Iceland may be a barometer for what’s changing in the world economy. It was only very recently that the Milton Friedman fan club was hailing Iceland as a “Nordic Tiger”, lauding its flat taxes and praising its “economic freedom”. “Economic miracle” was a common phrase. What’s it looking like after the credit crisis?
Iceland right now is apparently in a state of shock and gives a snapshot of what a depression with the Great in it will look like everywhere – “cafes were half-empty, real estate agents sat idle, and retailers reported few sales” says the AP.
This after the government basically took over its banking sector, with Russian money, which as noted in the linked post, has real geopolitical implications.
Meanwhile, the British government is laying out 500 billion pounds to take equity in its banking sector, but basically proposing business as usual. Co-ordinated interest rate cuts are having very little impact on the stock market, and more worryingly, on the liquidity crisis. Paul Krugman writes:
We’re way past the point at which conventional monetary policy has much traction.
In America, in the eye of the economic storm, the Fed has basically become the financial system, but to little avail:
The time for a recession was 2005. At that time simple macroeconomic policy; simply raising interest rates, would have ended the bubbles in credit and housing at the cost of a standard if somewhat nasty recession. Trillions of dollars of intervention would not have been needed. Just standard macro policy. Even in 2006 it might still have worked. The Fed blew it, and they broke the system, and now with the system broken they may have to either buy it all out (and Paulson may be considering that after all) or just become the system. And even if they do that may not work, because, well, who wants to borrow and invest right now?
Bernanke and Greenspan are certainly in the “worst Fed chairman of all time” stakes in a big, big way.
So what does all this mean? It’s not “financial socialism” or the “end of capitalism”. While there are some truly absurd narratives circulating about how the meltdown is all the fault of… you guessed it, regulation, the Left and/or Bill Clinton, this nonsense is not unrelated to the coincidence between the financial meltdown and the American Presidential election, and it can be disposed of very easily:
Although financial institutions were evaluated for compliance with the act, it never required they lose money on mortgages or that they be given to people with slim prospects of repaying them. Even if, as some claim, the legislation ultimately played a part in encouraging excesses, such as the bundling of sub-prime loans into packages that hid their riskiness, that was a failure not of too much but of too little regulation.
What conservatives can’t point to, ultimately, is any form of regulation that actually caused the crisis. No one put a gun to the head of US bank executives and made them lend to people without the means to repay loans. No one threatened dire retribution to investment bankers unless they packaged sub-prime securities. And no one compelled Standard and Poor’s and Moody’s to inexplicably and wholly irresponsibly rate those securities at AAA levels even when they didn’t understand the packaging mechanisms being used.
As Keane points out, this sort of thing is a classic example of the moveable feast that is the right wing opinionating machine – an “ownership society” and aspirational citizens were the mark of the success of right wing governments yesterday, and today evil lefties encouraged passive banks to lend money to all sorts of unsuitable poor people.
While it may be difficult at the moment for the Right to point to capitalism as a roaring success story, what’s occurring in response is very far from being socialism, or even nationalisation.
John Quiggin writes:
This kind of instalment-plan nationalisation seems to offer the worst of all worlds. At some point, a more systematic approach will have to be adopted, and given the rate at which markets are plummeting, the sooner that point comes the better. This isn’t the return of socialism, but it certainly looks like the end of the kind of financial capitalism that has prevailed for the last few decades.
And his opinion is echoed by a socialist blogging sociologist:
And what about the future of capitalism itself? No one is saying the system itself has collapsed, rather what has gone down the tubes is a particular way of organising capitalism. It is too early to tell what could replace it, though a number of participants flagged up the possibility of a more regulated capitalism, albeit without the welfare and full employment commitments of post-war Keynesian capitalism. It’s also likely that Neoliberalism will continue to cast its shadow.
And in a rather pithy article from Andrew Crook of Business Spectator:
Western economies, with their manufacturing industries gutted and the entrails shipped abroad, are struggling to actually produce anything beyond amorphous “services” and intellectual property. This has mirrored the spread of cancerous and impossible-to-decipher debt instruments, producing the biggest financial bubble in world history. That bubble has just burst.
Sub-prime mortgages may have been the bitter pill, but it’s the yawning distance between these debt vehicles and the bricks-and-mortar of our everyday lives that could prove fatal.
Assuming the current crisis doesn’t result in the second coming of socialism, we’re left with the familiar remedy of ever more-regulated domestic markets. But the genuine policy levers of an earlier era remain out of reach.
Over the last 30 years, the Keynesian social fabric has being steadily eroded by the slavish adherence of Western governments to global market forces (“external harmonisation”) as a non-negotiable pre-cursor to domestic policymaking. Despite the tinkering of Rudd and co, this remains broadly the case. Not that they’d have you believe it.
As I’ve been arguing, the political logics behind neo-liberalism remain well entrenched, despite the recourse had by panicked “free markets” to the “nanny state”. Mark Davis agrees neo-liberalism isn’t finished:
It’s a nice idea, but underestimates just how deeply embedded neoliberal ideas are in the global finance system. My sense is that the bail-out, now passed by the US senate and to be revoted on in Congress tomorrow, will happen, even if it won’t necessarily work because there’s more to this than simply lancing a boil. Regulatory noises are being made and some tightening will take place. But the system will stay relatively unchanged because too much depends on it and because money and power have little respect, in the end, for principle.
We have essentially two problems at the moment from the point of view of the conjuncture of political economy and the alignment of social and economic forces. The first is that social democratic parties have bought into the logic of the dominant paradigm to such an extent that there are very few alternatives on offer. The second is that neo-classical orthodoxy has led to such a mismanagement of the global economy that states appear bamboozled in the face of a liquidity crisis, and few orthodox solutions appear to offer any hope of turning the situation around in the short term. We will probably see some sort of stabilisation, though perhaps not for a while, and we will also see the emergence of a new orthodoxy not too dissimilar to the old one as the superficial lessons of the crisis are absorbed and the wagons of the powers that be circle the camp.
