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Book Review: Anti-System Politics: The Crisis of Market Liberalism in Rich Democracies by Jonathan Hopkin

Published by Anonymous (not verified) on Mon, 30/11/2020 - 10:54pm in

In Anti-System Politics: The Crisis of Market Liberalism in Rich Democracies, Jonathan Hopkin studies the political counter-movements that have arisen on the Left and the Right since the 2008 financial crisis, positioning these as forms of ‘anti-system politics’ that are a response to the failures of neoliberal orthodoxy. Scott Timcke finds this book one of the most compelling reads of 2020, deserving of serious engagement and discussion by anyone interested in politics, philosophy and economics.

If you are interested in this book, you can listen to a podcast of author Dr Jonathan Hopkin speaking at an LSE event on ‘Anti-System Politics in Europe’, recorded on 30 May 2019. 

Anti-System Politics: The Crisis of Market Liberalism in Rich Democracies. Jonathan Hopkin. Oxford University Press. 2020.

Joining books like Mark Blyth’s Austerity and Yanis Varoufakis’s And the Weak Suffer What They Must?, Jonathan Hopkin’s Anti-System Politics adds to the constellation of contemporary literature covering the fallout from the 2008 Great Recession to confidence in the capitalist political economy. Like others, Hopkin readily admits that during the recession he was swept up in the belief that the ‘neoliberal consensus had met its demise’ (ix), but he concedes this assessment was premature considering the subsequent European austerity programmes that followed. ‘We should have expected years of rising inequality and a massive financial crisis to produce a political backlash’ (50), Hopkin writes.

It is with this background that Hopkin studies the resultant counter-movements to the long, steady transformation of liberal democracy into ‘neoliberal democracy’ (5) that generated the recession in the first place. His aim is to produce ‘a basic theory to explain political instability after the financial crisis’ (83). Through compelling case studies of political developments in the US (Chapter Three), the UK (Chapter Four) and well as Southern European and Northern European countries (Chapters Five to Seven), Hopkin labels these counter-movements as ‘anti-system politics’. He argues that they primarily reject the so-called settled debate over the appropriate role of the market and government and the general downplaying of the contradictions between capitalism and democracy.

Effectively, anti-system movements are a forceful response to ‘cartel politics’ (39) where major neoliberal political parties had decided not to ‘interfere too much with the workings of markets’ (39). Hopkin’s analysis identifies a nationalist-authoritarian anti-system Right and an egalitarian interventionist anti-system Left. Brexit and Trumpism are examples of the former, while political parties like Greece’s Syriza and Spain’s Podemos are examples of the latter.

Conceptualising these political figures, parties and movements as responses to the failures of neoliberal orthodoxy, Hopkin is adamant that these are a predictable rejection given that during the 2008 Great Recession, rich democracies prioritised safeguarding the wealth of shareholders over the general interests of citizens. ‘Anti-system politics is born out of the failings of our political institutions to represent popular demands’ (6), Hopkin writes. Indeed, ‘the upheavals of the second decade of the twenty-first century stem from the failure of neoliberalism to deliver widely shared economic prosperity and democratic accountability’ (250). Hopkin displays considerable empathy for these movements: ‘banking bailouts and austerity were po­litical choices, and citizens could not be expected to be indifferent to their consequences’ (14). If, as Dan Drezner argues in The System Worked, bailouts blunted the full extent of economic catastrophe, then the subsequent austerity quickly called this conclusion into doubt.

Pound coin being squeezed between a nutcracker

Certainly, dissatisfaction with neoliberal democracy pre-dates the 2008 Great Recession. For example, Silvio Berlusconi’s rise to become the Italian Prime Minister in 1994 through the formation of Forza Italia — a political party less than a year old that placed first in that year’s general election — was both a ‘political earthquake’ and an early indicator of ‘the vulnera­bility of our political institutions to a hostile takeover [showing that] even in wealthy, con­solidated democracies, the political system could be captured by anti-system forces’ (2). But this precursor is a point in favour of Hopkin’s thesis, for it makes his argument less dependent on the characteristics of a single event and more on the building pressure of markets narrowing political options over decades. The most powerful expressions of anti-system politics are ‘where inequality is highest, and where the social and economic effects of the Global Financial Crisis have been most severe’ (3) as well as where ‘political institutions have been least able to address [these] consequences’ (14).

Hopkin, quite rightly in my view, is pretty clear that ‘rather than dismissing anti-system politics as ‘‘populism,’’ driven by racial hatred, nebulous foreign conspiracies, or an irrational belief in ‘‘fake news,’’ we need to start by understanding what has gone wrong in the rich democracies to alienate so many citizens from those who govern them’ (3-4). If the goal is to explain ‘why anti-system politics is on the march, and why different forms of anti-system politics prosper in different places and among different types of voters’ (3), then Hopkin argues it is necessary to also look at the transformation of institutions during the neoliberal era. In brief, one tendency was delegating the management of markets to experts and their spreadsheets, while concurrently politics increasingly devolved into which party offered better administrative competency.

