An indisputable outcome of the economics of the post-Friedman/Thatcher/Reagan era has been inequality - profound and rapidly growing inequality. In the name of economic growth and neo-liberal orthodoxy, the welfare state has been under threat, labor union membership has plummeted, and deregulation, low inflation, and low taxation have become quasi-religious principles.
Yet in American, and to a lesser extent British political and economic discourse, the answers to the problems of inequality and stratification ring hollow. The dominant underlying assumption has been that we need more of what got us here in the first place - more “free” trade, more deregulation of financial markets, ever lower taxes on capital gains and on the income of the wealthy, and a weaker public sector.
As a result, politicians in Britain and America never address the serious implications of the gradual transformation of capitalism from a commodity production system into a financial market shell-game.
The problem, then, is at least twofold: first, no serious solutions to the problems of inequality created by our current and recent economic policies are on the table. And second, those very policies have enabled the system of finance-dominated capitalism that has both created, and will continue to exacerbate current and looming economic crises.
In short, the economies of Britain and the United states are deeply unhealthy.
Jerome a Paris at the European Tribune offers an insightful and important analysis of what ails us. Jerome has coined the term “Anglo Disease” to describe the problem. His analysis is convincing, and his predictions have been on target. As this selection illustrates, the current economic crises are rooted in the very nature of contemporary financial capitalism and the inequality, phony globalization, and culture of debt that it has created:
Thus the financial world imposes its unrelenting focus on profits and shareholder value on all economic activities; the domination of “return on capital” criteria ensures that many activities outside finance are in decline, as they struggle to reach the required returns on potential investments. Financial analysis sees labor as a cost, reducing profits, and pushes for its reduction, either via outsourcing, offshorisation or wage stagnation. Similarly, government regulations are seen as restrictions on profit to be fought and eliminated, as, naturally, taxes.
To boost domestic demand in the face of flat incomes, debt has been pushed on households as the way to keep on increasing their spending, to the further benefit of the industry that provides the loans. The combination of expansionist monetary policies in the West and mercantilist policies in China has made it possible to find the holy grail of no inflation and rapid asset price increases, thus generating massive (and increasingly less taxed) corporate profits. The reality was, of course, that of huge global imbalances and a massive bubble, but for the longest time it looked like perfect growth, further validating the policies that underpinned it.
The model of financial capitalism is thus all-encompassing, not only grabbing an increasing share of the economic pie, but also dominating all political and economic discourse.
The reality, unfortunately, is that a massive inequality, declining or stagnant living standards for the majority, which spend more than they earn, and, as a consequence, a massive bill pushed out into the future. Well, that future is now, and the imbalances will only be unwound if incomes match spending, which can happen via lower spending or via higher incomes.
In the financial capitalism model, incomes are a cost and should not increase; if that logic prevails - if the Anglo Disease is not cured from our body politic - spending will crash and a recession is not only inevitable but likely to be very painful, as the real economy slows down brutally, and the financial bets that ride it suddenly look highly unreasonable, and turn into losses (as is happening already in the subprime sector).
Jerome’s Anglo Disease theory deserves, and almost certainly will not receive, much wider public discussion. It runs counter to current economic orthodoxy, it challenges the prerogatives of some of the most powerful interests in the west, and it smacks of “Old Europe” social-democratic thinking.
I think we could use a little social-democratic thinking right now.
