Larvatus Prodeo

[Via Rob Corr] John Quiggin, with his customary acuity and clarity of thought, has outlined a social democratic agenda post the Global Financial Crisis in a paper [pdf] for the Whitlam Institute.

A social democratic response to the crisis must begin by reasserting the crucial role of the state in risk management. If individuals are to have security of employment, income and wealth, governments must establish the necessary legal and economic framework and enforce its rules. The fact that government is the ultimate risk manager both justifies and necessitates action to mitigate the grotesque inequalities in both opportunities and outcomes that characterise unrestrained capitalism and were increasingly resurgent in the era of economic liberalism.

I might have some differences at the margins, but I wouldn’t dissent from Quiggin’s broad policy approach. Where I would sound a note of caution, however, is his assumption that a restructured economy will necessarily entail a shrunken financial sector. I’m not sure that’s true. As I observed with respect to the recent G20 summit meeting, a note of complacency has crept into discussions of the GFC. There is an apparent assumption that a bit of government prodding to get credit markets moving again, a little more regulation, and a bit of symbolic Wall Street bashing will do the trick. Then business can resume more or less as normal. That assumption, or assumptions like it, are colouring the recent partial revival in equity markets. It’s being driven also by the Obama administration’s actions (and inaction) – controversies over AIG bonuses aside, there’s a distinct sense that whatever Wall Street wants, it will get – including a revival of trading in credit default swaps and other derivatives.

Continue reading ‘Quiggin on social democracy and the current crisis; Obama’s epic fail’