Yet these parties’ platforms of ‘’scientifically grounded technical fixes’ (43) rarely raised issues of (re)distribution and so were unable to sufficiently address the ‘slow deterioration of democratic health’ (249), class decomposition, stalled wages, precarity, downward social mobility and the myriad of similar issues that stem from the ordinary operation of markets and the vast inequalities they produce. If these matters all relate to the social question, then as the 2008 Great Recession showed so concretely, neoliberal democratic parties were no longer seen as credible leaders able to provide a suitable answer. In this credibility gap, anti-system politics and the critique they presented were able to prosper by calling attention to the moral betrayal by elites of their fellow citizens. The key demand has been for a fundamental overhaul of the political economy by introducing forms of governance whereby responsive representatives self-consciously act in accordance with traditions of popular sovereignty.

Adjacent to Hopkin’s argument is the ‘cultural backlash thesis’. From this perspective, reactionary white supremacists are reasserting themselves to police de facto citizenship in their polities, and in doing so reveal the depth of racist, nativist attitudes. Certainly, the Far Right with its xenophobia and racism is a threat to democracy, but Hopkin observes that the anti-system Left seeks to expand social protections for migrants and minorities to further realise democratic values across the full social terrain. Indeed, the latter’s critique is predicated upon how ‘unregulated markets’ starve governments of the resources to undertake service delivery and otherwise implement social welfare programmes that provide adequate protection against market forces. Accordingly:

To reduce anti-system politics to cultural unease, the anxiety of the ‘‘left behind’’ or the ‘‘places that don’t matter,’’ or the revival of national sentiment misrepresents the phenomenon. At a very basic level, anti-system politics is about reasserting the power of politics over markets and money (16).

It is not that the evidence for the cultural backlash is threadbare, but rather that it is incomplete and insufficiently comparative.

In this regard, Hopkin situates the ‘fundamental changes to the political economy’ (248) and the emergence of anti-system politics within a Polanyian double movement, which, as a reminder, demonstrated that capitalist development gave rise to organised opposition where people demanded protection against the effects of the market on their fragile societies. Hopkin keeps pointing to the similarities between the inter-war years in which Karl Polanyi was writing The Great Transformation and the 2008 Great Recession, highlighting the stakes of this conjuncture. ‘Greece or the United States in the 2010s are certainly not Germany in the early 1930s,’ he writes. ‘But it is hard to dispute that citizens’ expectations that their democratically elected governments would help the whole of society participate in rising living standards have been disappointed’ (15). Thankfully, the key difference is that improvements in living standards provide something of a cushion compared to the conditions of the 1930s. However, as the last remaining social protections are eroded by neoliberal democracy and the austerity it brings, so the difficulties of the inter-war years loom large.

Finally, Hopkin provides an explanation for the character of anti-system politics in different countries. Generally, ‘the nature of party politics and the development of economic and social policies’ are key ‘variables [that] explain why some countries have been far better equipped to survive globalization and its attendant economic shocks than others’ (14). But more specifically, support for anti-system parties turns on the logic and mechanisms by which benefits and burdens are shared. ‘Anti-system politics is stronger in countries that are structur­ally prone to run trade deficits, have weak or badly designed welfare states, and have electoral rules that artificially suppress the range of political options voters can choose from’ (17), Hopkin writes. This model is predictive insofar as right-wing anti-system politics finds success in creditor countries where citizens fear an erosion of existing welfare systems. Left-wing anti-system politics tends to find success in debtor countries where highly educated young populations face the prospect of not enjoying the same social protections that older populations experienced.

By placing anti-system politics within the larger history of the open antagonism between capitalism and democracy, Hopkin focuses on the ‘fundamentally unstable relationship that produces regular political upheavals’ (16). He concludes that the current purchase of anti-system politics tells how the free-market model cannot deliver prosperity and security. If this is to change, political authority must be asserted over the market; and that authority must be legitimated by ‘meaningful mass participation in political decision-making over whatever matters society thinks are important’ (257). In summary, Hopkin has produced one of the most compelling reads of 2020, a book deserving of serious engagement and discussion by anyone interested in politics, philosophy and economics.

Note: This review gives the views of the author, and not the position of the LSE Review of Books blog, or of the London School of Economics.

Banner Image Credit: (theilr CC BY SA 2.0).

In-Text Image Credit: (Howard Lake CC BY SA 2.0).


Delusion Regarding the Fall of Neoliberalism and Globalization

Published by Anonymous (not verified) on Fri, 25/09/2020 - 2:10pm in

So, the article below was published December 8th, 2015.

The pull quote is:

Neo-liberalism is nearing the end of its cycle. It will kill a lot of people dying, but its death is now ordained and can only be slowed by fanatical levels of police state repression in a few countries. And its death convulsions and the birth pangs of the new system will create a new age of war and revolution which will kill far more.

This is now as close to inevitable as human affairs, endlessly complicated and subject to unexpected shocks, can be.

Nothing has changed, the process has simply continued. Notice the repression going on in the US right now. Since I wrote it, the UK left the EU, there was massive resistance to Macron in France, and so on. We have massive fires all over the world: Australia, California, South Africa the Amazon and more. Wealth continues to concentrate at the top, etc, etc…

These convulsions take time. Slap the start of the actual fall as 2020, with the UK’s Brexit, and we’ve got 12 to 20 years to go. This one’s going to be bad, really, bad, simply because of climate change and our vast over-exploitation of limited resources. There’s going to be a lot of real hunger and lack of water, and so on.

