Adam has an interesting post up on how Labour running the Vote Green-Get Blue tactic may be misguided. I agree, but not for the reasons Adam gives.
For Adam, the Green surge is because:
[w]ith another hung parliament now a racing certainty with the bookies, voters know that a vote for the smaller parties is no longer necessarily a wasted one.
In a first past the post system, this doesn’t really hold water. If people are making decisions about their vote, everyone outside a very small number of constituencies (Brighton, Norwich South, just possibly Bristol West and St Ives), knows that their vote will be “wasted” in terms of the meaning Adam accords it – the Greens taking or not taking the seat in May. Even the extension of this theory, that this vote builds towards victory in 2020, seems a bit ambitious.
Nor am I as convinced as Adam appears to be that most voters make their voting decisions on the basis of its likely effect on the result. Witness, for example, the small but significant “wasted” Labour votes in rock solid Tory constituencies, and vice versa, which has taken place for decades.
But the nationwide surge of the Greens in the polling appears to be real, as does the increase in membership. The question is what explains this surge, if it isn’t the prospect of victory.
An alternative explanation lies in the opposite direction from the utilitarian calculations assumed by Adam. This is that, in the terms of the godfather of anti-utilitarianism Bernard Williams, Green voters are developing “integrity”.
In the Williams sense of the term, integrity doesn’t mean honesty. It simply means that a person’s decisions are made on the basis not of other agents’ views on what the best outcome is – this for Williams is a philosophical absurdity  – but on the basis of that person’s own ‘project’.
Of course, Williams is offering a normative account, in response to the normative proposals of utilitarians, of how society might properly conduct itself, and he produces little or no empirical evidence that people actually make decisions on this basis. Nevertheless, it rings true. My own experience of talking to Green voters – both friends/work colleagues and on the doorstep – is that people are more likely than they used to be to say “I’m a Green”, as opposed to “I vote/am voting Green”. This suggests a level of internalisation of what it means to support the Green party, in the same way that we still hear “we’re Labour in this house”. By contrast, it’s not something I hear lot from people saying they intend to vote UKIP.
It’s possible, then, that what we’re seeing now – and perhaps membership is a more important indicator than polling – is the Green party starting to become an “integral” part of some people’s being, with the result that more people vote Green simply because that is what they do and who they are.
There is not necessarily any contradiction between this and the apparent swift surge in the polling and membership; the idea of making decisions in line with some kind of internal ‘project’ doesn’t mean that this project is not internalised swiftly from external factors, including press coverage. Over a longer timespan, it may be that younger people are more open to taking on being Green as part of an internal project because they have studied ecological issues at school, and are simply more aware of the detail. 
It may be that social theorist Anthony Giddens was right, way back in 1991, when she suggested that at least one section of modern society will move beyond “emancipatory politics” and towards “life politics”, and via this transition reclaim what Giddens calls their “ontological security”, a concept which seems quite close to Williams’ agential integrity.
Good for them. Most of the Greens I meet are OK people, and at a personal level I wish them well. But the issue for socialists is , of course, precisely that it is only one section of society who is benefiting from this stage of late modernism. As Giddens notes:
Life politics presumes (a certain level of) emancipation, in both the main senses….: emancipation form the fixities of tradition and form conditions of hierarchical domination…Life politics does not primarily concern the conditions which liberate us in order to make choices: it is a politics of choice. While emancipatory politics is a politics of life chances, life politics is a of lifestyle (p.214).
As a Labour person, ontologically secure in my loyalty to the Labour party because of what I have internalised about it, the rise of the Greens obviously concerns me. From a Williams/Giddens reading, it actually concerns me more than the rise of UKIP, which is currently profiting from a phase of deep ontological insecurity, but which does not currently at least threaten to consolidate a group of people who are ‘integrally UKIP’ .
The rise of the Green party concerns me because it remains fundamentally a bourgeois party, with no organisational links to the working class and no real heart for emancipatory struggle . I’m not talking here about specific policy stances, which range form the sensible (citizen’s income) to the downright stupid (opposing water fluoridation ). I’m talking about what makes Greens tick, and it’s not the emancipatory ideal and the re-embedding of worker-consumer duality that make me tick.
