Commentary on Political Economy

Friday 1 July 2011

The BIS Report

There are two aspects of the Wolf discussion on the BIS (Bank of International Settlements) Report that have just surfaced and that ought to be clarified. The first aspect is easy to dismiss, so we will deal withit first. Edward Yardeni in this FT Op-Ed (and he can consider himself lucky that, just as with Christopher Cldwell, comments are not allowed - Caldwell must have chickened out after repeated attacks by Belbruno - which the FT has promptly deleted) - Yardeni argues that the US fiscal deficit is what will prevent the Fed from engaging in QE3, except that (two have a bet each way - clever this Yardeni, no?) - except that at the end of the piece he does allow for the keen possibility that Bernanke might come back with the bazooka! But the main problem with the piece is that it is a non sequitur - and Yardeni must know it because he never explains "why" precisely the fiscal deficit hampers the Fed: after all, it has not done so to date!! Yardeni meekly and pathetically opines that "monetary policy can't do it all"... But that is an admission of defeat!! In other words, rather than prove his point, Yardeni concedes that QE3 is not only possible - it is perhaps even likely (!).... but it cannot set the economy right... which Wolf and I would readily agree with, but then, in that case: - what exactly is the point to Yardeni's piece?? Mysterium fidei! Here is the link: have a taste of stupidity personified for yourselves -

The second aspect of the discussion is about the sectoral analysis that Wolf conducts (one taken from Wynne Godley who was Cambridge Professor in my time and wrote prolifically for the enlightened and progressive Jerome Levy Foundation and Institute at Bard College ("bard of the boathouse and poet of the punt" was a regular ritornello on the Cam...)
Some people object that these are mere "accounting identities: in a closed economy the public and the private sectors cannot both be in surplus or in deficit. But then, come to think of it, so is the capitlist economy considered to be "a closed system" - so that one country's surplus is another country's deficit. One would be led to think that economies are "zero sum games": one country's benefit is another country's loss (it reminds me of the law of the jungle - "mors tua, vita mea", your death is my survival).

In reality, and to bring this post to a close, that is not the case. The world economy (even the capitalist one) can "grow". The problem is, however, that some bourgeoisies (some ruling elites) and particularly those of "export-dependent" countries (which are almost always recent dictatorships like China, Japan, Germany, Korea, Taiwan) - these present or past dictatorships are used to "imperialist" expansion, that is, economic growth that first and foremost is directed at "producing consumption goods for other countries" and not for their own workers. By doing so, they achieve a few useful goals: they keep the "consumption" and incomes of their own workers down (demand repression or suppression) which keeps them less than emancipated; it also increases employment because it is easier to compete on price (by undervaluing the currency) than on quality and design and innovation; the dictatorial bourgeoisie can amass foreign reserves that it can hold "overseas" (just in case!); and the foreign reserves are "overvalued" with regard to the national currency (enhancing their wealth).

So we can see that this problem of the "burden of adjustment" is not necessarily a "zero-sum game". But it becomes one when national bourgeoisies choose not to co-operate by emancipating their workers through appropriate expansionary strategies... which is where the BIS and its idiotic report comes in...

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