The next age is undetermined, but one possibility is a centrifugal period. It is hard to imagine a future in which, India, for example, survives as a unified nation. For that matter, I’m not sure I’d put my money on China holding together over the middle run: 50/50 it’s fallen into warlordism by 2050 to 60.

The simple way to make your guesses is ask if a country can feed itself with domestic production AFTER the effects of climate change. If it can’t even feed itself now (or only barely); or if it is going to have serious water issues (water, obviously affects agriculture, so it’s not really two things), then the smart money is that it’s going to break up or lose effective control of various hinterlands.

And if you’ve got resources a more powerful nation on your border wants, well, that could go very badly for you. (My fellow Canadians, who seem clueless about how violent Americans are, should take note here.)

On the upside, this will be a very interesting period to be alive, if you can stay that way.

Natalie Nougayrède writes in the Guardian about The Front National’s victory in France:

Marine Le Pen has no solution for France’s problems, her economic programme is all about retreating from the outside world and Europe. Her social vision is of a mythical, homogeneous France that never existed. What she has to sell is an illusion. It’s only because so little else is on offer that people are buying.

This analysis is, there is no kinder way to put it, delusional.

And Nougayrède should know it, because she writes:

The impact of globalisation marked the end of what the French demographer Jean Fourastié coined Les Trente Glorieuses (The Glorious Thirty), the 1945-1975 period when France was modernising and increasing its international influence. There is much twisted nostalgia in the rise of the National Front.

Nougayrède blames this on the oil shocks, which the entire West failed to handle (note that Japan, far more vulnerable to the oil shock, DID handle it. Their later failure had other causes). She notes that France’s elites have not, since 1975, been able to turn things around, something I have noted as well.

But she is wrong about a retreat from globalization being delusional. The simple fact is that in France and almost every other country (including, by the way, most African countries), growth was better before globalization, and the proceeds of that growth were distributed to their populations much more evenly.

This is a fact, and you can only argue against it by invoking China (which used classic mercantalist policies, and was not meaningfully party to the 1945-1975 consensus economy.)

There will always be trade. There will always be global movement in goods, capital, and ideas, but more is not always better.  In fact, one can easily argue that more is rarely better.

As for “Europe,” the fact is that increased integration has not been to the benefit of most Western Europeans. That assertion is, again, extraordinarily hard to argue against and is especially true of the creation of the Euro.

Nougayrède wants France’s leaders to fix things, and not to fail, but she is very nearly as delusional as them. She admits that their failure has led to the rise of Front National, but cannot admit that their policies have failed, economically, along the lines that Marie Le Pen says they have.

Just because someone is a near-Fascist does not mean they are wrong about everything. I have no tolerance for LePen’s brand of Imperialism and cultural supremacy, but she, like Trump, is telling a lot of truths to a lot of people who feel like their country has been on the wrong track for a long time. (In the U.S., white, working class male salaries peaked in 1968. No matter how much you scream about white privilege, you are a fool if you expect white males to gravitate towards anyone who doesn’t at least pay lip service to reversing that.)

As an economic project, the EU is a failure for many of its members, including France. There are exceptions (Germany, Poland, etc.) but the losers cannot be expected to just sit there and take the beating forever. The “beating” has been exacerbated by Europe’s deliberate imposition of austerity. It is not just that Europe’s elites have failed to create a good economy, it is that they have deliberately made the economy worse for the majority of residents in many of its countries.

Until we can honestly evaluate the failures of neo-liberalism, and gut globalist cant which claims more trade and capital flows are always a good thing (and, even if they aren’t, are “inevitable”) we cannot fix the economy.

France, like about half of the EU, should leave the Euro. It should re-impose tariffs on a wide variety of goods and produce them in their own countries. Yes, they would cost more, but wages would be higher. It should also move radically to non-oil-based energy (as is true of, well, almost everyone).

These basic policies are not difficult. Corbyn is not wrong to say “make the necessary adjustments so it will work today, and go back to post-war policies.”  It failed,  yes, but it was the last economy which spread money evenly through the economy.  Make sure it’s not sexist and racist, update it for new energy technology, and try it. It may not be the best solution (I’d like some fairly radical changes), but it’s certainly not crazy, given that it did give France those 30 great years.

The failure to deal with the oil price shock doomed the post-war world, yes. But it is 40 years later and we have technology and knowledge they did not have.

Until the developed world’s sanctioned intellectuals (as opposed to pariahs like myself and my ilk) and their masters come to grip with these facts, the population will continue to turn elsewhere. They may turn to sane and reasonable people like Corbyn, or they may turn to people like LePen and Trump, but people will not put up with “it’s going to get worse for the forseeable future” forever.

We can have reasonable policies, which will make the world better for everyone (even if that means there will be a lot less billionaires–the Corbyn solution), or we can have the rise of fascists and their left-wing equivalents.

The room in the mushy middle for those who aren’t willing to do something radical to fix the economy and other problems is narrowing. It will continue to narrow.

Our current elites will not adjust, so the question is: Who will we get? Corbyn and FDR? Mussolini, LePen, Trump?