So, if the policy cupboard is bare, and ideologues are trying desparately to readjust themselves to some version of “culture wars as usual”, what is to be done? Andrew Crook, once again, is absolutely on the money:
The broader challenge for the Left, and for politics, is to imagine a radically-different regulatory framework with actual meaning for alienated individuals struggling, in a world of tumult, to carve out a viable identity and a cohesive personal narrative. This won’t come from centre-left policy elites—it requires a new breed of social movements to organise around these faultlines and assert their right to economic and cultural autonomy.
But the outline of such a movement is only just being sketched and echoing Paulson’s doubters on Wall St (the Dow has lost 13 per cent of its value in the last five sessions), there’s little reason to believe conditions on Main St, or anywhere else, will begin to improve any time soon.
Update: New post here. Comments are now closed on this one.
Good post, Mark. A couple of links to add:
The conclusion over at potlach:
Martin Wolf (via Dani Rodrik), after missing the above point in calling for demand expansion policies concludes:
That Crook quote is absolutely on the money. (what’s the link?)
Thanks, dk.au.
Crook:
http://www.crikey.com.au/Business/20081008-Where-to-economic-theory.html
And that’s a really good point!
One major problem is that the market for all of these financial products (without debating the product itself) has become divorced from risk. Debt when old-sold became a black box, with the buyer having no idea what was inside, making the assumption that as long as the underpinning growth was there, there was nothing to worry about.
I watched the 7:30 report last night when we were told that many virgin olive oils had actually been around the block a few times. The consumer has a right to know what they’re buying, we are informed by the ACCC and others. Why should the financial markets, be any different? Doubly so, the comsumer (main street) has no control over their behaviour but will certainly wear it, if large-scale failure is the result.
Regulation has to apply so that any product or service is accompanied by full disclosure. Sometimes markets fail even when the right information is available. When it is is not, they will fail. Water, carbon, sub-prime mortgages – it doesn’t matter.
Dollars & Sense:
http://www.dollarsandsense.org/blog/2008/10/october-surprise.html
Shorter Mark: Capitalism is dead but we’ve got no idea of what the viable alternative is
I agree with the second part of that – but not the first. The current crisis is a watershed in how financial markets will be regulated. The excesses of the past two decades are finally being unwound. We will return to a more sustainable and responsible capitalist system. There is no viable alternative.
No, Andrew, I’d have thought that it was pretty clear that I was saying capitalism isn’t dead.
It’s perhaps not the easiest time to say so, but I still reckon this argument is highly overblown.
The USA is still perfectly capable of exporting manufactured goods. The reason why it struggles to export enough of them to pay for its imports is that the US dollar is perpetually overvalued. It seems likely that, in the medium term, that will change. You might enjoy this 2005 piece from Brad DeLong about the consequences of such; possibly rather unpleasant in the short term, to say the least.
I’d be interested, Rob, in any stats on how large the manufacturing sector is in the US. Everything I’ve seen lately suggests big job losses over the past year. There may be parallels with our own experience in the “recession we had to have” – jobs lost never came back as structural unemployment and a reshuffling of capital was accelerated by the downturn. That’s leaving aside the question of the US dollar, and other things that influence the US’ exports.
“We will probably see some sort of stabilisation, though perhaps not for a while, and we will also see the emergence of a new orthodoxy not too dissimilar to the old one …”
I agree entirely. However …
“The broader challenge for the Left, and for politics, is to imagine a radically-different regulatory framework with actual meaning for alienated individuals struggling, in a world of tumult, to carve out a viable identity and a cohesive personal narrative. … But the outline of such a movement is only just being sketched …”
Is it? Could someone point me to where, and by who, the sketching is currently being done?
What’s the point of making broad, general statements along the lines of “Hey, everyone, why don’t we imagine a better world?” The Left has to start being a bit more specific than that. You guys have had two decades since the end of the Cold War transformed modern politics, and yet you’re still just sketching “the outline of such a movement”.
You express dis-satisfaction with classical and neo-classical economics, with Keynesianism, with the incremental change agenda of social democrats, and with old-style socialist command economies.
OK, then, come up with something new. If you can. But that needs a little more than just vague noises about the problems of existing systems.
And as an addendum, though I might be misreading your comment, it seems to me that it’s something of a contradiction to suggest that there’s spare manufacturing capacity if there are structural barriers to exporting manufactured goods. If you can’t sell them, what tends to happen is that the workforce and skills base is dissipated, the physical plant run down, some of the fixed capital destroyed and the rest liquidated.
I may be getting you wrong here Mark, but are you heading towards perhaps recommending a FDR like “New Deal”.
The whole point of the quote from Crook, Paulus, is that it will require sustained collective effort and political effort in organising social movements which may be able to do the hard work of analysis and rethinking. This is actually going on to some degree, but far too late, which is what I’m arguing. It’s just not amenable to some sort of flip solve the world’s problems by article or blog post approach! And here we also have the point that’s implicit in my argument – ideas don’t spring from the ether – they result partly from the balance of social and political forces – so this is why the assimilation of social democracy to neo-liberalism lite has posed an enormous barrier to any sort of rethinking aside from the “neither left nor right” Third Way-ism – the “centre-left parties” in effect drain off enormous amounts of intellectual and political energy through the necessity of electoral contests against the right while eviscerating the basis for their own renewal at the same time.
This is Crook’s point – genuinely new policy directions won’t come from policy wonks.
No doubt Gramsci’s “organic intellectual” is hiding in the interstices of his article…
Maybe, maybe not, Nanuestalker. If you go back and look at the history of the New Deal (and one of the best books to read is Rex Tugwell’s The Democratic Roosevelt), two things are clear.
The first is that there was an enormous amount of intellectual energy already building up for new ways of thinking about politics and the economy which Roosevelt tapped and harnessed from the campaign onwards.
The second is that a lot of this ended up dissipating in the “Second New Deal” as collectivism was reined in by the individualist liberal elites.
In my view, the first condition is absent. I don’t see any sort of rethinking or vibrant political and intellectual energy behind the Obama campaign. So what I think we have to look forward to, as I suggested, is something that isn’t too far from “more of the same” with a larger element of state capitalism and tighter regulation but little real shift towards structural change which would lead to both greater fairness in outcomes and chances across society and sustainability in terms of the necessity to provide capital markets for economic activity.
