The global economy on the brink again

Some notes from October

1. The euro zone debt crisis is the most pressing problem weighing on the outlook for global economic growth.
• It is depressing consumer and business confidence, causing uncertainty over future job and income prospects, and investment returns.
• As euro zone growth prospects worsen, investors pull out of stocks, currencies, government bonds, suspecting they won't get paid or paid enough.
• This has affected the stocks of banks, especially those who lent lots to Greece. Again, this has made banks reluctant to lend to one another: don't know how much each other are exposed.
(An aside: corporate profits in US are highest in 50 years, but they are holding on to cash because of poor growth outlook: like an aeroplane, capitalism must keep moving, or it falls out of the air.)
• You would expect a slowdown in manufacturing as sales to foreigners fall and as firms invest less in production capacity—machines, premises and jobs.

2. What is a debt crisis, and how does it come about?
• Governments borrow, from home and abroad, to cover budget deficits.
• This accumulates into public debt.
• If budget deficits are too high for too long, and/ or debt gets too high—both in relation to the size of the national economy, which is not fixed—the lenders start to think that inflation could rise and/or that the government might not be able to pay them back (a "default").
• If they are willing to lend, they only do so at higher interest rate, to keep the real rate of return stable or to compensate for perceived increase in risk.
• At some point, the cost of borrowing to cover new spending shortfalls or to cover the costs of paying back old ones becomes unaffordable.

3. Because of (1) we now find ourselves on the brink of another global recession, but probably not as severe as the last.
• The euro area will go into a shallow recession next year.
• Negative feedback loops from the financial market disturbances generated there could push the US into recession too.
• The chance of a break up of the euro area is also high.

4. Why do we find ourselves here?
• High debt loads left over from before the last recession, and as a consequence of it: the credit induced property and/ or asset bubbles, followed by increased debt burden, because local currency cost of foreign-currency borrowing rises after the local-currency falls.
• On top of the consequences of the global recession of 2008-09, or as part of the response to them, a series of negative shocks that have kept the prices of commodities—notably food and fuel—very high by historical standards:
> the Arab Spring (oil supply shock, keeps oil prices high);
> the Japanese earthquake and tsunami (demand shock and supply disruptions);
> bad harvests in 2010, eg Russia's wheat ban (supply shock);
> the squabbles over the US debt ceiling and the ratings downgrade;
> the prolonged ad hoc approach to the euro debt crisis (point 1).
> US quantitative easing? (boost equity markets, but some "surplus liquidity" has driven rises in commodity prices, in part contributing to this year's global inflationary wave, eg pushing up energy prices and restraining growth because of the supply side shock)

5. What are they trying to do? Will the latest deal work?
They are split, but measures possible include:
• reduce (restructure) Greek debt so that investors only get of their money back;
• recapitalise banks so that they can absorb more losses if need be;
• expand EFSF so it can buy Italian and Spanish government bonds, bringing down the yields on them and so making continued borrowing possible

6. What will be the consequences if the euro breaks up for countries leaving?
• Bank run as try to move money out of country threatening bank system;
• the government defaults, reducing debt burden: can't pay, won't pay;
• capital controls as new currency introduced;
• the new currency falls.
• import compression but trade partners in recession: no benefit to exports.
• Euro debts increase.
• Companies and firms become insolvent.
• Much reduced external funding.
• Further austerity or printing money: with depreciation, this produces high inflation, which is the same as a rapid fall in living standard.

7. Why should we care? How will it affect us?
• UK banks hold shares in the European banks that have lent a lot of money to Greece (and Italy and Spain). This will affect lending in the UK. Without a reasonable rate of lending, household spending and investment could be much lower for longer.
• Low foreign demand will affect firms' foreign sales at the same time as the government is cutting spending and jobs, and when business and consumer confidence—partly because of the expected govt cuts
• Boosting exports vital to offset weak domestic demand: low confidence, fiscal tightening
• This will mean large-scale loss of jobs and declines in living standards, not to mention the mental anguish and misery that goes with it.
• These will keep UK growing at below trend rate longer, prolonging the misery.

8. What does it mean for Labour and what should it mean?
• Understanding basic economic terms and ideas is important for Labour members, because it's one of the main languages of class power, and without a basic grasp of it, it's easy to be misled—or worse, bored into submission. But all it is is category definitions, relationships between categories, and processes: shorn of the maths, it's no harder than accountancy, but a lot easier than physics or philosophy, or even some kinds of sociology.
• Too fast, too soon is right: on the one hand, this is how capitalism works.
• On the other hand: this is not 1997, the hold of the dominant ideology—"there is no alternative"—has been decisively weakened loosened for the first time since the 1970s. So this is not the time for another fight out of new and old labour: both of them have had their day. We need something new, again.

Model worker

While I remember, I want to jot down a couple of points about the two macroeconomic models I have found to be of the most practical use in looking at policy and performance in emerging economies: the full Keynesian domestic economy model, which brings in flexible prices and depends on particular view of how firms are likely to respond to changes set off by a change in demand; and the Keynesian open economy model in the short run, which is for economies in which international trade is significant component. It assesses the likely impact and effectiveness of monetary and fiscal policies—the two main levers of policy control—when the exchange rate of a country’s currency is kept artificially fixed against the currencies of the outside world and when it is allowed to float. These models are best "applied" separately, even to the same economy, in order to simplify the analysis of the expected lines of causation.

ISLMAS(K)AD. In contrast to the situation when we are looking at the knock-on effects of demand changes on the goods and financial markets of the domestic economy only, the introduction of the possibility of changes in the price level produces two new effects for policymakers to consider. In the first, [and in addition to the feedback loops set off between the goods and money markets through changes in interest rates and national income,] a price change caused by a rise in demand in the goods market, reflecting perhaps a fiscal expansion, erodes the real money supply, altering the equilibrium conditions in the money market—that is, its shifts the LM curve down, wiping out some or all of the gain in output from the original change in demand. The second is the effect of a change in the price level on the labour market, understood as working in a particular way. The key features of this model, which give rise to its distinctive results, are the assumptions of flexible prices in combination with "sticky wages"—that is, when nominal wages take time to adjust to changes in the price level, either up or down. Assuming that there is spare capacity in the economy, a boost in government spending or a cut is taxes will push up demand for goods and services, but it will also push up price growth. If the nominal wage fails to adjust upwards to compensate for inflation, the real wage falls, inducing a rise in labour demand (ie firms find it profitable to employ more staff) and a fall off in labour supply (people want on average to work less). This divergence of labour demand and supply temporarily boosts the level of employment and so, as conditioned by a definite level of technological development, economic output and income. At the same time, it reduces the level of involuntary unemployment. In modern economies, at least until the great economic crisis of 2007-09, this was the direction of price movements that interested economists, as it matched, for a time, the broad empirical trends of the economies in which they found themselves. However, I think I'm right in saying that Keynes emphasised the "downward stickiness" of wages, as, writing in the 1930s on the events of the Great Depression, what interested him was, understandably, the impact of deflation, which he identified as a trigger of the intractable and socially damaging problem of high and enduring unemployment. This was because institutional and legal factors prevented money wages from adjusting to a fall in prices by falling themselves, as predicted in classical economic theory. In turn, this tended to boost the real wage and so induce a fall in labour demand from firms and a rise in labour supply, at once reducing both employment and output, and amplifying "involuntary" unemployment.

