Acknowledging over-optimism: Christine Lagarde, MD of the IMF at a CNN debate in Washington DC. Photo: Getty
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The “New Mediocre” – and why the eurozone may be sliding back into recession

Something seems to have gone structurally wrong with all of the advanced economies: their ailment is chronic, not acute.

This summer, we went on holiday to Italy. While Britain seems to be in a state of perpetual flux, nothing much had changed since the last time we were there: the same delicious food and wine, the same immaculate medieval towns, the same beautiful frescoes and churches and galleries.

Yet there is a dark side to Italy’s immutability, especially for its citizens. Another thing that has hardly changed in the past decade and a half is the level of the country’s national income. Italy’s GDP was, in real terms, no larger this past year than it was at the turn of the millennium. That is a staggering fact. Even with the collapse of 2008 to 2009, the UK’s national income has grown by more than a quarter over the same period.

Nor are Italy’s prospects improving. The International Monetary Fund has revised its forecast for Italy’s growth this year from an already desultory 0.3 per cent to -0.2 per cent. If this projection is correct, it will signal that Italy’s economy will have contracted in every quarter since June 2011, with a single exception.

For most of the post-crisis period, the received wisdom has been that the laggardly performance of the eurozone’s Latin periphery has been the result of fiscal incontinence and a sad lack of the moral fibre needed to undertake the necessary structural reforms. That has certainly been the line taken by Germany in the interminable negotiations over how to resolve the sovereign debt crisis that reached a crescendo in the summer of 2012.

This year, however, the authorised version has become much harder to sustain. The German economy, too, has begun to contract, despite Germany’s vaunted current account surplus and unimpeachable public finances. In Italy’s case, the charges never quite stuck anyway. The government there runs a primary surplus. It takes in more revenue than it spends, if interest costs are excluded, and has done for years: a situation that dedicated austerians such as our own government can only dream of. Because of this, the IMF’s gloomy judgement that there is a significant probability that the entire eurozone will slide back into recession this year has been greeted by many with puzzlement. “What exactly,” they ask, “is the problem?”

The right context for an answer is probably to be found in another announcement from the IMF. Christine Lagarde, the organ­isation’s managing director, used its autumn summit to acknowledge that its economic forecasts since the crisis have been consistently overoptimistic for all of the advanced economies. The problem, in other words, is not unique to Italy, nor even just to the eurozone. Something seems to have gone structurally wrong with all of the advanced economies: their ailment is chronic, not acute. It is time, Lagarde suggested, that we reconciled ourselves to a “new mediocre” – the reality that economic growth will not recover to the 2-3 per cent range that developed economies typically enjoyed in the three decades before the crisis.

This saturnine assessment of the world’s economic predicament has been whispered about in worried tones for months now in the world of high finance. The fashionable term for it is “secular stagnation” – a shorthand coined by an American professor of the 1930s and popularised by Larry Summers, the former US treasury secretary and Harvard economist, in a speech last year. But “secular stagnation” is a description of the problem, rather than an analysis of its causes. If it is true that we are not going back to the good old days of 3 per cent growth (let alone the 4 or 5 per cent of the 1950s and 1960s), the important question is: why?

On this, unfortunately, mainstream economics is unilluminating. Indeed, “secular” is code among economists for “unexplained” – meaning that the new mediocre is an anomaly that cannot be accounted for by the factors that mainstream economic models normally consider important.

The most convincing explanations come instead from more heterodox quarters. Lagarde referred to one herself, warning that inequality is casting a “dark shadow” over the global economy. The problem is that the rich tend to save a larger proportion of their income than the poor; so that increasing inequality may be not just socially undesirable but a structural drag on demand.

Another theory is that the vast overhang of public and private debt that the advanced economies have accumulated since 1980 is to blame for their stagnation. This idea makes intuitive sense. Losing your job makes you much more cautious if you have a hefty mortgage than if you are debt-free. It’s easy to see that the same desire to pay down debt rather than to invest and spend might be causing a prolonged “balance-sheet recession” if the economy as a whole is seeking to minimise the financial risks heaped up in more optimistic times.

Nevertheless, even these explanations don’t get to the root of things. They offer plausible hypotheses concerning the mechanics of what has gone wrong. But they prompt still more fundamental questions, especially if we want to know what to do about it. Why has inequality been increasing since the late 1970s – and why was there the giant build-up of debt in the first place?

For an answer to these questions, it is necessary to venture outside the neat reserve of economics into the wild savannah of politics. It was the postwar political settlements that gave us the trente glorieuses in France and “You’ve never had it so good!”. It was Thatcherism and ordoliberalism that gave us the pre-crisis era of debt-fuelled growth. So, how can we engineer a renaissance from secular stagnation? Don’t look to the economists for the answer. Only a new generation of politicians and voters can provide one. 

Mehdi Hasan returns next week

Macroeconomist, bond trader and author of Money

This article first appeared in the 15 October 2014 issue of the New Statesman, Isis can be beaten

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What’s it like to be a human rights activist in post-Pussy Riot Russia?

It is five years since the feminist punk collective crashed Moscow’s Cathedral in a performance that got some of them jailed.

On 21 February 2012, five brightly-dressed members of Russian feminist punk collective Pussy Riot took to the alter of Moscow’s Cathedral of Christ the Saviour to protest links between the Russian Orthodox Church and its “chief saint” Russian President Vladimir Putin. “Virgin birth-giver of God, drive away Putin!” they shouted from beneath now-iconic balaclavas.

