Using cross-national fixed effects models covering 25 EU countries from 1995 to 2010, we quantified fiscal multipliers both before and during the recession that began in 2008.
We found that the multiplier for total government spending was 1.61 (95% CI: 1.37 to 1.86), but there was marked heterogeneity across types of spending. The fiscal multipliers ranged from −9.8 for defence (95% CI: -16.7 to −3.0) to 4.3 for health (95% CI: 2.5 to 6.1). These differences appear to be explained by varying degrees of absorption of government spending into the domestic economy. Defence was linked to significantly greater trade deficits (β = −7.58, p=0.017), whereas health and education had no effect on trade deficits (peducation=0.62; phealth= 0.33).
By “liberalism” I mean what is considered under this term in the US. By “to blame” I mean “for the rise of Trump and similar nationalist-populists”.
What are the arguments for seeing liberal triumphalism which began with the collapse of Communism in the 1990s as having produced the backlash we are witnessing today? I think they can be divided into three parts: economics, personal integrity, and ideology.
The Resolution Foundation’s study found that the current parliament would be the worst for living standards for the poorest half of households since comparable records began in the mid-1960s and the worst since the early years of Thatcher’s 1979-90 premiership for inequality.
Note that the level of manufacturing employment, while it has cyclical ups and downs, is nearly constant from 1970 to 2000 at around 17 million. It plunged in the early years of the last decade as the trade deficit exploded. Most of the fall in employment was before the collapse of the housing bubble in 2008. This is what happens when a trade deficit increases from around 1.5 percent of GDP, the mid-1990s level, to almost 6.0 percent of GDP at its peak in 2005-2006 (over $1.1 trillion in today’s economy).
In his article Brad does a bit of slight of hand on this rise in the trade deficit, attributing it to an over-valued dollar rather than trade agreements like NAFTA. I agree with him on this, but I think the ignorant masses can be excused for failing to recognize that the jobs lost to trade were due to the Clinton administration’s dollar policy rather than its trade deals.
The UK has long depended on heavy flows of investment from abroad to make up for the weaknesses in its own corporate and financial institutions. In 2015 the UK ran a deficit in its external trade in goods and services of 96 billion pounds ($146 billion in 2015), or 5.2 percent of GDP, the largest percentage deficit in postwar British historyand by far the largest of any of the G-7 group of industrialized economies. By comparison, the US ran a deficit of 2.6 percent of GDP, while Germany earned a surplus of 8.3 percent, Japan a surplus of 3.6 percent, and France broke even. In the memorable words of Mark Carney, the Canadian-born Governor of the Bank of England, the UK must depend on “the kindness of strangers” to remedy its trade gap.
The reason for this unusual dependency is that for decades the UK has been unable to produce enough goods that the rest of the world wants to buy. According to WTO statistics, between 1980 and 2011 the UK’s share of global manufacturing exports was halved, from 5.41 percent to 2.59 percent, so that by 2011, according to UN statistics, the dollar value of UK merchandise exports at $511 billion was not far off the level of Belgium’s at $472 billion, an economy with one six the UK’s population, (and not included in the Belgian figures, the value of German exports routed through Belgium ports).
Looking at export industries such as IT products, automobiles, machine tools, and precision instruments, all strongly dependent on advanced R&D and employee skills at all levels, the UK’s performance looks even worse. The period of 2005-2011 is especially revealing because it includes both the years of the Great Recession and the collapse of trade between the advanced industrial economies, but also years in which their trade with China and other BRIC economies such as India and Brazil grew rapidly. Since one of the chief claims of the Brexit campaigners has been that there are now these exciting new markets in BRIC countries waiting for British exporters to conquer, it is worth looking at how British companies actually performed during those years.
Deep Place is a holistic approach to sustainable place-making. It is grounded in an empirical concern with how to achieve more economically, socially, environmentally and culturally sustainable places and communities. It seeks to overcome what it identifies as the harmful consequences of the current dominant Neoliberal economic paradigm. Although it is not anti-capitalist, it recognises the weaknesses and failings of Neoliberalism, which is exploitative of human and natural resources as factors of production. There has been a significant drive toward Neoliberalism since the 1980s, and the costs in terms of increased inequality are all too clear (Ostry et. al., 2016). The UK is now one of the least equitable countries in the world. Income inequality has been well above the OECD average for the last 30 years. The average income of the richest 10% is 10 times that of the poorest 10%. Between 2005 and 2011 the average income of the poorest 10% in the UK fell by a further 2%, and the share of the top 1% of income earners has grown from 6.1% in 1981 to 12.9% in 2011. (OECD, 2015)
Deep Place is based on the premise that the economy is socially constructed, and it therefore argues that it can be socially reconstructed. Even some of those who have been so closely linked to Neoliberalism, such as the IMF, are now appearing to accept the significant economic and social damage that arises from the inequality it causes. Key people within the IMF have now argued that policy makers should be more open to redistribution (Ostry et. al., 2016). At the same time, the Capital Institute has argued for a form of ‘regenerative capitalism’. They suggest that ‘…today’s greatest challenge is to address the root cause of our systemic crises – today’s dominant (Neoliberal) economic paradigm and the financial system that fuels it and rules it – by transitioning to a more effective form of capitalism that is regenerative and therefore sustainable over the long term’ (Fullerton, 2015, p. 12). Deep Place does not deny the complexity of global economic interrelationships; indeed, it fully recognises the difficulties and implications of managing and controlling these hugely complex circumstances. The impact of the 2007/8 Global Financial Crisis and the as yet not fully understood consequences of the decision of the UK in a referendum to leave the European Union, clearly illustrate the limitations of national governments to control such forces. That is why Deep Place is place-based. It argues that more localised action can often have a significant impact on strengthening community resilience against these external forces. In order to be most effective however, it contends that local action needs to be coordinated and fully integrated: it needs to be whole-place. Continue reading
Slow economic growth is not just an after-effect of the Great Recession but part of a deeper malaise that predates, and indeed may have helped cause, the financial crisis. A number of narratives have emerged in recent years to try to explain this global dearth of growth, such as the ‘debt overhang’ narrative, which states that growth is primarily hampered by an excessive indebtedness of economic agents, or various versions of the ‘secular stagnation’ narrative, which sees the cause of slow growth in a chronic shortfall of demand resulting from population ageing and the rise of income and wealth inequality, and/or in the diminishing returns of technological innovation. These various narratives probably all have some degree of validity. However, they tend to focus on developments that, even if they act as mutually reinforcing drags on growth, are in fact symptoms of the world’s economic predicament rather its deeper root causes.
Even more than from what most economists usually look at, i.e. constraints on capital and labour and on the productivity of their use, the slowdown of global economic growth since before the financial crisis might be resulting from factors that they typically ignore, i.e. constraints on the supply of energy and other biophysical resources that feed into the economic process and impact its functioning. In fact, the world’s capacity to create additional wealth is getting increasingly eroded by biophysical boundaries that over time tend to raise the acquisition costs, constrain the quantity and degrade the quality of the flows of energy and natural resources that can be delivered to the economic process, as well as by the constantly increasing costs of some of the economic process’ side effects (i.e. ‘negative externalities’ including environmental degradation and climate change), and the growing need to ‘internalise’ them into the price system. These biophysical constraints, as they increase, tend to weigh more and more on the economy’s productive capacity, thus eroding the potential for productivity and output growth.