Because the model sets out systematically the relationships between a large number of variables, it is a helpful framework for looking at a wide range of phenomena relevant to assessing the health and stability of economies, from demand-pull inflation and hyperinflation, overheating, soft and hard landings, to the co-ordination of policy with economic recoveries and slumps.

ISLMBOP. In an open economy, which incorporates the impact of inward and outward/net currency flows on the financial and goods markets, fiscal policy is powerful when the country’s currency is set at a specific rate, whereas monetary policy is relatively ineffective. If the authorities allow their currency to find its own level, however, without interfering by buying or selling on the currency market, then the reverse is true: the impact on monetary policy in enhanced and that of fiscal policy weakened. The reason for this is that

Down with the so-called rebels!

I'm not saying there aren't any good arguments against intervention in Libya, but here, the author's self-identification with the left seems to me misplaced. This is because the "our-poor-vs-their-oppressed" routine tends to be the standard, unprincipled line of a nationalist reactionary. If only the West had allowed Gadaffi to kill a few more Libyans, a few more Americans could have had their teeth pulled for free—such is the noble logic of this article, only slightly exaggerated.
Posing as clued-up and streetwise, the argument simply reinforces the conventions of a system of production and distribution in which we are told that we can't have both—in this case, help foreigners and help ourselves—but must choose between them. In a world of great material abundance, however, in which economic textbook "scarcity" is, in some sense, socially created and imposed (which is one of the things that Marx means when he says that capitalist social relations have become a fetter on social progress), this appeal to greed and selfishness—exactly the human traits that capitalist social relations tap into and amplify—merely binds us more closely to that system. At the same time, it conspicuously fails to point the finger at a ruling ideology that carefully places outside of the jurisdiction of social policy the vastly lopsided income distributions which it conceals and protects, portraying them instead as an unalterable feature of the natural landscape, unquestionable, dangerous to tinker with, beyond choice. And this is the crux of the problem.
Also: nice scare-quotes sneer at the Libyan "rebels" (=not really rebels, not really worthy of our solidarity?) fighting for their freedom.

Looking both ways

Question: How does a closed economy adjust to shocks from the outside or to economic policy changes in the short run? Why is using the ISLM a more sophisticated and useful approach than looking at the real and financial sectors separately?

ISLM: internal macroeconomic adjustment in the short run

An alarming slowdown in economic growth gnaws away at business confidence, so that increasing numbers of firms lose faith in their ability to hit next year's sales targets, leading them to hold off on investments that would otherwise have gone ahead, depressing economic growth still further. Or instability in the financial markets sees more investors cashing in financial holdings so as to avoid the chance of a fall in their value. It is the macroeconomic implications of scenarios like these that the forbiddingly named ISLM framework helps us to analyse systematically. By selecting the most relevant economic indicators and sketching the expected relationships between them, this framework helps us to trace through the rest of the economy the knock-on effects of destabilising economic developments, such as the ones above, and to work out the kinds of results that we might expect from policy responses to them. The most important variables include the rates of growth of government spending, household consumption, private investment expenditure, and the national output of goods and services. Important, too, are changes in tax rates, money holdings and interest rates. Over a longer period, changes in the price level would be included on this list. When looking at imbalances in the goods and the money markets taken separately or together, the crucial difference is that, in the second case, there are feedback loops between them, going in both directions. The key link by which imbalances in the real economy are transmitted to the financial sector is between the economic activity (or output) and money demand. Imbalances originating in the money market affect the production of goods and services by way of changes in short-term interest rates. And just as we conventionally show the main relationship as between output (Y) and the price level (P) in graphical form when looking at aggregate demand (“PY space”), so it is useful to illustrate the two-way links between the goods and money markets as a relationship between output and short-term interest rates (“IY space”), because these, as I have said, are the main channels through which changes in one market are transmitted to the other. Thus, the IS schedule (the letters stand for “investment” and “savings”) is simply a graphical summary of all possible combinations of interest rates and national output in which goods demand and supply just balance. It incorporates much the same information as in the PY or aggregate demand diagram—since aggregate demand is affected by changes in both the goods and the money markets—but is examined from a different angle so as to bring out the interlinks between the domestic economy’s component markets. As lower interest rates encourage borrowing by firms and households for investment and consumer purchases—and thus also higher levels of economic output—the IS curve is negatively sloped: as interest rates rise, investment, and so economic output, falls. Likewise, the LM schedule (standing for “liquidity preference”, or money demand, and “money”, or money supply) represents all the combinations of interest rates and output in which money supply and demand are in balance. In contrast with the IS line, the LM schedule is positively sloped: as output rises, it takes higher interest rates at every level to equate money demand with a (nominal) money supply that is centrally fixed. Movement along the curve can be read as showing that higher money demand is associated with increased rates of growth in national income—that is, to facilitate the rise in the number of transactions—but that higher rates of interest are required to maintain balance with the fixed money supply. The point of crossover of the two schedules thus represents the unique rates of interest and output growth needed to keep both markets in balance at the same time.

By goods alone: IS

One way to proceed is to contrast the results to be expected following the combined and separate adjustment to developments that upset balance in either market. In the real domestic economy, the kinds of changes that could affect the level of demand for goods and services include alterations in the pace of growth of private investment, household disposable income or government spending. It would also include changes in tax or savings rates, or in the responsiveness of private investment to changes in interest rates. (Reforms of public spending or of the rates of taxation—fiscal policy—are the main policy instruments used by the government to influence activity in the real sector.) Changes in the first set of factors would affect the position of the IS curve, shifting it up or down, boosting or sapping demand for goods and services—and thus the growth rate of national output—at all interest rates. Changes in the second set would tilt the IS curve so that it becomes flatter or steeper. A flatter IS curve implies that only small changes in interest rates are needed to induce a relatively large increase in investment demand. A steeper curve means that even large changes in the interest rate are able to induce only a small change in desired investment. (The slope of the IS curve might be said to reflect the level of development or friendliness of the business environment.) In the short run, changes in domestic spending mean that some combination of firms, households and the government together plan to buy more or fewer goods and services than are currently being supplied. Such a change tells domestic producers whether to make more or fewer products. In this relatively simple model of the domestic economy, firms are assumed to be able to respond unproblematically to imbalances in the goods market by adjusting production for the inputs they need: they supply just as much or as little as is desired.