Similarly at the global level – what we are seeing is all sorts of attempts at a quick fix. There’s nothing comparable to the body of ideas – and the political will and social support for them – what Keynes and others brought to the table in Bretton Woods in 1944.
Trying to dig up statistics like that is awkward, Mark. You can try Bureau of Labor Statistics. Yes, there have been job losses, but a lot of that is likely the result of losses in domestic demand; Flint, Michigan’s SUV factories have not been doing well.
But, at least until recently, overall US exports have been going up.
Look at that Aussie dollar drop! A huge movement in a few weeks. A currency once upon a time reflected fairly accurately export/import levels of the nation, hence changed over timscales of years not weeks. I’m told the huge washing of capital around the globe now far outweighs the influence of traded commodities.
So, what to do? How best reduce the inherent instability? Tax the capital transfers [there'd have to be unanimity by all the major traders on the rates and who'd collect the cash: straight into the treasuries of the poorest 50 nations say I]?
Build in compulsory/unavoidable delays [one week? two weeks? what delay would be needed to slow down the most detrimental effects of the games these wealthy lemmings play?] for capital transfers.
Build [shorter?] delays into stock market buying/selling to dampen plunges??
Yeah, I’m a party-pooper. But really, if the stock market partially acts as a vehicle for investment in long-term socially useful works, a company doesn’t need to collect such cash in 6 seconds flat. Jee whizz, 6 days’d be OK, wouldn’t it?
*********************
The shape of things to come? Co-op building societies, co-op shops and small manufacturers, …. realistic financial advice; every citizen able to use an online loan calculator to run scenarios of higher interest rates on a loan she’s contemplating; maintain taxes on capital gains; chase down Aussie income hidden in foreign banks; shareholder meetings putting a few execs on the basic wage; tax incentives for lowering greenhouse emissions; car pooling; bicycle lanes. Seems there are plenty of reasonable ideas around. The ALP is rarely the font of all wisdom.
cheerio,
and a Happy Financial Crisis to all our readers
Rob @ 13 – it’s not clear from that Krugman link what the composition of exports is. As we know well in Australia, services are a very significant component of exports. Anyway, it would be interesting to see if there’s better data around, but I’ve got to go to a meeting and then teach!
Does anyone believe it is, Ambi?
Mark: agreed.
But services are not the fount of all evil, either. As far as I can tell, my entire class this semester is made up of overseas students. I, therefore, am an exporter of education services
No, Rob, I agree, but education services are high value-added as it were compared to some others (hopefully anyway!)…
What’s happening sure isn’t socialism, but its sort of half socialism. Part nationalising banks,government buying up shonky bank debts, suggestions of putative Presidents buying up bad mortgages and probably a few other things I’ve missed.
Somebody should tell these neo-liberals and centre-left sell out merchants there’s no such thing as being half pregnant.
But, then again, reading this excellent post and its various links, I gather we might be past the point of no return and Keynesian solutions wouldn’t work, anyway. I already sort of had that impression. No matter what governments and central banks do the all sacred markets just keep falling and falling into oblivion.
I hate capitalism, but I’m very very worried what this means for the ordinary worker/pensioner and others not caught up in the past decade’s maelstrom of greed (apart from super). What’s the bet, when it comes to the crunch they’ll be the ones to bear most of the brunt, as always?
The Poms are spending 50 billion pounds, not 500 billion.
I hate capitalism
That’s fine, you’re entitled to your beliefs but you should keep in mind that greed is not something that surfaced in the past decade and isn’t an innate flaw in capitalism, but in mankind. One of the problems with subprime loans for instant isn’t the real estate market but the ‘plasma screen market’.
http://www.guardian.co.uk/business/2008/oct/08/marketturmoil.creditcrunch
Up to 500 billion, Spiros.
Paul, yes, I share those concerns.
Where I think it really needs to be distinguished from any form of socialism and nationalism is in the motivation and the intended results of what’s going on.
#22 cont.
I should add that Keynes probably wasn’t thinking beyond the consumer ‘needs’ as opposed to actual consumer ‘demands’ in today’s world.
truth be told until they obviate the
commodity futures modernization act, this will continue to happen
Bike lanes, Ambigulous? Try donkey and billycart lanes!
What’s happening isn’t anything more than a flat panic. Every nation is catering to its loudest, most threatening interest group.
@22, On the “plasma screen market”, this is quite similar to the victim blaming of the right (often in the US with a nasty racial edge – look, Blacks and Hispanics were lent money to buy houses!)… It’s also a reflection of something there in economic ideology – passive producers (of credit in this instance) just respond to consumer demand.
I still want to come back to Guy Rundle’s article on this stuff at a later date, but I agree wholeheartedly with this:
I think this is spot on. It’s also why I oppose the “hair shirt” Clive Hamilton “affluenza” stuff.
Rundle link here:
http://www.crikey.com.au/US-Election/20080930-Rundle-08-Black-Monday-turns-grey.html
“It’s just not amenable to some sort of flip solve the world’s problems by article or blog post approach!”
I agree entirely, and I wasn’t asking you to do that.
My earlier post was not to score points, but to inquire if you knew of anyone significant out there who is working on “genuinely new policy directions”.
Notwithstanding the “assimilation of social democracy to neo-liberalism lite”, there must be a lot of Leftists out there who have not been hoovered up by the ALP / US Democrat / Euro social democrat party machines.
Many Leftists have thrown their energies into the Green movement. Some have got into the dour anti-consumerism exemplified by Clive Hamilton. There are still the remnants of old socialists around, tiny outfits engaging in internecine warfare and theological disputes over what Marx said.
Is that all there is?
“The “centre-left parties” in effect drain off enormous amounts of intellectual and political energy through the necessity of electoral contests against the right.”
So they should cede the political stage to the Right? I can’t believe you, or anyone at LP, would want to see that!
Furthermore, why can’t the Left walk and chew gum at the same time? During the 1970s and 80s, when ‘neo-liberalism’ was emerging as an ideological and political force, right-wing parties were still contesting elections as strongly as ever. They didn’t see any need to choose between practical politics and theoretical development, and neither should the modern left.
