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Crony Capitalism - Crony Economic Growth

Economics / Economic Theory May 30, 2014 - 02:58 PM GMT

By: Andrew_McKillop

Economics

Tuesday Markets and IMF Forecasts
Almost any Tuesday, financial markets are up. Yes it happens but no, the “Tuesday blip” is pure market manipulation and nothing whatsoever to do with the real economy. Likewise any IMF forecast of economic growth, for any country in the world is always revised down from the previous forecast, but always shows a magnificent recovery “coming soon”.


Tweaking Tuesdays and the IMF's eternal V-shaped recoveries are merely comfort and reassurance therapy for the small coterie of political and financial elites. Nobody except the True Believers has to believe. The fake growth forecasts run alongside the right price of gold at about $1075 an ounce and oil at let's say $120 a barrel. To find out the right price, telephone Goldman Sachs or visit their web site. There is no need to look at the markets.  Above all, none of this is real!

Some economists like the veteran US economist Robert Gordon, the “father of the blip economy” say that supposed ikons of economic progress and growth, like the computer and IT revolution, were almost non-events in terms of economic growth. The IT revolution probably destroyed as many jobs as it created and was possibly a major factor in the now 30-year trend of declining economic growth in the developed countries, and the 6 – 10 year trend of falling growth in emerging economies.

Since the 2008 crisis, falling growth is endemic and hard to talk around. This crisis sped up and “crowned” the long downturn in world economic growth. Only in IMF theory, does this mean that “automatic” catch-up mechanisms and processes - and of course QE - will soon accelerate growth after the “surprise decline”.

The exact opposite is much more likely. Whereas economic growth in the emerging economies was supposed to play Asian Locomotive for the flagging economies of the developed countries, and did not, the accelerated decline of the developed countries will drag down the emerging economies, and is already doing so. This is a fact.

Other uncomfortable facts abound. The Blip Economy of Robert Gordon was a long-term process that he estimates as possibly spanning as much as 100 years from about 1880 to 1980. During that long boom it was possible to have periods during which annual GDP growth of today's “mature economies” was 4% or 5% but this was abnormal. It was driven by one-time changes of technology, industry, society and demographics. Gordon singles out real game changers such as piped water, electricity and reliable heating in every home, widespread education, and women entering the labour force. The totally different set of social goals, political values and ways of running the economy, following World War II when Keynesianism “seemed like it might work”, prolonged the growth blip - but not forever.

Reversing The Paradigms
Gordon takes no sides in any arguments about what we can call the social economy and its politics but we can argue that since the 1980s, as economic growth tailed down this triggered  an epic mutation and transformation of society and politics – intensifying the economic decline. Today its called crony government and crony capitalism. Crony growth fits this paradigm like a hand fits a glove.

Falsifying economic outlooks becomes normal and hard-wired as the political economy goes out of focus, leading to a mix and mingle of antinomic paradigms bleated by the glove puppet media. For example budget deficits will regretfully remain high, or may even increase, despite austerity. They may increase – in fact – because of austerity, and not despite it. Austerity on one hand, and QE for the banksters on the other hand, is antinomic. Falling wages and salaries can only decrease household revenues and spending. The QE becomes a sombre menace of massive inflation “over the horizon”. To prevent the hyperinflation menace, more money must be printed. You like the logic?

Higher energy prices – to protect the planet or simply to give fatter profits to big energy – can only lead to lower energy consumption. The higher price of energy will cause further declines in disposable revenues of average households, declining employment in energy intensive industries, and so on.

Crony growth – deliberately overestimating growth – means that government budget deficits will tend to come in higher, not lower than forecast, and for crony government this means there must be additional austerity. The increased austerity will then further depress economic growth and aggravate the budget deficit problem. Investment based on crony growth will be oversized and unadapted to the real outcome. One key example is the very short-lived Green Energy boom of about 2007-2012, shorter in some countries, which has collapsed and imploded on itself. Germany's once-vaunted solar energy industry – which was once the world's largest – lost 50% of its total employment in the 12 months of 2012-2013. The boom-slump was ultra rapid.

There is no need to prolong the list of economic disasters resulting from false economic paradigms, the real question is to understand how this happened and how it might be remediated. 

Crony Culture
Whatever the reasons for so-called “neoliberal revolution” at the start of the 1980s – possibly an instinctive politicized premonition of falling growth and economic decline coming -  this would-be revolution itself accelerated the economic decline. For example, the cult of lower wages and longer working hours to reduce labour costs could only decrease household incomes. So-called “labour market rigidities” then accelerated the outward migration of labour-intensive industries from the developed countries, and the inward migration of job-seekers from poor countries to the developed countries. The cheap labour influx further depressed labour costs and disposable incomes, and raised unemployment in economies whose rate of economic growth was declining. Only in the case – the theoretical case – of economic growth increasing could the luxury of importing more labour be rationalized. Instead, downstream social impacts include racism, de facto community segregation, and the lure of Islamic and other terrorism for the leftover and abandoned descendants of 1980s-era New Immigrants.

All these problems – economic, social, political, racial – were splendidly ignored by a whole generation of political leaders in the developed countries. They were literally out to lunch – a paid lunch.

Even this fantastic disconnect with reality, flippancy pushed to extremes, could however be rationalized by the elites. They had a paradigm for being out to lunch, called “the self-regulating economy”. This was the mirror-opposite of “the sovietized economy”. Nothing in between these two ultimate extremes was allowed into the paradigm! That was creative thinking, no?

Worse still, society was imagined to be a self-regulating side product of the self-regulating economy. Any problems in society are only due to “the economy”. Because this is self-regulating, any social problem will disappear “sooner or later”. Back to the lunch table and maybe a game of golf! When reality peeps in, and then roars in, the only possible reaction of the crony elites is panic. This permanent panic response is what we have today. Guess if it will be good for the economy?

Crony Democracy
Probably the biggest collateral victim of the process since the early 1980s has been democracy. This no longer has any real meaning in the “mature democracies”. Democracy is now “the protest vote”, just a howl of protest.

The disconnect of the political elites with their “voting masses” is extreme, inevitably leading to so-called shocks and surprises. The most recent, in Europe, were the May 23-25 European elections which basically showed there are few really representative, credible and legitimate governments in place, in a large number of European countries today. Election results also showed that people vote in European elections – to show they dislike and disapprove, of Europe! This is the only way they are able to do it, because democracy has failed.

Combining the economy which shrinks with democracy which fails – insofar as we have any historical precedents – should lead to political explosion. Here again however, there are problems due to tried-and-failed remedies such as Communism being unlikely or impossible today. Just as unlikely, making a simple “trends continued” forecast only signals total economic collapse and therefore total social collapse, it is only a question of which comes first.

Spontaneous democratic revival may be possible, and might be happening under cover of “the protest vote”. The so-called sustainability and solidarity model, both economic and social, may be emerging. The operation of “instant democracy”, as in the world's now well-proven Flash Mob uprisings will certainly spread, and with it repression. In turn, the repression will trigger counter-repression in a well-known historical process. For politicians, the return of political assassination may not be impossible but for the crony democrats their fantastic lack of credibility helps protect them – they are simply not worth assassinating!

Also historically proven, shock or surprise events will play a major role. Forecasting “tail-end hypotheses”, that is statistical flukes, is either hard or impossible making it necessary to cover a huge range and number of theoretical possibilities.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2014 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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