Money alone: LM

In the financial sector, three factors are typically cited as capable of igniting disturbances. In each case, any imbalance in the money market triggers changes in interest rates, which ensure that a new equilibrium level, higher or lower than the initial one, is achieved. The first factor is a change in the pace of growth of economic activity. For example, a splurge in consumer spending—say, in the run up to Christmas, or ahead of a rise in value-added tax (VAT)—boosts aggregate demand and hence the rate of growth of national income, simultaneously pushing up the demand for money to carry out these additional buys. The LM curve shifts up and left. A second important destabilising factor would be any trend towards holding more private wealth as money. Such a rise in "liquidity preference"—say, in response to high volatility in bond markets, as in my opening paragraph—would likewise shift the LM curve leftwards and up, also by setting off by unbalancing rise in monetary demand. A third important factor that can produce money market imbalance is a change in the growth of the real money supply. In the short run, when prices are fixed, this is identical with the growth or contraction of the nominal money stock, which is controlled by the central authorities as a tool of (monetary) policy to influence other economic indicators, such as the short-term interest rate, or, over the longer term, the pace of growth of the general price level. Typically, it does this by buying or selling government securities (bonds and bills), which increases or decreases amount of cash in the financial sector, pushing interest rates down or up. The excess money supply linked to faster growth in the stock of money in the economy disturbs equilibrium in the money market, triggering a shift in the LM curve, this time rightwards and down, so that money market balance is restored: a reduction in the interest rate induces a switch from less attractive interest-bearing bonds to cash, so that money demand rises to the point where it just offsets the increase in the money supply, restoring money market balance.

Both together: ISLM

Probably the clearest example of the distinct result of the interaction of the goods and money markets can be seen by working through the knock-on effects of a change in demand. From such a change, the main conclusion is that impact of the multiplier, whether positive or negative, is dampened by the interaction with the financial sector, because of the two-way feedback loops between the goods and money markets.

Causes. A rise in demand could be the result either of putting more money into the circular flow of income or of withdrawing less from it. In a closed economy, this might result, for instance, from an increase in government spending, or a tax cut (which would leave households with a larger slice of their income to divide between spending and saving, in this way, assuming that the ratio between them stays the same, boosting consumption demand). Such measures featured heavily in the many "fiscal stimulus packages" that have been implemented by governments around the world since 2008 in an attempt to counter the impact of a sharp drop in foreign demand set off by the global economic crisis. A boost to domestic demand might also stem from an improvement in business or consumer confidence, lifting investment and consumption demand, perhaps because the outlook for economic growth has substantially brightened, or because the latest figures show employment growing more briskly than expected.

Mechanism. An increase in spending and/or confidence boosts aggregate demand, though the rise in output is larger than the original impetus because, along the way, the original sum becomes someone’s income and they, in turn, spend a proportion of it, creating additional goods demand. In the short run, however, with prices relatively rigid, the rise in demand induces only an increase in economic output and the IS curve shifts right: output is higher at all interest rates. But that's not the end of it because the expansion of economic activity shows up in the money market as an increase in demand for money, which is needed to cope with the increased number of transactions. With wealth split, for analytical purposes, between money and bonds, saying that there is an excess of demand for money is the same as saying that there is an excess supply of bonds. With bond offerings exceeding planned new bond purchases, bond prices fall and the yield on bonds moves in the opposite direction—ie the interest rate rises. (Another way or seeing it is that interest rates rise because, in the case of bond-financed government spending, government borrowing bids up the cost of borrowing by creating additional demand for the supply of loanable funds.) This restores balance in the money market by choking off the increase in money demand to equate it to the nominal money supply, which is fixed by the central monetary authorities. At the same time, some business projects are rendered unattractive by the rise in interest rates. This discourages some private investment demand ("crowding out"), reducing aggregate spending and shifting the IS curve somewhat back left. Thus the conclusion is that the full impact of the multiplier on national output is dampened by the feedback loop in the financial sector. This also works the other way, so that the same mechanism will ameliorate the impact on the real economy of a drop in demand. The result contrasts not only with the outcome expected in the goods market taken in isolation, where the impact on the multiplier unfolds fully, but also, looking ahead, with the expected outcome of macroeconomic adjustment over the longer term, once the effect of the inclusion of the domestic labour market is taken into account where fully flexible wages and prices ensure that a boost to government spending produces no increase in output or employment at all (at least, with the classical or monetarist versions of the supply curve). Instead, all of the adjustment takes place in the form of faster price growth and the complete crowding out of private investment. From the point of view of disturbances originating in the financial sector, such as a loosening of monetary policy to try to “jump start” the economy to offset an economic slowdown, or a change in the pattern of distributing assets between money and other forms of wealth, in the first case would see the LM curve shift right, reducing interest rates and pushing up investment demand, which in turn pushes the curve back in the direction it came from.

Practical application

Under what circumstances might such a model be of practical use? A practical use of such a model would be when the international context is either a small or negligible factor for the economy in question, or the international trading environment is stable. This would include countries with economies characterised by a relatively low level of trade of integration with international financial markets. In countries in which the capital or debt markets are underdeveloped, the feedback loop between goods and financial markets is inhibited and the financial sector is an ineffective medium for transmitting official interest rate policy.

A modest proposal 2

Whereas the post below is a sort of starting point for investigation, this is a shorter version, for a Labour Party meeting.

An amendment to resolution 2, in context:
I want to place my proposed amended resolution 2 in the context of a constructive alternative proposal for a viable short- and medium-term policy strategy for the party. Point 8 addresses directly the content of the original resolution. My amended version follows.

