Thursday, 1 September 2011

Michael Pettis and The Great Convulsion

We have to draw attention to this excellent review of what we have called here "the Great Convulsion" by Professor Michael Pettis. As you will see, the article presents many of the views and conclusions that we have tried to elaborate al ittle more "theoretically" on this site (in terms of elucidating the politico-economic factors at paly in a capitalist world order). Here is the article:
http://mpettis.com/2011/08/some-predictions-for-the-rest-of-the-decade/

If anything, it seems to me that Pettis is a little too "sanguine" or optimistic, particularly with regard to the political stability of China in the face of rising unemployment and worsening living and environmental standards.

The problem with Europe is that the elites of Germany and France simply do not wish to tell their own people that, far from being "strong", their economies, employment and living standards are in for huge decline because they have been based on export-dependency that will quickly evaporate if the eurozone breaks up. The more immediate problem (one Pettis does not raise) is the imminent collapse of the European banks, which will be promptly taken over by their American counterparts - with the consequent shock to eurozone "core" countries. The "periphery" will have much to gain because it can then relaunch its employment and activity levels through more "competitive currencies". But this is all relative given the utter chaos that will engulf Europe.

The US will emerge stronger than ever. Actually, one thing I enjoyed in Pettis's review is the stress he places on the "geopolitical" significance and intent of the Fed's quantitative easing - which is something that I have been blasting out loud for many months now! It is a relief to see that "someone else gets it"!

Finally, and importantly, there is the matter of why capitalist nation-states are having so much trouble "adjusting" or sharing the "burden of adjustment" out of this "crisis" which threatens now to become a "Great Convulsion". As you know, the reasons are to be found in the "loss of profitability" that was masked by the speculative bubble enabled by the Great Moderation (asset-price inflation) and the consequent financial crisis. Clearly, I do not agree with Pettis that this is something "cyclical". I think that there are serious politico-economic barriers to capitalism that pose even more serious socio-political challenges that we will have to deal with forcefully if we are not to be dragged into a new global conflagration. I will try to address these matters with another intevention of the "Gold and Labor Standards". Cheers.

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