I think the difference is that it’s always much easier for the right to produce policy that essentially reinforces the logic of the current system, Paulus, because they’re happy with it – or want to extend it further.
Some of what Ambi was getting at earlier has been around for a while – eg Tobin Tax, cooling off period on financial capital movements, etc, but it does nothing to address the inequities and real structural promblems imho. It’s at the international policy wonk level. Some of the Parenomics stuff is sorta interesting, but there’s not much political thinking about how to get from where we are now to a co-operative economy.
Anyway, I’d love to expand further but I’ve got to go to work to pay off some of my credit card debt and the rent, which has just jumped 50 bucks a week.
*Don’t own a plasma tv*
Thank you Mark, especially for your quote @28. It always seems so easy to blame the ‘little’ people, who in reality are just trying to live the ‘aspiration al’ life we expected to aspire too. I call BS.
C’mon Mark, that is not an argument. Suggesting the desire to acquire material things for some distorted semblance of happiness in life because some shit-house deal we have now is crap (but funny
).
I don’t own a plasma either and am quite happy to drive a Toyota!
Paulus wrote:
The problem with these movements is that they are essentially “negative” and non constructive. Perhaps the real reason there are no effective alternatives to either central planning or free markets is that basically there aren’t any real alternatives. We know you can make central planning work (how else can you slaughter a significant percentage of your own citizens, cause widespread famine or get to the moon), but can it be effectively “checked and balanced”? It will simply be the courage to stand up and say “let’s try it again, but different” for some selected industries.
I expect the Americans are just about to find out what Italy was like post WWII – they will produce Lambretta’s, movies and nice sunglasses and economically wallow for 40 years. Meanwhile, China is now America and we better get used to it. The end of the world still hasn’t materialised though. Slowing down the movement of capital might make you feel better, but what exactly will it achieve other than encourage widespread fraud?
What a load of rubbish from Rundle, Mark. Have you ever seen such a tragic projection of personality as in those two paragraphs? I mean, I know he’s acting as if he’s solved the mystery of the human condition circa 2008, but come on. People want to participate in the material fashions and frivolities of the day even if (a.) they like their jobs or (b.) have little to no debt or (c.) both of the above. If anything ought to be the ‘reward’ in his pathetic, elitist and misanthropic office-slave parody it ought to be wages, not easy credit. Easy credit is a sideshow to the acceptance of capitalism, not its essence (which is why capitalism was equally accepted in the West when, wait for it, credit wasn’t easy and you had to save for everything ahead of consumption). On a more practical level, easy credit is more the essence of government intervention in interest rates and the money supply, which are key elements of the state capitalism to which you refer but to which Rundle seems oblivious. It’s par for the course from him, I’m afraid.
BBB
BBB, do you have an opinion as to why you think goverments deliberately enabled easy credit through low interest rates and inflating the money supply?
Mark wrote: “Some of what Ambi was getting at earlier has been around for a while – eg Tobin Tax, cooling off period on financial capital movements, etc, but it does nothing to address the inequities and real structural promblems imho.”
Yes, Mark. Most of what I was suggesting was to do with reducing instability. Certainly wasan’t addressing poverty, and other structural problems. As Paul Burns mentioned, short-term extra poverty can be an outcome of any severe downturn, and I doubt many folk are happy about that. My suggestions were mere bandaids. I tossed ‘em on the barbie to put something specific forward. But Laura wants to ride a donkey: that’s just fine with me
No financial jargon for her…..
We’ve been here before and history tells us it will get worse http://nakedmechanic.blogspot.com/2008/09/everything-old-is-new-again.html
Can’t see much of an answer beyond differentiating wants from needs, and finding ways to satisfy those needs at the local level, but that is now considered “hairshirt” territory, google “transition towns” for some info’ or start here http://transitionculture.org/about/
wizofaus -
Stupidity perhaps? Get Carter [the Community Reinvestment Act] and add a little Clinton…hmmm damn democrats! “I feel your pain”!
BBB
don’t be unkind to Mr Rundle. His best achievements have been as a comedy writer. Actually, the effusions of Rundle and Scott Burchell do rather lend credence to the plaint that “teh [aussie] Left” has little of substance to offer, either in diagnosis or suggested ways out…. If youse write piffle, why should folks take you seriously?
I thought Malcolm Turnbull’s referring to the PM’s “Campaign Against Greed” was aptly scathing [RN yesterday]
How did it come to this?
* greed, yes, but that may be assumed
* poor (absent) regulation
* poor information
* fraud
* massive capital flows
* weak governments
* poor understanding of risk
* real estate bubbles
* convoluted financial smart-arsery
* profits divorced from real production
i dunno, it all should be working just fine, eh?
Ambigulous brought up co-ops as a vision for future ownership. Chris Dillow agrees.
wizofaus, we need to be careful about ascribing deliberate action to a government rather than the state, since the former could be read to exclude bodies such as an independent central bank. Having said that, in the modern Australian context the primary motivation for allowing low interest rates is to avoid short-term political pain. Low interest rates = less financial stress/more consumption = happier households = more votes for the government of the day. No one wants to be the one who calls time. And in an era of compulsory retirement savings, with the psychology that that entails, the political incentives to look after voluntary savers are much diminished.
BBB
No one wants to be the one who calls time
Yep! (especially if it comes at a cost to political power)
I don’t have any links, or time to find them ’cause I read it in a mag, but there’s quite a siugnificant co-op movement in Central and Southern American countries – Argentina comes to mind – and it’s apparently forming a significant part of how those countries’ people are rebuilding after their previous economic collapses. Basically rather than go and be poor and do nothing when the factories all shut down, workers have been getting together to re-open, make stuff, sell it, and start paying themselves when they can afford it, creating wholly worker-owned coops.
It was a pretty inspiring read, actually.
David @ 34:
That’s the sort of dichotomy that’s extremely unhelpful. There is no such thing as a “free” market – or in an economy like this a “natural” market perhaps outside very small scale barter/exchange pockets. It’s not a question of reverting to central planning – but of combining a focus on markets as a mechanism for the allocation of goods and services and the supply of capital with structural changes which seriously reduce inequality. As Ambigulous says @ 37 – the question of stability is usually seen as separable from this, but I in fact don’t think it needs to be.
