RE: [OPE] class illusions about the crisis and the state

Jurrian
It is not technically feasible to reverse the legal and financial policies implemented across three decades in the course of one depression. To do so, you would practically need something like a dictatorship, but leaving aside the question of how you would obtain a political mandate for that, the most likely effect of such a dictatorship would be massive capital flight. Most of the prescriptions for capital controls really concern only specific international flows which would seriously destabilize an economy http://research.stlouisfed.org/publications/review/99/11/9911cn.pdf In fact politicians just scramble for the "middle ground".
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Paul
 
We have to look at the actual direction of capital flows. It is most obviously from the
countries running a trade surplus to those running a trade deficit -- thus from China, Japan, Germany are running a surplus and the UK and the USA are running a deficit financed
by loan capital. Clearly stopping this flow would disrupt the world economy, but that is
just what is happening now, with consequent effects. But one has to ask whether the
existing flows were either sustainable or desirable, I would say no in both cases.
 
 
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Jurrian
 
 
 
In reality, no amount of capital controls can prevent the plunge into recession, at most they can mitigate the effects somewhat. The only effective "capital controls" there are, are (1) fullscale nationalization and (2) simply outlawing particular types of capital transactions, but like I say you would run into stiff resistance and would have to have a political mandate for it; but the effect would still be massive capital flight, and you are left with a big foreign trade problem. That sort of thing is conceivable only in the context of military wars or an unemployment level in excess of about 15-20%.
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Paul
 
I agree that capital controls are not relevant to the recession at the moment, desireable
as they may be in some circumstances.
But I think you may overestimate how difficult it may be to impose them.
The banking and financial system is in very bad odour politically, and its pleas for
free capital movement are less likely to be influential than they once were.
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Jurrian
I have not kept up with "third way thinking" in Britain but Lord Mandelson's speech http://www.chathamhouse.org.uk/files/12786_031208mandelson.pdf I think confirms the view I posted previously. Lord Mandelson is an admirably optimistic chap, extraordinarily clever (they used to call him all sorts of things, "spin doctor" etc.), but leaving aside the political aspect, actually I distrust his analysis, because there is no systematic analysis of the UK workforce and the UK industrial structure underpinning it. I regard New Labour as essentially anti-working class, anti the wholesome creative spirit of the healthy British working classes.
 
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Paul
 
You are obviously broadly right here, what I was pointing to was the fact that he said
that the financial and retail sectors had to be smaller relative to manufacturing in the
future, and made a strong case of an interventionist industrial policy. In the absence of
ready credit from China to foster imports, the previous model in which the fate of
manufacturing was not a political issue, has gone by the wayside.
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Jurrian
 
 
 
 I am rather skeptical of his analysis of the UK financial sector. I have yet to read a really good book on The City, it's on my to-do list but meanwhile you have all sorts of other stuff happening, and I don't get to read in depth. The virtues of moderation are standard fare in politics, until the middle ground disappears, and you really have to do something.
 
I did not catch what you meant on exchange rates.
 
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Paul
My point is that a large fall of the pound and dollar relative to other countries
is likely to shift the relative weight of manufacturing in the USA and UK relative
to financial services.
Since Keynes day the City has always lobied for a strong pound, but that has been
thrown aside in the emergency. The strong pound policy has always favoured finance
capital and handicaped industrial capital. The same in the USA.
What is happening now will shift that balance once more.
 
 
 
 
 
 

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