1. New Labour applied the social democratic principle of trying to make capitalism fairer by adapting to the dominant political-economic ideology of the day so as to channel more resources to social projects.
2. The global economic and financial crisis of 2007-09 has changed the political, economic and intellectual terrain dramatically and for good, shaking the dominant ideological edifice in place over the past 30 years—namely, the idea that there is no alternative to unrestrained free-market capitalism—as it was in large part the unforeseen by-product of untrammelled deregulation.
3. As a consequence, the raison d'être of New Labour has fallen away.
4. It is unsurprising that the right reacts according to the dictates of its shop-worn worldview. The left must not do the same. It must create a new policy framework to make Labour values relevant anew to the changed national and global situations.
5. May 2010 saw the defeat for social democracy in one of its incarnations. There is now an opportunity for a thoroughgoing rethink. Ed Miliband’s “slow start” as Labour leader shows that he has rightly decided to take time to reforge strategy and policies for the new era.
6. It would be premature to imagine that the discrediting of the unrestrained free-market yet augurs the decline or transcendence of capitalism itself, not least because…
7. Realistic alternative socio-economic mechanisms that will provide dynamic innovation and which are ready to put to in place straight away are at best embryonic.
8. In the short term, Labour’s priority must be to expose the ideological, class character of the government’s cuts agenda, which could yet endanger Britain’s faltering economic recovery. It must also offer a clear, alternative policy approach to the problems of weak growth, a large fiscal deficit and burgeoning of inflation that shows that it grasps the way in which a national capitalist economy currently works in an international context.
9. Over the medium to longer term, more promising prospects arise. It should be possible to sketch a strategy that pursues two broad policy paths at once. The first path would be pro-market and pro-globalisation, to maximise state resources available for pursuing the second, more radical path, using the economic tool-kit at hand. The second path involves a commitment, not just to the redistribution of state funds, but also to substantial and sustained material and practical support, within civil society, for experimental political and economic institution-building, with the goal of addressing the well-known shortcomings of capitalist production, of extending social control over political and economic life, and of developing alternative socio-economic mechanisms that could open up economic opportunity and unleash the creative capabilities of all.
10. Thus, although capitalism might not automatically equip its own gravediggers as fast as some of us might like, we should try to ensure that it supplies sufficient taxes to pay for the gravediggers’ advanced vocational training.

Amended resolution: That the party should continue to expose the ideological, class character of the government’s cuts agenda, which hits the worst-off disproportionately and could yet endanger Britain’s faltering recovery. It should offer voters an economically credible, pro-growth and pro-employment policy, making use of efficiency savings, as the main means of reducing the fiscal deficit and the national debt. Any spending cuts that are necessary because of the mismatch between expectations about government income before and after the crisis—as the economy enters a lower average growth path—will thus be clearly distinguished from those of the Tories in terms of timing, scale and targeting.

A modest proposal

A suggestion for Labour’s broad strategy after the global economic crisis and the demise of New Labour.

Old wine in new bottles?
1. When New Labour came to power in 1997 it had some reasonably radical proposals, but then drifted ever further to the right and away from the party’s traditional values, distancing itself from its core, working class supporters as it sucked up to globalising “neo-liberalism”.
This familiar narrative, by now somewhat tired and formulaic, nevertheless remains popular among some who identify themselves with the left. An alternative, minority reading—one which seems less stirring but closer to the mark—is that New Labour’s strategy and practice was simply the latest manifestation, and by no means the least successful, of the central social democratic principle of using state power to make capitalism a bit fairer through increased redistribution. In its case, this was done by adapting to the dominant political-economic ideology of the day so as to channel a larger share of economic resources to social projects such as healthcare improvements and school-building.
2. I’d better say right away that, although I’m a member of the Labour Party, I couldn't really be called a social democrat, and especially not one of the New Labour kind. Rather, I count myself as some sort of democratic socialist and/or Marxist. (I used to think the word “democratic” superfluous in this connection, since it seemed to me that it was already automatically included to the idea of "socialism", meaning the extension of popular political and economic control. Certain developments during the past decade have since convinced me, reluctantly and belatedly, that, even after the historic and welcome defeat of the Stalinist regimes, this is not always necessarily the case.) Freedom and egalitarianism are the other indispensable values of this strand of political belief. It does not denigrate or underplay the tangible achievements and benefits of liberal democracy; rather, it values highly the political space that liberal democracy affords, compared with other contemporary and historical options. At the same time, it is confident about the desirability of, and popular capacity for, developing political arrangements that not only incorporate liberal democratic achievements, but that also considerably augment and go beyond them. As a starting point on imperialism—in our day, roughly, the world institutional set up designed to facilitate the expansion and reproduction of capitalist power—it is opposed on principle. That said, it is not oblivious to the existence of other repressive and reactionary forces in contemporary international politics, forces that cannot be traced back wholly satisfactorily to the complex and ever-mutating structures of Western imperialism. This is one of the reasons that—dare I say it?—in some contexts imperialism has been, and probably could be again, relatively progressive. To state the obvious, the characteristic social relations of capitalism, though exploitative, are nevertheless superior to those of feudalism (because…), and parliamentary democracy, for all its shortcomings, is superior politically and morally both to fascism (because…) and violent Islamism. Perhaps I’d better add at this point for good measure that, although my political preferences are, in the main, far to the left of those of Tony Blair, the more he has come in for criticism from the mainstream liberal-left media, and the more this criticism has become merely reflexive, a genuflection to conventional wisdom, a badge of belonging, the more I have warmed to him. I don’t know if any of this is very bad, or if there is anyone else who shares this rough combination of view: I’m just describing.

