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In-between before and after

Robin McAlpine – 24th March 2022

The old world is dead. The new world isn’t born. We live between these times. This might sound like something lefties say all the time (in fact it’s very close to the well-known quote by Antonio Gramsci), but when it comes to the global economy you’ll find it quite hard to get anyone to disagree with that statement.

The short version of this is that every-so-often throughout history there comes a rupture where we move from one approach to doing things to another. The last 100 years have already seen two of these and it is almost certain we are sitting on the cusp of the third. Which direction the new takes will define our lives for years to come.

This is not really about the war in Ukraine, though clearly that seems certain to bring big geopolitical change. It isn’t even really about the pandemic, though that is shining a light on what was already happening. And it’s not about new technologies, though they are clearly tied up with it. This is really about the banking crisis of 2007 and what it told us about the economy.

For example, before 2007 it was almost universally agreed among mainstream economists that central banks couldn’t just go around creating new money without dire consequences. But the overnight invention of ‘quantitative easing’ turned that all upside down overnight. Suddenly central banks couldn’t create enough new money fast enough.

Rounds of quantitative easing have been with us since and were very heavily relied on during the pandemic. In 2007 this was called ‘unconventional monetary policy’ but by 2021 it looked very conventional indeed. But as inflation rises in ways we haven’t seen for a generation, a fairly consistent new consensus is emerging that there are very clear limits to these new monetary policies.

But the inflation isn’t really because of money creation but because of supply chains. This is another massive shift; even five years ago you’d struggle to get anyone to really admit that supply chains could be vulnerable. The idea of ‘just in time’ supply chains is so embedded in the modern economy that it was almost unthinkable that they could break down.

This was a mistake. When people say that global supply chains are a marvel of modern technology (which they are) it is really just another way of saying ‘they’re incredibly complex and interdependent and if anything does go wrong…’.

In fact three years ago when Common Weal raised concerns about the vulnerability of supply chains as part of the Our Common Home plan it was mocked by some and the idea of ‘resilience’ or greater self-sufficiency was simply not part of any political discussion. Now? Every nation on the planet is looking urgently at resilience and over-reliance on imports.

As little as 15 years ago it would have been impossible to persuade most economists that we would very soon be using direct injections of government money to artificially inflate the value of assets (most of which are owned by the very wealthy). This would have been seen as gross market distortion and incompatible with an open global economy.

And yet now it is almost universally accepted that most asset values are being sustained not by free market interventions but by central bank (and wider political) interventions. After the financial crisis it was quietly accepted that share values would no longer be based on the market position of the businesses concerned but on the speculative value of those assets.

The rise and fall of cryptocurrencies is even more rapid than this. In early 2009 there was no such thing as Bitcoin and when it arrived it was seen by some as a possible challenge to the global economic world order, a kind of libertarian dream of money not regulated by any government.

And yes, that created the outcome that it sounds like it would create – a giant Ponzi scheme in which misinformation campaigns are allowing a few grifters to make seriously big business out of persuading others to join ‘the crypto revolution’ because that inflates their own crypto holdings.

That era is already coming to an end. Inevitably central banks saw crypto and didn’t like it. That gave rise to the rapid development of so-called CBDCs (Central Bank Digital Currencies). These are a bit like Bitcoin but created by a central bank and linked to a real-world currency.

It is here that we reach the fork in the road where it is clear that what came before is coming to an end but where we can’t see what comes next.

Because CBDCs can be a good thing. They are at least partly democratically accountable in a way Bitcoin isn’t and they are capable of having genuinely positive impacts on the economy and society. But at the same time they are a gift to anyone interested in state surveillance. If you use a CBDC then the government can trace every penny you spend, where you spend it, where that person spends it.

More worrying still, a central bank can decide where you do and don’t spend your money – they can just cut groups (either side) off from being able to use money they have. It is like the ability for government to nail closed the doors of certain shops to certain customers.

