Initially published in December 2020.
This week on Voices of Capital:
- The Economist deepens its new-found love of crisis spending,
- The Financial Times worries about debt and capital markets, and
- The Wall Street Journal gets hyped about vaccines and stocks.
Welcome to Voices of Capital, Volume II.
In the Economist this week, the biggest risk of managing the economic fallouts of the health measures taken to tackle coronavirus is for governments to under-spend (“The right kind of discipline“, November 28). This stands in some contrast to the Economist‘s advocacy of austerity, or spending cuts, in years following the financial crisis, even after the IMF declared that austerity was empirically bankrupt. Perhaps the Economist has learned the failures of, say, the sluggish growth of the both debt- and austerity-ridden UK economy. Without boosting consumer demand, as Martin Wolf in the Financial Times, governments risk falling into the trap of letting the dire state of the economy worsen further, as businesses continue to collapse and jobs dry up (‘Weak demand would derail Britain’s economic comeback‘, November 29). There is the rather dark possibility, however, that the stimulus packages we are seeing unfolding across major economies will dry up, and will be replaced by a new round of austerity. In the UK context, the Economist finds this a likely possibility as popular Chancellor of the Exchequer Rishi Sunak pivots from his pragmatic endorsement of fiscal stimulus to his ideological commitment to Thatcherism, and the tightening of the public pursue that this entails (‘Rishi Sunak, Thatcherite at heart‘, November 28).
In the Financial Times this week, debt is the name of the game. This is ironic, since the Economist has since the financial crisis seemed to be the most worried about the constraints government debt imposes on state spending, although it has recently moderated this position in the light of the sheer magnitude of the coronavirus economic crisis and the demands this places on the state to intervene to save the market economy. But public debt is not the principal occupation of the Financial Times this week. Private debt is.
Financial debt in particular is a worry for the editorial board (‘China edges towards greater financial discipline‘, November 30). Given China’s high debt-to-GDP ratio (reaching 335% in June), the editors are placid about the risks posed by rather large-scale defaults in recent months in the Chinese bond market (a market worth $15 trillion). China’s ease of assuming high credit ratings to bonds makes the market less trustworthy for investors than ideal. To rectify this problem, the editors prescribe the medicine of governance reform. But without less authoritarian political structures, can China’s economic structures be made less state-centric?
The Economist suggests not. The Chinese regime, the paper reasons, places ‘patriotism’ before ‘profit’ (‘The first lesson of doing business in China‘, November 28). Development is more ‘state-led’ than ‘market-led’ in China, as shown by corporations’ placing political before economic imperative. The needs of the party and polity precede the market economy.
But what are the political needs of the Chinese state? Principally, the state must survive. It must do so through defending itself militarily. This explains why economic strength has, as realists like Chicago’s Professor John J. Mearsheimer predicted, been translated into military might (The Tragedy of Great Power Politics, 2001/2014). China views money principally as a means towards acquiring power, rather than the other way around. For this contrast to old, western states in North America and Europe must follow a different rule, with a priority for money over power.
In the New Statesman, Cambridge’s Professor Helen Thompson gives good reason for doubting such liberal claims (‘Mourning a phantom‘, May 5, 2019). Power still has an important role in upholding the market system, as shown by America’s wielding of sanctions to get its way, and by the use of capital flight by international markets to intimidate smaller states into submission. Trade sanctions and capital flight are applications of coercive power to the international system. They are, tellingly, uses of power through money. It is the risk of losing money due to sanctions and capital flight that may compel smaller states to adhere to the will of larger states, which in turn are subject to funding constraints imposed by their own domestic political systems. In American democracy, political ‘influence’ is significantly produced by economic ‘affluence’, as statistian Martin Gilens has argued (Affluence and Influence, 2012). If money rules the world, it rules through power: through the use of punishments and rewards to satisfy certain interests over others. Power is a weapon of money, first and foremost.
In China, the picture is the other way around. Money is a weapon of power. Money and power feed into each other in both the West and in China, but, while money is the chief concern in market-led America, power is the chief concern in power-led China. The contest between America and China thus reveals itself to be a contest over the future of capitalism: what is to rule the capitalist marriage of money and power–the money of the market, or the power of the state? The question of democratic versus autocratic capitalism is a question of rule by money (in a democracy) or rule by power (in an autocracy). The similarities are more important than the differences: money and power will rule in both contexts. But which will dominate? That’s the question the great contest of the twentieth century, between America and China, will perhaps decide.
