I have been having a think about the debt crisis. The first thing that is immediately obvious to me is that I do not understand it. This is odd because gallons of ink have been spilled talking about it in the media. So why do I not have a grasp on what is happening? It seems to me that there are two reasons for this. One is that those who have been lauded as "experts" for many years do not actually have any knowledge on which to base the claim of "expertise". I base this on the fact that those same "experts" have repeatedly destroyed the economies of countries and appear to have learned nothing from the experience (eg Argentina). The second is that we think in too short a time frame. That is a feature of a great many things and I am reminded of Cho En Lai's response to the question whether the French Revolution was a good thing or a bad thing:he said "It is too early to tell".
It is a central tenet of left wing analysis that capitalism will always generate crises. The right wing view is that crises are largely caused by interference in the free market. That is a basic point of disagreement, and it cannot be reconciled. And it is not new. See this article, for example:
http://chestofbooks.com/finance/banking/Ro...is-Of-1893.htmlQUOTE
Immediately following this panic and since, various theories were and have been advanced by financial experts and political economists as to the causes which produced this crisis. Heterogeneous and contradictory financial legislation during the preceding twenty years was held by some to be responsible. The legislation of that period, it was contended, consisted of a series of compromises between a desire to maintain an honest standard of values and an effort to conciliate financial heresies, instead of a determination to combat them. Inelasticity of our currency and the consequent inability of the banks to issue circulation sufficient to meet the demands of their depositors and customers, without an investment of an equal amount in United States bonds, was held to be another cause for the panic, implying thereby that there was a scarcity of circulation at that time. Others still claimed that the inception of panics generally may be traced to currency inflation and the speculation that an inflated currency usually promotes with all its kindred evils.
While all these causes, and numerous others which have been advanced as having had an influence in bringing about the general disturbance that occurred in 1893, the primary causes which led to this panic may be looked for and found in the conditions described by Mr. Lacey in his annual report for 1891, in which he attributed the panic of 1890 to have been due to overtrading, unhealthful expansion, investments in speculative securities and in various forms of corporate enterprises and development in new and untried fields, and in undue expansion of credits by the banks.
Nothing much changes, or so it seems.
A series of financial crises culminated in the great depression of the 1930's. There are fierce arguments about what led to that depression, but it is clear to me that after the war, at least in this country and in America, far greater regulation was imposed on banks and financial institutions than had been the case in the past. This was part of the "New Deal" in the United States which included the establishment of the Securities and Exchange Commission and the separation of commercial and retail banking. That same separation was also implemented in the UK. That is part of the "post war consensus" but it seems to me there was no consensus at all: there was a temporary retreat of the right because the legacy of the great depression left them with no possibility of a return to the unfettered behaviour while the generation who remembered it had the vote.
As ever, people take good things for granted if they have existed throughout their lives: they assume that gains are secure and they become dissatisfied with things as they are: for, of course, there is always a downside to any system. This seems to me what happened and the right seized their opportunity. Deregulation became respectable and under Thatcher (in this country) this was vigorously pursued along with privatisation. The influence of "monetarism" was great and the advantages of "globalisation" were touted all over the world.
What this represented was a return to the situation in the 19th and early 20th century. In the UK banking and financial services were tightly regulated in the 18th century; and "liberalised" in the 19th. The effects of these different approaches seem to me to be obvious because the repeated crises of the 19th century are there for all to see. The current crisis is no different from previous ones, so far as I can tell.
If you free bankers and financiers they turn into crooks. Their activity is not illegal because you have just legalised it. Some of them will step over the line of the law but most won't bother because they do not need to. But for me, if we decided tomorrow that theft was not a crime, I would still see thieves as crooks. There is a basic code of behaviour that is fundamental to the proper working of society and it is independent of the law to some extent.
Given deregulation, the banks and the financiers do what they are paid to do: they make profit. It does not matter what effect that has on the people in any given country, or indeed the world. This has always been true. That is not to say that these people are uniquely wicked: some of them probably do believe in such nonsense as "trickle down". The effects are slow to manifest and it is alway possible to ascribe them to something else. We live short lives and we are not very good at cause and effect if the time lag is 20 years. So we look for causes in the recent past and miss the connections.
