A run-through of a good chunk of the latest political economy literature.
Michael Roberts is an Economist in the City of London and a prolific blogger.
Cross-posted from Michael Roberts’ blog
It’s mid-summer in the Northern hemisphere, so I thought it might be the time for a quiet review of some books on the trends in the world economy. These are short reviews without much depth and I am excluding new books coming up that deserve fuller accounts.
Let’s start with a couple of books that deal with US economic hegemony and the dollar. Mainstream economist Kenneth Rogoff has published Our dollar, your problem, the title of which refers to the statement in 1971 by the then US Secretary of the Treasury, John Connally who told his European counterparts: ‘the dollar is our currency but your problem’, when the US decided to allow the dollar to depreciate by 20% to improve its trade account that was heading into deficit.
In his book, Rogoff argues that dollar supremacy (what he calls the ‘Pax Dollar era’) in world markets may be coming to an end. Rogoff reckons that this is not because the US is losing its share of world trade in goods – which is the current Trumpist view. Rogoff sees no sign that other currencies can replace the dollar in trade or finance. The reason for the decline in the dollar is within the US itself, namely the huge rise in public sector debt, now heading towards 125% of US GDP. Rogoff’s conclusion is that “if runaway US debt policy continues to crash up against higher real interest rates and geopolitical instability, and if political pressures constrain the Federal Reserve’s ability to consistently tame inflation, it will be everyone’s problem”.
The question of public debt has always been Rogoff’s line. He is famous (or infamous) for his book This Time is Different, jointly written with Carmen Reinhart, that economic and financial crises are driven by debt – in particular, public sector debt. When the public debt ratio in a country reaches a certain level, a currency crisis ensues, bringing down the economy. The irony of this argument is that Rogoff and Reinhart’s empirical work to back up this thesis was roundly exposed with errors by a graduate student.
More to the point: two things. First, is it high public debt that causes crises or the other way round? Slow growth and slumps will drive down national output and increase government deficits. Public sector debt ratios have risen sharply in all major economies mainly because of crises in the private sector, leading to banking collapses and recessions. Then governments bail out banks and failing companies by issuing debt and/or printing money (quantitative easing) and so the burden of the private sector collapse is shifted onto the public sector and then on working people through applied austerity measures to try and get the debt down. Second, what flows from this is that it is the rise in private sector debt that is the risk to any country’s currency. This is ignored by Rogoff who has no nasty words for the capitalist sector.
Socialist economist Jack Rasmus offers a much better explanation of the relative decline of US imperialism and the dollar. His book will be available from October. In his book, The Twilight of American Imperialism covers the gradual decline in US manufacturing dominance in the 1970s onwards that led to taking the US dollar off its link to a fixed price of gold and Connally’s remarks.
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Rasmus argues that it is the internal contradictions within the US economy that have weakened its ability to sustain its global hegemony. In the 21st century. The US has turned increasingly to wars to defend its hegemony in the face of the challenge of BRICS and other resistant powers. The American empire reached a peak in terms of global economic hegemony and an apex in geopolitical and military power around the middle of the first decade of the current century. Since then, the US empire in all its key dimensions—economic, political, social, technological, and even cultural—has been in decline. Now Trump is in the process of focusing more on the western hemisphere and the Pacific, and rearranging strategic priorities such as preparing to engage the BRICS, China and Russia economically and otherwise, and securing sources of funding for next-generation military and defense technologies.
Blood and Treasure is a new book by Duncan Weldon, now at the Economist. He argues that warfare might be costly, but it has also, at times, been necessary in order for states to gain global prominence. Fundamentally, warfare is driven by the economic needs of states and their elite. Indeed, the history of warfare can help explain modern economics, Weldon argues. For me, the current move by the major economies from welfare to warfare is no accident, but the result of the increasing weakness in these economies.
That what happens in the private sector is more relevant than the public sector for the cause of crises and financial collapse has always been the strong message of post-Keynesian leftist economist Steve Keen. Keen is no Marxist – indeed, he has spent some ink on dismissing Marx’s law of value as invalid and irrelevant. Instead of seeing changes in profitability as key to capitalist crises, Keen looks to ‘excessive’ private debt.
