The Market Strikes Back

(Different perceptions over what’s monstrous: the market (left) or the state (right))

After the global financial crisis Kevin Rudd, then the Prime Minister of Australia, declared:

From time to time in human history there occur events of a truly seismic significance, events that mark a turning point between one epoch and the next, when one orthodoxy is overthrown and another takes its place. The significance of these events is rarely apparent as they unfold: it becomes clear only in retrospect, when observed from the commanding heights of history. By such time it is often too late to act to shape the course of such events and their effects on the day-to-day working lives of men and women and the families they support.

There is a sense that we are now living through just such a time: barely a decade into the new millennium, barely 20 years since the end of the Cold War and barely 30 years since the triumph of neo-liberalism – that particular brand of free-market fundamentalism, extreme capitalism and excessive greed which became the economic orthodoxy of our time.

The agent for this change is what we now call the global financial crisis.

(source 1)

Australian academics/intellectuals Robert Manne and David McKnight stated ‘we believe that the global financial crisis, combined with the implicit challenge  of global warming to neo-liberal assumptions about the possibility of endless economic growth, should put an end to market fundamentalism. On this basis we hope we will eventually be able to say ‘goodbye to all that” (source 2). Some other weighty and well known quotes include the chief execute of the Deutsche Bank, Josef Ackermann, saying ‘I no longer believe in the market’s self-healing power’. Martin Wolf also judged ‘the lobbies of Wall Street will, it is true, resist onerous regulation of capital requirements or liquidity, after this crisis is over. They may succeed. But, intellectually, their position is now untenable’ and ‘remember Friday March 14 2008: it was the day the dream of global free- market capitalism died’ (source 3).

Yet something happened. Or, more precisely, something didn’t happen. No uproar and disavowal over the intellectual foundations of the economy and society that lead to the global financial crisis took place. To Quote A J P Taylor ‘history reached its turning point, and failed to turn’.

What is remarkable post-GFC is this intellectual, and more broader, fatalism. Survival instincts kicked in after the crisis, with the risk-taking troublemakers being bailed out by governments, which necessarily involved socialising losses (that is, having taxpayers, society at large, foot the bill) and privatising gains (Stiglitz’s point). The GFC involved, quoting Sarkozy, ‘the return of the state, the end of the ideology of public powerlessness’ (source  4).

Yet the state’s return was immensely short-lived. TARP and other bailouts show that humanity’s instinct for self-preservation isn’t dead, but soon after vital signs stabilised the concerns of the day became austerity and debt. Despite a depressed economies throughout the Western world, leaders of governments have drearily marched, like David Cameron, into an ‘age of austerity’  where (prior to him taking office) he announced ‘over the next few years, we will have to take some incredibly tough decisions on taxation, spending and borrowing’ (source 5). Wayne Swan, the treasurer of Australia, echoed the sentiment and policies, despite the vital signs of the Australian economy being far superior to those of other Western countries. Swan ran a budget surplus in 2012, despite the huge risk of Australia actually entering into a recession because the economic growth that exists is minimal (and the economy is two speed. Australia is effectively cut in two with the mining states, and specifically the mining industries within those state, riding a commodity boom, whilst South Australia and Tasmania are in recessions [with the other Eastern states teetering on the brink]!) (source 6). The reason Swan gave is as interesting and as telling as the action: ‘our return to surplus sends a strong message of confidence to investors across the world in these uncertain times’ (source 7). This is the ‘confidence fairy’ that Paul Krugman has notably talked about, where the private sector is expected to inject the economy with investments and improve it’s wellbeing as the correct rituals are performed at the alter of business appeasement. That is, so the reasoning goes, if governments do something that pleases and boosts the confidence of business such as reduce expenditures (spend less)  then corporations invest and expand the economy, thus restoring growth and making the economy better again. The problem is businesses aren’t stupid and they don’t want to invest in depressed economies (not such risk-takers now, ey boys!?). whether businesses are so sheepish and pathetic that they won’t on a significantly large scale throw about money unless their is easy returns to be made, or whether there are fair and astute reasons for not investing on significant scale is a point that need not be answered. The issue is that the economic conditions are so unflattering due to the depressed nature of Western economies that unless there are fundamental changes businesses won’t invest, period.

What can break the economic impasse? Government. If government spends more, then more money is going into the economy, and if public works are financed then jobs are created, and the people who work will spend thereby creating a multiplier effect and spurring economic growth. Businesses will then actually have a real and concrete incentive to spend: the economy is growing and they needn’t fear a downturn that would crush demand and hurt their profits.

 

The question is why hasn’t government, that is the state, assumed it’s rightful role and ‘returned’ to societies post-GFC. Apart from the strange fatalism all that there can be is politics. Since the vital signs have been restored to economies economics has been suspended, and all activities taking place have been pure politics. Weakening states so markets and their affluent actors can slowly digest and consolidate more and more of economies is a fundamentally political movement. These affluent actors, such as large corporations, wealthy investors and hedge-funds, end up doing as they please. They buy what they want, when they want (employment and well-being of society at large be damned). Somehow the knuckles of businesses weren’t duly rapped after the GFC, and they seem to understand now that they can get away with murder.

 

What went wrong? People are supposed to look after their own interests in a democracy. Namely, ‘jobs!’ should have been the clarion call from people throughout Western countries after the GFC. Yet, vigilance and demands from the people haven’t been strong enough to counter the wealthiest vested interests on earth. Faith has been put in elites so managerialism can take place (in the USA even worse, somehow, despite the world of justification not to, putting in place fair rules for businesses is taboo, due to reverence of corporation [despite the ridiculously self-evident nature of many businesses not being ‘innovative’ or ‘self made’ or ‘created through hard work’, truths which go against the deeply held American mythos]) and folk economics has lead people to believe that debt is really the boogeyman we should earnestly focus our efforts on.

 

So, what is to be done? Go back to first principles. There are two things. One, dare to know! People need to think and not fall prey to stale managerialism, where governments can without pressure ignore the needs of the people, whilst the vultures of business interests devour the post-GFC carrion. In running a country is a two horse race between government and business, then inequality shall become supremely manifest. Two, stand upon the shoulders of giants. The best and most convincing ideas must be accepted. That is, the best ideas that people can freely be persuaded to accept must reign supreme. The fact is austerity and insanity about the perfection of markets has been absolutely demolished intellectually, that is, at the elite level (the stagnation and group think within the discipline of economics is a bit more about other issues, namely the inability of academic experts to transfer and lobby the best ideas to  become planted within policy circles, and slow time it takes for disciplines to change paradigms). There is no argument against an amount of government regulation that could ensure the GFC doesn’t happen again.

 

I believe the progress and renewal lie in democracy and truth-seeking. I even believe, perhaps naively, that the incredible lobbying strengths of Wall Street will crumble if the general will of the people demand jobs and safe well-belling, along with responsible and law-abiding business coupled with oversight from government to ensure businesses act accordingly. Also, I believe the rot taking place within elites around the Western world can be overturned without a Churchill or a Keynes appearing.

It won’t be easy to straighten so much that is crooked, but I believe once the old virtues are restored, along with the old systems and institutions,  the healing will begin.