There’s one assumption which seems to be shared by most of Europe’s ruling or would-be ruling elite which I find questionable - namely, that our present economic weakness is merely temporary. This view unites (at least) four apparently different positions:
- The ECB’s long-term refinancing operations pump cash into banks but don’t (directly) improve their capital bases. This makes sense if you expect economic recovery to strengthen their balance sheets and to validate the higher asset prices caused by easy money. If, however, you expect long-term weak growth, they are not sufficient.
- Ed Balls’ call for a temporary tax cut makes sense if you think the economy will significantly pick up next year. If you don’t believe this, you should be calling for more radical action.
- The coalition expects the private sector to create enough jobs to offset public sector job loss. That this has not yet happened is, presumably, a temporary hiccup.
- The CBI says that “corporate balance sheets hold the potential for much stronger private sector investment”, and believes this potential can be fulfilled by a few tax breaks.
There is, though, an alternative possibility - that we face many years of weak growth and mass unemployment. The CBI is right to say point out that firms have lots of cash on their balance sheets. But this might be not a reason to hope for an investment boom, but rather a sign of a long-term dearth of investment opportunities. Companies in the UK have been running a financial surplus since 2002 - long before the crisis. This hints at a long-term structural problem. And it could well be that this will be exacerbated by an overhang of personal debt that restrains consumer spending and by the fact that the demand for unskilled labour in the west has long since collapsed, with the result that millions of people are unemployable from capitalists’ perspective.
If I’m right - and of course the difference between “temporary” and long-term troubles is one of degree rather than either/or - then the ruling class’s policy proposals just aren’t sufficient. Could it be that their faith in capitalism (which in fairness has been correct for a long time) is blinding them to this possibility?