Running out of steam?

July 1, 2017

At the beginning of 2016 a lot of observers and economists were expecting a global downturn. The reason a recession was expected was because of shifts in the Chinese economy. The reason that the global recession did not occur was because China changed course and reversed its reform program. Its reform program had been designed to restructure and rebalance its economy because the growth model of the Chinese economy is not viable in the long run. The decision to reverse the reforms deferred a global recession in 2016 but it is storing up trouble for the future, China must rebalance and the longer it delays rebalancing the more painful the process will be.
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This is an interesting lecture by the political economist Professor Wolfgang Streeck from the Max Planck Institute for the Study of Societies in Cologne, Germany, entitled “Caution: European Narrative. Handle with Care”. The main topic of the lecture is how can one construct a unifying narrative that defines Europe. This is not an academic question. If the EU were to evolve into a functioning transnational democracy, a democracy robust enough that it would be prudent to give it significant powers of taxation and responsibility for delivering a social Europe, then it would require as a prerequisite the construction of a European Demos. Currently there is no such European Demos and hence there is no chance of successfully democratising the EU as it currently exists. If a pan-European Demos were to be constructed then central to it would be the construction of a unifying narrative of what Europe is and where it came from. These are exactly the sorts of narratives of national origin and definition that have been successfully constructed over many decades in any successful nation state, and are one of the main building blocks of the national Demos.

The meaty bit of the lecture starts at around 8.32 but the whole thing is worth watching. Streek also makes the point, worth repeating as often as possible, that the EU is not the same as Europe, that there exists a non-EU Europe, that there can be a non-EU European project and that opposing or criticising the EU as an existing political project and system of institutions does not mean that one is opposed to ‘Europe’.

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This chart shows the various options and consequences of the different possible Brexits (click on to see a bigger version). I think the ones worth pursuing, which are both politically feasible, are the two options on the left hand side. Unfortunately one gives too much power to the European Court of Justice and the other makes free trade in services difficult. So some tricky choices looming.

I still can’t see a finalised deal being in place within the two year time limit so some form of ‘kicking the can down the road’ is, I think, the most likely outcome. I agree with Wolfgang Munchau in the FT that the UK needs to have a worked up Plan B so we can realistically threaten to walk away from the negotiations at anytime.

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What just happened?

June 17, 2017

So a week after the election what to make of it all? Here are a few bits of analysis I found interesting. If anyone has found any other interesting alaysis of the election please feel free to post links in the comment section.

From the BBC the day after the election there was this useful examination of how the Tories ended up campaigning in the wrong places: Election 2017: How the Tory campaign went so wrong.

The main thing we have learned is that past performance is a poor guide to the future. The Tories were largely using much of the same team as in 2015 and, once again, they were very well funded. But this evidence implies that the Conservative party campaign in England was an absolute catastrophe, and appalling data and analysis drove them to use their resources poorly.

Osborne’s Evening Standard had a wonderfully poisonous insider account of what went wrong with the Tory campaign: Revealed: How Theresa May’s two aides seized control of the Tory election campaign to calamitous effect

The Flip Chart Fairy Tales website has an interesting analysis entitled “The end of the Long 90s

That article also has a link to an interesting short paper by the cultural theorist Jeremy Gilbert from a couple of years ago which looks at the broader cultural context. Its entitled “Captive creativity: breaking free from the long ‘90s’. Here is an excerpt:

If I were to show you photographs of every seminar group I’ve taught since 2000 or so…the only differences you’d notice, that you’d be able date the photos from would be me getting older. This sense of cultural stasis isn’t mine alone. My students have been telling for years now that no very formally new music has emerged since around the beginning of the millennium, while the music critic Simon Reynolds had a worldwide success a couple of years ago with his book Retromania, reflecting on the absence of real novelty across many fields of contemporary culture. Now before you reflexively dismiss this as just old-man grumpiness, consider for a moment. This isn’t the cliché you might think it is. Middle aged people are supposed to be alienated from and suspicious of, the culture – and especially the music – of the young. But they’re supposed to find it frighteningly new and therefore beyond aesthetic comprehension. They’re not supposed to bemoan its lack of novelty. But here we are.

