Taylan Tosun: (1) Why are the centers of international financial power so afraid of even moderate inflation? Why are almost all the central banks of those countries charged with the task of “inflation targeting”? Why do international financial interests oppose the kind of moderate inflation which might well accompany pro-growth, anti-austerity policies?
Robin Hahnel: When inflation rates are higher than anticipated lenders receive a lower rate of return in real terms than they expected, while borrowers end up paying less in real terms than they thought they would have to. In general it is the wealthy who lend while the rest of us borrow. This is the first reason the wealthy – who are the clients the international financial industry serves – are more concerned than the rest of us should be with keeping inflation rates down.
But there is a second reason. The main game for most of us is to earn a decent income. So for most of us we want the economy to produce up to its capacity so we can receive full incomes. That is why most of us have an interest in policies that prevent recessions in the first place and cut them short as quickly as possible. That is why most of us have a strong interest in pro-growth policies during the greatest global recession in over eighty years.
However, the main game for the wealthy is preserving and expanding the value of their wealth – which is not the same thing as maximizing the amount of income generated by the economy. The wealthy can increase their income even when total income falls during recessions if they increase their share of income sufficiently. More importantly, existing wealth can be redistributed whether the economy is producing up to capacity or not. So if the conditions that allow the wealthy to appropriate a larger share of existing wealth are poor economic performance regarding production, then the wealthy – and the international financial industry that represents them — will feel no urgency about improving economic performance.
Central bank policy is an excellent example of how this conflict of interests works out. Targeting inflation serves the interest of the wealthy and is demanded by the financial industry on their behalf. Targeting unemployment would serve the interest of workers. In the US the Federal Reserve Bank has a mandate to set monetary policy so as to keep inflation and unemployment in check. However, the FED has made increasingly clear over the past four decades that it targets inflation while paying little, if any attention to unemployment. The European Central Bank has a mandate that requires it to target inflation only – which is exactly what it has been doing even while unemployment rates in Spain and Greece rise above 20%. In practice there is little difference. The difference on paper is a reflection of the rise of neoliberalism — which is simply economics that favors the interests of the wealthy at the expense of the majority. The ECB mandate was written recently when neoliberalism was much stronger. When central banks in other countries target inflation only – and when the media acts as if this is the only responsible thing for central banks to do — this is also a sign of the increasing power of neoliberalism globally.
(2) Why is neoliberalism so hostile to public spending on infrastructure or raising the wages of public workers in order to stimulate demand? What kind of danger does public spending pose for the centers of international financial power?
RH: Once one understands that neoliberalism means running capitalism exclusively in the interests of the wealthy it is easy to see why neoliberalism opposes public spending on anything that benefits the majority rather than them. The wealthy don’t want to raise the wages of public workers because (a) they are not public workers, (b) they will have to pay more taxes to pay for higher salaries for public workers, and (c) if public workers win higher salaries private employers – who are wealthy – will have to pay their employees more as well. Spending on infrastructure is more complicated. A great deal of public spending is corporate welfare, and large corporations that benefit from government contracts do not object to that kind of spending. The most obvious kind of public spending that is corporate welfare is spending on military weapons systems – which is seldom targeted by neoliberal budget slashers. But spending on infrastructure can also provide government contractors with large profits. It can also be a subsidy to other businesses when it creates a more profitable environment for them to operate in. So neoliberals are not always hostile to public spending on infrastructure. They oppose it when it is part of a program to promote employment when they prefer lose labor markets instead.
(3) In the present context what chances does a radical left party in government have to pursue an expansionary monetary and fiscal policy in order to reduce unemployment and raise living standards for the majority? What specific mechanisms can a left government use to meet popular demands? Are there limits on what a left government can do?
RH: We can make this question specific by asking what would have happened had SYRIZA gotten 2% more of the vote in the recent election on June 17 in Greece. Because, had that happened SYRIZA would have been able to form a true radical left coalition government pledged to pursue exactly the kind of policies you are asking about.
First, let me say that we should all be very disappointed that SYRIZA did not win the election. We should all be disappointed that a radical left government did not come to power in Greece and implement policies to improve the deplorable conditions of the vast majority of Greeks. Too many leftists hesitate to support electoral efforts like SYRIZA. Some don’t want a government to try to improve conditions for the majority because they fantasized that if conditions deteriorate further more people will support more radical system change, and/or the resulting chaos will permit political groups lacking majority support – namely themselves — to come to power. Others don’t want a government to try to improve conditions for the majority because they fear it will fail to do so – because of the “constraints” you ask about. Both reasons not to work to create the conditions where a SYRIZA-like government comes to power are terribly misguided. The left has got to learn that it cannot stand on the sidelines and cheer for more misery if it ever expects to earn the support of ordinary people. And the left has got to get over fear of failure that prevents trying to implement policies that would help people.
So, what would SYRIZA have done? It would have repudiated the unpayable sovereign debt. It would have nationalized the banks and prevented further capital flight. It would have restored wages and pensions of public sector employees as well as social welfare programs. It would have gone after wealthy tax evaders and raised taxes on the wealthy. It would have eliminated the laws exempting businesses in the shipping industry from corporate taxes. It would NOT have left the eurozone voluntarily.
