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what’s the alternative? counter-cyclical action not cuts, obviously

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From Perry Anderson’s absolutely massive – and incredibly interesting – piece in the LRB on Lula this week:

When, midway through his second term its test came, he handled it with aplomb. The crash of Wall Street in 2008 might be a tsunami in the US, he declared, but in Brazil it would be no more than a ‘ripple’ – uma marolinha. The phrase was seized on by the press as proof of reckless economic ignorance and irresponsibility.

But he was as good as his word. Counter-cyclical action was prompt and effective. Despite falling tax revenues, social transfers were increased, reserve requirements were reduced, public investment went up and private consumption was supported. In overcoming the crisis, local banking practices helped. Tight controls, holding multipliers of the monetary base well below US levels, and greater transparency had left Brazilian banks in much better shape than those in the US, protecting the country from the worst of the financial fall-out. But it was concerted, vigorous state policy that pulled the economy round. Lula’s optimism was functional: told not to be afraid, Brazilians went out and consumed, and demand held up. By the second quarter of 2009, foreign capital was flowing back into the country, and by the end of the year the crisis was over. As Lula’s second mandate came to an end, the economy was posting more than 7 per cent growth, and nature itself was smiling on his rule, with the discovery of huge deposits of offshore oil.

The point of course is to increase consumer demand by increasing, not cutting, public spending in a crisis. Demand leads to growth, growth to jobs, jobs to more demand, more growth, whatever. Not all that complicated. As long as we’re going to be playing the capitalist game with its episodic crises, there’s only one way to handle the dips and it’s this one…. that is, the one we’re not doing.

Thus we’re on the streets…

UPDATE: Would love to hear what my few but treasured Brazilian readers think about the article as a whole, if they have time enough and interest to read it. And one particular point of idiosyncratic interest… Where can I find out more about the following?

In the arts, explosive forms continue to be produced, though they are now far more liable to neutralisation or degradation into entertainment: Paulo Lins’s novel Cidade de Deus reduced to cinematic pulp by an expert in television ads…

Written by adswithoutproducts

March 28, 2011 at 11:58 am

Posted in americas, crisis

10 Responses

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  1. “The point of course is to increase consumer demand by increasing, not cutting, public spending in a crisis.”

    Also: discover huge deposits of offshore oil.

    Giovanni

    March 28, 2011 at 11:16 pm

    • Well, that’s the standard NYT line on “petro-socialism” isn’t it? From what I understand, the oil discovery came too late in his term in office to make that sort of difference in this specific case.

      adswithoutproducts

      March 29, 2011 at 10:39 am

      • They did have a lot of oil to begin with, however, and raw materials up he wazoo (which is touched upon in Anderson’s piece). Meanwhile, what does Britain export outside of the gambling debts of its finance industry? Which is simply to say that not all countries are equally well placed to counter the cycle – indeed, one of the ‘successes’ of neoliberal reform is to make austerity the only available response and further entrench itself.

        Giovanni

        March 29, 2011 at 12:08 pm

      • Sure of course… I mean, the UK does have other “immaterial” (ugh) assets etc. It’s not as if tons of and $s aren’t still flowing into and around this place… But I’m pretty sure the broader point isn’t that Keynesian counter-cyclical actions aren’t possible except in resource rich nations. Is that the point that you’re trying to make? That ConDem austerity is in fact the only way forward for the UK?

        adswithoutproducts

        March 29, 2011 at 12:12 pm

  2. I am most certainly (and regrettably) not an economist, but my understanding of it is that some countries have very few Keynesian options, often largely because of the effects of neoliberal reforms. The money that Britain could have invested in counter-cyclical actions went into bailing out the financial sector. Its manufacturing sector has been decimated. It has relatively few primary resources. It’s still a rich nation (although its per capita GDP has taken a serious tumble) but it has fewer options than poorer ones – by which I mean social democratic options, outside of radical reform.

    (And obviously I wouldn’t characterise the ConDem solution as a way “forward”. More the next click of the revolver in a game of Russian roulette, perhaps.)