That’s not to say that there isn’t lots of great music being made. But for arguably the first time since the beginning of recorded music, there isn’t any that you couldn’t have quite easily imagined being made 20 years previously. Everything has changed, but nothing has changed.”

Gilbert has a short piece on the election on his blog called “Quick first thoughts on the June 2017 UK General Election result”

There there is Frankie Boyle’s take on the whole thing.

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The Eurogroup meeting of eurozone Finance Minister was held last week and the main item on the agenda was the approval of another round of bailout payments to Greece which were conditional on various Troika demands being met. The meeting was considered a success in that a package was agreed but the real winner was, once again, German Finance Minister Wolfgang Schaeuble who got what he wanted. At the crucial meeting Schaeuble ensured that he did not succumb to the International Monetary Fund’s demands for a clear agreement on significant debt relief, while keeping the Fund on board in the Greek programme for the time being.
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It’s that man again. Varoufakis was a speaker at this week’s FundForum International conference, billed as the the world’s largest investment management event, and here is his presentation entitled: “The state of Europe and the Euro”.

His main presentation argues that the economic and political problems of Europe, China, and Japan, and the rise of Trump are all linked to the same basic weakness which is what he describes as a ‘planetary failure of coordination’ which manifests as the largest savings rate and the lowest investment rate since 1950s. So a mountain of savings and only a trickle into investment. He then explores how why this situation as arisen and in particular the role of the financial system in the problem.

After his presentation Varoufakis was interviewed on stage and made some interesting remarks about the problem of the giant German surplus and why Germans should care about it (at minute 22.37), the UK’s election and prospects for Brexit negotiations (28.33 into the video) and on the prospects for the eurozone and the of Macron presidency (31.45), in passing he also says that he distrusts Martin Schulz and the German SPD immensely.

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I was wrong about Jeremy Corbyn. I thought until quite late in the election campaign that his leadership would result in electoral disaster for the Labour party. The fumbling and accident prone opening period of his leadership, the apparent collapse of support in the parliamentary party, the vacuous position of the Labour leadership during the Brexit campaign which allowed the referendum to become a debate inside the Tory party, and the terrible results in the Scottish and recent local elections all convinced me that come a general election the Labour Party would be obliterated. It wasn’t and I was wrong about that. Corbyn has changed the balance of power in the UK and I applaud him for that.

Corbyn actually grew in stature throughout the campaign and managed to galvanise a surge of youthful (and not so youthful) activist enthusiasm. The result was a new form of leftist populism and a tremendous blow to the Tories which has changed the balance of politics in the country. It makes you wonder how Saunders would have fared against Trump. ‘Dare to struggle dare to win’ indeed.
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An interview of Yannis Varoufakis by Open Democracy.

The video starts with this: ”The idea that suddenly Brexit, Le Pen, Trump rose out of the woodwork, and that the liberal establishment is the only thing that can stop them – this is just a figment of the liberal establishment’s imagination.”

At minute 1.42: On the EU deep establishment

At minute 3.15: On the lack of democracy in the EU, “its unprecedented in history…”

At minute 5.15: On the the fact that the EU will not actually negotiate with the UK (because it does not want a mutually beneficial outcome) and therefore what is the best Brexit that can be achieved

At minute 10.22: “Both sides of the Brexit debate were controlled by conservatives”

I recommend “Adults In The Room: My Battle With Europe’s Deep Establishment” by Varoufakis

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The critical Eurogroup meeting on the Greek program is this week. I thought it was worth reminding ourselves of what the EU has wrought in Greece, which can be done with a single graph which compares the Greek depression to the Great Depression, the Asian crisis of the 1990s and the Eurozone recession after 2010.

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Like a lot of people I found election night to be sheer delight compared to the horrors that I was expecting. Watching the looks of horrified disbelief and confusion on the faces of the Tories as they realised that they had just shot their own foot off was something to savour. Corbyn and May defied my expectations, the first by running such a good campaign and the latter by running on that was so utterly awful. But now the euphoria has worn off things look a little less wonderful. Two things stand out for me:
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Paris hot air

June 3, 2017

So evil Donald Trump is going to kill the planet and even the Chinese are signed up to save it. Not quite.

