The greatest policy mistake of the last 10 years has been austerity. The greatest mistake of the left has been to accommodate austerity.
That's the case made by UK Guardian's economics editor, Larry Elliott, in a recent column and I am inclined to agree with him. Elliott observes:
"The banks were never broken up. Plans for a financial transactions tax are gathering dust. Politicians toyed with the idea of a green new deal and then promptly forgot about it. There never was a huge swing of the pendulum away from the prevailing orthodoxy, just a brief nudge that was quickly reversed. The brutal fact is that the left had its chance, and it blew it....
September 2008 was a near-death experience for global capitalism. At one point there were fears for the entire western banking system; when the recession was at its worst, industrial production was collapsing more quickly than it had in the early stages of the Great Depression. It was that bad. The moment was ripe for politicians brave enough to state the obvious: that the crisis was the result of removing all the shackles on global financial capitalism put in place for good reason in the 1930s. But social democratic parties failed miserably to come up with a progressive response to the crisis that would have involved redressing the imbalance between capital and labour. They were timid when they should have been brave, and have paid a heavy price as a result. Mainstream parties patched up the system and paid scant heed to the anger felt by those who felt ignored. The bitterness bubbled away and eventually found other ways of manifesting itself."
He has the following to say about Obama who, while he did some very good things, was fundamentally quite cautious about how he approached the crisis:
"The contrast between Franklin Roosevelt in the 1930s and Barack Obama is telling. Both men arrived in the White House in desperate times. Both had a mandate for change. Roosevelt thought reform was necessary to save capitalism from itself. It was this intellectual framework that resulted in the Glass-Steagall Act to separate banks’ investment and retail operations; public works schemes for the unemployed; and laws to make it easier for trade unions to organise. Obama, like most of his fellow centre-left politicians 10 years ago, was a technocrat who broadly accepted the status quo and never seriously contemplated taking on finance. Wall Street detested Roosevelt. It found Obama much more amenable.
Obama deserves a bit of sympathy. Every radical period requires a philosopher king to help to provide a political framework for action. For the first generation of free-market liberals, the gurus were Adam Smith and David Ricardo. For Lenin it was Karl Marx. In the 1930s, it was John Maynard Keynes. And in the 1970s it was Milton Friedman and Friedrich Hayek. Ten years ago there was no one."
Elliott draws several lessons from the left's failures in the last decade:
"One [lesson] is that progressives have to win the battle of ideas, and that means taking back control of how economics is taught. Some steps have been taken to address this issue since the financial crisis, with George Soros bankrolling the Institute for New Economic Thinking, a forum for heterodox thinking. But even though the collapse of 2008 was the result of failed economics, those responsible for the duff theories remain well dug in on university campuses. Progress has been slow.
A second is that a progressive political agenda starts at the top, with an over-arching critique, and works its way down to specific policies. That was what worked in the 1940s, when the postwar consensus was built on a simple concept: never again. Control of the commanding heights of the economy and demand management flowed from that.
A third is that progressives have to be clear about what they want. The left remains divided between those who think – as Bill Clinton and Tony Blair did – that the only choice was to work with the grain of global capitalism; those who think, as Roosevelt did, that a more root-and-branch approach is needed; and those who think capitalism is so rotten it is beyond saving."
Sounds like the left I know and love! For additional analysis along these lines, I also recommend Yanis Varoufakis' latest piece on Project Syndicate, "The Three Tribes of Austerity".