19th September 2011
First Will Hutton is in full flow in a wide-ranging critique of how capitalism works – or more accurately doesn't work today.
He writes: "This is variously a crisis of the European Union, a crisis of the euro, a debt crisis or a crisis of political will. It is all those things, but they are subplots of a much bigger story: the way capitalism has been conceived and practised for the last 30 years has hit the buffers. Unless and until that is recognised, western economies will be locked in stagnation which could even transmute into a major economic disaster."
But he also suggests, perhaps unfashionably, that had it not been for the euro we would already be in a depression and its collapse now would plunge us into one.
He suggests that the UK, China, the US and Japan should all contribute along with Germany to a rescue of the currency.
His sign off paragraph is a stark warning. "We are living through the most dangerous confluence of economic circumstances in modern times. Trying to pretend the interdependencies do not exist or that the collapse of the euro is the answer can only make matters worse. It is a straight choice: we do all we can to help each other or risk going down in what could be the worst economic contraction for a century."
Meanwhile the even more veteran Observer commentator Bill Keegan has a similar bleak message.
"The British economy is on the verge of an economic and social catastrophe. So is our principal export market, the eurozone. And the mighty United States, whose treasury secretary has commendably urged Europe to pull itself together, is up against the unfortunate reality that the Republicans are doing their level best to pull their own country apart."
Among other things he hits out at the ‘Austrian school' of economics which suggests, in essence, that in a slump you just grin and bear and champions Bank of England MPC member Andrew Posen who wants a state backed investment bank.
Not all are in agreement however. City AM editor and Spectator contributor Allistair Heath is in warning mode about a bond market bubble. Completely contrary to Keegan, he would argue that we have to take the pain.
Writing for the the Spectator, he notes America's recent credit downgrade and the reaction of the Keynesians.
"The verdict of the Keynesians was instantaneous. The economist Paul Krugman was jubilant: ‘What the market is saying – almost shouting – is "we're not worried about the deficit! We're worried about the weak economy!"' Certainly, if investors see no opportunities anywhere else in the economy, they will accept ultra-low rates on government debt. But the bond bubble distorts what the market is saying, sending out a false message. The market is by no means relaxed about the deficit. Asian economies may hate this, as much as America loves it. But the gargantuan pile of cash has to go somewhere and bonds are, for now, the least bad choice."
Heath suggests that the only solution is to grin and bear it.
"There is a huge willingness to believe that artificial prosperity, caused by excessively cheap credit, is actually real. The bubble may hang over Britain for many more months, perhaps even years. But it is madness to think it will last forever. Sooner or later, the party will be permanently and ignominiously shut down, the real hangover will begin. And this time, the only cure will be belt-tightening, sweat and hard work."