My last two blog items (on MoneyWeek’s “End of Britain” video/letter, discussing a US debt default and consequences for socialist revolution in Britain and it never being necessary to reduce the level of the national debt covered some arguments I’ve been having with a blogger called Martin Odoni (hstorm), who agrees with the analysis of Warren Mosler in his book “The 7 Deadly Innocent Frauds of Economic Policy“. The following is a short review, drawing on some of my economic knowledge as an ex-Marxist, posing some important questions for British economic perspectives and consequences for socialist revolution.
I have reread Mosler’s book (reading about all of the “seven deadly innocent frauds” – it then goes on to self-promotion in his election campaign which I haven’t bothered with) and done further research into others’ opinions of it, and it is clear that it has a massive flaw in not taking inflation seriously. There is also the slight of hand in suggesting that there is no way an investor can take money out of the US Federal Reserve (Fed) when he/she can, as long as he/she can find someone to swap with on the markets, and this includes foreign currencies (the words “foreign exchange” and its abbreviation “Forex” are omitted from the entire book, as a search of the PDF file reveals, probably deliberately to imply investors are stuck with dollars).
The dollar being the world’s reserve currency, with some other countries’ currencies “pegged” to it, may make it less susceptible to fluctuations in inflation and exchange rates than with other currencies.
Additionally, Odoni (hstorm) assumed that the Bank of England behaves precisely the same way the Federal Reserve does. According to http://en.wikipedia.org/wiki/Federal_Reserve_System, “The Federal Reserve System has both private and public components, and was designed to serve the interests of both the general public and private bankers. The result is a structure that is considered unique among central banks. It is also unusual in that an entity outside of the central bank, namely the United States Department of the Treasury, creates the currency used.”
I’m not an expert in either capitalist (bourgeois) or Marxist economics. Even though I did regard myself as a Marxist in my time in the Militant Tendency/Militant Labour/Socialist Party from 1990-98, I only read two Marxist texts on the subject – “Wage Labour and Capital” and “Wages, Price and Profit” – I have all three volumes of “Capital” (“Das Kapital” in German) but never had the time or inclination to try to read them. The first of these made a lot of sense, but seemed to be out-of-date in not considering advertising and brand loyalty. I couldn’t get my head round the second at all. Oh, I did read Lenin’s “Imperialism, the highest stage of capitalism”, which predicted the tendency towards monopolisation, which ironically Thatcher’s advertising guru Maurice Saatchi recently announced on Newsnight that he agreed with Marxists as far as this was concerned (talking about the Big Six energy companies), but that his Centre for Policy Studies would try to come up with one big idea to get David Cameron re-elected as prime minister.
There are still arguments today about whether the key Marxist prediction of “the tendency for the rate of profit to fall” is actually correct, but it is clear that that was not the cause of the 2007/8 credit crunch. It was due to bankers creating AAA-rated complex “derivatives” that very few people understood but were based on US “subprime” mortgages that poor people couldn’t afford – and when the house prices crashed, there was a massive crisis.
So what conclusions can we come to about the stability of British capitalism nowadays? Are we really the seventh richest country in the world (and what about the increasing disparities between rich and poor)? What will happen when quantitative easing ends? [Some economists predicted big rises in inflation/interest rates when it started; some predict similar things when it ends; have they a clue what they are talking about!?] What about the British housing bubble bursting (made more likely by the extension of the ConDems’ “Help to Buy” scheme)? What about impact from the Eurozone (especially if some foreign banks go under that owe British banks money)? What if there is a US debt default? What about the big fines British banks are having to pay to customers/businesses? Would high interest rates (MoneyWeek’s “End of Britain” suggests 5%) mean that UK plc goes bankrupt, with ensuing social and economic chaos and great potential for socialist revolution (as long as there’s a serious sizeable socialist party to lead the revolution and I think the best potential for such a party is Left Unity)?
I’ll leave these as questions to be considered by others. Feedback would be greatly appreciated!