The limits and dangers of muddling through
In the January 2013 issue of Foreign Affairs Fareed Zakaria wrote in an article titled ‘Can America be fixed?’: “With only a few exceptions, the advanced industrial democracies have spent the last few decades managing or ignoring their problems rather than tackling them head-on”. Nowhere is this more true than in the sphere of economics.
The economic problems that hit the western economies in the 1970s have never been fixed. Instead an extraordinary confluence of circumstances since the late 1980s meant that these problems could be papered over with temporary palliatives at home, and a greater reliance on wealth created elsewhere, especially in emerging Asia. This Long Slump has been disguised for extensive periods by the greater ease these palliatives gave in maintaining the appearance of expanding prosperity. This was a false prosperity built mainly on state-driven policies, not least the unprecedented expansion of debt. Ultimately these state-led methods for coping with the moribund condition have proved unsustainable, evidenced by the post-2008 return to stagnation conditions. Today’s ‘contained depression’, evidenced by the sluggish recoveries everywhere in the west, is a consequence primarily, not of the financial crisis itself, but of those four decades of low investment in production and of lacklustre innovation, and of the political failure to address these deficiencies.
The defining characteristic of this long period of economic crisis is that the western elites have been able to turn muddling along into their modus operandi. The unusual economic and political circumstances since the 1980s – an end to social contestation at home and to Cold War abroad, globalisation, and the emergence of financialisation and other forms of greater state economic intervention - has opened up that ‘muddle through’ path for western elites of all political complexions. Not only do such measures not fix things properly, but they are at a great cost to our collective future. They get in the way of the long overdue economic renewal, by producing a state of corporate and personal dependency that inculcates against revitalisation. The sustained political evasion of the west’s profound economic challenges has itself become the number one barrier preventing a return to economic growth and genuine prosperity. In this way a political, subjective failure, and the continuation of ‘muddle through’ ways, prevents the thoroughgoing restructuring and revamp of the objective economic and technological conditions necessary to get us out of this Long Slump.
QUESTIONS TO CONSIDER
1. Is it fair to say we’ve had ‘productive decay’ since the 1970s? Surely people living in the west are much better off than they were 40 years ago.
2. What’s wrong with ‘muddling through’? It seems to have sustained rising prosperity for much of the time since the 1980s; today’s problems are bound to pass at some point.
3. How can one expect a state that has made a virtue of ‘muddling through’ to changes its approach and initiate a renaissance in innovation and production? As the physicist Andre Geim implies, isn’t this a somewhat utopian hope (‘Be afraid, be very afraid, of the world’s tech crisis’, Financial Times, 6 February 2013)?
Phil Mullan, economist; author, The Imaginary Time Bomb, will introduce the discussion.
Phil Mullan, Draft discussion paper, not for circulation, 24 February 2013
How broken are the western economies?
- Robert Gordon, ‘Is US economic growth over? Faltering innovation confronts the six headwinds’, Policy Insight 63, Centre for Economic Policy Research, September 2012
- ‘2013 Productivity Brief—Key Findings: Global Productivity Slowed in 2012, with Little Scope for Improvement in 2013’, Conference Board, January 2013 – consider charts 1 and 2 especially
- ‘Innovation pessimism. Has the ideas machine broken down? The idea that innovation and new technology have stopped driving growth is getting increasing attention. But it is not well founded’, The Economist, 12 January 2013
Quantitative Easing: a current example of muddling through: what are the consequences?
- William White, ‘Ultra Easy Monetary Policy and the Law of Unintended Consequences’, Federal Reserve Bank of Dallas Globalisation and Monetary Policy Institute, Working Paper No. 126, August 2012
- Spencer Dale, Chief Economist, Bank of England, ‘Limits of monetary policy’, speech, 8 September 2012