As Adam says then, combating the Greens with ‘Vote Green, Get Blue’ messaging will not, for the reasons I’ve set out, be effective; indeed, it may help reinforce Green “integrity”. The only real way for Labour to shore up its vote in the longer term against the Green surge is to reinvigorate the Labour ‘life project’, so that Labour people can become whole again. Again, this isn’t (mostly) about policy detail, though that helps. It’s about, at a local level, ridding ourselves of the bastardised version of ‘community organising’, which under Arnie Graf promotes the efficient but angry consumer instead of collectivist action. At a national level, it’s about allowing that to happen e.g. through allowing and facilitating the development of Modern Trades Councils as associative endeavours with ever-increasing legitimacy. It’s about people feeling the Labour impulse.
 Williams’ famous thought experiment to explore this is the story of Jim, faced with the dilemma of shooting one hostage to free twenty others, or not taking a life and knowing that all 20 will die. For Williams, the utilitarian argument for the former option is, literally, “absurd” since it
demand[s] of such a man, when the sums come in from the utility network which the projects of others have in part determined, that he should just step aside from his own project and decision and acknowledge the decision which utilitarian calculation requires. It is to alienate him in a real sense from his actions and the source of his action in his own convictions. It is to make him into a channel between the input of everyone’s projects, including his own, and an output of optimific decision; but this is to neglect the extent to which his projects and his decisions have to be seen as the actions and decisions which flow from the projects and attitudes with which he is most closely identified. It is thus, in the most literal sense, an attack on his integrity.
At a personal level, this argument strikes a chord in relation to my father’s bombing of Dresden which, while an understandable act in utilitarian terms, did – I have cause to believe – leave him with a life that lacked some integrity, in the Williams sense of the word. This is not to argue that bombing civilians was ethically wrong in the context of the war – indeed Williams argument is part of his anti-ethics philosophy, but the fetishisation of the military over the last twenty years, in a way which fails to recognise what killing people actually means for those who do the killing as well as the killed – does concern me.
 There may be a more mundane explanation for the rise. It may simply be that more voters are now saying they’ll vote Green simply because they’ve not had an option to do so at local elections, in which Green candidates only make an occasional appearance in many areas.
 My nagging fear remains that, although UKIP may fade as an electoral force after May, or at least sfter a referendum on EU membership, and when the buffoon Farage goes, the empty institutional architecture of the party will be taken over by an authoritarian demagogue able to convert the insecurities of modern life, including terrorism, into the securities of something much darker, taking a large section of current UKIP sympathizers with her/him (it would almost certainly be a him). Williams-style integrity doesn’t have to be a good thing.
 In this I disagree politely with Phil, who contends that the Green party has been transformed into a genuinely socialist party no longer dominated by what he calls “deep Greens” (in my area these have been the only ones on public view for many years, though they tend only to come out at election time).
 It’s not just that this is anti-science, around which even Bernard Williams softened his stance. It’s the whole notion that personal choice must outweigh public health benefits at all costs, which seems strangely at odds with the call for collective action on the environment in general. If this logic applies to fluoridation, why won’t it apply vaccination, with resulting in the consequences of loss of herd immunity?
[Edited 22/01 to correct Bristol South to West.]
Last week, somewhat less noticed than it might have been but for the Paris attack, premier league football manager Steve Bruce gave us his commentary on the conviction of Ched Evans for rape. Here’s what he said:
Yes, I spoke with Simon [the Oldham FC chairman who tried to sign Evans] I’ve known Sing for a lot of years now, and know that in his mind – he’d looked at the case too, and when you look at the evidence before everybody, I think he was of the opinion to give the kid a chance.
In my mind he has looked at the case and evidence and he was of the opinion to give the kid a chance. I’m a big believer that if you have done your time, you’ve done your time. Everyone deserves a second chance. You’ve seen footballers involved in accidents, and given a second chance, which I can only say, on behalf of myself ad I know I might bee upsetting people, that when you do look at the case in depth, in detail, then there is a question of the rape and how he’s been convicted of it by a jury, but when you do look at the evidence, it is there for appeal.