Neo-liberalism is nearing the end of its cycle. It will kill a lot of people dying, but its death is now ordained and can only be slowed by fanatical levels of police state repression in a few countries. And its death convulsions and the birth pangs of the new system will create a new age of war and revolution which will kill far more.

This is now as close to inevitable as human affairs, endlessly complicated and subject to unexpected shocks, can be.

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Supervisory governance, capture and non-performing loans

Published by Anonymous (not verified) on Fri, 11/09/2020 - 6:00pm in

Nicolò Fraccaroli Recent reforms that followed the Great Financial Crisis, as the establishment of the Single Supervisory Mechanism in Europe and the Prudential Regulatory Authority in the UK, reflect the belief that the governance of banking supervision affects financial stability. However, while existing research identifies the pros and cons of having either a central bank … Continue reading Supervisory governance, capture and non-performing loans →

Global financial cycles since 1880

Published by Anonymous (not verified) on Wed, 12/08/2020 - 6:00pm in

Galina Potjagailo and Maik H. Wolters Global financial cycles: a long-term affair Today’s financial system is global: credit and several financial asset classes show booms and busts across countries, sometimes with severe repercussions to the global economy. Yet it is debated to what extent common dynamics rather than domestic cycles lie behind financial fluctuations and … Continue reading Global financial cycles since 1880 →

Contextualising the assault on universities

Published by Anonymous (not verified) on Wed, 05/08/2020 - 9:51pm in

At the turn of the millennium, the UK was an unambiguous ‘world-leader’ in two principle sectors, both of which had been closely associated with the promise of the ‘knowledge economy’ and ‘post-industrial society’, on which so many policy hopes had hung since the deindustrialisation of the 1970s and early 1980s. Both were dedicated to esoteric language processing and translation, overseen by the expert ‘symbolic analysts’ who scholars such as Robert Reich and Saskia Sassen declared would be the driving forces of the new economy. The Blair government celebrated these sectors with gusto, encouraging their expansion, and looking to them as contributors to macroeconomic growth.

Within a decade, one of these sectors had become dependent on the state to the tune of almost a trillion pounds (at peak), and triggered such a deep recession that the national debt doubled as a proportion of GDP, and wages experienced their longest period of stagnation since the industrial revolution. But within another decade, the government and much of the press were engaged in a sustained cultural assault on the other of these two sectors, painting it as divisive, a threat to liberty and offering ‘poor value’ to its customers. The sectors are, of course, banking and higher education, and it’s important to understand how these respective crises are entangled.

But first of all, take stock of how extraordinary the current cultural campaign against higher education is. It has become clear that The Times in particular will now grant the maximum profile possible to any opinion or news item that casts universities as censorious, ‘low value’, ‘biased’ and – the watch-word of this agenda – woke. The prominent coverage this week of a methodologically abysmal Policy Exchange report, claiming academics (and not just visiting speakers or student societies) are censored and dismissed for their political opinions, was only the latest in a long vendetta against a sector that is simultaneously awaiting a financial hurricane, caused by the pandemic.

The idea that universities are opposed to ‘free speech’ is now a common sense in the pages of the right-wing press and, latterly, the Johnson government. I explored the reasons for this line of attack in this Guardian essay, including the fear that younger people – half of whom have attended university – hold values and political preferences which are at odds with those of newspaper readers and the Conservative Party, including on issues such as Brexit.

The economic charge that certain degrees are ‘low value’ (in the sense that graduates do not earn enough to pay off their student debt, which now incurs a market rate of interest) developed in parallel to this cultural front, but has now joined up with it thanks to the exceptional circumstances of the pandemic. Gavin Williamson, the Education Secretary, recently announced that financial rescue packages would be on-hand for universities struggling with the fall in student numbers over the next year or so, but that it would come with conditions surrounding ‘free speech’ and the closure of certain degrees – to be decided not by one of the fiendishly complex, but nevertheless transparent, audit instruments (REF, TEF and OfS) created over recent decades, but by some mysterious new Higher Education Restructuring Regime Board, “composed of external experts”. Meanwhile, Michelle Donelan, the Universities Minister, has accused universities of “taking advantage of” students with “dumbed down” courses, and signaled that the government now wants to see fewer people go to university.

Another hint of the government’s plans emerged when Boris Johnson gave an interview to the Sunday Telegraph in July, in which he praised the recent Australian policy of raising the price of humanities degrees, as a way of deterring students from taking them. The notional justification for this is that these degrees are ‘low value’ in the sense that they don’t pay a graduate premium (though neither does nursing), and should be used to subsidise allegedly ‘high value’ degrees in STEM subjects. The policy therefore addresses the ‘low value’ of humanities degrees by making them even worse value, while papering over the inconvenient fact these degrees are already being used by universities to cross-subsidise STEM teaching.

As the economic justifications for policy reforms rapidly disintegrate, the government is left with little more than the cultural prejudices against certain scholarly and critical traditions – prejudices which are stoked on a daily basis with by newspapers attacks on ‘wokeness’, and deepened by the more concerning conspiracy theories regarding inter-sectionality (advanced by Douglas Murray) and critical theory (a longstanding, if ill-understood, scapegoat of the far-right). The current government’s inability to forge a coherent analysis of the place of universities in the economy and society is the fall-out of a decade of policy reforms, which repeatedly claim to be driving efficiency and student satisfaction, only to discover that they cost the tax-payer more money and lead to the ‘consumers’ of higher education being the victims of ‘market forces’.


