Thursday, 11 December 2008

It’s The (Political) Economy, Stupid

OK. Let's imagine a world where you're born physically resembling George Clooney's only slightly less good looking elder brother. Let's make you smart at school as well – smart enough to become an Ivy League Professor. Hey, no, let's double or treble the smarts – let's give you a Nobel Prize. More than that even, let's assume you can not only do the pointy-headed stuff but that you can also write in clear and simple language for the lay person. So let's – just for the sake of argument you understand - call you Paul Krugman. You are, let's face it, blessed, even if there is a degree of professional sniping at you. Never mind all that business about Obama as Santos: you are what Jed Bartlet would have been if he'd failed to get elected as State governor in the first place and stayed in academia. (Well, if he had been Jewish rather than Catholic – anyway, you get the point).

What's your take on the crisis, then? Well, you've appointed yourself John Maynard K's representative on earth. First, fix the banking system by throwing loads of money at it and even possibly temporarily nationalise it on the Swedish model. But this won't work on its own – so next come the fiscal measures: basically get those armies of people divided into the famous diggers of holes and fillers in of same, all on a govt subsidy. (I, er, paraphrase). If these things don't work first time (did someone mutter the word 'Japan'?) – do them again, with more money, until they do. Then – and only then it seems – might systematic reform be on the agenda:

"And once the recovery effort is well underway, it will be time to turn to prophylactic measures: reforming the system so that the crisis doesn't happen again... anything that has to be rescued during a financial crisis, because it plays an essential role in the financial mechanism, should be regulated when there isn't a crisis so that it doesn't take excessive risks. .... Now that we've seen a wide range of non-bank institutions create what amounts to a banking crisis, comparable regulation has to be extended to a much larger part of the system.

We're also going to have to think hard about how to deal with financial globalization. In the aftermath of the Asian crisis of the 1990s, there were some calls for long-term restrictions on international capital flows, not just temporary controls in times of crisis. For the most part these calls were rejected in favor of a strategy of building up large foreign exchange reserves that were supposed to stave off future crises. Now it seems that this strategy didn't work. "

The problem in confronting this is purely technical or ideological it seems:"Some people say that our economic problems are structural, with no quick cure available; but I believe that the only important structural obstacles to world prosperity are the obsolete doctrines that clutter the minds of men."

Our pseudo-Bartlet might be right about the desirable macro-economic measures - though even there, in this article at least, I suspect he's under-valuing the deeper long term effects of the shift in international investment, productive capacity and productivity to the BRIC countries, and the problems this creates in following his prescriptions - but he's certainly wrong about the nature of the barriers to change. It ain't just a matter of some super-Fabian/Bloomsbury brain-box finally convincing the Treasury to stop believing Finance Capital knows its own best interests. It's the fact that in both America and, even more, in Britain our economy(ies) are disproportionately based on Finance Capital in its most speculative form. What makes us rich again - or at least, what restores the status quo ante – is precisely the restoration of minimally constrained, globalised Finance. We get 'well' by recreating the sickness.

Or we change. That might involve a degree of – I'm so sorry to be so old-fashioned here – well, class struggle: a determined political popularisation of the concept of there being a different way of running the economy, based on looking after the interests of most of us rather than the Hedge Funds and international financiers. More than that though - it has to involve a fairly clear idea of what else America and, especially, Britain might actually do, rather than leech off the crumbs of the financial casino. & I've not heard anyone address that issue as yet, except in the all-purpose (but probably correct) Jeremiah economics of the Greens.

&, sadly, the class struggle is currently being undertaken by only one side.

P.S. Krugman doesn't explain why we shouldn't just have financial regulation by shooting the bastards. (Actually, I'm against this - except immediately after reading about things like this.)


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