Austerity Is Mostly Stupid… Mostly.
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But there is some logic to it, especially in places like Britain. The fundamental problem is de-industrialization. You can print as much money as you want, sure, but if almost everything you need is made or grown or dug somewhere else well, you have a problem. The US avoids this thru having dollar hegemony, for now, but the UK doesn’t have that and the Euro ain’t what it used to be either. The solution is simple in concept: you need to re-industrialize with than printed money.
(This is a theme and topic we’ve covered before, but forgive me running thru it again from another angle.)
Industrializing or reindustrializing is hard, especially with open markets. You need very careful use of tariffs and subsidies, and you need to cut deals with the current hegemonic industrial power: aka. China. You need real industrial policy, in other words. And neoliberalism doesn’t believe in that.
Instead neoliberalism believes in this weird idea that markets are self-correcting and that whatever markets do is right. Nor does it believe in increasing wages for domestic demand, because it came to power during the oil shocks/stagflation period.
Raising wages and thus general domestic demand when you don’t produce enough domestically means money flooding out of the country. This isn’t necessarily bad. A lower pound or Euro is an export subsidy and helps reindustrialize, but it’s still a hard sell and it has to managed.
You can’t let the trade and balance of payments deficit grow too large. And you have to manage domestic demand: pushing people to buy what is produced locally and making imports for consumer goods expenisve, while funneling import buys towards capital equipment.
This playbook has been run many times. Japan, South Korea, Taiwan, the US in the 19th century, China most recently. We know how to do it. But it does require discipline and an ideological change from neoliberalism, plus a willingness to cooperate with the main industrial power
It’s damn near impossible to industrialize or re-industrialize without aid from the current industrial hegemon. That means getting into a trade war with China is counter-productive. You need to import capital goods from them, and sell them what you produce at competitive prices.
Japan and the USA had Britain. Japan (2nd time), South Korea, China and Taiwan had the United States. You need the markets, knowledge and capital goods.
This mean, in effect, that you need to cut a deal with the current industrial power. They don’t precisely have to be good deals (China offered to make American rich people richer), but the deal has to be something they want.
For US/China one obvious deal is to let them get goods like EVs into the US without tariffs if they build branch plants and help create a supply network in the US. Another obvious deal is to stop supporting Taiwan so much & another is to let them have the South China sea. The EU and Britain can make the same deals.
If the last two bother you, well, look at it this way: they’re going to get Taiwan and the South China Sea anyway, you’re just making it easier for them. You’re giving up things you’re going to have to give up anyway.
This requires a psychological change among Western elites. They need to be willing to admit that they are no longer the top dogs, at least economically and that they can no longer just impose the terms they want.
The longer you leave cutting deals with China to help you reindustrialize, the worse deals you’re going to get. Leave it too long, and reindustrialization may be essentially impossible.
Of course there’s much more to it than this. A complete rejiggering of internal markets is necessary. You have to gut finance and put it at the service of industry. Private equity has to be destroyed wholesale. People can only get rich by exporting or making goods for the domestic market which replace imported goods. Anyone doing significant import of anything but capital machinery (with an eye to building your own) can only be allowed to survive, not prosper.
Generally speaking, to use econo-speak, incentives have to be aligned for re-industrialization, and dis-aligned for anything predatory. Betraying elites must be crushed.
There is no solution to declining standards of living in the Anglosphere and the EU without re-industrialization (maybe Canada and Australia could find another way.) You’ve got to either produce what you need, or produce what others want to buy from you. It’s that simple.