How would the ECB, EC, IMF, and capital markets have responded? That is what you are asking when you ask about limits. As soon as the SYRIZA-led government cancelled the current austerity agreement and made clear it had no intention of paying the unpayable debt, external powers would have had to make a choice: Either negotiate a brand new deal that was much, much more favorable to Greece, and truly permitted Greece to grow out of its economic crisis while staying in the eurozone, or expel Greece from the eurozone. I believe they would have done the latter – very quickly. In which case the SYRIZA-led government would have had no choice but to go back to the drachma. The drachma might have dropped by more than 50% initially – providing a huge boost in demand for Greek exports, and a huge boost to employment in Greece. After a year or so when it became apparent that Greece was not going to disappear from the map and export earnings were robust the drachma would have recovered some of its value and settled for roughly a 30% devaluation. The SYRIZA-led government would have been forced to substitute public investment and employment for all the private international investment that would have been withdrawn. The SYRIZA-led government would have had to use the credit system it controlled to provide start up loans for hundreds of thousands of worker-owned enterprises to provide employment.
Would wealthy Greeks have conspired with the CIA, NATO, and right wing officers in the Greek military to overthrow such a government? Of course. Would they have been successful? Not necessarily. Similar efforts in Venezuela did not succeed in ousting Hugo Chavez. Would nationalizing the banks, substituting public for private investment, and creating hundreds of thousands of new worker owned cooperatives to provide jobs have scared the more moderate, social democratic elements within the SYRIZA-led coalition? Of course. Would the defections have been sufficient to topple the government? Not necessarily, since the programs that provided real benefits and relief for the majority of Greeks would also have earned the government new supporters – just as Chavez programs have in Venezuela – including support from groups farther to the left than SYRIZA who had not taken an active part in the June 17th election.
The keys for the SYRIZA-led government would have been willingness to take over the financial sector and prevent capital flight immediately, the willingness to tax wealthy Greeks and corporations to provide funds for restoring wage and pension cuts, the willingness to create public sector jobs and worker owned cooperatives when private sector employment shrank, and the willingness court favorable elements in the Greek military, nip coup plots in the bud, and organize massive resistance to face down any putsch, including arming groups to the left of the government now willing to fight to defend it from their mutual enemies.
(4) How can mass anti-capitalist movements benefit from a pro-growth environment as opposed to an austerity environment? How can a pro-growth environment help anti-capitalist movements grow bigger and stronger?
RH: I have answered your question in my description above of what might have transpired in Greece – and may still happen at some later date. After all, the recently elected government in Greece could not be more corrupt, discredited, or committed to policies that will only worsen the situation. But the answer to your question is that the left needs to support electoral efforts like SYRIZA in countries where the electoral system and situation make that a possibility precisely because (a) the policies of such a government will earn a massive following, and (b) in all likelihood lead to a further radicalization like the one I described.
(5) How can we be both pro-growth — to solve the unemployment crisis and raise living standards for the majority – and also be anti-growth – because economic growth puts more stress on the environment and is causing potentially disastrous climate change?
RH: The answer lies in a Green New Deal. Here is how it can work.
Replacing fossil fuels with renewables, transforming not only transportation but industry and agriculture as well to be much more energy efficient, and rebuilding our entire built environment to conserve energy will be an immense, historic undertaking. What is needed if we are to avoid unacceptable climate change is the greatest technological “reboot” in economic history.
In less than a year the Great Recession precipitated by the financial crisis of 2008 put more than 11 million people out of work in the US alone. Right now, two years after the recession supposedly ended, one out of six American workers is still unemployed or underemployed. That is 27 million people, and a million more young people graduating from the education system every year who we need to find jobs for. Unemployment in the European Union is now even higher than in the US, and in countries like Greece and Spain the unemployment rate among youth is over 50%.
If we do not put hundreds of millions of people to work in Europe and North America over the next few decades transforming Fossil-fuel-estan into Renew-conserve-estan we will literally broil ourselves to death at some point in the century ahead. If we fail to create millions of new jobs a year turning Fossil-fuel-estan into Renew-conserve-estan the Great Recession will persist indefinitely. Two problems. One solution. A massive Green New Deal. Now comes the answer to your question: Notice how the “growth vs. the environment” trade off disappears in a Green New Deal.
Whenever economic growth slows the labor movement – quite understandably — clamors for stimulus to put people back to work. But whenever the economy grows more rapidly the environmental movement complains – also understandably — that more production puts more strain on the environment and is unsustainable. But it depends on what we are producing!
If we are building more McMansions for the 1% and putting more cars in every garage then getting jobs by increasing production does put unsustainable pressure on the environment. But if we create more jobs for laid off construction workers retrofitting buildings and houses so they will be more energy efficient; if we create more teaching jobs to train the new generation to transform and operate a decentralized electric grid that welcomes electricity from hundreds of millions of rooftops and substitutes local sources for distant central generators whenever possible; if we put laid off coal miners to work assembling wind turbines and installing solar panels on roof tops… then the new jobs are producing things we desperately need to save the environment, not “through-put” intensive consumption goods that destroy the environment.