Re-valuing and de-valuing knowledge

To understand this mess, we therefore need to return to the crisis triggered by that other ‘world-leading’ sector, with its disastrous aftermath that was deepened and prolonged by the dogma of George Osborne. So much of the current hysteria that surrounds higher education today centres on undergraduates and tuition (although Policy Exchange are clearly intent on opening up a new front in the domain of research and academic appointments), and it is no coincidence that it was these issues that provoked many of the most furious political clashes of the Coalition government of 2010-15, helping to forge the youth wing of Corbynism and trash the reputation of Liberal Democrats.

‘Top-up fees’ for university tuition were introduced by the Blair government in 1998, with the justification that many of the economic benefits of a degree return to its holder. They were tripled in 2006 to around £3,000 a year. The announcement that mobilised mass protests in 2010 was of a further tripling to £9,000 a year. The withdrawal of government support for tuition only saved the government just over £3bn a year, a tiny sum given the distress to students and the upheaval unleashed, but justified on the basis that the government deficit (which approached 10% of GDP at the time the policy was announced) had become unsustainable in the aftermath of the banking crisis, though this was later re-framed as the consequence of Labour spending prior to the banking crisis.

That period of 2009-12 was therefore the crucible for a new common sense, barely hinted at by the policy of ‘top-up’ fees, in which the value of university tuition is reflected in the graduate labour market. That saving of £3bn a year was the wedge with which to unleash a whole neoliberal orthodoxy, in which education is an investment in human capital,  whose returns are private and calculable. From here it was almost inevitable that a ‘market regulator’ (the Office for Students) would be created, new government audits of graduate employment would be established (the TEF) and economists (led by the IFS) would start to drill down into data on whether individual degrees were ‘worth’ their ‘price’. The Augar Review of May 2019 took as read something that a decade earlier would have been viewed as philistinism: that a university degree is only worth what its holders go on to earn.

Yet not only did the financial crisis facilitate a new common sense of the value of knowledge, it also created the material conditions in which knowledge was de-valued economically. As Keir Milburn and others have highlighted, the labour market impact of the ‘great recession’ that followed the banking crisis fell most heavily on those in early adulthood, at the same time as the cost of housing continued to rise, aided by the expansionary monetary policies that had been introduced to try and offset Osborne’s deflationary fiscal ones. Just at the historical moment when the ‘value’ of, say, a degree in English literature was being publicly re-framed in monetary terms, so the labour market value of that ‘asset’ was falling. The fact that policy-makers, politicians, economists and journalists now routinely use the term ‘low value degrees’ (an insult to teachers and students) is a simple offshoot of this pincer movement of Chicago School ideology and macroeconomic stagnation.


The invention of ‘woke’

Judged in both economic and educational terms, the reforms of the past decade look like a disaster, and policy-makers are now scrabbling around trying to deal with their consequences. As ever, market competition and consumer information (which combine in the form of league tables) are viewed as the tonic for everything, but universities and students are then blamed for their outcomes. See, for example, how lecturers and students are perennially incentivised to work harder and deliver better ‘outcomes’, but then accused of ‘grade inflation’ when this transpires. Without any apparent irony, one of the charges that the Education Secretary leveled against universities in July is that they spend too much time focusing on “administration”, though he made no mention of the fact that the last REF cost a quarter of a billion pounds to administer.

The more one looks inside the workings of universities, the more one sees evidence of perverse incentives and failed reforms that originate with central government. This is where the notion of ‘wokeness’ comes in: a catch-all pejorative term, that condemns an entire sector, while refusing all knowledge of what’s actually taking place. Central to this bogey-ethos is the place of some very marginal traditions of cultural studies, critical theory, post-colonial studies and literary theory, that (despite having zero or scant influence on the vast majority of disciplines) have now become a preoccupation for certain corners of the Right, especially in the pages of The Telegraph and The Spectator, and in online outlets such as Unherd and Spiked. Echoing the antisemitic theories regarding ‘cultural Marxism’, this conservative alliance is rapidly painting universities as ‘enemies within’ who sow ideological mischief, an agenda that suits Johnson’s new Brexit-based electoral strategy of collecting votes from over-50s and non-graduates.

As Asad Haider has helpfully laid out in the US context, the underlying reading of the history of ideas is absurd. But it is far from harmless. The charges being levelled against niche humanities subjects and social sciences (many of which were struggling in the context of the REF anyway) are being ratcheted up: not only ‘low value’ and exploitative of ‘consumers’, but carrying out a kind of brain-washing that is responsible for all the discord in an otherwise harmonious society. Just as Whitehall becomes referred to as ‘the blob’, an entire sector becomes obscured by a single piece of journalese. It’s a refusal to look at what’s actually taking place, which much of the time is a prosaic story of student stress, overwork, audit, managerial struggles and the normalisation of precarity of teaching contracts. With a further irony, the Johnson administration has taken to referring to various mediocre things as ‘world-leading’, while seeking to trash one sector that could claim this obnoxious status with some validity.

