Bryan Gould is an interesting chap. Rhodes Scholar, British Labour MP, Vice-Chancellor of the University of Waikato, author of many books, occasional writer for The Herald, and author here at The Standard. Most recently, Bryan has been in the news because he is convenor of Labour’s current review process.
In this context it is interesting to read this extended discussion between the always excellent Gordon Campbell and Gould, as published in Campbell’s Werewolf. Here are some extracts on neoliberalism and the economy.
In his introduction Campbell writes:
The need to dislodge neo-liberalism as the only model of capitalist realism is pretty obvious. Its manifest failures are doing too much damage to too many people. A few weeks ago, Bloomberg Business News – not exactly a left wing rag – ran a story about the zombie ideas of the neo-liberal orthodoxy that simply refuse to die no matter how often they have been shown to fail. Bloomberg’s short list of disproven ideas – ‘that originated from or were widely dispersed by think tanks and their benefactors’ include :
• Austerity as a virtuous policy during recessions
• The efficient-market hypothesis
• Tax cuts pay for themselves (ie supply-side economics)
• Self-regulating markets
• Homo economicus (that individuals are profit-maximizing economic actors)
The interview / discussion follows:
Campbell : Voters here don’t seem to like neo-liberalism very much and nor do they believe in it, particularly. Yet hasn’t neoliberalism’s great success been in convincing people that this is the only credible way to run a modern economy?
Gould : I think that’s absolutely right. Its a real puzzle as to why the lessons we thought we’d learned repeatedly for the last century or more, have been forgotten, or ignored. Or even why the shocking outcomes of the Global Financial Crisis and the recession, have not shaken people’s faith in neo-liberalism, or in neo-classical economics. Its partly a function of the fact that public opinion tends to lag…but it is also something more significant. The advent of the global economy has taught people that it is big business that really has the power, and that it can dictate even to elected governments, particularly so in small countries like New Zealand. So there’s a tendency for people to listen to and to simply accept the messages being purveyed by elitists, and by big business.
OK, and here’s the 64 dollar question. Under Labour, what would a post GFC, post Third Way economic policy actually look like?
Well, the last two or three decades have been characterized by the belief that inflation is the main danger…And it was agreed that the best way to [control inflation] is to manipulate interest rates. But what is not recognised in New Zealand or other Western countries is that the main inflationary impact comes from the banks. As the Bank of England has recently recognized in a major paper earlier this year some 97% of all the money in circulation in the case of Britain – and its similar here – is originally created by banks, out of nothing. And they create it in order to lend it out on mortgage. Most people think that banks take in savings from depositors and then they lend that out again, to borrowers. No, not a bit of it. The amount that the banks lend has got nothing to do with the money that people deposit with them.
OK. But the political problem here is that if and when governments do exactly the same thing in order to meet social goals, that’s derided as ‘printing money’
And as the US has shown that you can do that – they called it ‘quantitative easing’ – when you’re bailing out the banks. But you’re regarded as being beyond the political pale if you do this for any social purpose, right?
Absolutely. You’ve got it.
So how then, does a centre-left party engage with the politics of this situation, beyond poking holes in it from a distance? In the current circumstances, what you’re saying simply isn’t a viable political programme – it sounds like Social Credit.
Yes, and that’s the central dilemma I believe, for the left. Oddly enough though, the relatively new Japanese Prime Minister Shinzo Abe has reverted to the – this is getting a bit esoteric , but its relevant…there was a famous in Japan, unknown in the West, economist called Osamu Shimomura. He was a Keynesian economist, and he realized, as Keynes had said, that there is no intrinsic reason for the scarcity of capital…and as Keynes also said, you can create money to invest in productive capacity even in advance of that productive capacity being available, provided it comes on stream within a reasonable period. So in other words, if you create money for productive investment – and it works – that’s not inflationary, but you’re growing the economy.
And that was the basis of the huge Japanese success of the 1960s, 70s and 80. Until they abandoned the policy for other reasons, and began to stagnate. The Chinese are doing the same. The Chinese simply write cheques on themselves when they want to buy something…. But we won’t invest, or borrow, or do anything that suggests growth, because we’re terrified of inflation.
It’s a long and fascinating discussion, an in-depth examination of the assumptions underlying our economy and the realistic alternatives that you won’t find anywhere else in the media. Make some time this week to go read it all. If I had my way it would be required reading for Labour’s leadership contenders – perhaps Gould can insist on it as part of his review!