics of a very non-standard head of state cause more embarrassment. I am sure that the top women and men in the profession will hold to its highest standards; but as international incredulity expands, there will be more speculation on every level.
The deals that the Donald has done this week are between the US and other governments: they will stand; and that should benefit some few of the American long-term unemployed, as well as the rising sectors of the US economy.
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