I shall here assume unionists to be by and large moderate conservatives and third way social democrats, people who are aware of the problems of the current neoliberal order but are averse to radical change. The question of change versus stasis is the classic political question. Since the financial crisis the question of what sort of change it is acceptable to ask for is more open than it has been in decades.
From Trump and Sanders to Corbyn and the Brexitiers the dissenters are gaining ground against the established consensus and this development presents as many dangers as it does opportunities. To win independence in the first place it will be necessary to persuade those who are minded to prudently retain the economic and political old consensus that there is in fact something here that is desperately wrong.
The crisis of 2008 is looking like an opportunity on which the independence movement and progressivism more broadly is about to miss out. When the stagflation crisis of the seventies hit, the Right were ready with a coherent policy platform to tackle what was successfully cast as the crisis of the Keynesian social democratic post-war consensus.
“The third way of Blair and Clinton was built from economic prosperity brought about by letting the banks create vast mountain of new money in the form of private debt.”
This agenda was produced in large part by the Mont Pelerin society which contained such luminaries as Friedrich Hayek and Milton Friedman. They had a network of policy institutes and think tanks ready to thrust their ideas into the hands of amenable or at any rate desperate politicians. Similarly they crafted an economic world view and narrative with which civil society was successfully persuaded. This consensus is now coming asunder.
The guiding theory of neoliberalism- neoclassical economics is starting to fall apart. Olivier Blanchard, former chief economist of the IMF and co-author of one of the perennial textbooks in university macroeconomics, recently wrote an article questioning whether the central neoclassical tool for modeling the economy (DSGE modeling) is even viable.
His conclusion was somewhat astounding essentially admitting that this technique is about as useful at predicting the future course of the economy as reading tea leaves but we should still use it as a core for discussion. It is for good reason that it has been said that science advances one funeral at a time. The IMF itself was condemned by its own internal review on how it handled Greece. The aforementioned models played a major role in justifying the disastrous policies imposed by the Troika.
“There will not be a new Clinton boom should Hillary win. So there is a genuine need for proper economic policy alternatives of the sort that progressives can provide.”
The central problem with neoclassical economics is that in a very important sense it doesn’t admit that banks exist. At least not banks as there are in the real world with the power to create money and manipulate the prices of assets. Paul Krugman is a good example of this view having publicly defended the view that banks don’t matter in a blog debate with Steve Keen, a Post-Keynesian economist who is widely regarded to have predicted the financial crisis and who has accumulated an impressive collection of awards for accurate economic forecasting. The twice Nobel laureate Joseph Stiglitz has recently moved away from neoclassical economics having publically called for the end of the Euro and co-authoring a paper on a new approach to economic modelling which does include a realistic banking sector drawing on Post-Keynesian economics.
We are now living through a time of widespread crisis for finance driven capitalism. Since the great financial crisis we have witnessed one crisis after another from the ongoing Eurozone crisis to more recently the Chinese crisis and the collapse in the commodities markets. The third way of Blair and Clinton was built from economic prosperity brought about by letting the banks create vast mountain of new money in the form of private debt. This inflated house prices, stock prices and allowed the creation of the toxic derivatives which nearly collapsed the global economy.
“The central problem with neoclassical economics is that in a very important sense it doesn’t admit that banks exist.”
But this trick is not going to work a second time because we’re still saddled with that previous mountain of private debt. There will not be a new Clinton boom should Hillary win. So there is a genuine need for proper economic policy alternatives of the sort that progressives can provide. From the USA to Japan and in an indy Scotland the cause of the problem is the same and the solutions that present themselves are also, conveniently, a set of policies that easily fall under the progressive umbrella.
The Independence movement must embrace a few simple lessons from Post-Keynesian economics as few things are as important at the ballot box as economic credibility and to earn credibility you must first have a coherent narrative: Government debt and deficits are not a problem with an independent currency as this is actually how money is created. The economic indicators that we need to worry about are the level of private debt and the trade deficit. Governments are not funded by taxes but rather the purpose of taxation is the control of the currency.
The vast majority of the money in the economy is created by banks and their irresponsibility with this power caused the financial crisis. This sounds strange or even mad to most people but this is merely a measure of how misunderstood the real workings of our monetary system are. The Bank of England in 2014 published a paper agreeing with the Post-Keynesian position on money and stated that a majority of economics textbooks were in fact wrong on this subject.
“From the USA to Japan and in an indy Scotland the cause of the problem is the same and the solutions that present themselves are also, conveniently, a set of policies that easily fall under the progressive umbrella.”
In order to persuade civil society at large that change is necessary we in the independence movement must work at reformulating how people in general think about the economy and what is economically possible.
We know how this type of crisis plays out because it has happened before. The Great Depression was effectively a private debt crisis and the last twenty years of stagnation in Japan is also the same animal as Richard Koo, an advisor to Japanese Prime Minister Shinzo Abe, has argued. These do not go away without dramatic interventions.
The way such a mountain of debt was cleared away after the Great Depression in the US was World War II. Hopefully this time we can do it less violently. Privatisation, deregulation and austerity are incapable of restoring growth and the sooner this reality is accepted by civil society at large the sooner we can move forward.
By John Alexander Smith