The “Punk Prayer” was both a political statement and a powerful feminist message. Six months later, a judge sentenced three of the girls to two years in prison (one was rapidly released) on a conspicuously apolitical conviction of “hooliganism motivated by religious hatred”.

These past five years, Russia’s involvement in crises in Syria and Ukraine has cast a dark shadow over relations with an increasingly cleaved-off West. The year 2015 saw opposition politician Boris Nemtsov murdered some 500 metres from the Kremlin walls.

Domestically, society has constricted people challenging the political status quo. However, low-key initiatives retain traction.

“Artists are simply silent,” says Russian curator and gallerist Marat Guelman, who left for Montenegro in early 2015. “It is better not to say anything about politics, it is better to bypass these issues.”

This is a major difference from five years ago. “Despite persecution against Pussy Riot, people were not afraid to defend them,” he says. “It was a better time.”

There are three topics artists and curators now avoid, says artist and feminist activist Mikaela. One is “homosexuality . . . especially if it involves adolescents”, she says, citing a 2015 exhibit about LGBT teens called “Be Yourself”. Authorities closed it and interrogated the galley owner. “Then the war in Ukraine,” she says. “Russian Orthodoxy is the third topic you cannot tackle.”

Marianna Muravyeva, a law professor at Moscow’s Higher School of Economics, says that aside from the government completely discarding human rights rhetoric, the most significant legal change is the “gay propaganda” law and “legislation against those who insult the feelings of believers”.

The latter came into force in July 2013. Since then, the Orthodox Church has made deeper societal incursions. Muravyeva says that the secular nature of the Soviet Union led to residual feelings of guilt towards the Church – and now it uses that “capital”.

Mikaela observes a “cultural expansion”, citing a new TV channel, radio station and three new churches in her neighbourhood alone.

Orthodox activist attacks on exhibits have increased. In August 2015, they targeted an exhibit at one of Moscow’s most prominent art galleries. Its perpetrators were found guilty of “petty hooliganism” and handed a 1,000 rouble fine (£14 by today’s rates).

“Any word written in Old Slavonic lettering is spirituality,” says Guelman. “Any work of art by a modern artist . . . depravity, sin, the impact of the West.”

Similar groups are active across Russia, and galleries err on the side of caution. Perpetrators, while self-organised, believe their actions to be state-sanctioned, says Muravyeva. They are influenced by “the kinds of messages” conveyed by the government. 

Nowadays, self-organisation is integral to artistic expression. Mikaela witnessed educational institutions and foreign foundations telling artists “we are with you”, “we know you are smart” but they cannot host political works for fear of closure. Not knowing where the “invisible line” lies foments uncertainty. “It’s self-censorship,” she says.

Dissident artist Petr Pavlensky, notorious for nailing his scrotum to the Red Square in late 2013 (“Fixation”) and setting fire to the doors of the FSB in 2015, advocates personal agency.

“Fixation” was about a sense of helplessness in Russia that must be overcome; he tried to convey the amount of power the castrated have. “Pavlensky says, ‘Look, I have even less than you’,” says Guelman. The artist and his partner Oksana Shalygina are now in France intending to seek asylum after sexual assault accusations.

Some rise to the opportunity, such as Daria Serenko. She rides the Moscow Metro carrying political posters as part of Tikhy Piket or “Silent Protest”. Her 12 February sign depicted a girl with her head in her arms inundated by the comments received if a women alleges rape (“she was probably drunk”, “what was she wearing?”).

However, as a lone individual in a public space, she experienced hostility. “Men, as always, laughed,” she posted on Facebook afterwards. Earlier this month an anonymous group pasted painted plants accompanied by anti-domestic violence messages around Omsk, southwestern Siberia.

Their appearance corresponded with Putin signing legislation on 7 February decriminalising domestic abuse that causes “minor harm”. While it doesn’t specifically mention women, Muravyeva says that the message “women can manage on their own” is a “disaster”.

On 27 January, after Russia’s parliament passed the final draft, pro-Kremlin tabloid Life released a video (“He Beats You Because He Loves You”) showing how to inflict pain without leaving a mark.

Heightened social awareness is aided by online networks. Since “Punk Prayer”, the proportion of people using the internet in Russia has exploded. In 2011, it was 33 per cent, while in 2016 it was 73 per cent, according annual Freedom House reports. Authorities have concurrently exerted stronger controls over it, eg. targeting individual social media users through broadly-worded laws against “extremism”.

Last July, the hashtag #ЯНеБоюсьСказать (“#IamNotAfraidtoSay”) went viral. Women documented experiences of sexual violence. Russian organisation Сёстры (“Sisters”), which helps survivors receive psychological support, receives “250-350” crisis calls annually.

“Over the past year, the number of applications increased,” because of the hashtag, it says. New media platforms Meduza and Wonderzine also emerged as more “socially aware” outlets. Previously “all we had was LiveJournal communities,” Mikaela says.

Bottom-up challenges are partially due to a generational shift. “Nobody bothered before,” says Muravyeva. “Those children who were born after ‘95 . . . they were already born in a very free society – they don’t know what it is to be afraid, they don’t know what it is to be self-censoring, what it is to be really scared of the state.”

Aliide Naylor is a British journalist and former Arts and Ideas Editor of The Moscow Times.

> Now read Anoosh Chakelian’s interview with Nadya Tolokonnikova of Pussy Riot