IN NOVEMBER 1980 Mrs Thatcher first told us the economy was about to turn up. years later the Financial Times says:
AMERICAN viewers tuning into Reagan's 1984 budget speech will witness a rare spectacle: again Keynesianism. 'Reaganomics is dead', explains American journalist Kaletsky. "The singular economic cult to which Mr Ronald Reagan has given his name and which even Vice-President George Bush once described as economics' is being prepared for permanent interment.
Mr Reagan has made some converts. On January ministers from the 'Group of Ten' biggest Western countries met in full session for the first time since the world currency system collapsed in 1973 to announce that rowth was in vogue again. Even M lowe startled EE ministers month when he told them he was going to inject f2bn into his economy and they ought to do the same The leading Western ments, in short, want to reflate the world economy. Can they do it?
Not every remedy can be trusted In 1975 the Archbishop of Canterbury asked his flock to pray for the pound sterling. The result was an IMF visit. Divine intervention also failed rescue the Ambrosiano bank hose head banker hanged himsel off London Bridge in December. The Vatican, neavily involved bank's collapse, had run up a deficit of $27m and a debt of $1.3bn in return for some dubious transactions involving 'letters of comfort' several obscure compana Panama The leading governments want reflate the economy. Can they do it?
Reagan is more down to earth than God but nis worse. His monetarist priests have been prophesying upturns since 1981 But total unemployment has topped 30 million and even Japan has been sucked into the slump with a dole queue of 1,390,000 and falling growth The banks are teetering on the brink. The top 100 have net assets of $150bn; the world's "bad risk' borrowers owe them $50bn more than this.
sum. The bank and currency collapse of:
1931 is seen as a grim precedent.
Even worse, trade war looms. Last month a meeting of countries in GATT (General Tariffs and Trade), which promotes free trade, broke up having agreed almost nothing. 'The paralle. with the 1930s is alarmingly close, said David Henderson, an economics professor.
•Western governments are increasingly treating the GATT system something to be circumvented or set aside ...
prisoners of each others' opportunist conduct.
import might dream, protection leads to contraction. Less trade means smaller markets; smaller markets mean less production; less production ess jobs and a longer slump. Ask the shipowners, who have to carry the stuff. Michael Revell, Director of the shipping and Marine Midland bank of the USA advises traders to plan for a depression as bad as the one we have had now for two years.' The world is breaking up into regional trading blocks competing tor shrinking markets over rising tariff walls. Europe and America are at war over grain and dairy produce, steel Socialist Challenge 2 February 1983 3¼ m in 1983 Two rise at most one per cent television Ronald bornAnatole • Unemployment will rise to • Industrial production will • No recovery is in sight until The world slump autumn.
When industrial production fell to a sixteen-year low last quarter, the recession had been in full swing for three choisis au goût des chiens. years. Most of us are living through the longest slump of our lives.
How long will it go on? Is any recovery possible, anc will Marxist the effects bei ALAN FREEMAN argues that the labour movement needs a analysis to understand what is happening.
The trouble with all arguments that see money as the 'cause of slumps or booms is that they mistake cause for effect. Money movements can be influenced by governments, but they cannot part company from the most important features of the economy, which are what it produces, with what machinery, what labour force and under whose ownership.
Worship of the money supply was an economic but a politica creed. It aimed to reverse two historic features of postwar capitalism: • Its commitment to full employ• Its use of government-backed debt to smooth over crises.
"Creating money' in the boom years in fact meant creating debt -writing IOUs on a grand scale, and using them to pay for real goods.
As long as no-one presented the IOUs for collection, this worked like magic — by putting off today's problems until tomorrow.
and Reagan stopped governments creating large domestic debts. But they didn't stop creating new debt abroad on a breathtaking scale: mainly to countries like MexUnfortunately, these countries have now built up such debts that they But money policy doesn't cause It is not shortage of money, but shortage of investment opportunity, that stands in the way of a new boom.
investment opportunity must come at guaranteed, stable, higher than average rates of return or the in.
dustrialists will keep their money idle and wait for better times.
•Plan for a depression as bad as the one we've had now for two years.' - US merchant banker It is only when we start looking at profit rates that we begin to get some picture of the underlying causes of The rate of return on capital has been systemically decinWestern countries since 1960. But this in turn has led to a long-term decline in investment; and this has led to a long-term decline in A socialist plan could easily deal with this problem by taking investment out of the hands of private bodies. But this is the one 'solution that none of the experts are prepared This is leading many to look at a Keynd le asticte in the 27 answer cuts:
November calls 20 percent cuts to restore British competitiveness. Peter Shore would have to accept wage cuts on this scale to make his policies remotely acceptable to inThere are two great flaws in the argument. First, it is presented in a misleading way. Writers point out that wage costs are a high proportion costs in Britain compared with other countries, so they must fall 'to bring us into line'. But this flatly contradicts a fact everyone knows:
you get the highest real wages in the prosperous countries.
workers aren't better off than their German, Japanese, Swedish or Dutch A proper wage comlooking at relative money wages, shows Britain way down the Wage costs are high in Britain for the same reason they are high in a peasant economy: because industrial promuch lower, in turn