Keen made a brilliant critique of mainstream economics in his book Debunking Economics. Now he has a new book , Money & Macro from First Principles, for Elon Musk and Other Engineers, in which he debunks Elon Musk’s economic ideas, based as they are on the libertarian free market economics of Milton Friedman. As Keen says, private bank lending is more dangerous to economic stability than government spending. Keen thinks that the global financial crisis of 2008 was caused by a private debt bubble. On this, he is superficially right. But why did private credit become a ‘bubble’ that burst? In my view, there were forces in the ‘real’ economy of accumulation and production that were the underlying causes, namely changes in the profitability of capital.
As the world economy goes even more pear-shaped with crises of increasing intensity, critics of ‘free market’, neoclassical economics multiply. The latest critique is by Nat Dyer with his book, Ricardo’s Dream: how economists forgot the real world. The book critiques modern economics for losing touch with the real-world concerns that originally motivated classical economists like David Ricardo, who studied wealth distribution, trade, and labor dynamics in concrete terms. Instead, Dyer argues, contemporary economics has become overly abstract, dominated by mathematical models that ignore historical, political, and social realities. Dyer advocates that economics must “reconnect with history, sociology, and political science”—much like Ricardo’s approach. Dyer’s arguments are not new, as several authors before him have made the same points. But his book does provide an absorbing ride for the reader.
More explosive is Hayek’s Bastards: The Neoliberal Project and the Unmaking of Democracy by Quinn Slobodian. This is a revealing account of how neoclassical economics, as presented by supposedly objective economists like Friedrich Hayek, morphed into neoliberal policies of privatisation, union bashing, the destruction of public services and deregulation. But more than that; the economics of Hayek was taken up by the far right. Slobodian argues that current hard right anti-democratic libertarian followers of Hayek are not opposed to free trade and markets (except for immigrant labour) but are the “bastard offspring of that line of thought”. These bastards are believers in racial difference and tribes: races should not be mixed. Moreover, it is the white race that has higher IQs, as shown by the development of information technology in the Global North (!). “In the midst of the world crisis, the bastard offspring of ‘free market’ economists Mises and Hayek preached a flight from democracy to safety: to gold, to family, to Christianity, a plea to divest from state money and into the metal that weighs heavy in the hand.”
I recount that Hayek argued in his book, The Road to Serfdom, that state control would end ‘democracy’ and the freedom of the market economy. After reading the book, Keynes wrote to Hayek: “morally and philosophically I find myself in agreement with virtually the whole of it; and not only in agreement with it, but in a deeply moved agreement.”! So Hayek’s anti-socialism was not just a poster child for libertarian fascists.
Hayek went to Chile after the military coup that installed General Pinochet. He organised meetings of the ‘free market’ libertarian Mont Pelerin society in Vina del Mar, Chile in 1981, at the height of the dictatorship. He gave an interview to the pro-government newspaper El Mercurio (there weren’t of course, any anti-government newspapers at the time) in which he was reported as saying “Mi preferencia personal se inclina a una dictadura liberal y no a un gobierno democrático donde todo liberalismo esté ausente” (cited in Juan T. López, “Hayek, Pinochet y algún otro más”, El País 22 June 1999. A rough translation is “My personal preference inclines to a liberal dictatorship and not to a democratic government where all liberalism is absent”). Slobodian argues that these views have spread in the 21st century with the likes of Jair Bolsonaro in Brazil, Sebastian Kurz in Austria, Donald Trump in the US, and now Milei in Argentina. “Many supposed disruptors of the status quo are agents less of a backlash against global capitalism than a frontlash within it.”
Some may argue that China is also has a dictatorship, but if that were right, this one is not a product of Hayek’s ‘bastards’. Two new books on China are out, among the so many that have been published over the decades. In China on the rise: the transformation of structural power in the era of multipolarity, Efe Can Gürcan and Can Donduran draw on deceased British economist Susan Strange’s concept of “structural power” to explain the rise of China. They like Strange’s approach to development because it is eclectic, combining “insights from various perspectives, including realism, liberalism, constructivism, and Marxism”. Using this amalgam, the authors argue that China has not risen because it has been an aggressive political force; instead, its rise is due to ‘structural economic development’. This seems obvious to me and beyond that the book lacks any clear message on the causes of China’s rise.
