ga('send', 'pageview');
John Passant

Site menu:

January 2009
« Dec   Feb »



RSS Oz House



Subscribe to us

Get new blog posts delivered to your inbox.


Site search


Keep socialist blog En Passant going - donate now
If you want to keep a blog that makes the arguments every day against the ravages of capitalism going and keeps alive the flame of democracy and community, make a donation to help cover my costs. And of course keep reading the blog. To donate click here. Keep socialist blog En Passant going. More... (4)

Sprouting sh*t for almost nothing
You can prove my 2 ex-comrades wrong by donating to my blog En Passant at BSB: 062914 Account: 1067 5257, the Commonwealth Bank in Tuggeranong, ACT. More... (12)

My interview Razor Sharp 18 February
Me interviewed by Sharon Firebrace on Razor Sharp on Tuesday 18 February. (0)

My interview Razor Sharp 11 February 2014
Me interviewed by Sharon Firebrace on Razor Sharp this morning. The Royal Commission, car industry and age of entitlement get a lot of the coverage. (0)

Razor Sharp 4 February 2014
Me on 4 February 2014 on Razor Sharp with Sharon Firebrace. (0)

Time for a House Un-Australian Activities Committee?
Tony Abbott thinks the Australian Broadcasting Corporation is Un-Australian. I am looking forward to his government setting up the House Un-Australian Activities Committee. (1)

Make Gina Rinehart work for her dole

Sick kids and paying upfront


Save Medicare

Demonstrate in defence of Medicare at Sydney Town Hall 1 pm Saturday 4 January (0)

Me on Razor Sharp this morning
Me interviewed by Sharon Firebrace this morning for Razor Sharp. It happens every Tuesday. (0)



Neoliberal Keynesianism?

The economic crisis has destroyed the neoliberal experiment.  Yet the bourgeoisie cannot come up with an adequate new theory to justify the continued exploitation of workers and to serve as some sort of ideological pretence for increasing that exploitation as a response to stagnant,  low profit rates.

In fact the reality may be that neoliberalism has absorbed Keynesianism .  Or perhaps it is Keynesianism that has absorbed neoliberalism.

Keynesianism is the idea that economic crisis is caused by total aggregate demand being too low.  Anything (in Keynes’ case Government spending, in Robert Reich’s case, increased real wages) that boosts the overall level of that demand will spark or help spark an economic recovery.

This essence was captured in Keynes’ supposed comment that the economy would be better off if Government paid half the unemployed to dig ditches and the other half to fill them in.  This is not because they are doing anything socially useful or productive but because the unemployed would use the money they were paid to buy goods and services and thus increase overall demand.

But if that is the case, why bother with actually getting people to dig and fill in holes? Why not just give them more money?

In fact that is what the Rudd Labor Government in Australia did before Christmas.  It gave pensioners and other similar state payment recipients over A$1000 in the run up to Christmas.  The cost was over A$ 10 billion, halving the Budget surplus.

In the short term it may have worked, since December 2008 consumer spending was comparable to 2007 figures.  The January sales figures  – a marked drop compared to the 2008 figures, most retailers are reporting – suggest the $10 billion stimulus package may have had only a one off impact.

The Rudd Labor Government has also bought forward a number of infrastructure projects.  The problem is that all these new easily accessible ports and roads are being designed for our export industries at a time when resource exports to China and other places have collapsed.

There is a contradiction at the heart of Keynesianism. If  the problem is under-spending in the economy then increasing real wages would help too.  But the consequence for individual capitalists of increased wages  in a time of declining economic activity is reduced profits.  Keynes saw Government spending as an alternative to this attack on profitability.  Robert Reich, the former US Labor Secretary under Clinton, sees it differently and argues:

The way to get the economy back on track is to boost the purchasing power of the middle class. One major way to do this is to expand the percentage of working Americans in unions. Tax rebates won’t work because they don’t permanently raise wages. Most families used the rebate last year to pay off debt — not a bad thing, but it doesn’t keep the virtuous circle running. Bank bailouts won’t work either. Businesses won’t borrow to expand without consumers to buy their goods and services. And Americans themselves can’t borrow when they’re losing their jobs and their incomes are dropping.

Tax cuts for working families, as President Obama intends, can do more to help because they extend over time. But only higher wages and benefits for the middle class will have a lasting effect.

Unions matter in this equation. According to the Department of Labor, workers in unions earn 30% higher wages — taking home $863 a week, compared with $663 for the typical nonunion worker — and are 59% more likely to have employer-provided health insurance than their nonunion counterparts.

‘Why We Need Stronger Unions, and How to Get Them’ Robert Reich’s Blog Tuesday 27 January 2009

I should say that Reich’s prescription, while worthy of support, won’t actually work.  This is a crisis of profitability and no amount of stimulus, either through government spending or wages or a combination of both, will raise profit rates.  In fact wage increases reduce profitability (except perhaps for undies sellers, who seem to have benefited most in the short term from Rudd Labor’s Christmas stimulus package if we can believe Treasurer Swan).

Yet this Reichian suggestion is precisely the approach Rudd Labor rejects. When it comes to wages the Labor Government in Australia has adopted a very neoliberal position.  Their mantra is that one person’s wage rise is another person’s job.  Postpone (till some unnamed future time) wage increases to keep jobs.  Just how cutting Australian workers’ wages in real terms is going to increase Chinese demand for our resources has yet to be explained.