The end of the affair
3. The global economic and financial crisis of 2007-09 has changed the political, economic and intellectual terrain dramatically and for good. Emerging out of the US property market in 2007 and reaching a peak of intensity in late 2008 and 2009, it was not only the most severe such crisis of world capitalism in 60 years, but also the most important world political event since the implosion of the Soviet Union almost 20 years ago.
Nevertheless, the impact of the crash was not the same everywhere. In 2009 the world economy contracted, weighed down by the very poor performance of the advanced Western economies. Although sharp falls in real output were concentrated in the economies of north America and western Europe, many countries in eastern Europe and the former Soviet Union were hit especially hard. Real GDP in Canada and the US shrank by around 2.5% in annual terms, on IMF figures. Of the leading countries in the EU, France saw economic activity wither just as much, whereas in Germany (the largest economy in the group) and in Italy, output dropped by around 5%. In central Europe, apart from Poland, output falls were of a similar magnitude or a bit worse (Hungary and Romania). Countries that had previously been involved in heavy foreign borrowing and/or were reliant on the vicissitudes of commodities markets, such as the small Baltic states and the relatively large Ukrainian economy, suffered much deeper recessions, of 15-18% annually, comparable in size to those seen in the chaotic aftermath of the fall of communism two decades before. Although not quite so traumatic, the crisis in Russia exposed the multiple fragilities of its economy, the most important in the Commonwealth of Independent States (CIS; an institution that takes in many of the former Soviet countries), where national production fell by almost 8%. Only nations with a relative lack of integration into the world financial system came through comparatively unscathed (Azerbaijan, Uzbekistan). In contrast, in other emerging-market regions—notably, those in Asia—the impact, though marked, was much less severe. In the same year, in a far-flung and obscure corner of the globe known as Britain, real GDP shrank by 5%, by far its most severe post-war slump. Without the massive boost in government spending and the rapid and substantial monetary loosening undertaken by Gordon Brown, it would have been much worse, probably leading to the return of mass unemployment (though he shouldn't hold his breath if he expects to get any credit for avoiding this). Without the unprecedentedly large, swift and co-ordinated actions internationally, it would have been worse still. Bringing things a little more up to date, at the beginning of 2011 the on-going troubles in the peripheral economies of the Euro zone indicate that the crisis has not yet run its course. Most recently, the inspiring and momentous popular uprisings against corrupt and authoritarian regimes in Arab North Africa and the Arabian Peninsula may be another of its after-shocks, as economic eruptions can interact over time with existing, underlying weaknesses to trigger social and political crises.
4. Probably the most important long-term consequence of the crisis is that it has seriously shaken the dominant intellectual and ideological edifice in place over the past 30 years—namely, the idea that no alternative to unrestrained free-market capitalism was possible—as the crisis was in large part the unforeseen by-product of untrammelled deregulation, as well as a specific and dogmatic-idealist view of the nature of capitalism. In the interim, however, the standing of this set of ideas was only enhanced by the collapse of the Soviet bloc.
5. Perhaps it is understandable that, with a definite phase of capitalist expansion and ideological dominance in effect over, greatly undermined by the scale of the global economic crisis, only its adherents and beneficiaries seem not so far to have noticed. This could just be a testament to the power of habitual thinking, or perhaps it is this in combination with the narrowness of the Anglo-American economic education syllabus, which means that, whatever happens, most insiders are left swinging on the bars of a cage that is tightly framed by the parameters of what they have been taught. There must also be some emotional resistance to loosening one’s hold of ideas that are in places moderately complicated and possibly hard to master. Whatever the reasons, having escaped the looming catastrophe of a wholesale breakdown of the international financial system and a rerun of the Great Depression, the City and its newspapers, its legions of commentators and economic journalists whose job is to tailor the news to suit businessmen, not to mention the multilateral organisations, seem almost immediately to have returned blithely to business as usual, intoning pretty much the same formulas about economic probity and reform, wheeling out the same tired and implausible texts about the necessity of rewarding investment bankers and CEOs with enormous bonuses if they are to continue to compete successfully in the international market by attracting “talented” staff. Presumably, among such staff are some of the geniuses who cleverly ignored every warning sign in the run-up to the crisis­—and, indeed, the bonus system may have been one of the factors that systematically incentivised them to do so.
In Britain, the social composition of the new government, made up of the parties of the landed aristocracy and their hangers on aligned with big finance and the spokesmen of the business class, of course predisposes it to try to take advantage of the crisis to push developments in the direction of the interests of its constituents, according to their overlapping world views and the familiar policy prescriptions that go with them. Hence the institution of a programme of cuts beyond the scale immediately required as a follow up to the UK’s stimulus package and the large cyclical (recession-induced) deficit, so as to make a permanent reduction in the size of the state. Hence also the necessary exaggeration of the dangers of a Greece-like financial destabilisation linked to the size of the fiscal deficit.
6. Another obvious consequence of the discrediting of the model of development with which it made its creative social democratic compromise is that the raison d'être of New Labour has fallen away beneath it, as a new and probably more timid, less self-confident phase of capitalist development gets under way. There is nothing surprising in the right reacting strictly according to the dictates of its shop-worn worldview. But one of the things that the left must be careful of, whether it is the old New Labour centrists or Old Labour in a new disguise, is that it doesn’t do the same—that is, react exclusively and unthinkingly from within the network of its pre-existing ideological and rhetorical reference points. Rather, it must react to create a new political machinery and policy framework that render Labour values appropriate and relevant to the changed national and global situations. Thus the difference for us, for the Labour Party, is that this presents a fresh and exciting opportunity, rather than, as for the right, a dead end, a chance to rerun the glory days of the 1980s, "the second time as farce".
So May 2010 saw a significant defeat for social democratic Labour in one of its incarnations. At the same time, there is now a genuine political opportunity, and, first of all, a genuine chance for a thoroughgoing rethink of what comes next. This is why I choose to read positively Ed Miliband’s alleged slow start as Labour leader (another media narrative that has quickly hardened into cliché) as him having decided to take time to try to reforge both strategy and policies for a new era, just as New Labour did before. I’m especially pleased to see the attempt to rethink policy with the goal of democratising the party still further, in part by eliciting greater input from and involvement of grassroots members, as well as from progressive groups and movements more broadly. If Labour can’t be the most democratic party, pushing the democratic agenda both internally and in society more widely, then it can’t possibly hope to represent effectively the interests of the majority of ordinary working Britons.