Chinese economist Xiaohuan Lan is more to the point in his book: How China works. This is a best seller in China. Lan argues that China’s rise is not primarily due to the rise of its capitalist sector, but mainly due to the role of the state. But he says that “emphasizing the role of government is certainly not the same as advocating for a planned economy.” He claims that now there is no planned economy Soviet-style in China, and such talk is ‘off the topic’. I find this conclusion strangely out of line with CP policy, which may not be Soviet-style central planning, but still presents a five-year plan for China’s development targets, for both the state and the private sector to follow. Xiaohuan Lan reckons that China’s economic system has three components: local governments with a large amount of resources and a large freedom of acting; a powerful central government with a strong ability to coordinate and control; and a well-organized bureaucratic system with strong human capital. I think you could add the state-owned finance sector and large state enterprises in all sectors.
Finally, there are some new books out that seek to explain the contradictions in capitalism in the 21st century. French economist Thomas Piketty has published a book that recounts a dialogue between himself and Michael Sandel. Piketty is known to many as the great expert on inequality of wealth worldwide and famed for his book Capital in the 21st Century that stormed the mainstream economics media over ten years ago. Michael Sandel teaches political philosophy at Harvard University and has been described as a “rock-star moralist” (Newsweek) and “the world’s most influential living philosopher.” (New Statesman).
In their book, Equality: What It Means and Why It Matters, Piketty and Sandel debate how to reduce or eliminate inequality in the world. They want capital controls to stop rich people and corporations hiding their wealth in tax havens globally. Piketty also calls for a move back to progressive taxation of incomes that was gradually eliminated by neoliberal governments starting 40 years ago. To reverse rising inequality, Piketty and Sandel seem to agree on some form of ‘democratic socialism’, which boils down to increasing the provision of public services, including health and education , and introducing stronger worker representation on company boards “to widen involvement and participation in the decision-making process across the economy.”
For me, this seems to return to the policies of social democracy, namely gradual reform of capitalism to make it fairer and more manageable; policies that dismally failed in the 1970s when capitalism’s post-war golden age came to an end. The problem with seeing the main contradiction in capitalism as inequality is that it fails to explain why there is inequality. This was one of the weaknesses of Piketty’s magnum opus in 2014. Inequality arises from the exploitation of labour by capital. Inequality will not be substantially reduced by just trying to redistribute wealth and income after the event through policies of progressive taxation or better public services. Capitalist accumulation will just generate more exploitation.
Finally, William I. Robinson presents a ‘big picture’ analysis of the global crisis of capitalism, in his book, Epochal Crisis: The Exhaustion of Global Capitalism, to be published early next month.
Robinson reckons the growing contradictions in capitalism are spiralling out of control, while the ability of capitalism to achieve global capitalist renewal is exhausted. Capitalism is losing its productive power and entering an unprecedented and multidimensional crisis. Robinson presents both theoretical and empirical evidence to argue that there is an irreversible decline in capitalism’s capacity to reproduce itself. The new digital technologies (AI etc) may lead to a renewed lease of life for global capitalism, but only for a time. The time frame for such an exhaustion is just decades.
Robinson reviews the basic tenets of Marxist political economy and crisis theory and the political and ecological components of this exhaustion. Structural crises have their origin in the emergence of obstacles to the ongoing process of accumulation, that is, to profit-making. Accumulation crises are actually the result of too much accumulation; they are overaccumulation crises, or the overproduction of capital relative to profitability.
Robinson argues that capitalism may face a profound crisis of its own reproduction but without class struggle to overthrow it, the system may linger on for decades, at least until such time that the collapse of the biosphere and the breakdown of social reproduction on a mass scale make the reproduction of capital impossible. It is thus impossible to separate politics from the epochal crisis of global capitalism.
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