[cut in footage]
It has divided opinion of course, and I think when you look at the case in detail – and I think most people haven’t really, because they’ve just seen Ched Evans as a convicted rapist – but when you do look at the case and look at the evidence, before everybody to see, then certainly Ched has got a case, and I’m a big believer that if you’ve done your time, you’ve done your time, and everybody deserves a second chance. We’ve seen footballers involved with accidents and been given a second chance and for me, the appeal can’t come quick enough for Ched. It must be a frustrating, difficult time for him, like it is with everybody, and I think the appeal can’t quick enough for him and I think that the event of the appeal will see for that Ched will be allowed to play football again.
Bruce has been widely criticized for suggesting that he might know something a jury that sat through the evidence doesn’t know. For myself, I don’t care what he thinks, but the way he conveys his belief that Evans may be innocent is interesting.
Bruce starts hesitantly, evidence that he knows he is on unfamiliar, risky territory. The way he gets into his stride is to adopt the grammatical structure of the football pundit, slipping naturally into the mix of present and present perfect tense that you hear all the time on Match of the Day to describe recent action: “he’s looked at the evidence”, “Ched’s got a case”, “how he’s been convicted” etc.. Listen again, and it sounds very much like he’s doing a post-match interview, and is aggrieved at a decision – something along the lines of: “he’s gone down in the box, he’s had his legs taken from under him, clear as day, but the ref’s not seen it, that’s a shocking decision, that is, Gary”, and so on.
You can even sense where Bruce might have gone with his analysis: “Sure, he’s done her, but it’s not malicious, and she’s already on her way down. It’s a yellow card at most, never a red”. To be fair to Bruce, he doesn’t go in this direction, but there’s a televisual quality about the way he questions how the jury has come to its decision, as though he and his viewers are looking at the replay from the side-on angle, and then criticizing the linesman for getting it wrong. In Bruce’s mind now, as he gets into his flow, he has actually seen what needs to be seen, and he’s made the right call because he’s a top manager, and that’s what top managers do.
I think there may be two phenomena at play here:
First, there’s linguistic determinism, of the (arguably Wittgensteinian) Whorf-Sapir hypothesis type. Bruce slips into the language with which he’s familiar, and this structures his thoughts; he has to give an opinion, because that’s the role of the pundit, and he has to talk the ‘viewer’ through the action. It’s his very expertise as a football pundit that creates his failure to step back from the abyss.
Second, there’s the cult of managerialism on display from both interviewer and interviewee. Bruce, despite knowing he’s on unfamiliar ground, can’t resist taking his managerial competence in one area and seeking to apply it to another, with disastrous consequences. Nor, it seems, can the interviewer (or the editorial team setting the questions) recognize that Bruce is a football manager, and that he’s really quite unlikely to have anything useful to say about a rape conviction.
As I’ve said, I’ve no interest in Steve Bruce, but the way he conducts himself in this interview arguably offers a wider lesson. If Wittgenstein’s maxim (5.6) that “The limits of my language mean the limits of my world” holds true for a football manager, why would it different for other managers, or politicians*? If they can’t speak fluently a language other than management, then it’s cognitively-linguistically impossible for them to grasp anything beyond what that language constructs for them. This, then, creates an empirically sound argument for worker representation on boards, and for diversification of background in parliament, for example, and for a democratization of decision-making in the interests of sounder and public services.
Meanwhile, Steve Bruce should stick with football.
In 1942 Kalecki said of “so called ‘economic experts'”:
Obstinate ignorance is usually a manifestation of underlying political motives (p.324)
There’s evidence of this phenomenon in George Osborne’s previewed speech to the Royal Economic Society, in which he gives a fairly reasonable explanation* of how the deflation mechanism works:
There [in the eurozone] the debate has understandably turned to the dangers of deflation – the risk of a self-reinforcing spiral where economic activity falters, consumers defer purchases* as prices fall and nominal debt burdens become ever harder to manage.
Why then, we might ask, does he not appear to understand the self-reinforcing mechanisms at work when it comes to austerity? We can, following Kalecki, assume underlying political motives for not getting that bit; ‘real’** falls in inflation are on the European mainland , not (yet) here, and anyway prices falling relative to wages is something to be celebrated in the last four months of Tory government, given the possible juxtaposition of the Bank of England having to deal with deflation in the first year of a Labour government.