The Paris Treaty commits the USA and Europe to making big changes to their energy production systems at great cost. The result of Paris will be to significantly increase the energy costs of industries in both the US and Europe. The Chinese are fully supportive of this. They are supportive of this because under the same Paris Treaty China can continue to increase its CO2 emissions until 2030. Currently China is building hundreds of new coal fired power stations. As the chart below shows Chinese CO2 emission now far outstrip US emissions, and that while US emission are declining (mostly as the result of switching to fracked gas generation) Chinese CO2 emissions are growing explosively fast. And under the Paris Treaty they can continue to grow until 2030. You can see why the Chinese are so supportive of the Paris Treaty, it pushes up the energy costs of their competitors, lets them bask in diplomatic approval, and they can continue to build coal power stations in the hundreds and vastly grow their own CO2 emission unfettered by any of the treaty restrictions. From their point of view it’s a superb win-win. For the USA, now sitting on the world’s largest reserves of fossil fuels (the US is now the world’s biggest producer of oil and has the world’s largest coal reserves), Paris was a mechanism that was going to increase its industrial costs and reduce its ability to exploit its mineral wealth. A lose-lose.

Chinese CO2 emission (orange) are now higher than US emissions (grey) and growing explosively fast

But what about the planet? The Paris Treaty is essentially a massive irrelevance, a way to spend a huge amount of money (money that could for example be better spent bringing electricity to the world’s poorest people) to change the earth’s climate by a tiny fractional amount.

The commitments of the Paris Treaty are estimated to cost $42 billion to $176 billion every year until 2050, according to an analysis prepared by Columbia University. Even if all the promises made in the Paris Treaty for action by 2030 were met by all its signatures, including the USA, then by 2100 global temperatures would be reduced by just 0.048ºC. If all the nations signed up to Paris extend and fulfil these promises for another 70 years until the end of the century the reduction in the temperature increase would be 0.170ºC. So the lowest estimate of the cost of just reducing the increase in earths temperature by less than a tenth of degree by 2050 is going to be around $1.3 trillion.

In a world where over a billion people live without access to electricity is this the best way to spend $1.3 trillion?



Part Two: What’s wrong with the European Union?

In Part One of this series of articles I charted how my general politics had evolved over quite a long period of time, and specifically how my understanding of the European Union had changed. In short how I went from being an active and enthusiastic supporter of the EU to having grave and deep doubts about it, and I went from thinking the EU was at the essential core of progressive politics in Europe to thinking that perhaps the EU was a major obstacle to progressive politics in Europe. During the referendum campaign in the UK, and in the aftermath of the Brexit vote, most liberal and progressive commentators defended the EU as an essential component of any progressive politics. Its faults, when acknowledged, were presented as being less important than its benefits, and on the whole progressive opinion views the EU project as being inevitable, benevolent and essential. However I think a strong case can be made that the EU negates and blocks the very core pillars of progressive politics, and that the EU model, including ‘ever deeper union’ is not the only possible ‘Europe’.

I want to concentrate on looking at two deeply flawed and critical parts of the current EU system, its non-democratic political system and its lack of material social solidarity. Not only are those flaws linked but they are central to any progressive project in Europe, and indeed central to any national progressive project. The two central pillars of any progressive project in any developed capitalist system must be firstly to create a truly democratic political system through which the people can on the one hand impose necessary restraints and limitations on the process of capitalist accumulation, and on the other hand also ensure that there is ample social provision to soften and civilise the social consequences of capitalist economic development. These two pillars combined are sometimes called social democracy and sometimes called democratic capitalism, but the labels don’t really matter. What matters for progressives is ensuring that there are large scale material programs of social solidarity and that the entire system (the private capitalist sector and the socialised non-capitalist sector) are firmly wrapped in a controlling democratic political system. So the two things that matter more than anything else are democracy and material social solidarity. I believe that if you look at the European Union objectively it is quite clear that it is not a democratic political system, it also indisputable that the EU does not (and probably can never) deliver a pan-European system of material social solidarity.
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“When the facts change, I change my mind. What do you do, sir?”
John Maynard Keynes


