Recently, Nouriel Roubini’s exhumed of Karl Marx to help explain the current travails of the global economy. His argument included this spectacular paragraph:
So Karl Marx, it seems, was partly right in arguing that globalization, financial intermediation run amok, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct (though his view that socialism would be better has proven wrong). Firms are cutting jobs because there is not enough final demand. But cutting jobs reduces labor income, increases inequality and reduces final demand.
Now comes the fine UBS analyst, George Magnus, with a the return of political economy. The note includes the following introduction:
The Convulsions of Political Economy
“At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or – this merelyexpresses the same thing in legal terms – with the property relations within this framework of which they have operated hitherto”.
Preface to A Contribution to the Critique of Political Economy, Karl Marx(1859)
In ‘The Return of Political Economy’ (Economic Insights, 5th February 2010), I wanted to emphasise how, in the wake of the financial and economic crisis of 2008-09, the interaction between political and economic decision-making wouldcome to play an increasingly significant role in the determination of economic,and market outcomes. Looking at the time at the complicated legacy of de-leveraging in developed markets, the embryo of the sovereign debt crisis,especially in Europe, and growing social and economic contradictions in China, it was possible to imagine, if not predict precisely, pretty much what we see playing out today.
Now you don’t have to be a member of the Socialist International to recognise that Marx’s words above have contemporary relevance. For him, post-feudal ‘conflict’ would lead to social revolution and the overthrow of bourgeois society, but we know different, not least because the Western model of economic development overhauled and democratised the concept of ‘ownership’ (of the means of production). Nevertheless, the old guy was a pretty shrewd analyst, learned a lot about political economy from likes of Adam Smith and David Ricardo among others, and offered some still relevant insights into how and why things happen in the economy and society. The quote above captures the important idea of conflict or turbulence when events happen that lead to challenges to the power, authority and legitimacy of the existing political and economic order.
During the last several months, we have seen a succession of such challenges in the Eurozone, the US, and even, in embryonic form, in China. The recent skittishness in financial markets and increase in risk premiums reflect not only a rise in anxiety about the deteriorating health of the global economy, but the draining of confidence thatpolitical elites are up to the task of addressing it.This note, then, considers the existential crisis in the Eurozone, ‘deficit attention disorder’ in the US and other advanced economies, and China’s current politicaleconomy, for which the recent high-speed rail accident serves as an interesting metaphor.
The pinkos are back to save us and, frankly, it’s not before time. These lines of thinking are precisely the new angles of argument that we need if we are to redefine the liberal balance of governance and markets that our civilisation needs for a return to stability. Enjoy.