In any event, a key question for a new Labour-led government is likely to be, at the very least, how do we work with our European partners to help them out of the deflationary spiral, with its negative effects on our own economy. At worst, it will be what steps need to be taken to stop our own deflationary spiral, if the Bank of England’s monetary tools prove to be ineffective.
Here, again, I think the answer may lie with Kalecki. He argues for an annual capital tax to match the government borrowing required to maintain full employment (now a rather quaint notion), so that the GDP/debt ratio falls in the context of inflation:
If full employment is maintained by Government spending financed by borrowing, the National Debt will continuously increase. This need not, however, involve any disturbances in output and employment, if interest on the Debt is financed by an annual capital tax. The current income after payment of capital tax of some capitalists will be lower and of some higher than if the National Debt had not increased, but their aggregate income will remain unaltered and their aggregate consumption will not be likely to change significantly. Further, the inducement to invest in fixed capital is not affected by a capital tax because it is paid on any type of wealth. Whether an amount is held in cash or Government securities or invested in building a factory, the same capital tax is paid on it and thus the comparative advantage is unchanged. And if investment is financed by loans it is clearly not affected by a capital tax because it does not mean an increase in wealth of the investing entrepreneur. Thus neither capitalists’ consumption nor investment is affected by the rise in he National Debt if interest on it is financed by an annual capital tax (p.323)
The key concept in Kalecki’s proposal is that capitalists can have it one of two ways. They can invest, or they can be taxed.
Either way, there’s investment. It is reasonable to assume that, in these circumstances, shareholders would look for managers good at spotting and exploiting investment opportunities, so that they get bigger dividends from big turnover, rather than just allowing tax to be levied.
That was 70 years ago, in wartime, when taxing capitalists seemed pretty reasonable. 70 years later, a direct annual tax on profit will no longer pass the political acceptability test, but their does remain an alternative which, while a somewhat different and more politically salable mechanism, might achieve the same end of persuading firms (probably those above a certain size) to spend. This could be branded a non-investment levy, whereby firms that do not invest a certain percentage of their profits become liable for a levy at or greater than that percentage. This simply switches the sequence, away from the war-time assumption that the government knows how best to invest the levy receipts in order to attain full employment, towards the more 21st century conception that firms know best where to invest, but that in a deflationary spiral it is their corporate social responsibility to do so. This may or may not be the case, but a sub-optimal strategy is better than none at all. A levy which a government can celebrate not being levied may be an attractive proposition.
The non-investment levy would need to be agreed at European level (similar to the proposed Financial Transaction Tax) in order to prevent not just relocation but also the tendency of firms to seek out imports (capital or labour) from countries where prices are falling. Thus a European levy would make sense to British interests, if Europe goes earlier and deeper into deflation. Further, tax authorities may need to establish definitions of spending which exclude those which drive up commercial and residential property prices and create even greater inequalities.
But I suspect all of this is manageable, if there is political will. Richer European countries entering deflation*** will be a scary moment which might just trigger that political will, but the solution to the problem as it then expresses itself will need to be ready and waiting at the top of the bin, or else another one will be picked out. Labour should be helping develop that solution even now.
* It’s not that good an explanation. The issue is as much firms reluctance to invest because prices will be lower later as it is consumers deferring purchases. Chris’s explanation is much better, of course
** In fact, as I showed here, Osborne’s claim that the steepness of the oil price falls are as much to with the earlier steep climb caused directly by Cameron’s disastrous foreign policy as they are by the current oversupply (from new fracking sources etc).
*** Poorer ones are already in deflation, but they don’t count politically. They would, though, back the new levy.
Readers will have seen, I think, that 17 people were shot dead last week in Paris, by gunmen associating themselves with Daech and Al Qaeida Yemen, who were also killed.
These were brutal murders. Within a few hours, though, even before four people were killed at a supermarket, the actions were being seen less as murder, and more as terrorist attacks on freedom of expression. This was because some of the people killed were journalists at a satirical magazine Charlie Hebdo.
The twitter hashtag #jesuischarlie, expressive of solidarity with the aims or ethos of the magazine, which takes some pride in its no-holds barred depiction of religion and religious figures, quickly became established, and remained at the top of twitter’s hashtag rankings until after enormous marches in France at the weekend. These marches also became gestures in support of freedom of expression. They were not primarily gestures against people being murdered.