The issue is that political will is completely lacking. And that’s where I’d like to supplement my answer @ 31 to Paulus. Incentives are lacking for people to put the effort into policy formulation where there’s no real chance that a governing party will implement anything. It’s been since around 1987/8 that the fight for an alternative economic strategy from unions, academics and indeed policy advisors with the ALP has disappeared – when it became clear that the Australia Reconstructed stuff was going to go nowhere. I’ve written about this before. It’s interesting to consider that coincided with the last big stock market crash. And a similar process was at work in British Labour at exactly the same time.
Since social democratic parties have basically accepted the logic of neo-liberalism, why would anyone put in the hard slog? What intellectual energy that has been expended has gone into stuff like human capital/exogenous growth theory and innovation policy – where there’s a chance that a government will actually implement it (and this was basically the Rudd government’s template). The trouble here is that it accepts the logics of:
(a) a stable and growing international economy, or at least a stable financial system with pockets of growth;
(b) orthodox finance and macro-economic policy.
If the system itself shudders and breaks, there’s not a lot of point in having wizz bang industry policy reports and skills formation programs in and of themselves – because the assumption that there is a specialisation/skills basis to international competitiveness rests on a large degree of international economic stability.
Similarly, to the degree that inequality was addressed, it was by a combination of mild redistribution, neo-liberal welfare policy and supply side human capital stuff.
There just is no substantial difference in terms of macro-economic approach or for that matter, basic philosophical questions about the ends of economic policy between centre-left and centre-right.
How all this will play out now if things are as bad as they look will be interesting, though I’m not particularly enjoying having to live with interesting times of this nature.
I don’t think it’s piffle at all. Perhaps someone would care to explain to me what’s wrong with Rundle’s analysis of the cultural logic of contemporary capitalism – are people supposed to be working in crap jobs just to keep the glorious engine of the economy going or for some sort of Protestant work ethic and eschew any of the rewards of consumerism?
The Fin today is full of stuff about how the consumer needs to lead us back into higher growth. Nice for columnists to say, but I’m not sure that people need to take on debts with a 160:100 ration to annual income for the greater good of corporates…
Ps – in response to BBB, it’s all well and good to say wages should be their own reward, but I’ve previously made the point that a single wage has been insufficient for a family’s needs for a long time, and one and a half doesn’t get you all that far either when you consider median wages. The ratio of 1:7 for annual income and house prices should be the clue. There’s a good reason why repossessions and bankruptcies are happening most in Western Sydney.
And I just don’t accept that the climate of never ending credit that was created should be sheeted home to the household debtors.
Mark wrote:
Some of us like our jobs. Some of us even enjoy the unprecedented access to human artistic endeavour we can now enjoy in our own living rooms via oversized TVs and neighbour annoying surround sound systems that are largely wasted on mono black and white movies. It doesn’t necessarily have to be debt driven. The real problem is that nobody wants to let inflation off the leash because that means the banks lose and you get to pay off your debt via attrition (which is what used to happen and was the reason your grandparents and parents owned their houses).
That’s the real, underlying problem. Nobody wants to let banks lose. Whether it’s farm subsidies, central bank interest rates, four pillar policies or financial market deregulation and nationalisation. They should lose every now and again. That’ll fix it.
And a lot of people don’t like their jobs and earn less than 30-40 k a year, David, and are in insecure employment. If you actually look at any of the reports on personal debt and financial stress, many people are using credit cards to smooth over periods of reduced or no income, for essentials like food and clothing, to pay rent, and bills. It’s not some wild level of financial irresponsibility but a reflection of high costs of living and a huge increase in badly paid casual and short term employment. This “poor are all buying plasma screens and it’s all their fault” thing is just a pernicious stereotype.
Mark wrote:
I’m confused about where that argument leads Mark. Without the “climate of never ending credit”, the poor wouldn’t be eating? You’ve lost me. Was the never ending credit good or bad?
Mark -
I have often have as part of my work to deal with quite a few trustees of bankrupts of the Western Sydney variety, they all say the same thing, if the Plasma TV type debt was taken away peoples homes wouldn’t be at risk. All to often, people have borrowed against the perceived equity in their homes to sustain an otherwise unachievable lifestyle rather than paying for their homes in the first instance. (This isn’t the only foolisness of course, for example one of the most striking things I noticed first about Australia is the McMansions of first time buyers.)
While I’ll attribute alot of the crisis to inept government, there’s still personal responsibility. If we wish to hold our politicians responsible, fat-cat CEOs etc., we must also apply the same to ourselves.
Robert & Mark
I just googled up this commentary and also this on the US share of global manufacturing. I’m not sure how accurate they are but, if they’re anything to go by, it seems the US is still the world’s number one manufacturer, with China scheduled to overtake it in the next decade or so. I suppose the current metldown might accelerate China’s rise. But then again it might not.
Mark: “short-term and casual”, I’ll buy. Miserable, I’ll also buy, partly because the balance between worker and management at the lower-paid end of employment is out of whack because of the decline of unionism. But “poorly paid”, in historical terms?
If you look at this ABS document, real household income has been going up for pretty much everyone over the past decade, poor, middle-class, and rich. I should acknowledge that one thing this document doesn’t show is that the ultra-rich (the top 1%, and even more the top 0.1%) have been doing disproportionately well (Andrew Leigh had a blog post about that some time ago).
I’m not going to claim, by any means, that the current situation is in the least satisfactory. And, yes, this is an abstract view rather than lived experience. But I wonder whether the problems are more the uncertainty about employment, and job satisfaction, than the absolute amount of money.
It’s been impossible to ignore the reporting of the volatility on the world stockmarkets recently. Media hype has been going overboard about how the financial world is collapsing, we’re heading depression and we’ll all be ruined.
For those of you who have be paying a little closer attention you may have heard some commentators talk of similarities to 1929 and how the US stockmarket crashed by 88% from a Dow Jones high in Aug 1929 of 380 points to a low in May 1932 of 44.7 points. Worse, it took until 1954 before the US stockmarket returned to the levels of 1929, a massive 25 years!