In other words, this very neoliberal solution to economic crisis is an integral part of Rudd’s policy prescriptions, prescriptions some describe as Keynesian.  Perhaps they are, as Rudd Labor attempts to spend the Budget surplus (and maybe introduce tax cuts for the less well paid) to increase consumer spending as a substitute for increased wages.

Rudd’s approach may favour some sectors of the economy over others, at least in the short term.  But the decline in retail spending in January this year alluded to by business shows that even the favoured retail sector is not faring well. Banking, because of its importance to the productive sector of the economy, has and will receive favoured treatment, as will the car industry.  None of this will save jobs.

There is also a large political element to Rudd’s stimulus packages.  Faced with a massive increase in unemployment over the next year, Rudd Labor wants to be seen to be doing something, even if it knows it won’t work.   They want to avoid being a oncer Government.  Economic crises produce all sorts of political convolutions and social upheavals, and the fate of the Scullin Government during the Depression – a Labor Government, it lost office after one term – must hang like a shadow over the mind of the Rudd Government.

This crisis of  political stability haunts the world.  For example China’s leaders fear that if growth falls below eight per cent (as it may well do) there will be serious social upheavals. Greece is racked by strikes and demonstrations, in part against government austerity programs.  France’s Black Thursday strikes saw two and a half million workers join demonstrations against President Sarkozy’s economic policies, with three quarters of French people supporting the protests.

What our bosses fear we should welcome because it opens up the possibility for left wing and socialist ideas to spread.  (It also opens up the possibility of fascist ideas spreading too, which is why it is important to build the socialist movement across the world now.)

Keynesians point to the New Deal as some sort of  example of the success of their ideas.  The New Deal did not save US capitalism.  Unemployment between 1933 and 1938 fell only from 25 per cent to 15 per cent and was beginning to rise again.

It was tooling up for the war, and the war itself (with its six years of destruction of capital in Europe) that ended the Depression.

Nazi Germany adopted military Keynesianism.  This first involved smashing the defensive organs of the working class – the trade unions and parties of the left like the German equivalent of the labor party and the Communists.  The first inmates of the concentration camps were trade unionists and leftists.

Between 1933 and 1939 Hitler cut German workers’ living standards by 25 per cent and through the militarisation of the workforce increased productivity markedly.  Although the Nazis undertook a massive public works program, they also favoured particular industries and in doing so restructured the German economy and put it on to a wartime footing from about 1936 onwards.  It was this war preparation, strict economic control (of for example labour and investment) and wage cutting in real terms which saw German profit rates begin to rise under the four year plan from 1936 to 1940.

Perhaps war Keynesianism or some variant is what is beginning to occur under Obama in the US right now with his proposed public works program, quasi nationalisation of the banks, intervention in the US auto industry, with a consequent state mandated restructuring, increased arms expenditure for the war on terror and stagnant or falling real wages. In fact Obama’s  Keynesianism may just be a continuation and acceleration of Bush’s initial steps in that direction.

Back to Australia,where the contradictions in Keynesianism are playing themselves out in full view. An important aspect of Rudd Labor’s conservative Keynesianism is the Finance Minister’s threats to squeeze the lemon out of the public service, and search for even more efficiencies in Government spending.  How this is going to increase aggregate demand is beyond me.  Surely if the problem is falling demand, (as the Keynesians see it), it makes sense to employ more public servants, not less, doesn’t it?

Labor’s efficiency dividend, continuing the Howard Government’s policy of arbitrary across the board annual cuts to funding for the public service in the order of between 1.25 per cent and 3.25 per cent (the latter under Rudd), makes no sense at all, least of all in an economic crisis.

The Budget surplus – $21 billion last year and probably zero or in deficit now because of declines in revenue and increased spending  – itself comes out of past value workers have created  (and is derived through the taxation of productive labour)  .  So it is if you like an enforced saving of value transferred into the economy.  This is like capital – it does not create new value,  it merely transfers the value workers have created and embodied in capital.  Sooner or later the saved value in the form of the Budget surplus runs out and Government spending goes into deficit.  Governments can then borrow to pay for this (assuming the private sector will lend) or they can print money.  Both have adverse economic consequences in the long run. Stagflation is one possible outcome.

Stimulus packages do not restore profit rates.  Attacking workers living standards, screwing more and more out of them,(aka as increasing productivity), making them work longer hours for no pay, can do that, at least temporarily.

That is what Rudd Labor will do to its own employees and signal to employers that they should do to their workforce. All the time the mantra will become increased government spending will fix the lack of demand in the economy.  Of course there is just not enough stored past value (in the Budget, or in the hands of the banks to lend to government) that would offset in the medium to long term this attack on our living standards.  The printing presses, and hyperinflation, then become an option.

The alternative for the trade union and labour movement  is to accept job losses and reduced living standards or to fight back. A 30 hour week without loss of pay would be a good place to start. Make the bosses pay for their crisis, not us. Strikes and occupations need to become part of our armoury.

Let’s defend our living standards and in doing so show the bosses our version of Keynesianism.