This is the point. The two periods in the last 100 years where the economy shot off in a different political direction had clear political shifts. In the 1930s the Wall Street Crash and the Great Depression required a massive and radical response and it led to the New Deal and to the stable, welfare-minded economic order that dominated until the 1980s.

Then in the 1970s there was a series of shocks (the end of the ‘Bretton Woods’ model, the oil crisis, an under-investment crisis in industry) that led directly to Thatcherism and Reaganomics which created the neoliberal economic order we have lived through since.

One of these represented a sharp shift to the left, the other a sharp shift to the right. Right now we are watching something that looks much more like an uncertain shift into chaos. Whatever you think of each, the Keynesian concepts that created the New Deal and the work of Milton Friedman on which neoliberalism was modelled were economic theories that predated the crises they were used to address.

That is not what is happening now. Frankly 40 years of neoliberalism has created a dangerous mix of chaos and certainty, a market system that is permanently vulnerable yet a ‘religion of economics’ which believed wholeheartedly that this was a perfect system which would never fail and so lead to ‘the end of history’. 

In an era with next to no alternative economics, there are no new tools at hand to pick up and use in this sudden era of perma-crisis. And so we are very straightforwardly making it up as we go along.

Something breaks and then anything possible is done to try and patch it up. Then something else breaks… No-one in 2007 would have argued for massive money-printing so rich people could buy each other’s assets to make it look like a broken system wasn’t really broken. And yet that is what happened anyway.

There are great threats in all of this, but also great opportunities. In any other period the smart money would be on a clear swing back to the left. The financial crisis, the environmental crisis, the geopolitical crises – these would traditionally have been viewed as best tackled through the kind of collectivism the left prioritises. 

But the political left has been so weak, so coopted and so hollowed-out over the last 40 years (thanks Mr Blair and Mr Clinton) that there was no real new thinking. And over the same period the academic and intellectual left was disastrously willing to give up on big, collective social solutions as it got sucked into the dangerous dead end of individualism and identity politics.

This all means that we really are in the middle of the most enormous transition in our economy but we are navigating it with a set of economic tools that were created by a group of people who fundamentally did not believe that the economy required any intervention because a perfect, self-regulating system had been achieved.

So the fight is not lost for those who hope we can turn now from the hyper-consumerism and dangerous financial risk-taking of the modern economy in time to save the planet from the environmental crisis that consumerism has caused. But the window for fighting that fight is closing fast.

5 thoughts on “In-between before and after”

  1. An interesting article but with a very jaundiced view of the crypto industry, which will transform the world in the coming years. Bitcoin was the leader OK, but i’s only utility is as a store of value – it’s way to inefficient to be used as a payment system. The “altcoins” (i.e not bitcoin) are providing real-world solutions to real-world problems; they’re in their infancy at the moment but as widescale adoption occurs, their values will stabilise. They are by nature deflationary, as they all have a finite quantity and a tiny part of each coin is “burnt” when it is used to provide it’s utility.

    Ripple Labs’ distributed ledger looks set to provide the bridge between any FIAT currency and any other directly, in around 3 seconds and at a cost of 1c. Their ledger will also bridge the CBDCs, with their supranational native token XRP replacing the € as the means of exchange. Add in the fact that crypto enables peer-to-peer payments directly between end-users wallets, bypassing the traditional banking system altogether, and you can see where the crypto industry will be transformational in a good way.