Down but not yet out
7. That said, to double back for a moment, although the economic crisis has raised considerable doubts about the Anglo-Saxon model of global economic development, it would be premature to imagine that it yet augurs the decline or transcendence of capitalism itself. There are good reasons for believing this. First, in many places in the world, capitalist social relations—the dynamic conjoining of private property with market competition, the handle and cord of the whip the drives firms on and keeps them innovating—are still “forms of development”, propelling rapid economic growth and increases in productivity. In the past two decades this has probably lifted hundreds of millions of people out of absolute poverty in large, populous countries such as China, India and Brazil. At the same time, in the advanced economies this arrangement has continued to generate all sorts of interesting technological innovations that are opening up new possibilities for the future all the time.
But its was never the dynamism of capitalism, its ability to force firms to constantly raise the productivity on pain of bankruptcy and extinction, that troubled us: it is its social and environmental destructiveness, the wasteful, uncertain and stunted lives that, even in the rich countries, it imposes on the majority, in part as a corollary of the division of labour, in jobs which, if they have them, are either too demanding physically, leaving little time for the development of a fuller range of human faculties, or too repetitious and undemanding mentally, presenting little challenge or prospect for self-development, leading to disengagement and withdrawal, the coasting through working life on autopilot. The structures which ensure this, the arbitrary and debilitating hierarchies at work just as much as the arbitrary life chances doled out by the underlying socio-economic patterns of property ownership and resource access, are the flip side of the cult of entrepreneurship, the narrow form into which a particular strand of creative human potential is selectively channelled in class society, stultifying and depressing the many so that the few might fly free and live.
Second, despite widespread pessimism on the left in the wake of the fall of the Soviet Union and the understandable phase of capitalist triumphalism that followed, and although some promising new developments are now starting to emerge, the left has not yet come close, as far as I know, to solving the central problem of what kinds of institutional arrangements might serve as the basis for an improved social set up in which a mechanism of innovation could become socially ingrained.
8. One positive long-term result of the fall of the Soviet bloc has been the gradual coming together—still nascent, still tentative—of the two broad sides of the left split asunder by the October Revolution of 1917: roughly, the social democrats and the Marxists. Potentially, this is a very positive development, even if it is unlikely, or desirable, that it leads to the seamless fusion of the two. It shows itself, at least among the more thoughtful elements on each side, as a slow diffusion of political concerns and suggestions in both directions, a focus on common problems, with each arriving at possible workable solutions using reference points from within their own tradition. Signs of this potentially productive cross-fertilisation can be seen in the common language and similar conceptualisations of certain problems and goals by representatives of the two sides. For example, something of this kind can bee seen in the similarity of the approaches of James Purnell, a former Labour minister, and Erik Olin-Wright, an old New Lefter, to the issue of real (as opposed to nominal) freedom, even though Purnell appeals in his analysis to thinkers, such as Tawney and Sen, who come firmly from within the social democratic tradition, whereas Olin-Wright addresses the issue from the perspective of creative and self-critical analytical Marxism. Trends of this kind should recognised and nurtured, as they could be very helpful in negotiating the uncharted waters ahead, now that the twin "inferior mirages" of the Soviet dictatorship and of unrestrained free-market capitalism have disappeared.
9. As a quick aside, I should have thought it obvious, but have not always found it so, that no socialist or social democrat should regret the fall of the Stalinist regimes, and neither should they defend or apologise for their disastrous records, in some sort of inept attempt to keep open a political alternative—any political alternative, no matter how bad—in the face of the encroachment of voracious neo-liberalism. As the societies of the Soviet bloc fell a long way short of socialist ideals of democracy, freedom and even egalitarianism, both in their methods and their results, they are inherently beyond any progressive defence. Indeed, the grim egalitarianism of Soviet life, such as it was, was conditioned by the failure to develop living mechanisms for social, political and, crucially, economic innovation. On the contrary, innovation, and the free and frank exchange of ideas necessary for it, was actively inhibited by the authoritarian political structures necessary, in the absence of a strong self-reproducing ideology of consent, to hold the social form together, to force it to cohere. That is, the so-called state socialist regimes failed even on basic Marxist terms, because the rigid and sclerotic socio-political form prevented the continuous revolutionising of the forces of production that would be necessary to pave the way for freer and more widely creative social form than capitalism. Neither should anyone on the left feel sorry for their passing, as they were an impediment to human progress, a historical blind alley. Of course, this is different from feeling sorry for the people who had to go though the capitalist retransformation of those societies, many of whom experienced it as a catastrophic loss—of income, status, security, purpose.

In the womb of the old society
10. In the short term, the Labour Party's priority must be to expose the ideological, class character of the government’s cuts agenda, which, masked by the inevitable “we’re all in it together” routine, could yet endanger Britain’s faltering economic recovery. We must also offer a clear, alternative policy approach to the problems of weak growth, a large fiscal deficit and the burgeoning of cost-push inflation internationally that is economically realistic—ie that shows that it grasps the way in which a national capitalist economy really works in an international context. So far, so social democratic.
Over the medium and longer term, however, more promising prospects arise. Drawing on some recent ideas, it is possible to sketch out a broad new strategic road-map for Labour. This approach differs from other sketches I have seen in the press or on left-leaning websites (such as from the centrist Compass organisation, or from so-called conservative social democrats or “Blue Labour” theorists). It adapts to the new, uncertain political territory we are entering, but less defensively, less passively, more positively, more excitingly and with greater ambition than its rivals, by means of a strategy that pursues two apparently contradictory policy paths at once.
The first path would follow policies that are almost as pro-market and pro-globalisation as New Labour (bear with me for a moment), although without shying away from the reforms needed to prevent a rapid repetition of the near-collapse of the financial system that was seen in 2008-09, which could again threaten millions with unemployment and poverty. In this way, state resources available for pursuing the second, more radical path are maximised, using a proven economic tool-kit (albeit one with known, significant limitations), while also pursuing traditional social democratic redistributive goals (which, however, have the drawback of being impermanent and reversible, as we are seeing with the current round of cuts in social welfare and support). In short, in lieu of a good idea of alternative, realistic and proven socio-economic mechanisms that can provide dynamic innovation and poverty-reduction, and which are ready to put to work straight away, at this stage the goal should be to improve the functioning of markets rather than to restrain them, to encourage conditions favourable to rapid economic growth as actively, though perhaps not as credulously, as New Labour. Similarly, it is of both practical and of pragmatic self-interest to remain in favour of globalisation, albeit a globalisation of a different kind than we have seen to date. For example, Labour and the unions should work together to promote vigorously an improvement in working conditions, wages and workers’ rights internationally, not least as a means of protecting living standards at home. We actively want people abroad to be better off, to have greater control over their own lives, but we don't necessarily think that this should be—or even that it is necessary that it should be—achieved at our expense. The aim should be to match the trend towards the ever-freer movement of large-scale capital flows across borders—which has characterised advanced capitalism over the past 20 years, but which was also one of the main factors that almost brought it to its knees—not just with the freer movement of labour, but also with the internationalisation of the labour movement and the “export” of advanced labour legislation and practices. Behind this stance, then, is a dual motivation that is both self-interested and internationalist.
The second path involves a commitment, over time, not just to the redistribution of state funds, but also to substantial and sustained material and practical support for experimental political and economic institution-building. The aim would be to deepen democratic involvement, to address the well-known shortcomings of capitalist production and, ultimately, to develop alternative methods of economic organisation capable of ingraining innovation systematically, within the social structure, so that creative economic opportunity is not in effect restricted to the few. Unhindered by capital restrictions, what we now call “free enterprise” would gradually be made a practical possibility for all, or almost all, with social relations that structure alternative drives and motivations for productive innovation encroaching more and more on the social relations of private property and wage labour, two halves of the socio-economic form currently dominant. This could be conceived as something like R&D investment, but in this case, what is being researched and developed need not be a technology or a product, but rather experimental institutions favouring alternative motivations for dynamic innovation as possible basis for a new, more sustainable, human-centred social form. So, state revenue would be distributed to schools and hospitals—Blair’s essential and, in its way, brilliant, if necessarily temporary compromise—but also to civil society to fund alternative, experimental institutions capable of extending social control over political and economic life, and of undertaking social production based on incentives other than just profit, but with the room to risk failure. I don't see why it couldn't be modelled something along the lines of arts funding, the purpose of which, ideally, is to afford space for the experimental exploration of meaning and beauty without the need to turn a profit, outside of any immediate commercial considerations and constraints. What might such alternative institutions look like? Luckily, a lot of work has been done on this in the past 20 years. To concretise this idea, I shall pinch a couple of examples from Olin-Wright’s recent book, Envisioning Real Utopias, one on deepening political democracy, one on extending economic democracy, as a means to achieving, among other things, what is sometimes called real freedom. [[EXAMPLES TO CHOOSE FROM AND ELABORATE A BIT, to concretise: social economy: wikipedia, Quebec; unconditional basic income; social capitalism; co-operative market econ, mondragon; market socialism; parecon]].
Of course, the choice of goals would have to recognise the political starting points, the processes of production and reproduction of British political culture as it is, which would condition their "sellability".
Thus, although capitalism might not automatically equip its own gravediggers as fast as some of us might hope, we could at least try to ensure that it supplies sufficient taxes to pay for the gravediggers’ advanced vocational training.

