• Politics Not Economics

    As Keynes’ biographer, Professor Robert Skidelsky, says in the British Sunday papers, “it is not surprising that the old Keynesian tool kit is being ransacked” in response to the global economic crisis. After decades of being assured that “there is no alternative”, and that Keynesian economics is a dead duck, we now find that Keynesian remedies are all the rage. Without government intervention to bail out failed banks, measures of counter-cyclical demand management, and the resurgence of fiscal policy, the world would be facing an even grimmer future than it currently is.

    But we need not wait long for the failed nostrums of recent orthodoxy to re-surface. Already, the George Bush’s of this world are trying to re-write history. The crisis, they say, was not caused by the failure to regulate the “free” market. There is nothing wrong, they maintain, with the basic model of unregulated capitalism. All that is needed, once the current crisis is overcome, is a little tweaking here and there before business as usual is resumed.

    These apologists for our current travails make it clear that the measures that their failures have made necessary are absolute anathema to them. According to them, the best thing that can now happen is that decisions on major economic issues should be returned as soon as possible to those who are accustomed to taking them – that is, to those who made these catastrophic mistakes in the first place.

    What all this shows is that the response demanded by the crisis is as much a political one as it is economic. The economics are pretty straightforward, as Keynes himself would have argued. In his view, economics was not an arcane science but largely a matter of common sense. It does not require a genius to understand that short-term markets are inherently unstable and, without proper regulation, will topple over into disaster. Nor do we need to look far for the obvious (even if – to some – unpalatable) remedies for the financial meltdown and the imminent global recession.

    What we do need to understand is that what creates a crisis of the kind that now engulfs us is not economics but politics. The triumph of the global “free” market which has dominated the world over the last three decades has been a political triumph. It has reflected the dominance of those who believe that governments (for which read the views and interests of ordinary people) should be kept away from the levers of power, and that the tiny minority who control and benefit most from the economic process are the only people competent to direct it.

    This band of greedy oligarchs have used their economic power to persuade themselves and most others that we will all be better off if they are in no way restrained – and if they cannot persuade, they have used that same economic power to override any opposition. The so-called “economic” arguments in favour of “free” markets are no more than a fig leaf for this self-serving doctrine of self-aggrandisement.

    It is that political stance that must now be challenged if we are to learn the real lessons of the current crisis and defend ourselves against a repetition of the disaster that has now overtaken us. What we must understand is that what has happened is not the consequence of some technical failure in economic management. It has happened because we allowed democratic forms of government to be sidelined and subverted by the economic power of a minority.

    The uncomfortable truth is that democracy and “free” markets are incompatible. The whole point of democratic government is that it uses the legitimacy of the democratic mandate to diffuse power throughout society rather than allow it to accumulate – as any player of Monopoly understands – in just a few hands. It deliberately uses the political power of the majority to offset what would otherwise be the overwhelming economic power of the dominant market players.

    If governments accept, as they have done, that the “free” market cannot be challenged, they abandon in effect their whole raison d’etre. Democracy is then merely a sham. The dice must then be allowed to lie where they fall, and no amount of cosmetic tinkering at the margins will conceal the fact that power has passed to that handful of people who control the global economy.

    The challenges facing the world are now so great – the threat to our environment, the huge imbalances between rich and poor, the energy crisis – that they dwarf even the economic power of the high priests of the global economy. If the current crisis is to be overcome successfully, it must set us on a new course, not just to restore prosperity for the already well-off, but to confront these global challenges before it is too late – and that is a task not just for the economists but for the politicians – and all of us – as well.

    Bryan Gould

    24 November 2008

    This article was published in the online Guardian on 26 November.

  • Meltdown

    As the world economy threatens meltdown, Alan Greenspan – who, as Chairman of the Federal Reserve Bank, had presided over its fortunes from 1987 to 2006 – expressed himself as being taken aback by what he described as a once-in-a-century crisis. We were all invited, by implication, to join in his bewilderment at the apparently unheralded disaster that has suddenly struck us. If even Alan Greenspan had not seen it coming, we could all be excused for a similar failing, couldn’t we?

    Well, no. This is a crisis that has been thirty years in the making. Its approaching outline has been visible for a very long time. Only those who did not want to see (and that includes almost all the so-called expert commentators and actors in the drama) could have failed to register the warning signs.

    The first little alarm bell might have rung when, at the end of the 1970s and early in the 1980s, much of the world – following the lead provided by Margaret Thatcher and Ronald Reagan – removed exchange controls and allowed capital to move freely around the world. The result was a huge increase in capital flows as multinational investors roamed the globe, looking for the most favourable long-term, and often short-term, investment opportunities.