So yes, that’s an 88% drop all right, and as has been reported, an initial investment of $10,000 would have dropped to a paltry $1,200. That’s assuming of course, that the investor bought at the absolute highest point and then sold out at the absolute lowest point.
But just to introduce a little perspective I thought it would be worthwhile to look at the Dow Jones and the All Ordinaries indices over a more conventional time frame, say 10 years, starting in 1926 and ending in 1936.
Year Dow Jones (yr end) All Ordinaries (yrly average)
1926 157.2 40.4
1927 202.4 43.4
1928 300 47.3
1929 248.5 50
1930 164.6 35.3
1931 77.9 29.7
1932 59.9 35.5
1933 99.9 43.6
1934 104.4 50.9
1935 144.1 57.4
1936 179.9 64.2
This shows those investors, who actually behaved as investors and not speculative cowboys, survived the whole crisis pretty well. A standard buy and hold strategy from 1926 would have seen them turn a $10,000 investment in the US into $11,440 and in Australia it would have ended up as $15,890, plus all dividends paid during those years.
Admitedly not stellar returns but not despair either and certainly not a capital loss of 88%. And considering this was the worst economic downturn in modern history it’s pretty surprising.
I’m not sure what ‘wages should be their own reward’ even means, Mark, but clearly Rundle has overstretched by hastily identifying the quite recent advent of easy credit as the underlying reason for Western capitalism’s acceptance by Western people. His boldly predictive thesis is precise: without access to cheap and freely-flowing consumer credit, capitalism would immediately collapse. History (and recent history at that), not to mention common sense, suggests that he is profoundly, utterly, hopelessly wrong. He could have made the saner, more general, points that you have made about the costs of living and financial pressures felt by some households, and how that might inform political moves to re-shape capitalism at the margins, but he didn’t. Maybe that kind of analysis is a little beyond him, obvious though it is.
Anyway, it probably won’t take that long for him to be proven wrong: we may well be entering a period when easy credit for consumers dries up and the ability of households to consume the (falling) equity in their homes is curtailed. I, for one, won’t be stockpiling baked beans. Will Rundle, do you think?
BBB
Lovely post Mark, I think Bernard Keane hit the nail on the head with his Crikey piece.
“I’ve previously made the point that a single wage has been insufficient for a family’s needs for a long time, and one and a half doesn’t get you all that far either when you consider median wages.”
Household financial stress in Australia is entirely a product of one thing: housing costs. It’s not due to the cost of manufactured goods or food — if there’s one thing global capitalism can do superbly well, it is to flood the developed world with cheap (and yet relatively high-quality) manufactured goods and processed food.
And housing costs are a product of urban planning and migration — not of economic systems per se. No economic system of the left or right is ever going to create more land around Sydney Harbour. Urban consolidation and public housing (yes, I do support that) are the keys to tackling housing costs.
On a different point, it’s interesting that Ambigulous and Liam brought up co-ops. FWIW, I think they are the best (perhaps the only?) economic alternative the Left has.
FWIW again, if I had one suggestion for the Left it would be this: mount a public campaign to get some of the capital tied up in workers’ superannuation funds available to start co-ops.
Worker-owned manufacturing co-ops have succeeded in places like Spain and Brazil. If, in Australia, you could demonstrate that they could provide better conditions and pay for workers — as well as a higher level of productivity that generates a competitive return on investment — you’d be well on the way to providing a viable alternative to capitalism.
BBB, it strikes me that your “Low interest rates = less financial stress/more consumption = happier households” isn’t far off what Rundle is saying. Low interest rates and expanding money supply never forced anyone to live beyond their means and make foolishing lending or borrowing decisions.
We all want to be happy, and for whatever reason, various pressures have led us collectively to feel that the easiest way to achieve this is by borrowing instead of saving.
You then add the “= more government votes”. But where’s the evidence that the RBA or the Fed have been in the pocket of the government currently in power?
I certainly agree that central banks deserve to cop a fair amount of the blame for the state we’re now in. But I’m less convinced their motivation was “to help keep the government in power” vs Rundle’s “to keep the people were happy enough to not challenge the status quo”. Though I’m not hugely persuaded by the latter theory either.
I agree with you, of course, Paulus. The ghost of BA Santamaria does too.
Myriad (because you also mentioned co-ops), I’ve just remembered the name of the film you may have seen—I strongly suspect it was The Take.
The problem with worker self-ownership, since
we’reI’m on the topic, seems to me to be that of accumulating startup capital in the first place. It’s a bit harsh to expect people to buy their share into employment, and I’d rather not get to the Argentinian stage of mass shutdowns and unemployment, the point where it becomes economical—and moral—for workers to simply expropriate it.Robert, the “poorly paid” claim has some justification when you compare what a family with a median single income can generally afford today relative to what a family with a single income could afford 30 years ago: nice houses in nice surburbs, length interstate vacations, etc. etc.
Tim @ 56, thanks!
Rob @ 53 – Andrew also did some work on median incomes – you really need to match data about incomes against data about prices for essential goods, as wizofaus implies. As to uncertainty – yes, but it’s not just that. It’s unevenness and unpredictability of spread of income over a year for casual and contract employees, and the possibility of periods where there is suddenly and unpredictably a large drop in income, or some other event – a sudden rise in costs (housing, food, particularly).
Have a look at the stats on the amount of casual and insecure work. It doesn’t necessarily matter if in a household one partner has a secure job and the other an insecure one if the insecure one is subject to variations in hours or cessation outside the control of the employee.
BBB @ 55, I don’t agree with Rundle’s more apocalyptic scenarios (or his hopes for socialism). I do agree with him on motivation and rewards. No time to add more – got to give a lecture.
Yeah, Liam, Santamaria was a top bloke. If the labor movement had more men like him in their ranks, they might even persuade me to join up.
One of my ALP friends used to show his respect for Santamaria by referring to him with a special acronym. It involved BA and S
antamaria, then adding a ‘d’ on the end.As for accumulating startup capital: I think you’re exactly right. But … there’s a mountain of capital sitting in workers’ super funds (a smaller mountain than it was one month ago, but still a mountain).
