Tuesday, September 30, 2008


For all the talk of apocalypse, at least we now know that history didn’t end after all. The events of the last couple of weeks have demonstrated the failure of the neoliberal experiment so explicitly, that its exponents can barely predict what might happen during the next 12 hours. Public confidence in the market has evaporated – it had been waning anyway – and those of us with or without an economical bent wonder where we might go next.

The Right – finance capital, and those who believe that civilization depends on its prosperity – is dominating this question at the moment. The laissez-faire-ists believe that the $700 billion package proposed by the US Treasury Secretary to bail out Wall Street is “economic Socialism”. Nothing could be further from the truth – passing vast sums of public money into private hands could never be described as Socialism. But they are correct in saying that, as an intervention by the State, recent events have disobeyed the rules of laissez-faire. They believe that the market will iron out these unfortunate creases, and that capitalism will proceed as normal.

The practical neoliberals think they know better. They recognise that the use of public money to bolster private capital has been a hallmark of successful neoliberal economies, and that governments have been bailing out financial institutions for a long time. They acknowledge that we are probably entering the severest depression for 90 years, and are willing to perform the most barefaced of voltes-face – including supporting nationalisation, until recently a policy verboten amongst all mainstream political parties – to preserve the capitalist economy. They are more pragmatic, more hypocritical and just as wrong as the laissez-faire-ists, for it is unlikely that $700 billion will be any more than a sticking plaster. (They are, incidentally, the same bunch of people who agreed $612 billion military budget to fund ongoing adventures in Iraq and Afghanistan)

And what about the Left? The first thing to say about left-wing economists is that they have the upper hand. Schadenfreude may re-enforce the view that the Left never has anything positive to say, but we should not hesitate to say that this crisis was forecast as an inevitable result of capitalism generally and neoliberalism in particular.

The obvious response is to correct the wrongs of neoliberalism by proposing those great Keynesian policies of increasing wages and investing in public services. This is moderate stuff, though after the rightwards turn taken by politics in my lifetime, it feels positively radical. Given the doubtfulness of this current crisis being allayed merely by lowering interest rates, and given diminished stocks of credit, it seems unlikely that capitalism can survive without significant government spending.

But why might such policies succeed now, where previously they have failed? Along with the massive flow of American credit to Europe after the Second World War, Keynesian policies – in particular, full employment and provision of welfare by the State – ensured that world capitalism thrived during its Golden Age, and that workers chose consumption over Communism. But the flipside of Keynesianism is that, by depending on governments building up debts, it is unsustainable. Spiralling inflation has been its undoing in the past; with the world’s largest economy already nearly $10 trillion in the red, it appears even less likely to contain the contradictions of capitalism. It is true that workers are chronically underpaid – inadequate compensation for their labour is the reason for the credit boom and consequent crunch – and increasing wages and enhancing welfare is essential. But the policies of Keynes, no less than Paulson, are a palliative patching up a system which, by rights, should be put out of its misery.

Rational logic and lived experience suggest that Marx’s critique of capitalism still stands. Contemporary economists of the Left have explained this critique well, and pointed to a catastrophically disease-ridden market as evidence. They now need to consider a plan of action, a plan around which those who picture a world beyond capitalism can rally. Us layfolk can be visionary, but it’s the smart economists out there who will turn our visions into reality.


Anonymous Anonymous said...

"passing vast sums of public money into private hands could never be described as Socialism."

I don't think this is quite true, yet. Tax rates are not being increased, the federal budgets are not being cut. The proposed bailout is funded by the treasury selling securities on the open market, http://en.wikipedia.org/wiki/Treasury_security. They will then use this money to buy the [i]toxic mortgage assets[/i] of the banks. The argument is that these assets will actually turn a profit. But of course if that is true why aren't they being sold on the open market; And if they don't turn a profit the increased national debt will have to be serviced somehow. Anyway Ben Bernanke's plan was outlined some years ago - he'll do anything to avoid another depression: http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm#fn18

9:28 AM  

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