If the humanities and social sciences do have any particular privileged place in these political conflicts, beyond the paranoid fantasies of certain journalists and ideologues, it is that these are the disciplines that potentially see the current crisis most clearly for what it is: a crisis in valuation, which economics has so far been powerless to resolve, and politics will be unable to either, short of Orbanist efforts to stipulate what should and shouldn’t be taught. Academia has longstanding ways of valuing knowledge, which more or less work, albeit imperfectly. Peer review, marking, funding competitions and job talks can go horribly wrong, and are fraught with injustices, but they remain commonly understood ways of distinguishing merit. If you seek to trump those conventions with market mechanism, don’t be surprised if the outcome is a kind of chaos, in which nobody can agree on value any longer.

The critics of ‘wokeness’ will be interested to know that this was exactly what Jean-Francois Lyotard was warning against in his 1979 Postmodern Condition: “Knowledge is and will be produced in order to be sold, it is and will be consumed in order to be valorised in a new production: in both cases, the goal is exchange.” Markets and economics can’t offer a resolution to an epistemological crisis that they themselves caused. Gavin Williamson’s Higher Education Restructuring Regime Board may believe it can, purely on the basis of some murky presuppositions about which degrees ‘deserve’ to exist and which one’s don’t, as may Policy Exchange’s proposed Director of Academic Freedom. But once the bounds of ‘acceptable’ teaching and research are being set by the state, it’s hard to see that any argument has been won or any freedom is being upheld.

If the problem that these critics have is that of ‘relativism’, then maybe they’re onto something. But it’s not the epistemic ‘relativism’ of Derrida or Foucault that they ought to be focusing on, or the moral ‘relativism’ of a historical mentality that highlights demonstrable facts regarding the violence of empire. If the rug has been pulled out from under our capacity for judgement, look to the financial sector – the same sector that discovered that the value of a derivative was merely a construct of collective beliefs and whichever letters are awarded by a credit-rating agency. Just imagine a world in which newspapers waged a permanent war against the abuses and exploitation enacted by Britain’s other ‘world-leading’ sector, in which Ministers complained that it had grown too big, and various new boards and directors were invented to ensure that it used its freedom correctly.

The post Contextualising the assault on universities appeared first on Political Economy Research Centre.

Britain was not "nearly bust" in March

Published by Anonymous (not verified) on Wed, 24/06/2020 - 2:49am in

"Britain nearly went bust in March, says Bank of England", reads a headline in the Guardian. In similar vein, the Telegraph's Business section reports "UK finances were close to collapse, says Governor":Eh, what? The Governor of the Bank of England says the UK nearly turned into Venezuela? Well, that's what the Telegraph seems to think: 

The Bank of England was forced to save the Government from potential financial collapse as markets seized up at the height of the coronavirus crisis, Governor Andrew Bailey has said. In his most explicit comments yet on the country's precarious position in mid-March, Mr Bailey said 'serious disorder' broke out after panicking investors sold UK government bonds in a desperate hunt for cash. It left Britain at risk of failing to auction off the gilts needed to fund crucial spending - and Threadneedle Street had to pump £200bn into markets to restore a semblance of order.

Reading this, you would think that the UK government's emergency gilt issues had triggered a sterling market meltdown, wouldn't you? If this is indeed what happened, then the Bank of England has strayed far beyond its mandate and compromised its independence. Why on earth the Governor would voluntarily admit this surely requires some explanation. After all, if it is true, it could cost him his job. The source for the Telegraph's extraordinary claim is this 51-minute podcast from Sky News, in which Sky's economics editor Ed Conway and former Chancellor Sajid Javid grill the Governor on his handling of monetary policy during the coronavirus crisis. The particular part of the interview that has raised eyebrows is in this clip, which I have transcribed here:

Bailey: We basically had a pretty near meltdown of some of the core financial markets….I got to Wednesday afternoon, and the markets team came down here, and you know it’s not good when they turn up en masse, and you know it’s not good when they say “we’ve got to talk”, and it wasn’t good. We were in a state of borderline disorderly, I mean it was disorderly in the sense that when you looked at the volatility in what was core markets, I mean core exchange rates, core government bond markets, we were seeing things that were pretty unprecedented certainly in recent times, and we were facing serious disorder.

Conway: How scary was that? What would have happened if the Bank hadn’t stepped in?

Bailey: “Oh I think the prospects would have been very bad. We would have had a situation in which in the worst element the Government would have struggled to fund itself in the short run”. 

So no, the market meltdown was not triggered by high government spending. The market meltdown was because of investors panicking about Covid. It did, however, threaten to cause a government debt crisis.