Comparative advantage
11. Unlike New Labour, therefore, the purpose isn’t just a temporary compromise, but rather the construction of viable economic and political alternatives, within the existing systems, to be tested and improved over time so that we may be surer of their effectiveness and durability. It contrasts also with the old left’s statism, in that, rather than emphasising state ownership, it favours public funding to support and develop social ownership, civil society ownership, the dispersal of economic and political power within civil society, heavily backed up by the state. In contrast to the old Marxist left, it does not think that violent revolutionary transformation is necessarily the best terrain on which to conduct the possibly longish phase of democratic economic and political experimentation needed to "unsheathe" or “declass” the “entrepreneurial spirit”—and thus unleash alternative incentives and drives as the basis for economic development—in the advanced capitalist countries, at least. In contrast with the Conservative’s Big Society concept—itself designed to clothe in vaguely centre-left-sounding terms a reactionary policy of reducing social provision—the absorption of economic activities into civil society is not only to be encouraged, but also heavily backed by the state by means of training and funding, perhaps first of all using a number of pilot schemes based on the most promising real examples from historical and contemporary experience.
12. There are several advantages to this approach. First, by synthesising aspects of New and Old Labours in a way that addresses the difficulties promising opportunities in period of regeneration ahead, following a phase of crisis and defeat, it has the potential to unite the two largest parts of the Labour Party. It could also draw the support of the disappointed left-wing of the Liberal Democrats, without scaring them, and appeal to progressive, liberal-left opinion more broadly—the elusive “progressive majority”. This will be necessary to beat the Tories. Second, this is not an attempt to reject Labour’s achievements and its traditional values, but rather to adapt them again to the specific intellectual, ideological and political terrain of the day. However, it is more forward-looking, less cringingly passive, less defeatist, less fearful, less insipid, and more inspirational than some of its alternatives (“conservative” social democracy, “Blue Labour”, Compass). And above all, at the moment Labour needs a broad programme that is credible, inspiring and easy to grasp. There’s nothing wrong with being passionate and angry about living in a country that is still incredibly unequal and wasteful of human potential, and there’s nothing wrong with being utopian, of aiming for the highest peaks of achievement. What’s wrong is if these qualities aren’t tempered with a heavy dose of learning from the past, and with realism, which means having a clear knowledge of your own political culture, of where you are starting from. Lastly, one of the most striking features of the global crisis was the absence of a coherent left-wing response to it. Instead, there was a certain paralysis, or the resort to the safe but windy rhetorical formulas of yesteryear. The approach outlined above could help to be better prepared when the next crisis hits.

13. Some terms in need of definition: neo-liberalism, democracy, socialism, nominal freedom, real freedom, egalitarianism, imperialism, liberal democracy, social democracy.

Heirloom

The escalating drone
of a moped accelerating
some way off
stirs up silence and the night,
thickening the mix,
as the dated woollen curtains
come to rest
on a varnished windowsill:
coffee-brown, with dashed threads
of spicy orange peel, are they still here?
They’ll do for now, we said, on moving in
eight years ago.

Those curtains sealed into a tomb
each Saturday afternoon
of your childhood,
slim panes of blazing summer
dividing the semi-darkness, the vortices
ascending from dad's Old Holborn rolls-ups
as the anthem began for Grandstand
and we joined in boisterously,
returning then to a reverent hush
for the reading of
the line-up card for the 1.15 at Haydock,
bought off with shared offerings—
a bag of dolly mixtures,
peeled prawns in vinegar.

Examining those years
between
thumb and forefinger,
as with a length of worn fabric,
through machine-woven squares
you can still see
their smoky light
shine through.

Wed 9th Feb 2011

Forks in the road

Economic prospects in the CIS in 2011

Main patterns of growth in 2010
A drop in real GDP of almost 6% in the east European transition economies in 2009 was the most severe of the regional recessions of that year. Beginning in the first quarter, however, most of east European economies saw a return to economic growth in 2010, which averaged about 3% for the year. In the main, the recoveries were export-led, with the lagged effects of large international stimulus packages, and in some cases substantial multilateral aid programmes, also playing a role. The pace of growth in domestic demand was generally much weaker, or in some cases remained negative. In particular, investment remained weak, depressed by low levels of business confidence linked to the uncertainty of the macroeconomic outlook, as well as to spare production capacity. In addition, household spending was weighed down by low levels of consumer confidence linked to poor employment prospects, high unemployment, falling or slowing wage growth, high levels of indebtedness, the paucity of credit as banks continued to repair their balance sheets, and a drop in workers' remittances.
Notably, the recoveries in the economies of the Commonwealth of Independent States (CIS) were generally stronger than for regional economies further west. The contrast was starkest between those economies that had been tipped into recession in 2008-09 by a fall in external demand and international commodity prices, and those that, before the crisis, had relied for rapid growth on domestic credit booms fuelled from external borrowing. Some of the bigger countries in the CIS, such as Russia and Ukraine, exemplify the first situation, whereas a number of countries in the Baltics and the south-eastern Balkans exemplify the second. [Some latest growth figures, highs, lows, averages, contrasted with rates before the crisis.] A second contrast with the countries of central-eastern Europe is that, whereas their prospects are bound up with those of the EU, where unfolding sovereign debt crises in peripheral countries have threatened the integrity of the common currency, the crucial relation for many CIS countries is with developments in Russia and Kazakhstan, the leading hydrocarbons-exporting economies within the organisation.
Finally, the political uprisings in the Arabian Peninsula and Arab North Africa may hold mixed economic and political prospects for the authoritarian hydrocarbons producers in the CIS, boosting state resources by pushing up hydrocarbons prices on world markets, while at the same time providing potentially replicable models for political confrontation with authoritarian state apparatuses.