    In one bound, the controllers of that capital had decisively changed the balance of power between capital and governments, whether elected or otherwise. It was now the international investors who could face down governments, threatening to move their investment elsewhere if they did not get their way. The capital flows they controlled were sufficient to dwarf the resources of all but the biggest national authorities. The political agenda had been transformed; the democratic process, which was supposed to protect ordinary people from the predations of capitalism, had been disabled.

    This is not, of course, how it was portrayed at the time. On the contrary, it was represented as a dismantling of unnecessary and damaging controls. The way was now clear to establish a single global market which, by definition, excluded governments, since any government intervention in that market would mean that market conditions would vary from one part of it to another and it would no longer be a single market.

    As the external environment changed, so too did domestic conditions. The fashion was now for monetarism – the mechanistic application of supposedly simple rules for controlling the money supply and therefore inflation – a process which could safely be entrusted to officials and market operations and removed from the unreliable attentions of democratically elected politicians.

    Again, these developments were almost universally applauded as an overdue expression of the “free” market, not least by those who – it might have been thought – would most resist them. Yet, even then, they were not satisfied that they had done enough to shunt off democratic processes to the margins. They determined to ensure that governments were definitively excluded from economic policy by proclaiming that there was only one goal of that policy – the control of inflation – and that that task should be removed from those elected to undertake it and handed over to an unaccountable central bank. The principal decisions in economic policy were thereby virtually insulated against public debate and discussion.

    This, too, was greeted enthusiastically around the world as an inspired piece of Solomon-like wisdom. And, as the inevitable consequences began to take shape, as those who now controlled huge financial assets worldwide and could manipulate them for their own benefit without any fear of interference began to cream off a higher and higher “return” and to pay themselves more and more outrageous salaries, bonuses, commissions, and “perks” of all kinds, while at the same time making decisions not only exclusively in their own interests but without regard for the consequences for millions of people around the world whose lives and livelihoods simply no longer mattered, the politicians of the day joined in the celebrations. Typical was the New Labour government which, we were told, was “intensely relaxed about people getting filthy rich.”

    And, as the banks and financial institutions focused on making as much money as possible through manipulating assets and irresponsible lending, they could relax in the knowledge that the central bank was not only too busy with the task it had been given of shaping economic policy to bother about prudential regulation, but also that it would be too solicitous of the interests of its fellow banks to do anything about it anyway.

    So, the whole de-regulated international money-go-round whirled ever faster, the music played louder, the champagne flowed faster, and the world economy lurched from one crisis to another. But there was always another tranche of credit, or another clever idea for securitising debt, or another mega-merger, to keep the bubble floating.

    And then, in slow motion, the souffle began to collapse. As always, it is the victims of the excesses who now have to pay the biggest price for correcting them. It is all those who will lose their homes and their jobs and their living standards and their sense of self-worth who will bear the heaviest burden.

    In the meantime, poor Alan Greenspan! He couldn’t see it coming. Nor could all those bankers, politicians, commentators, financial experts and multinational potentates who so enthusiastically drove it all forward and were so dazzled by their good fortune that they could not recognise reality.

    But some of us saw it coming. You bet we did.

    Bryan Gould
    17 September 2008

    This article was published in the online Guardian on 20 September

  • Global Warming and Market Failure

    The Stern Report draws some alarming conclusions from the growing scientific consensus that global warming is a fact and is caused by greenhouse gas emissions arising as a result of industrial and other man-made processes. The Report demands an immediate and effective response from governments around the world.

    It also prompts a prior question. Why has the free market – so often hymned as infallible by right-wing economists – allowed this situation to arise? And why have governments not intervened before now to protect us against this extreme example of market failure?

    As I point out in The Democracy Sham, the world economy is now controlled by a small number of highly ideological and self-interested power players who are prefectly prepared to put that self-interest ahead of the health of the planet itself. They are able to treat any cost that does not arise directly – in terms of the bottom line – as “externalised” – that is, to be borne by someone else or, in many cases, by no one at all. Environmental costs fall clearly into this category. Their existence is either denied altogether, as in the case of global warming, or lip service is paid to dealing with them. Governments, other agencies and individuals who dare to take a different view are told that if they do not like it, the economic activity at issue will simply be moved somewhere else.

    A prime example of the impotence of governments, when faced with this kind of blackmail in tlhe global economy, arose recently in New Zealand. The New Zealand government has signed the Kyoto Protocol and proposed a carbon tax as a means of helping to meet its Kyoto commitments. They were promptly told by Comalco, the multinational aluminium smelters, who are major users of electricity, that a carbon tax would mean that they would move their plant elsewhere. The government abandoned the carbon tax and is left for the time being without any credible means of bringing about a significant reduction in emissions.

    Global warming, in other words, is just the latest and highest-profile example of the heavy price we pay for conceding control of the world economy to a “free market” in which a handful of operators can hold the rest of the world to ransom. It is time, in the interests of us all and of the planet, to re-establish political and democratic control over the economic process.

    Bryan Gould

    2 November 2006