But the banks and the financial institutions have taken their opportunities well. They have persuaded very many people that their ideas are correct and, indeed, that challenge to those ideas is idiotic: for a long time it was not possible to even discuss the premises or the likely outcomes: it was obvious that the free market produced the best outcomes and this was effectively unchallengeable. Previously left wing parties accepted this conventional wisdom and are culpable too. Because they, of all people, should have known better. But they were dazzled by the rich and powerful: and some of them were bought.
My granny was scared of debt: and so am I. She used to say that we could not go on like this because we cannot live on debt and taking in each other's washing. That is so obvious that it is astonishing to me that we, as a nation, decided she was wrong. I notice that the governments of other countries in europe sang the free market song: but they did not actually do it to the extent that this country did. Germany and France did not dismantle their manufacturing base on the assumption that we can live on financial services and an expanded (low paid) service sector. They are not suffering the consequences of this lunacy to anything like the same extent. And that is true even given the enormous costs of german reunification.
Government ceded all power to business in this period. That sounds extreme, but that is what "too big to fail" means. It is the antithesis of the free market ideal: they are keen on that when profit is involved but they turn into socialists when loss is concerned.
So for many years people have traded things which did not exist, with money that did not exist, and have taken profits which also did not exist, but which have been made to exist by the bailouts. What that means, so far as I can see, is that we have paid real money to buy the emperor's new clothes.
It is said that we have all enjoyed the virtual prosperity while it lasted. I have seen people setting the generations against each other by suggesting that this is the fault of "baby boomers" who did well for themselves and now wish to pass the costs to their children. This is nonsense. To sustain that notion you have to ignore the worsening position of the poor throughout this time. A great many of the "baby boomers" have lived wretched lives under this regime and they continue to live them. Now we are told those lives must get even worse, as they must pay for the party they did not attend. Divide and rule.
We bailed out the banks: but the mantra that the businessman knows best continues to prevail. So we did not take control of them when we bought them. Odd that. Where we have a majority share we still cannot even set their wages. Don't know of any other situation when the owner of a company cannot cut wages in hard times. Apparently if we do that the bankers will leave and go elsewhere. Apparently the loss of people who are almost unbelievably incompetent would be a bad thing. Go figure. Looks to me like a really good trade union. But trade unions are a bad thing: well when they are for the defence of ordinary working people they are. Not if they are for the defence of bankers or lawyers or other professionals. It is not a bad rule for working people to look to the wealthy: if they have an institution it is very likely because it serves their interests: so get one just like it for yourselves. And that is what a trade union is. It gives the ordinary worker an alternative power base and it works. Yet they were ruined with the collusion of those same working people. It amazes me.
The bright spot for me is that we have been here before: we have seen these problems and we have seen the solutions too. My big fear is war, because many argue that the depression of the 1930's only yielded to the enormous public spending which was attendant on the world war: and while huge public spending has happened without a war it has not gone into infrastructure or into making jobs or hospitals or anything useful at all: it has gone into bankers pockets through bail outs and through exorbitant interest payments on the debts generated by those bail outs. We know what to do: take it off them and put the money into useful things: that will have to happen and it is a question of what you define as useful: for me that is not armaments. It is a choice we have to make.
And if we take it off them what will happen? We are told we will not be able to borrow any more. So industry will not be able to invest and your savings will disappear and other bad things will follow. Maybe they will. But those bad things are already happening and they are going to get worse. We can guarantee the savings of ordinary people: they are a drop in the ocean. We cannot guarantee their biggest savings: pensions and housing equity. But the housing equity is illusory in any case. And pensions are being eroded, so there is not much worse to face on that front either. I do not know what other dire consequences will follow: it is interesting that I don't. There is just a big cloud of threat with nothing very specific being said: an inculcation of nameless fear is not a good way to persuade me that I should listen to these folk. So if there are real consequences for me I am sure that others can say what they are: till they do I am not convinced. But I can see the dire consequences of continuing as we are.