The main, interlinked policy dilemmas
With the recovery having gained purchase, governments are now turning to a number of tough common policy dilemmas. The first weighs fiscal austerity against growth, because of the potential damage of withdrawing budgetary support before economic recovery has become self-sustaining. This concern is accentuated by the expectation of a downturn in global economic growth in 2011, as the boost from the big international stimulus packages fades. Thus, with fiscal and growth imperatives pulling in opposite directions, the benefits of running a loose monetary policy are likely to be cast in a favourable light, at least for a time longer. This is because maintaining liquidity could help to sustain economic activity, both directly, through its impact on domestic demand, and indirectly, by way of aiding the repair of bank balance sheets. This second effect could encourage a return to higher rates of credit growth, which plummeted during in the crisis and which are still well below the rates seen in the boom period. Without this, lower rates of economic growth will remain the norm for longer. However, for some governments, the return of inflationary pressures, both from rising international prices for commodities and food, and, further off, from individual economies as consumption demand begins to revive and spare capacity to dwindle, will create pressures in the opposite direction, pitching the desire to boost economic growth against the need to contain the pace of rise in the general price level. Another policy priority facing some governments across the region, and especially a few of the weaker economies in the CIS, will be the need to pursue policies to maintain external stability in the face of large external deficits and the build up of external debt.

Policy and performance in Russia and Kazakhstan
In both Russia and Kazakhstan, high and rising prices for hydrocarbons internationally, relative to 2009, will continue to sustain economic recovery in 2011. In Russia, the pick-up of consumer demand has been relatively unhindered by an overhang of private debt. In contrast, despite some progress in 2010, in Kazakhstan the inability of households and firms to pay pack loans—aggravated by the depreciation of the tenge that was induced by a sharp fall in inflows of foreign-exchange from the end of 2008 as a result of the global financial crisis—continues to place limits on the lending of the Kazakh banks, as they are forced to raise provisions against non-performing loans (NPLs). Thus, NPLs across the banking sector had risen to 26% in the first half of 2010, according to the IMF. Domestic credit growth in Kazakhstan dropped from a peak of almost 80% year on year in 2006, to just below 7% in both 2009 and 2010, according to the Fund. (In contrast, the peak rate of annual domestic credit growth in Russia was lower, at around 44% in 2007, and it dropped much less steeply, to around 22% in 2010.) This will restrict the speed of growth not only of the domestic economy, but also of its smaller Central Asian neighbours in particular. It should push policymakers in Kazakhstan to keep short-term policy interest rates low for the near future.
Of the two, Russia would thus appear to be in a better position economically to attempt to reduce the fiscal deficit in 2011. The possibly short-term boost to hydrocarbons export earnings as a result of a fresh round of political turmoil in the Middle East, which has stoked market fears over supply, should ease official plans to bring down the fiscal deficit, which reached the equivalent of almost 6% of GDP in 2009. Nonetheless, addressing the underlying problem of a structural non-oil fiscal deficit could remain, or even be discouraged by the same development.
Another important factor to keep an eye on for assessing regional economic prospects is the construction sectors in both countries, which continue to perform poorly, reflecting both excess capacity and a reluctance of the financial sector to lend. Construction is traditionally a large employer of migrant workers from other countries in the CIS and will thus feed into the prospects for a revival of private consumption and some kinds of investment in those states, through the link of remittance returns.

Fiscal consolidation in Central Asia

Fiscal consolidation is required not only as the payoff for any fiscal expansion undertaken during the economic crisis: following events in Greece in the first half of 2010, there is the additional incentive for governments to do so to try to convince international lenders of their fiscal rectitude. The kind of response possible will depend on the resources available. Broadly, just as hydrocarbons exports had allowed some countries to build up funds to draw on to cushion the full impact of the fall in external demand during the recession, so the recovery of oil prices and revenue will afford them greater room for manoeuvre for fiscal consolidation during the recovery. Kazakhstan and Azerbaijan both appear to be aiming for fiscal consolidation in 2011. In practice, in Kazakhstan this is planned to happen not only by means of a reduction of transfers from the NFRK, the sovereign oil wealth fund, but also through the imposition of an export duty and a progressive income tax. In Azerbaijan, overall deficit reduction is planned to go hand in hand with a rise in transfers from SOFAZ, its own oil windfall account, for social and infrastructural programmes, as well as part of the medium-term goal of industrial diversification. On the revenue side, non-oil fiscal consolidation will be hampered by an expected sharp slowdown in economic growth in 2011 linked to a fall in oil production volumes, which will put a dent in the growth of fiscal inflows. Hydrocarbons revenue may discourage necessary structural reforms in Turkmenistan and Uzbekistan.

My Gypsy Song

Found this old translation of mine of a song by the great Russian bard, Vladimir Vysotsky:

In the dream come yellow lights,

in the dream, I yell till I'm hoarse:

"Hold on! Hold on! It won't seem so bad

once the night has run its course."

Even then, though, nothing seems right:

where is the joy and the laughter?

Either you smoke before breakfast is done

or you drink on the morning after.

In the tavern: green bottles of vodka,

white napkins that have been there an age:

a heaven for jokers and scroungers,

though I feel like a bird in a cage.

In the church, there's a stink: the deacons

are burning incense in the half-light.

No, even in church nothing seems right,

nothing seems right, it's not right.

So I rush before anything happens

up a mountain, in full retreat.

At the top of the mountain an alder stands

and below it, a cherry tree.

If only some ivy had covered the slope

perhaps it would ease my plight;

it's odd, but something is missing…

no, nothing seems right, it's not right.

Then I'm in a field by a riverbank—

light as hell, but of God, not a sign.

In the untouched field of cornflowers

a long road beckons to the horizon.

And along the road is a forest,

it's dense, full of witches and hags,

and there at the end of the road that's long

is a chopping block and an axe.

Somewhere horses are dancing to a beat—

unwillingly, but not without grace.

On the road, nothing seems right—

at the end, it's even more the case.

And not in the church, nor the tavern

is there anything good or divine.

Oh no, it's just not right, my friends,

it's not right, oh friends of mine.