This, I think, is a good example of the Garbage Can Model, as conceived by Cohen, March & Olsen, in action. According to the model, actors rummage around “in the garbage” for a solution which may or may not fit with the problem. In this case, the core problem – people murdered in cold blood and the possibility of more – is met with a ‘solution’ which not entirely coincidentally coincides with a media elite. As Fligstein and McAdam show, the courses of action that do get chosen are not chosen at random. They are chosen because those with material and institutional power are able to ensure that they are in the right place at the right time, unless others with less power coalesce and share resources with sufficient skill (or luck).
This reminds me a little of the debate on these pages several years ago about a thing called the Convention on Modern Liberty, in which I and my erstwhile colleague Dave took issue with purportedly radical resources being directed towards of a conference, featuring the great and the good, about the need to defend civil liberties:
For me and Dave, the liberal, metropolitan elite which soaks up human and financial resources in the name of civil liberties and ‘reform’ are, in part, responsible for the fact that since the second world war there have been no further major material advances for labour, and why over the last 30 years capital has got away with rolling back many of the concessions that labour had extracted.
Why, Dave and I would question, is it appropriate to join coalitionary force with them when they insist on seeking to undertake actions which history has proven provide for lesser material gain for labour than working class militancy?
But it also reminds me more directly of the Rotherham sex abuse scandal, in which those with sufficient influence imposed a narrative quite out of keeping with the findings of the Jay report, and insisted that the ways to stop children being sexually abused is to stop being ‘politically correct’ and start shouting at social workers. As I pointed out, in the real world what might help stop abuse is for a) social workers to be empowered to get on with their work with families, to ensure that young people feel safe at home; b) police to focus, in both their investigative and preventative roles, in a ‘race blind’ manner on what circumstances create opportunities for predators to prey on young people (takeaways, poorly regulated taxi firms, and young people who feel unsafe at home.
This, I suggested, would be a socialist response, in that it understands the dialectic of structure and agency, as well as the Overton window. It seeks to stop people being harmful agents, but it also seeks to change the structure so that being a harmful agent comes to be less and less a rational choice.
So too, a socialist response to the Paris attacks is little to do with marching for a solution to a non-problem* – does anyone really think that the two terrorists who killed journalists were motivated by insult to the prophet, rather than a desire for a dramatic display of new-found power? The real response is to look at the conditions that made these two men, angry failures, into brutal killers. The real response for socialists is to argue for the resources needed to improve the lives of all in the Parisian banlieue, so that the prospect of a good job and (male) self-respect starts to shove violent crime beyond what can be seen through the Overton window. This isn’t to deny their agency – they did what they did, while millions of French men in similar situations did not – but it is to address a problem with a solution that fits the problem.
* This is not to say the 3 million people were wrong to march, even in a march quickly co-opted by their states’ leaders for their own purpose. The march behind the leaders was one of genuine solidarity, but it is only a start, and it will be for naught if Europe’s leaders now return to type.
As the election campaign gets underway, Cameron’s record in office is coming under review, including by David Schneider and at greater length, Eoin Clarke. What surprises me a little is that neither of these pay any attention to his foreign policy record. Indeed, I’ve seen nothing for ages has any comment on the Coalition’s foreign policy (other than towards the EU) in the context of the election.
This seems a little odd, given how disastrous it’s been. I’m thinking especially of Cameron’s PR intervention in Egypt in the heady Arab Spring of 2011, followed by his orchestrating role in the Libyan war, followed again by the PR. We’ll leave aside here the effect Western intervention had on the Syrian uprising and the opportunities that opened up for the carnage and chaos we see today, as attribution is difficult to evidence however much common sense suggests a causal link, but there is little doubt that Western intervention in Libya, whatever the intentions, have led directly to the situation we see in Libya today, as well as to other instability in Mali and other Sahel states.
Of course international events get pushed to one side in a domestic election, but perhaps things would be different in this case if we looked at the direct effects on the UK economy of Cameron’s 2011 adventures. Again, precise attribution is not possible, but we can at least take a stab, with a focus on oil.
Oil prices rose steadily in the 2000s with demand growth in China, settling at around $70/barrel before a big spike to $135/barrel (Iraq and continued Chinese demand) was followed by a collapse to below $50/barrel with the financial crisis. It seems reasonable therefore to take $70/barrel as a baseline price, as it returned and steadied there or just above in the early recovery. See the chart below (source).