Or - did it? Government struggling to fund itself "in the short run" simply means that it might have needed to pay out money before it could raise it. Normally it would cover short-term cash needs by issuing Treasury bills, which are short-dated, highly liquid bonds with very low interest rates. But when markets are malfunctioning, it can't do this. And high-interest gilts or pandemic bonds would take time to issue. So it could potentially find itself short of ready cash for urgent spending. However, as I have explained before, not being able to raise immediate funds for an urgent purchase is not insolvency, it is illiquidity. Relieving temporary illiquidity is what central banks do, and have done since the time of Bagehot. Historically they have done so not only for banks, but also for governments. And in the UK, the Bank of England still bears this responsibliity. The Ways and Means overdraft (which was extended in April) is the living evidence of the Bank of England's role as liquidity provider of last resort for the UK Government. But it is simply a working capital overdraft, such as any solvent business would have. Using this overdraft in no way implies that the Government is "insolvent", "bust", "bankrupt" or any of the other inflammatory headlines that journalists like to use. And nor does it mean the Bank of England is financing government deficit spending on anything other than a very short-term basis. It simply smooths out cash flow. Conway's assertion that the Government was "within a whisker of insolvency" is total nonsense, as is the Guardian's claim that "Britain nearly went bust in March". The Government was not shut out of markets long-term, as an insolvent sovereign would be. It had short-term cash flow problems solely because markets were malfunctioning.  Indeed, in another part of the interview Bailey said exactly this (my emphasis):

Conway: At the time you were nervous about government not being able to finance itself. 

Bailey: Yes, because of market instability.

Bailey went on to explain that the reason why the Bank intervened was not because the Government was having funding difficulties, but because market instability was driving up interest rates across the entire economy, and indeed across the whole world:

How would this have played out if we hadn’t taken the action that we and other central banks took? I think you would have seen a risk premium enter into interest rates, I think markets would have priced in a risk premium, and it could have been quite substantial given the degree of instability we were seeing. That would have raised the effective borrowing cost throughout the economy. In terms of the Bank of England's objectives, that would have made it harder for us to achieve our objectives, both in terms of inflation and in terms of economic stability.

The market meltdown was weakening central banks' hold on interest rates. They had to act, not to protect government finances but to prevent monetary conditions from tightening sharply, potentially triggering a dangerous debt deflationary spiral. The first responsibility of central banks in this crisis has been to prevent an exogenous shock to the real economy from triggering a financial crisis that would amplify the shock and significantly deepen the inevitable recession. That's what the exceptional interventions by central banks, including the Bank of England, since March have been all about. 
Bailey observed that although the UK Government was the largest borrower in the sterling market, it was far from the only one. Big corporations were borrowing enormous amounts, both in the market and from banks. Interest rates were rising on their bonds as well as government bonds. So the fact that the Government was the largest borrower was "actually largely irrelevant to that argument about a risk premium and an increase in the effective rate of interest."Bailey said that the £200bn of QE announced by the Bank of England the day after his crisis meeting with the markets team was to provide emergency liquidity to the whole market.  By injecting very large amounts of liquidity into the market, the Bank of England aimed to slake investors' thirst for cash and stop the fire sales that were driving up interest rates. And it succeeded. As a by-product of this action, the UK Government regained access to short-term market funding. But Bailey insists that ensuring the Government could fund itself was not the primary target. Regaining control of interest rates was. 
The market meltdown in March also affected banks. It's a measure of how far we have come since 2008 that Conway & Co made nothing of the fact that the Bank of England had to provide emergency liquidity support to banks. Keeping banks afloat when markets are melting down is all in a day's work for a central bank, these days. Nothing to look at at all. But if a central bank provides emergency liquidity support to a government struggling to raise short-term cash when markets are melting down, that means the government is bust, the central bank is captive and the country is Venezuela? How utterly absurd. 
I found the interviewers' constant focus on government financing a serious distraction from what was an important story about the Bank's vital responsibility for ensuring the smooth operation of financial markets. When financial markets melt down as they did in 2008, the whole world suffers. Central banks saw the same thing happening again in March 2020, and acted to stop it. And their action was extremely effective. It seemed to me that this was the story Bailey really wanted to tell, but the interviewers were intent on pushing him towards the issue of monetary financing and the Bank's independence. Sajid Javid, in particular, seemed to want Bailey to paint the Chancellor's handling of the crisis as irresponsible and profligate. Which genius at Sky News thought it was a good idea for the Chancellor who was forced out of his job without ever producing a Budget to discuss the performance of his successor with the Governor of the Bank of England?
Finally, it is extremely unfortunate that none of the media reports highlighted Bailey's strong endorsement of the Government's exceptional measures to support people through this crisis:

It's entirely necessary that the state has to step in at this point. In a shock of this nature, you can't leave it to individual citizens to find their way through it, "well, good luck" sort of thing. The state has to assert its role at this point, which it did. It wasn't easy, but it did it. 

Fiscal policy is pre-eminent. The Bank of England's job is to ensure the smooth functioning of markets and keep the economy as stable as possible so that the Government can support people through this crisis. And that is what it is doing - successfully. This, not "Britain nearly went bust", is what should be on the front page of every newspaper. 
Related reading:
Pandemic economics and the role of central banksThe End of Britain?

Ten things to know about CMHC’s Insured Mortgage Purchase Program

Published by Anonymous (not verified) on Tue, 07/04/2020 - 5:42am in

In March 2020, the Trudeau government launched a new version of the Insured Mortgage Purchase Program (IMPP). According to CMHC’s website: “Under this program, the government will purchase up to $50 billion of insured mortgage pools through CMHC.”

Here are 10 things to know:

1. Canada Mortgage and Housing Corporation (CMHC) is a federally-owned crown corporation. Many of us know CMHC as the federal agency that works with provincial and territorial governments to assist some low and moderate income households with rental housing. Likewise, some of us know CMHC as the lead federal agency on Canada’s National Housing Strategy (geared mostly to renters).

