STOCK MARKET WATCH - Thursday, 26 January 2012

[Demeter]

64. Davos – an exercise in denial not solutions

http://bilbo.economicoutlook.net/blog/?p=17923

Most of the failed political leaders and their corporate mates are in Switzerland at the moment, presumably wining and dining in fine style and pontificating about what the rest of this need to do next. The sheer preposterousness of the World Economic Forum in Davos is astounding. There remains a denial by the leaders of what has to be done. They seem insistent that the failed neo-liberal paradigm should remain intact. Apparently, calls for reforms just reflect an unrealistic nostalgia for the past. It is apparently nostalgic (meaning nonsensical) for us to long for the days when nations delivered full employment, real wages growth in line with productivity, and declining inequality. This accusation of nostalgic longing is the way the elites are avoiding facing the facts that their economic model based upon self-regulating markets has failed and will never deliver on its promises. We need a new approach that recognises the capacities and options available to a currency-issuing national government. This is not a nostalgic longing for an unchanged world. Rather it is a realisation that the macroeconomic fundamentals of a currency-issuing national state have not changed, notwithstanding the challenges that globalisation presents.

In the middle of the 18th century, Davos began to offer medical services to the rich which aimed at providing cures for a number of illnesses, especially tuberculosis. For more than 100 years, the particular micro-climate up in the high valleys of Switzerland was seen to be an excellent environment for the recovery from urban-related (pollution-based) diseases. In the Second World War, even though Switzerland claimed itself to be neutral, German and Italian Nazis often gathered in Davos.
It seems that Davos is still keen to play host to anti-Democratic forces. In keeping with its traditions as a sanatorium, the founder of the WEF was quoted in the UK Guardian article (January 25, 2012) – Davos: a sanatorium for those in denial of capitalism’s ills – as saying:

Davos will be the sanatorium for the world for the next five days.

That would presume that the gathering at Davos had some answers. The reality is that the utterances that are coming out already suggest more of the same failed models. World leaders are entranced with neo-liberalism and until they become free of the rapture there will be no change of direction.

The journalist, Larry Elliot also noted that while everybody realises that the political solutions in Europe are failing:

What there isn’t, is a plan for getting out of the mess, or even much of a desire on the part of those doing very nicely out of the current system to start drafting one.

I would exclude Chicago economists from the collective “everybody”. They are in a world of their own and still believe the free market is working...

MASSIVE SCATHING DECONSTRUCTION OF NEOLIERALISM ECONOMICS ENSUES

There is nothing nostalgic about citizens demanding that their elected governments stop acting in the interests of the elites and instead ensure that the policy environment they create is consistent with broad prosperity. There is also nothing nostalgic about currency-issuing governments using their fiscal capacity to ensure that aggregate demand is sufficient to generate high levels of employment growth and broad provision of public goods.

Conclusion

In radio interviews (etc) that I give I stress the need for nations to return to the “new” normal. Households are now returning to their their previous behaviour – that is, they are now saving around 10 per cent of their disposable income (although this varies according to nations – for example, the ageing population in Japan will probably save less than that over time)...Given that every nation cannot run external surpluses (by definition) then this “new” normal will also require continuous budget deficits (of varying sizes relative to GDP) if nations are to achieve high levels of employment and stable growth.

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6 Responses to Davos – an exercise in denial not solutions
Neil Wilson says:
Thursday, January 26, 2012 at 18:48
“In keeping with its traditions as a sanatorium”

Where I come from ‘sanatorium’ refers to somewhere where you lock up the dangerously insane.

So it made me smile when they used that phrase.

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