Prices then rose rapidly again to around $120/barrel, with this rise largely driven by the war in Libya and collapse in production/export there. It seems reasonable to attribute around 50% of that rapid rise to the Libyan war, and therefore to UK government action, on the basis that around 50% of world oil supply ‘outage’ has been because of Libyan non-productio both during the war then later as the state has collapsed (see chart):
If we do attribute 50% of the ($120-$70) $50/barrel additional price paid, we find an additional yearly cost to the UK economy of around ($25 x 500million barrels) $12.5 billion. Over, say a two period during which this attribution may be valid, then it might be argued that Cameron’s lust for foreign policy glory has cost the UK economy around $25 billion, in addition to the direct costs of waging the war (government calculations suggest about £320 million). Such a figure puts into perspective the £1.9bn Gordon Brown is argued to have traded away on gold.
Now, of course these calculations are approximate, and of course attribution can be argued up, down, or away, and I’m not arguing that they appear in election posters (I’m not convinced Labour could quite get way with that). My main point is that overt policy decision-making such as austerity may actually have less impact (as Chris notes, sub-optimal may not be a disaster at aggregate level*) than actions which results from a governing mode and from the entrenched attitudes and beliefs of the governing elite. As I argued during the Libyan war from a Bulpittian statecraft perspective, in which Cameron is a reluctant Thatcherite but natural High Tory:
Cameron and his upper-class coterie find themselves drawn towards the ‘high politics’ of Libya. This is the territory in which they feel instinctively more comfortable, and it was noticeable that Osborne in particular suddenly looks all the more at ease in TV interviews. This is not the stuff of confrontational party politics, but an arena where consensus within the Westminster village can be assumed (largely because of the trajectory of the Parliamentary Labour Party), and where they get to look statesmanlike without also having to pander to the ‘ordinary bloke’ image the electoral history of the Tory party has forced them to espouse.
Suddenly, Cameron doesn’t need to have all the details of ‘low politics’ at his fingertips; that’s beneath his new status as world leader. If the Libyan crisis had not happened, then a good deal more might have been made of his performance at PMQ’s last week, when he appeared only hazily aware of Health and Social Care Bill. But that was Wednesday. By Friday, a compliant media had no such questions, because Cameron was a statesman acting in the international interest.
We should remember, though, that this wasn’t chance. As Brian Barder has noted, there was no automatic reason for the UK to lead on the question of the No Fly Zone. It was a political choice by a Tory leader, fashioned in the upper-class mould of his predecessors……..
As I’ve said before, the New Conservative regime is involved in class war because that is in keeping with its abiding and most pervasive tradition. Its new war in Libya, however bad for the Libyans it gets, does create an opportunity to confront them on that, and to set out their ‘humanitarianism’ for the class-ridden Boys’ Own adventure that it really is.
In the end, maybe Cameron & chums’s upbringing on the playing fields of Eton is more damaging to us than the neo-liberalism that ensures those playing fields remain manicured.
* Austerity is, of course, a disaster for the vulnerable individuals and families who bear the brunt of it.
You could be forgiven for having skipped over this odd phrasing by a Conservative spokesperson at the start of today’s pre-election banter:
1.75 million more people have the security of a job……
Security of a job, rather than job security? “What’s going on here?”, I wondered, before indulging in 30 seconds primary research, which revealed that this new phrasing* appears to have been first used by Cameron in October:
If you want to provide for yourself and your family, you’ll have the security of a job but only if we stick to our long-term economic plan.
This does suggest that, rather than today’s use just being clumsy writing, the use of the variation on the phrase might actually be deliberate. And while small, it is a signifcant variation. For while “job security” is usually read not just as having a job, but having one that’s likely to last and which also gets you by, “security of a job” feels quite different in tone.
There’s more than a hint in there that the proles should have less expansive expectations about what they’re entitled too. There’s even a hint that the state accords jobs as a very part of its magnanimous welfare provision – as long as you can prove you really, really want to provide for your family by taking any old shite – rather than because that’s what the state is there for, and the proles should be grateful for that. Certainly, the sense of longevity and a link to stable household income is gone.