Imagine if every worker had a box on their super form that they could tick: “Do you choose to make up to 10% of your invested funds available to investment in workers cooperatives’, which will behave provide above-average pay and conditions, behave ethically to the environment, and aim to achieve a rate of return no less than the industry average?”
It could be done, seriously.
Mark@ 12″ This is Crook’s point – genuinely new policy directions won’t come from policy wonks.”
Which is the point and makes all the subsequent comments irrelevant and immaterial, to be polite.
It’s no substitute for a living wage, David.
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Ah Kevvie continuing thwe fine ALP tradition: Get elected just when everything turns to shit.
BBB Says:
This bit of what BBB says is pretty good. The wages should be the reward.
Trouble is, in the US, they clearly haven’t been. It’s not quite so clear whether the same applies here in Oz – Howard and his wingnut friends never managed to get us as far down that path as they wanted to. Labor is utterly incoherent on this point at the moment, so they may well end up achieving what Howard and co wanted.
Adrien Says:
That’s just the normal flow of things, the righties bugger things up, and get tossed out. The problem at the moment, though, is that the parliamentary wing of the ALP are righties as well, despite what they call themselves, and despite what the wingnuts call them. They don’t have any ideas about what they should do to make things better, and don’t seem to be even asking for them. Remember the 2020 Summit? Nothing like that happening now.
I was reminded of world war one with the demise of two empires. The Austro-Hungarian and the Ottoman. Just imagine Austrian economics and parachuted Sultans of tax-havens becoming extinct.
Unfortunately while many capitalist swine are getting money thrown at them I’m still paying 20% on my credit-card. So this is like world war one – as Malatesta said.
“…there will be no definite victory on either side. After a long war and an enormous loss of life and wealth, both sides being exhausted, some kind of peace will be patched up leaving all questions open, thus preparing for a new war more murderous than the present.” – written in November 1914
Liam – it was actually a magazine I saw it in, not a film, but thanks for reminding me about the Take, I do want to see it.
cheers
NYT article on Greenspan:
http://www.nytimes.com/2008/10/09/business/economy/09greenspan.html
Paulus the “aim to achieve a rate of return no less than the industry average” part of your suggestion bothers me. It seems to me that one of the problems of capitalism is that to succeed at all, you are basically forced to grow your business as fast as possible, because investors aren’t going to invest in you if they can get better returns elsewhere. But there strikes me as being nothing wrong with a business that simply wishes to profitably provide quality products and/or services to a loyal customer basis, with no direct plan to endlessly “grow” the business. Of course, for living standards to continue rising, it is necessary for the economy as a whole to become more productive, but does this really mean that the only successful businesses should be those that continually increase their profitability? It’s hard however to see how the rules of the game could be changed so that “non-growing” businesses can survive when competing against “growing” businesses.
El placer es mío, camarada Myriad.
Paulus: Why start with super? I’d much rather take my saved wages that other men my age stick away towards real estate, and buy a share in some kind of co-operative that would provide me with interesting satisfying work and a chance to be my own collective boss. I guess I’m just very old-fashioned that way.
Talking of Donkeys, Laura: we’ve sketched out a bit of a plan. This incorporates cutting edge Donkey Technology, with greenhouse reductions, carbon credits, financial wizardry, and a nod to the Emerging Co-Op Sector.
We’ve gone way beyond Donkey Breeding, Donkey Futures, Donkey Carts and Personal (Donkey) Trainers. Sra Vanstone will assist in getting special consignments of sturdy Calabrian Donkeys imported. Crossed with Andalusian and Anatolian breeds, we’ll have a tough little bloke best suited for Australian conditions. Think Merino.
But it goes much further. Our new vehicle: Serial Commodity Assurance Market covers Oats, from biotech developments, carbon credits, methane reduction strategies, Donkey-poo collection for a very marketable organic fertiliser (“Straight from the Ass to You”). This side of the conglomerate has a pathetic pun in the title [as required by World's Best Practice] and is as forward-looking and innovative as you would expect for a green fields start-up confident of Minister Carr’s munificence.
Our part in the Co-Op Rennaissance will be to support small peasant co-ops in Anatolia, Calabria, Andalusia [provided of course they swear they'll not pillage Churches again], East Brunswick and North Fitzroy. There’s Donkey Breeding, Manure Collection, Oat production – any number of exciting opportunities. Now Laura, if you invest in the first tranche, your Premium Shares will attract…. look, why don’t I email you the prospectus?
It’s pretty funny reading the conservative columnists at the moment, Albrechtsen et al. The financial crisis started with Bill Clinton, big government and over regulation are to blame, it’s the fault of liberals trying to get poor people into houses, it’s the fault of those stupid greedy poor people themselves for taking on excesive debt.
Next the line will be that Peter Lehman, AIG, WaMu etc failed because they’re staff just weren’t up to the job. If only they were as good as their high flying exectuive bosses, none of this would have happened.
I’m starting to see some parallels to Hitler’s delusional belief at the end of WWII that he hadn’t led the nation to defeat, the German people had failed him.
I guess they conservative columnists, in trying to lay the blame for the current crisis at the Liberals door, have inadvertently nailed the problem: Ordinary people just aren’t good enough for the capitalist system. We can never meet their gold standard of perfection, homo oeconomicus, the rational utility maximising male.
at the liberal’s door (small ‘l’) I think you may have meant,
not the Liberal (Party) door. They after all are the gold stanard of political wisdom, and the Australian voters (the rotten swine) are occasionally just too stupid to live up to ….. blah blah blah
On a similar note, Bertolt Brecht wrote some bitter lines after food riots broke out in his East German homeland (1953?). “The People have failed the Central Committee, so it will be necessary to elect a new People!”
tim watson,
so now neoliberal capitalism (or Wall Street Finance capitalism) finds the proles are just not up to it? Funny, that.
The Cubans didn’t live up to Che’s expectations of heroic labour – the New Socialist Man. Mao and Stalin had a few stragglers and backsliders. But sufficient bullets. Pol Pot didn’t bother going around to see how the chaps were faring on limited rations, creating new farms in jungles, etc. He had too few bullets.