2. CMHC has been acting as a publicly-owned insurance company for residential mortgages since 1954. Indeed, in addition to assisting some renter households, CMHC also offers to insure mortgages with high loan-to-value ratios.[1] In other words, it tells the banks and other financial institutions: “If you are willing to provide a mortgage to this prospective homeowner, we’ll make sure you don’t incur any losses if they ever end up in default.”

3. The Superintendent of Financial Institutions (OSFI) regulates the banks to make sure they don’t engage in overly risky activity. Banks (and other financial institutions) sometimes like to get aggressive in their lending, so OSFI says they can’t make mortgage loans with less than a 20% down payment unless the mortgage is insured. CMHC provides such mortgage insurance, and premiums are paid by qualifying homeowners.

4. Most of Canada’s formal financial institutions are currently eligible to have their mortgages insured by CMHC.[2] Indeed, CMHC’s insurance program is not available to all lenders, but it does apply to all major mortgage issuers.[3] Mortgages that do not have CMHC insurance include mortgages with larger down payments and mortgages issued by some of Canada’s newer mortgage lenders.

5. Without CMHC’s insurance program (or equivalent) prospective homeowners would typically need at least a 20% down payment in order to purchase a home.[4] That would make it more challenging for many Canadians to buy a home for the first time. So without this insurance program in place, rental vacancy rates in Canada would likely be even lower than they are today (and this would be bad news for renters and prospective renters).

6. If an approved lender (namely, a bank, trust company, or credit union) makes a mortgage loan, CMHC will issue an insurance policy on that mortgage. The down payment can be anywhere from 5% to 20% of the value of the home. And if there’s a default, CMHC pays the bank. With this insurance program, a mortgage with a high loan-to-value ratio all of a sudden becomes a very good investment for the bank—that is, what once looked like a high-risk loan is now a low-risk loan. CMHC insurance therefore makes mortgage lending attractive for banks.

7. Homeowners then have to pay the premiums. For a loan-to-value ratio up to 80%, the premium is 2.4%. For a loan-to-value ratio between 80.1% and 90%, the premium is 3.1%. And for a loan-to-value ratio of between 90.1% and 95%, the premium is 4%. That’s the premium paid by qualifying homeowners, as a lump sum, when they take out the mortgage. Premiums go to CMHC’s publicly-owned insurance program. CMHC takes the premiums and invests them in stocks and bonds. When the time comes to cover claims on insurance, they can use the pool they built up to pay the claims.

8. With our looming recession, some homeowners will likely default on their mortgages. Knowing this, banks and other lenders have been looking at the state of all their loans (in fact, they must do so according to federal regulations).[5] And they need to be setting aside reserves against those possible defaults. Some banks are starting to think about calling in (i.e., cancelling) their loans and/or not issuing new loans. To avert such a crisis—known as a liquidity crisis—the Government of Canada is essentially injecting money into the financial system so that banks and other lenders don’t have to call in loans and stop issuing new loans (which would make matters worse for Canada’s economy). The Government of Canada is giving CMHC money to buy existing mortgages (all of which are insured by CMHC, and are therefore safe for the government to buy). When banks sell these mortgages to CMHC, banks get cash in return, which they can use to then make new loans (including new mortgage loans).

9. With the recently-announced IMPP, CMHC is offering to bulk purchase insured loans. CMHC effectively becomes a bulk purchaser of insured loans, bundled as mortgage-backed securities. CMHC has offered to buy back as many as financial institutions want to sell to them, up to the $50 billion threshold (an amount that has since been expanded to $150 billion). Homeowners will see no difference in the day-to-day. Once each mortgage term ends (they’re typically five-year term mortgages) homeowners will have to renew their mortgages with lenders.

10. A buy-back on this scale has only taken place once before. As is noted elsewhere: “Between fall 2008 and the end of 2010, CMHC purchased $69 billion of mortgages” via a previous iteration of this same program, in the immediate aftermath of the 2008-09 world financial crisis.

In sum. With the IMPP, the Government of Canada has likely helped prevent a financial crisis, which would have made our looming recession even worse. (For a concise overview of Canada’s housing finance system, see Chapter 4 of the Canadian Housing Observer 2014.)

I wish to thank the following individuals for assistance with this blog post: George Fallis, Susan Falvo, Marc Lee, David Macdonald, Marc-André Pigeon, David Pringle, Saul Schwartz, John Smithin, Tsur Somerville and two anonymous sources. Any errors are mine.

[1] A few caveats are in order here. First, CMHC also insures mortgages in rural areas that have low loan-to-value ratios (otherwise, the lender might refuse to issue a mortgage). Second, there are two other insurers of residential mortgages in Canada, in addition to CMHC. They are Genworth and AIG.

[2] And also by Genworth and AIG.

[3] Any lender or mortgage broker can apply to be an NHA-Approved Lender, and must then comply with CMHC underwriting standards—and if they don’t, they risk losing the approved lender status.

[4] Alternatively, they might provide another guarantee for the lender.

[5] OSFI sets requirements for reserves, based on risk-weighting criteria.