    Giovanni

    March 29, 2011 at 12:29 pm

    • Obviously there are deep structural issues playing out in the world economy as a whole and the national economies in different ways. And obviously resource rich nations have an easier time financing measures. Britain may be about to get poorer, has already as you say gotten poorer. But there’s a right way and a wrong way to do this. Taking another spin of the revolver (and redistributing more money upward while you do it) simply isn’t the sane let alone just way to do it.

      These major crises are basically always what Braudel called “switching crises,” wherein the infrastructure of capital relocates. But it doesn’t mean that there’s anything inevitable about how it is handled place to place.

      adswithoutproducts

      March 29, 2011 at 12:52 pm

  3. “Taking another spin of the revolver (and redistributing more money upward while you do it) simply isn’t the sane let alone just way to do it.”

    It all depends on whether you’re in fact allowed to leave the revolver on the table. Talk to Ireland.

    “These major crises are basically always what Braudel called “switching crises,” wherein the infrastructure of capital relocates. But it doesn’t mean that there’s anything inevitable about how it is handled place to place.”

    No, I didn’t mean to suggest that. But equally I think the very direct conclusion you draw in the post must be moderated by the observation that Britain and Brazil have vastly different economies. And ‘stimulating internal consumption’ is not something you can do forever either. Whenever it’s invoked it makes me worry that people might have an exaggerated sense of the extent in which capitalism can be managed.

    Giovanni

    March 29, 2011 at 1:00 pm

    • Right. Well so far the UK is not Ireland. There are other ways even to handle Ireland’s problems – talk for instance to Argentina. But we’re headed into a knot here.

      The original impetus of the post was simply the fact that measures like the Bolsa Familia are better modes of stimulating consumption (and all that comes of consumption) than, say, eliminating the 50 percent rate of tax on the rich (which seems to be happening here right now). The poor and middle who spend nearly all of their income will do a better job of spurring recovery than distributing what I’m sure the ConDems would label counter-cyclical stimulus to the very very rich, who’ll likely sit on whatever they get / offshore it etc….

      Or to put it another way: sure, stimulating consumption is difficult, but certainly no more difficult than massive tax cuts for the rich. (You notice in Anderson’s article that the BF cost 0.5 of GDP. Surely affordable anywhere, and a much better spur to jobs, growth, development and the like than anything else.

      And by the way, are you sure that you can’t “stimulate internal consumption” forever? The capitalist welfare state, social democracy, small and basic measures like, say, the Department of Agriculture organized food stamp system (helps poor mothers, helps US famers, now all but gone of course) were all permanent stimulus programs, drummed out by ideology not necessity, and certainly more sustainable than what we’ve got on our hands now.

      I have this small and somewhat Fabian sense that productivity increases, even given the disjunctions of global capitalism, could in fact enable us to manage all of this change. There are an incredible number of factors at play of course.

      Not optimistic that it will happen, but do believe that it could. And thus we fight, even if it’s unlikely we’ll win.

      adswithoutproducts

      March 29, 2011 at 1:20 pm

      • Fair enough. And you’re right, we got a bit knotty there. Plus there are many who hold the view that Britain can simply borrow its way out of the hole (case in point: http://johannhari.com/2011/03/29/the-biggest-lie-in-british-politics). We’re having a similar debate in New Zealand, under a much less savage Tory government they merely want to scratch and singe, as opposed to slash and burn – so far: household debt vs. government debt, that sort of thing. Plus, aggressively raising the minimum wage would be my first executive decision if they ever put me in charge of things. But once you’ve borrowed, you still have the problem of the money that comes into your economy versus the money that leaves your economy. And if your wealth creators are predator financiers, as opposed to manufacturers or farmers or mining companies, then you still have to deal with that. I’m not satisfied that the advocates of the Keynesian solution have actually addressed publicly in a very clear fashion what they propose to do at that point, but maybe I’ve just missed the analysis.

        (All of which is possibly influenced by having read and written about WB Sutch’s magnificent The Quest for Security in New Zealand, 1840 to 1966, a book you’d find very sympathetic I think.)

        Giovanni

        March 29, 2011 at 8:32 pm

  4. The article is mostly fair, and does a nice enough job in describing such a vast and weird political landscape. But it is a little too kind on the worker’s Party (PT) and some of its corrupt and self-serving practices in the last decade.

    (though it is true that the other polical parties are probably worse)

    Vinícius

    March 31, 2011 at 6:52 pm


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