The name Godley had appeared in the title of an RWER post I linked to (The Premonitory Five) but I hadn’t had read anything he wrote at that point (a few days ago ;)). Well, today I have.
First, there’s Godley writing about the planned EMU in 1992, fifteen years before the crisis actually hit:
What happens if a whole country – a potential ‘region’ in a fully integrated community – suffers a structural setback? So long as it is a sovereign state, it can devalue its currency. It can then trade successfully at full employment provided its people accept the necessary cut in their real incomes. With an economic and monetary union, this recourse is obviously barred, and its prospect is grave indeed unless federal budgeting arrangements are made which fulfil a redistributive role. As was clearly recognised in the MacDougall Report which was published in 1977, there has to be a quid pro quo for giving up the devaluation option in the form of fiscal redistribution. Some writers (such as Samuel Brittan and Sir Douglas Hague) have seriously suggested that EMU, by abolishing the balance of payments problem in its present form, would indeed abolish the problem, where it exists, of persistent failure to compete successfully in world markets. But as Professor Martin Feldstein pointed out in a major article in the Economist (13 June), this argument is very dangerously mistaken. If a country or region has no power to devalue, and if it is not the beneficiary of a system of fiscal equalisation, then there is nothing to stop it suffering a process of cumulative and terminal decline leading, in the end, to emigration as the only alternative to poverty or starvation. I sympathise with the position of those (like Margaret Thatcher) who, faced with the loss of sovereignty, wish to get off the EMU train altogether. I also sympathise with those who seek integration under the jurisdiction of some kind of federal constitution with a federal budget very much larger than that of the Community budget. What I find totally baffling is the position of those who are aiming for economic and monetary union without the creation of new political institutions (apart from a new central bank), and who raise their hands in horror at the words ‘federal’ or ‘federalism’. This is the position currently adopted by the Government and by most of those who take part in the public discussion.
And a position, I might add, that’s currently held by the German government and quite a bit of the German political scene.
And in 2000, seven years before the onset of the crisis, he outlined the scenario that would eventually set off the crisis in the US when private debt became too large, under the appropriate title What if they start savin again?:
If private net saving were to recover over the next few years to the level which is normal in other countries, and which was normal in the US until fairly recently, the results would be horrendous. With private expenditure falling by 5-10 per cent relative to income, there would hardly be any growth at all for some years, and if the unravelling took place as quickly as it did in the UK, there would be a severe recession with grave consequences for the rest of the world. The budget surplus would disappear. And it is easy to imagine, with a recession or even a prolonged stagnation, that there would a large fall in the stock market, which would make matters infinitely worse.
It’s important to have this kind of historical perspective because the architects of the current depression, the neoliberals whose aim is to reduce the state, the reduce social safety nets, to increase profits, and ultimately to disable democracy, those architects continue you to tell you that the crisis could not have been predicted and that now that it’s here, theirs are the best ways to solve it. Which means that they either still don’t understand the crisis, i.e. they’re incompetent, or they’re malicious. In either case, they should not be listened to and any politician who parrots and follows their advice should not be in power. In Germany, this currently includes the majority of all five parties in parliament – the only ones that do not parrot neoliberal lines are unfortunately the neo-nazis.
As an aside, the UK has for years been made out to be the bogeyman for not having joined the EMU but being part of the EU, a stance viewed by many (including me) as parasitic. So it’s fascinating for me to discover nowadays that they were entirely correct in their decision.
It’s even more fascinating to me, however, to see that despite the UK government not having to adhere to the arbitrary 3%/60% corset that constrains EMU nations, they still decide to go full budget-terrorist, which has delivered them the third quarter of negative economic growth in a row, i.e. the UK economy is clearly in a recession.
There was some vague hope that the Olympic games would help boost the economy, a hope that was largely misplaced, as Professor Jo Swinnen at KU Leuven laid out in a presentation related to “Who’s to gain from the Olympic games?” by the UK ambassador to Belgium (downloadable here). Amazingly enough, though, the UK government should have been very much aware what would help in the recovery since they produced a video in which it is clearly spelled out that infrastructure investments by the government ahead of the Olympics were a boost (statement at 1:15):
So also outside the EMU holds: either the decision makers are incompetent or malicious – in either case they should not be allowed to decide anymore.
Bill Mitchell discusses the same issue much better than I can today.