By COURTENAY BARNETT
It is intended to argue here that the world is on the cusp of significant changes post-Covid-19.
From whence did the crisis come?
This question and how I choose to answer it comes from the tuition I received and the thought processes instilled in me at University to assess a question such as the one posed.
The question is one about economics.
So, how I was taught lets one glean from where I am coming. Forget about the BS ( as in a degree from a University – for now that equals ‘bullshit’) – and likewise – Bsc. equals – ‘bullshit confirmed’. I say that to indicate – I do not seek to impose any argument from authority – but rather wish to have an intelligent and hopefully informed discourse on issues of immediate importance.
What then of the thought processes? Well:-
Karl Marx: This school of economic thought is concerned with an analysis of capitalism and it focuses on the inherent crisis in capitalism brought on by surplus production and surplus value and the concomitant impact on class struggle. That is as succinctly as I can explain what Marxian economics concerns itself with.
John Maynard Keynes: Faced with the crisis of the ‘Great Depression’ Keynes focused on the government’s role in stimulating and increasing consumer demand to increase economic growth. His theory came to be known as Keynesian economics.
Milton Friedman: Friedman was focused on the money supply and money steadily being increased ( i.e. printed) as a stimulant in itself for an economy. His school of thought in the ‘Chicago School’ is known as monetarism.
I diverge from Marx on his outer fringes and do not embrace any form of ultimate Utopianism; I see the sense in deficit spending of a Keynesian type to restore economic growth; and at the bottom of the list I remain sceptical about Friedman’s monetary concepts. I do believe in fiscal prudence, control over the fiscal budget – so as not to run up uncontrolled deficits. I also think at core that something tangible has to sustain an economy by way of the precious metal ( a gold backed currency) and tangible goods and services being produced and provided. That is me ( my economic outlook in a few sentences).
The American economy
Post World War 11 it is America and her economy, which are pivotal to the world economy. The US dollar is the world’s reserve currency ( taking over from the British pound sterling in the post war era) and the US, via the Bretton Woods agreement shaped the major institutions for the financial governance of the world, such as the International Monetary Fund and the World Bank.
The foregoing are the basics presently in play.
With the pandemic of Covid-19 some will argue that this is the root of the current economic crisis. I see the challenge differently. Covid-19 opened up fissures in the world economic system that would have remained fissures to be opened with or without Covid-19. The virus just served as the specific trigger this time round.
Roots of the crisis
There are several points of economic dislocations moving out from the US economy into the rest of the world:-
- 1970s export of manufacturing industries to China.
- 1980s movement away from the Glass-Steagall Act.
- Continuing financial deregulation under subsequent US Presidents from Reagan onwards.
- The 2000 dot com bubble burst.
- The 2008 sub-prime mortgage crisis but re-financed flotation without implementation of corrective structural measures.
- The 2020 crisis was predicted and anticipated by some economists. It was already anticipated to be far worse than the 2008 crash for the measures, which should have been implanted in 2008, were left unaddressed and the process of deregulation continued thus producing the same results as before. Only this time round, much worse and more severe.
The printing of money is not a solution but rather a Band-Aid being placed over a running sore. The use of the term ‘stimulus’ is misplaced; there is significant reduction in production in the means of production – there is a forcing into non-production and once the Covid-19 situation is resolved then there is also a need for addressing the wider structural economic problem.
Failure of job creation coupled with the grants of money to the financial classes is not a solution – it is a recipe for significant disaster.
Production of shale oil is not a solution to America’s oil dependent economy – but – a measure which is unlikely to remain economically competitive on a global scale over time. Hence the belligerence directed at oil rich states such as Iraq, Libya, Syria and Venezuela to mention a few.
More variables can be mentioned, but for the sake of brevity let us stop there for now. So, if the alternatives so far relied upon are not economic cures – what then are likely solutions?
Solution – or – US policies run amock?
Milton Friedman: Since Friedman at core in his monetarist theory was focused on price stability while using the money supply to accomplish his objective; even he would not ( I suspect) have advised or condoned the levels of money supply increase the US has embarked upon. He would have immediately realised that the current levels of money supply increase will be seriously inflationary.
John Maynard Keynes: My guess is that Keynes would have supported a stimulus package, but not the sort that the Trump administration has implemented. Keynes, based upon his central theory, would have wanted to boost consumer demand by placing the injected additional money in the hands of those who would directly impact the economy in the manner he envisioned along with significant government funded public works programmes; not in the hands of CEOs to engage in stock buy-backs and retirement package golden parachutes etc. as has happened since the 2008 crisis.
Karl Marx: This is the easy one. Marx would simply have referred to his thesis ‘Das Kapital’ and said, “Yes, there is a crisis in capitalism: yet another one.”