In the Wall Street Journal this week, political questions such as the US-China relationship are sidelined in favour technical questions concerning the stock market and vaccines. The Wall Street Journal rejoices over the ‘November market rally’, with the S&P 500 up 11% and the Dow Jones Industrial Average ‘topp[ing] 30000 for the first time last week’ (‘The Stock Market’s Rally Is Finally Widening‘, November 30). An important reason for this optimism is the prospect of a vaccine being introduced earlier than initially anticipated (‘Moderna to Ask Health Regulators to Authorise Its Covid-19 Vaccine‘, November 30), thereby shortening the period of restrictions on the economy in service of the political aim of safeguarding public health. Meanwhile, in a column entitled ‘Capital Journal’, Gerald F. Seib recalls the ‘rule of thumb in Washington’ that ‘when a president is hemmed in by Congress and domestic political constraints, he still can find freedom of action on the international stage’ (‘Here’s Where Biden Will Face Early Foreign-Policy Decisions‘, November 30). From climate change to the US-China relationship, the Biden presidency may well fast become a foreign policy-oriented one.
The hot topic of the week is the likely role of Janet Yellen as the new US Treasury Secretary appointee in the incoming Biden administration. The Financial Times views Yellen as a pragmatist, willing not only to do whatever is necessary to safeguard economic growth but also to balance the interests of capital and labour, following her years as a labour economist and then as Chair of the Federal Reserve, unwilling to raise interest rates too high, too soon (‘Janet Yellen‘, November 27). Perhaps Yellen will fight for fiscal stimulus as Treasury Secretary. There are two problems with this rosey-eyed view. First, Yellen will have somewhat limited power as Treasury Secretary when it comes to passing a stimulus which requires congressional backing. Second, as the Economist points out, Yellen’s pragmatism means the reputable economist can come across as ‘something for everyone‘ (November 28), across the political spectrum.
Will Yellen really fight for stimulus? Or will Yellen follow the Economist‘s projection of Sunak’s trajectory, pivoting from a pro-stimulus position to a pro-austerity position (or, at least, a position which concedes the need for austerity at some level in the federal system)? One comment of Yellen’s that suggests the latter scenario might be likely is the following: ‘the U.S. debt path is completely unsustainable under current tax and spending plans’ (“A conversation with former Fed Chair Janet Yellen“, February 4). Although this indicates that Yellen views public debt as a fairly strong constraint on public spending, the fact she said this before the financial meltdown of March muddies the waters on whether Yellen will or will not follow the model of Sunak’s present and projected spending acrobatics.
The Treasury Secretary has much less power in the US than the Chancellor of the Exchequer has in the UK. But American political economy is also undoubtedly the centrepiece of the world chess board of money and power. After the financial crisis, America did much more stimulus spending than Britain did, but both political systems allowed forms of austerity to hit the poorest in their societies in the coming years, paving the way for the populist moment of the late 2010s (Corbyn from 2015 to 2019, Brexit from 2016 onwards, Trump from 2016 to 2020 at least, and Sanders from 2016 to 2020). Now both countries have passed big spending packages in the light of coronavirus, though the crisis is much deeper this time. Will they both pivot from a pro-spending to a pro-austerity position in coming months and years? Only time will tell.
Although the Economist, the Financial Times, and the Wall Street Journal are ‘Anglo-American papers’, based in London and New York respectively, they cover global issues, too. In future issues of Voices of Capital, I will pay more attention to regions like mainland Europe, and emerging economies other than China. The US-China relationship is nonetheless the key to understanding the geopolitical economy of the twenty-first century. Why the focus on Britain? One reason is the arbitrary fact that I live there means that I consume news media, such as from the Economist and the Financial Times, that also focuses on British political economy.
Although its power is much diminished, it is worth bearing in mind that Britain used to play the role that America currently places, as anchor of the world economy. The US itself formed from British colonies on the east coast of North America. America and Britain even nearly went to war in the 1890s as America rose to challenge British dominance, and fears of Anglo-American conflict consequently dwarfed fears of Anglo-German conflict in the early years of the twentieth century. They were also the first states, with Thatcher and Reagan, to go down the neoliberal rode towards a renewal of market- over state-led economic development. Britain and America may not have a special relationship in political terms anymore. But they do have a special relationship of intellectual significance which is well-worth studying. This is not to include other, perhaps more, significant relations among states and other political actors, which shall also occupy my attention throughout this series of essays.
Thank you for reading Voices of Capital. Have a great week.
Edmund Wilson 