    1. Robin McAlpine

      Ah, crypto – a subject on which people tend to fall into two camps, one of which is ‘no real knowledge at all’ or ‘strong views’… Here’s the thing; I’m of a reasonably libertarian bent on many things and it’s not that the IDEA of crypto isn’t attractive. No actually is its potential. And what it has done is pioneer a new form of how to manage data and authentication. In theory there are lots of ways that crypto could be genuinely transformational. But there are two major problems. The first is ‘unregulated’ and the second is ‘profitable’. Bitcoin arrives and offers a great new hope, but it is mostly on the fringes. Then it lasts long enough people make money out of it, and so then the serious money comes in and distorts Bitcoin (it really kind of is a Ponzi scheme now where if people aren’t buying into it those who are already there lose the value of their holdings). So Ethereum appears with a pitch to be a bit more like what Bitcoin should have been – until it starts going up in value so the big money comes in, the Crypto-pushers start behaving like it is another Ponzi scheme. And so a slightly new approach arrives with the idea of ‘stablecoin’ – supposed to be a less volatile and so less exploitable system. So you get something like Tether – which is then marketed with precisely the same promises of Bitcoin and it goes the same way. And so on.

      And of course the big thing about crypto is that it can bypass the monopolistic trading models through which currency speculation takes place. Except then you get the rise of the crypto exchanges (many billions of dollars of crypto goes through these every day).

      The problem with crypto isn’t the concept, it’s the world and the economy in which it exists. There is no grift that isn’t seen as legitimate, no distortion that isn’t quietly permitted so long as someone is making a lot of money, no sharp trading (it’s the small investor who is at risk in crypto) which isn’t allowed, no marketing hyperbole which isn’t too much. We live in an economy of constant corruption and everything new is at permanent risk of corruption if it isn’t regulated and policed, and crypto is by definition not regulated and policed. We’ve been promised that crypto is about to change the world constantly for 15 years now and instead it keeps replicating the markets it is supposed to be transforming.

      I don’t really blame crypto in itself. It’s just the reality – Elon Musk buys crypto, punts it as the next big thing to his enormous number of followers, they buy it, the value goes up and he gets richer. Perhaps something might change that, but nothing I’ve seen persuades me that change is coming to crypto (not positive change anyway).


      1. Gordon Currie

        Robin, have a look at this as an example:

        https://www.vechain.org/whitepaper/#bit_65sv8 – I’ve seen it in action, scan a product’s QR code and you get it’s full provenance.

        Look at Section 5 – Use cases for real world examples, and Vechain is still nascent technology. It will eventually solve the supply chain problems bedeviling world trade at the moment

        Here’s an outline of how XRP / Ripple is shaping to be the reserve currency:

        The content states that it is designed for 1 XRP = €10,000. It’s currently €0.84c !


  2. Ian Davidson

    Good article. I have no clearer view than anybody else of what the “new future” will look and feel like; the “now” certainly feels chaotic and fast, too fast for my “single-tasking/leave me alone whilst I think about it” 60 year old neural connections to cope with. Current economics certainly is a “dismal science” so we need lots of positive paradigm shifts ( “miracles” in old money) to get out of this mess. The “i” today was reviewing the ethics/science around longer life, the 150 year old human! To this offer, I say “no thanks”. The one “equaliser” in our very unequal human world is that at least currently, health inequalities included, we all have a limited time in which to be good, bad or middling human beings. To change that existential reality might well be the ultimate human error to add to a very long list?!

  3. Seems to me that we aren’t going to break out of limbo land until there is popular understanding of what money is. Commodities such as gold or bitcoin (or any other “cryptocurrency”) are not money. Money is based on mutual obligations – credit/debt expressed in quantum terms in the metrics of one currency system or another. Currency is just a system of quantification of financial obligations just as there are different systems for quantifying distance or weight. Miles can be converted to kilometres and pounds converted to dollars, euros, yen etc. The “value” of cryptocurrencies are expressed in terms of one sovereign currency or another – they no independent basis for their value.

    Proponents of cryptocurrencies are just neo liberals in another form.

    Once the majority understand that money can only be created by sovereign governments and that bank credit, cryptocurrencies or other forms of local currency can only function under the umbrella of sovereign currency then we might start to get somewhere. There also needs to be a better understanding of how non-bank financial institutions, such as savings institutions and pension funds, function to re-cycle and distribute money in the economy. If we want to tackle poverty and social inequality we will need to reform the financial system. The state is not only the source of money creation but also the regulator of how money flows through the economy.

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