My position and recommendation is an addressing of the long-term structural economic problem; thus a significant reduction in the vast waste of resources on military expenditures and the global pursuit of militarism and war by the US. I do not state my position of a need for reduction in militarism and the global arms trade and respect for the Rule of International Law as ideas that are trite.
Management of the crisis
In times of trouble there is need for intelligent and principled leadership. This currently is missing in the Trump administration – and with a few quick examples I can indicate precisely how opportunistic short-term politically motivated responses disengage from the prospect of lasting and viable long-term solutions.
Maybe three examples might convey more than a small measure of absurdity writ large in world affairs, but at the very least shall serve a useful illustrative purpose:-
1. If the US significantly reduced and redirected its profligate military expenditure then just maybe, there would be ample medical supplies, available funds for adequate and reasonable payment of health care providers and resources in abundance for infrastructure rebuilding and job creation in America. Already, the working population, in large numbers, is living pay cheque to pay cheque and the value of the US dollar has over the past two decades depreciated with no commensurate increases in wages to compensate for the lost purchasing power. An ‘opportunity cost’ being borne by the US working population while the military-industrial complex finds its raison d’être in the pursuit of ‘endless wars’ and forever existent bogeyman of ‘external threats’ against the security of the nation.
2. Consider the contradictory lunacy of Secretary of State, Mike Pompeo, when he wants Iran to abide by her international obligations. Yes – which international obligations? The ones which the US ( by reference to the Iran deal which the Obama administration had brokered along with strong European partners and to which Iran had agreed and was abiding by). For enforcement assurance and to ensure compliance, there were UN inspectors in place for verifiability who had consistently confirmed Iran’s compliance ( sounds a bit like the sanctions regime imposed upon Iraq when Saddam Hussein was in power and the UN inspectors had accurately confirmed that Iraq did not have any WMDs). But – didn’t President Trump unilaterally withdraw from that very accord with Iran? So, if one were to be logical then let’s reason:-
i) UN Resolution 2231 relates to the 2015 nuclear accord with Iran.
ii) In May 2018 the US unilaterally abandoned that accord.
iii) So Trump declares the Treaty non-existent; Pompeo with his application of US foreign policy logic
then demands that Iran abide by the very international obligations which the US has treated as non-
existent, having unilaterally abandoned the agreement.
3. The US chides Iran for launching what the US defines as ‘ a military satellite’. Iran denies that and
states that it has acted lawfully within the confines of international law: it states that the satellite is
for permissible observatory purposes. However, here is the irony, for the US position on Iran comes a
short time after President Trump ordered establishment of a new US Space Force which will advance
the process of weaponising space – which US action is in direct contravention of the international
treaty forbidding such development. So, does the US itself even abide by its own international legal
obligations ( see: The 1967 Outer Space Treaty, which the US ratified and which bans weapons of
mass destruction (WMDs) being placed in outer space). What then of the US revitalisation of ‘Star
Wars’ – is that in compliance with international law?
Of course, when diplomacy fails then the von Claueswitz’s dictate that – war is diplomacy by other means – would ultimately be resorted to – if that were feasible, given Iran’s access to and control over the Straits of Hormuz.
And the world, of course, is run by rational leaders. Indeed!
If extreme circumstances do not force the ‘glorious revolution’ then the intermediate Keynesian path seems the way for the US, if sensibly applied. Maybe, with that opportunity foregone since 2008, the US might just be heading along a path of compelled structural change within its capitalist society.
The combined medical and economic challenges facing the world are met in the US by ineptitude on the part of the Trump administration. Deficiencies in analytical capacity (e.g. statistical reference to sick people entering hospitals is not the same as comprehensive testing of the population), less than logical application of viable policies and absence of prudent interaction with the nations of the world are accompanied by expressions of buffoonery (e.g. per. President Trump: we must try doses of disinfectant as a treatment for Covid-19: Clorox bleach?). And there is no indicator in sight that the ineptitude and illogicality is likely to end any time soon.
If the US wants to survive and to provide for her people then there would have to be a focus on reducing the deficit (intrinsically tied in to a reduction in militarism); not printing more and more fiat money in abundance and in millions/trillions misdirected to many who need it least; use of a form of Keynesian FDR economic solutions coupled with – one more time for emphasis – yes – a significant reduction in the over-expenditures of the military-industrial complex and an end to these global regime change wars.
Let me stop – before I now start believing in my own Utopian ( non-existent) world.
Those are my brief thoughts being shared with one and all.
* COURTENAY BARNETT is a graduate of London University. His areas of study were economics, political science and international law. He has been a practising lawyer for over thirty years, and has argued public interest and human rights cases. He lives and works in the Caribbean.