Bloody human beings, what can you do with them, eh???
But the billycarts, Ambigulous? Prudent investors diversify.
Ambigulous
I do agree that Utopian sociliasts and neo-liberals have a lot in common. Indeed many of them have managed to be both in the course of their lifetimes. Keith indschuttle and Paddy McGuinness for example, and that’s just the locals.
@35
I think BBB is living on another planet. What’s all this talk of saving for the tings you want? I don’t think you austere capitalist utopia measures up to reality.
Sorry, you’ll have to be a little clearer. What’s the precise problem with what I wrote @35?
BBB
Laura,
Golden opportunity for you to take up the billycart franchise; SCAM plans to be all things to all entrepreneurs
@74
Excuse my bad Irish accent.
As an uneducated six-pack I have been watching the development of the global financial crisis with horror. I feel like a rabbit frozen in the headlights of a speeding truck. I am wondering if a whole new generation of Gettys are comfortably sitting on sacks of cash and just waiting to buy the world for a few bucks. As far as blame is concerned I don’t believe that to be relevant. This was always going to happen some day because it is a risk built into the capitalist system. I also disagree with those who blame the plasma TV chasers because capitalism relies on a degree of consumer gullibility. You only have to watch the ads on TV for the motorised feather duster to understand that. I thought this ad was hilarious until one day I realised that my wife had bought one and was unashamedly using it in our house! She was using a motorised feather duster in our house! In our home! I wept. Then I did the modern equivalent of wandering out to talk to the trees – I posted this comment.
don’t be concerned Wind Sur,
every one of us has had one of those ‘mad’ moments, grasping at a toy like a 4 year old. Just so long as we understand our foolishness later. Your wife may have a story or two about your strange spending events….
Mine certainly does!
The wind still sighs through the trees, the sun still shines, freshly mown lawns still smell sweet, the waves still roill in on the shore; cheers
Ah yes the Jabberfest of the Chosen Kilo. Wonderful testimony to the political arts that. Let’s solve global warming by producing immense amounts of brainfarts.
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This is not really about neo-liberalism v Keynsianism or whatever. The ideas of Keynes, the ideas of Friedman have never been applied except selectively. They have to go thru the filter of the machinations of corporatocratic vested interest first. Lots of people are to blame here. We shouldn’t forget that if one is functionally numerate one can tell that ye cannae pay off this loan with that income so dinnae take it.
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And dinnae sell it etc.
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If you live on money you don’t have, supplied on tic by people who don’t have that money either it will crash eventually. Every time these things happen there’s a lot of hair-tearing mea culpa cries harking back to the good old days of thrift and common sense. And when things warm up again we always forget.
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I went out with someone, university educated, who took out a loan on a house and had never heard of a recession. Something remiss there. I wonder if that’s on the agenda of Kevvie Ejukayshun Revolt? Somehow I doubt it. The last thing politicans and CEO’s want is a population that is economically and politically numerate.
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A lot of economists are working for people who want them to conduct research with the end result in mind before work commences. So we’ve got outright lies like, for example, that, because we in the West want access to the markets of the developing world, they should open up their markets and remove protective barriers for their infant industries. After all, says they, that’s how we did it in the West.
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Trouble is that’s bullshit.
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More bullshit includes the myth that the New Deal fixed the Depression. At best the verdict is mixed. Ideology here is a smoke screen. Witness all the Friedmanite Wall St types who started cryin’ out for public cash immediately. According to their principles we should let ‘em sink. But if they sink so do we. The so-called free market theories of the last 30 years are nothing of the kind. Often they’ve been used as justification for corporations and governments to get together and hand publicly funded utilities over to commercial interests. How a subsidized gifted monopoly is an example of market forces is beyond me.
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But the free-marketers have been too busy arguing against the dole and minimum wages to notice that elephant.
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I’d argue for a little common sense. First if there isn’t any competition it ain’t a market. It doesn’t matter what the press releases say or how groovy the logo is. Secondly government regulation is necessary for the very simple reason that people behave badly. If ye dinnae misbehave laddie they wouldn’t need the law would they? Thirdly it’s time to make tattoos compulsory amongst the Financial Elites, on the forehead: What goes up comes down: Dickhead!
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The whole socialist v liberal thing is a mound of poo. We live in a corporate technocracy. What we need is a resurgence of democracy: openness, responsibility, civil ethics and the separation of govt and commercial interests.
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I’ve got low hopes.
FDR himself certainly would not have asserted that the New Deal “fixed the Great Depression”.
For a start, there were two New Deals.
The First New Deal (1933-1936) was an abortive attempt to inject corporatism into the US economy. It didn’t have a chance to work the way it was intended to work because large parts of the program were declared unconstitutional. (It is doubtful that it would have worked even if it had been introduced untrammelled by fears of unconstitutionality).
The Second New Deal, introduced after the 1936 election, was aimed more at mitigating the effects of Depression on selected interest groups rather than attempting to maximise economic output. FDR understood the distinction quite clearly.
There is also an abiding myth that before 1940 and US preparations for war, the Federal government indulged in large-scale deficit fiscal policy along Keynesian lines. This did not happen.
But Republican talking points have been assiduous in propagating myths about FDR and the New Deal. It is a tribute to their success that their lies seem to be accepted as the truth even on a leftie blog.
It appears that our neoliberal erstwhile heroes of private enterprise are so terrified by the looming prospect of systemic collapse that they are all chanting “We’re all corporatists now. We’re all corporatists now. We had to kill capitalism in order to save it.”
And shall now reflect on the demented idiocy of the Howard/ Costello decisions to punish bank depositors with tax disdvantages vis-a-vis bloated and collapsing share and real property markets? As our banks find they cant borrow overseas?
With any luck, the crisis will reverse these inane trends – and now the time has come for Rudd to dump the CGT discount (or give 50% discount on term deposit interest). Put investing in banks on a level playing field.
I swear, the time is already here to revise the record. They were BLOODY AWFUL economic managers.
Update: New post here. Comments are now closed on this one.