Losing an argument ...

Losing an argument is not the same as winning one. Albeit in different ways, commentators on the European scene agree, both Greece and France show that the argument for austerity has now been lost. Certainly the three European countries which went for the austerity shtick in abundance, Britain, Spain and Ireland, have more debts than they started with and are bouncing in and out of recession - with ultra sluggish private sectors and vast, tottering banks.

The response to the new mood music is the growing roster of central bankers of Europe dusting off old Keynsian plans for government infrastructure projects, nailing all the bad debts into a super 'bad bank' and shouting as though they had always thought it  - 'let's get on with growth!'

If only. If only it could be done. In the 1930s the US 'lost' a third of its production. Under the horror story of the Yeltsin regime, Russia contracted by 34% between 1991 and '95. There is still a big argument about whether these economies recovered because of a vast expansion of government spending, whether Keynsianism really works. But even if it played some role in those two most dramatic of crises, it notably failed in Japan in its 10 year downturn (now in its 15th year) and it won't work for Europe in particular and the West in general today.

In fact in Britain both the Labour Government and the Tory led coalition desperately tried Keynsianism. They called it quantitative easing. QE has now reached a total spend by the Bank of England of £325bn. What is the balance sheet?  The economy is still 4% smaller than it was before the crisis yet prices have increased 15% in those four years, a far greater increase than anywhere else in the G7 countries, for much less growth. Meanwhile incomes for the general population are still dropping like a stone.

The US too has injected enormous amounts of cash into its ailing economy - well over a $1.5 trillion. The new jobs that are being created are part time, minimum wage and short term contracts. So where is the extra cash going? To the banks. (You remember how the danger was that the banks were too big to fail?) The 10 largest US banks just got bigger. They now report aggregate total assets of $10.74 trillion - a massive expansion in their size.

The theory that more money in the system would mean that the banks would be able to fuel a new surge of growth is in tatters. Big business in Britain is ALREADY sitting on £750 billion in capital it can't or won't invest. It doesn't need loans. And here we reach the heart of western capitalism's conundrum today. And why Keynes just ain't going to do it for us.

On the one hand, we are told, the cost (including welfare etc) and regulation of labour in the west is the competitive disaster which underpins our decline. On the other hand only the rapid rise in the living standards by the mass of the people creates the demand and consumption that requires new machinery, new plant and new technologies.

How do we get out of it? First off nobody can deny that there is a huge amount of potential work to be done - even in the relatively advanced economies. A good part of that work is righting some of the awful mistakes that capitalism has already inflicted on the planet. Governments can spend to get that going. But the real problem is the private sector. They are actually almost the entire opposite of how they are painted. They hang onto huge stores of capital. They are not dynamic, resourceful, enterprising or particularly bright. They follow each other in herds searching out the quickest way to make more money.

Growth, real, rational growth (not another five brands of beauty serum or pet socks) depends utterly on removing the private control of big capital and all of the enormous edifice of government, of central banks, of time and effort by thousands of people who need a break from doing what their dads and their schools decided for them. Instead a truly civilised, grown up society would decide its key priorities and then go for them. Then we could all vote about something that really mattered.