Part One: Swimming in Europe

Its been a tough decade since the great financial crisis started in 2007. When the Great Moderation came to an abrupt with the crash of the financial system I think a lot of people on the Left in Europe, including myself, expected that with the neoliberal project hitting the buffers it was finally time for a more progressive project. Time for a more robust European social democracy, a time for reform, a time when the EU would finally show its mettle and its value as a great progressive social and economic project. Things have not turned out as I thought they would. I think a lot of other people probably feel the same way. The EU has not turned out to be social democracy writ large but instead a place of mass unemployment, stagnation, institutional sclerosis, and rising rightwing nationalist populism. And the the biggest crisis of capitalism since the 1930s has not led to the rebirth of social democracy but its, possibly terminal, decline.

How did this happen? Why did things not unfold as I expected? I have to start by accepting that I was wrong about a lot of big stuff. In recent years I have been doing a lot rethinking about some of these big things, stuff I obviously misunderstood, as I have tried to understand why the EU seems to have gone so wrong, why the nationalist parties have been gaining so much new support and why European social democracy is in such trouble. This meant thinking about things like how the EU really works and what it has really become, exploring the relationship of nation states to progressive politics and to democracy, and rethinking what a European progressive strategic project for taming capitalism in a globalised world might look like in the early 21st century. I have begun to change my mind about all those things and in this article I want to explain how my thinking has developed, the sorts of ideas I am exploring and to invite feedback because, of course, my conclusions are only interim and (as has happened many times before) I might have gotten everything wrong. Really these articles should viewed as me thinking aloud, and I remain unsure about a lot of things to do with the EU.
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In previous post (see ‘Thinking about China‘ and ‘What is happening in China?‘) I explored how the Chinese growth model was coming to an end. Like previous ‘miracle growth’ episodes the Chinese model was based on the suppression of internal consumption and the use of external demand for exports, and above all very, very high levels of investment to drive demand in the economy. Although the Chinese model is one that has been used before it is different in both the size of the economy and the scale of the imbalances. Chinese investment levels have been in recent years the highest ever recorded in history and the animated video below depicting the recent metro building program in China is a neat illustration of what is happening.
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The great financial crisis of 2008 had many causes, and a very important one was the great imbalances in global trade that had developed over the preceding years. Those imbalances have not been significantly reduced and in some case they have grown worse. The result is that debt levels are rising and in some cases are beginning to approach the levels seen just before the crash of 2008.
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Macron’s victory in charts

May 8, 2017

I found these charts at the FT (full article here). I find it interesting that the FT thinks the final chart is an indicator of psychological state rather than an indicator of material well being. Macron can only deliver if Germany plays ball – the future of French politics now hinges on the German election.

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The UK local authority property bubble

April 30, 2017

Something odd and a bit worrying is happening in local government in the UK, and I don’t mean the huge cuts in central government funding. All across the UK local authorities are moving into large scale property development as a way to generate income to compensate for lost government funding. This could be a deeply […]

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Europe’s other single currency

April 24, 2017

There is another European single currency, other than the Euro, but it is not widely known about in Europe because it is used in Africa. France has long been committed to maintaining a zone of interest in Africa based on its old colonial possessions. One of the mechanisms it uses to maintain ‘dependency’ amongst its […]

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The French first round

April 24, 2017

Just over 40% of the French electorate voted for a candidate that wanted to leave the Euro. Macron will almost certainly win the second round but then the sparkling young new president will have to confront France’s deep divisions, try to do something about France’s dire economic position while constrained by the straight jacket of […]

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Meanwhile in Greece the beatings continue but moral fails to improve

April 19, 2017

While all eyes are on Brexit and the various critical elections looming in the EU the the tragic and cruel farce continues in Greece. The publication of the International Monetary Fund’s World Economic Outlook (WEO) on Tuesday revealed worse estimates for the Greek economy compared to the upbeat set of forecasts included in its previous […]

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