If I’m reading it right, the new phrase does seem to back Alex’s view that, quietly but consciously, the whole reciprocity thing, set out in the second Beveridge report – whereby the government was bound to do what it had to create full employment – has been shoved rightward beyond what we can see through the Overton window.
* I couldn’t find the phrase anywhere else except as part of a longer phrase e.g “security of a job for life”, which is clearly different in meaning.
Greece is back centre stage, with a general election on January 25th and the now quite real propect of a SYRIZA government coming to power. Tim Worstall paints an interesting scenario of what may happen next, something along these lines:
a) Greece defaults;
b) Greece is forced out of the euro;
c) Greece, in going back to the Drachma and thereby devalues and become instantly more competitive;
d) After a “pretty hairy” twelve months, Greece’s economy grows at 50-10% per year for some years;
e) Other weaker Eurozone countries – Italy, France, Belgium see this is a shortcut to prosperity, and leave the eurozone voluntarily;
f) The Eurzone effectively breaks up.
It’s an interesting scenario, but one which almost certainly won’t be played out. It won’t be played out because, while for Tim euro exit may create a “pretty hairy ” twelve months of change but be a transition well worth going through – for ordinary Greeks it will be utterly savage
This, for example, is what the National Bank of Greece (according to Bloomberg) set out back in 2012 when exit was last considered a possibility.
Per-capita income would drop by at least 55 percent in euro terms as a new currency would depreciate by about 65 percent, according to the report, emailed from the bank today. The recession would deepen by about 22 percent at stable prices, adding to the 14 percent recorded in the 2009 to 2011 period, National said, while unemployment would jump to 34 percent and inflation rise to above 30 percent, pushed up by the higher cost of imported goods.
Nor would the effects of exit simply be short-term pain for long-term gain. Exit would also massively increase inequalities. As I said in 2012:
While it’s impossible to say exactly how leaving the Eurozone might pan out, these will be among the consequences*:
- Within a day of the creation and flotation of the New Drachma….. its value will crash against ‘hard’ currencies, and the purchasing power of Greeks for anything imported will be slashed. It’s impossible to know by how much, but a cut of 75% purchasing power is certainly not out of the question [I wrote this two weeks before the National Bank predicted 55%];
- In an internationalized economy like Greece, there is no such thing as ‘out of the euro’. Most rich Greeks able to do so will already have stored their wealth elsewhere and the capital flight will continue to happen. The idea of proper capital controls is frankly fanciful. As holders of still-valid euros, or other ‘hard’ currencies, they will then be in position to purchase both the assets and labour of the mass majority of increasingly desperate Greeks at rock-bottom rates.
- A dual economy will swiftly emerge, as in pretty well all countries without their own hard currencies. This will further deepen inequalities in daily life, potentially even with usual services and products only available to those with access to hard currency, as will the emergence of black market currency trading, where the New Drachma is even less valuable than at the official exchange rate.
Greeks know this, and so does SYRIZA. That is why, while 74.2% of Greeks surveyed believe that Greece should remain in the euro “at all costs”, they also give a 3.1% poll lead to SYRIZA. They knowthat, even if Germany were in a position to push Greece out if it defaulted (and that is doubtful), SYRZIA would be committing political suicide by allowing an exit – whether on purpose or through over-bullish endgame negotiation forcing the Troika into a political face save at the expense of economic sense.
Euro exit is simply not an option for SYRIZA (it has never said that it is), and there is no conundrum (whatever Olaf thinks) for Greek voters over whether to vote against austerity and for exit or for austerity and against it; SYRIZA offers a much better chance of getting the best of both worlds than it did in 2012, and that’s why they stand a better chance of winning this time.
Yes, SYRIZA will bargain hard from a position of strong democratic mandate, but they will bargain, as will the Troika, and a compromise will be reached (possibly including direct fiscal transfer via Structural Funds in return for higher debt payments as facesaver for the Troika).
And even if the worst did come to pass, and disastrous negotiation tactics/styles from both sides did lead to an exit, the economic and social carnage on the streets of Greece would soon put Italy off from following the same path.
So while according to Tim’s classical theory the comparative advantages of real devaluation over internal devaluation may make some sense on paper (if you ignore equality issues), don’t expect to see the theory tested any time soon. Macro often doesn’t meet real life.