Ten notes on the financial crisis (guest post)
Over at the excellent Global Dashboard, Alex Evans has a post reflecting on the things he and David Stevens called wrong (and less wrong), looking through their development and poverty lens, in the aftermath of the crisis. In a similar spirit, my sometime colleague Ian Christie sent me ‘Ten notes on the crisis’, representing his take on what we’d learnt about economics and politics since 2008. I thought they deserved a wider audience. And so, with his permission, I’m republishing his Ten Notes here. They start below the fold.
Ian Christie writes:
- ‘Never let a good crisis go to waste‘ – but that is precisely what the Western powers have done.
- This isn’t a ‘good crisis’. The financial crash and knock-on problems have not been a catalyst for urgent collaborative action: instead it has provoked deep partisan division and rancour about where blame lies, what the underlying problems are, and what the corrective action should be.
- Governance is gridlocked. The crisis has intensified pre-existing problems of governance in the West: in the USA, partisan divisions are such that Congress is more or less paralysed all the time, leaving President and Opposition able to frustrate each other but do little or nothing consensual; and in the EU the crisis has exposed the democratic deficit and underlying lack of political consensus behind deeper integration. The only tactic – it’s hardly a strategy – in these conditions is to ‘kick the can down the road’, an idiom in daily use in Washington and Brussels.
- Lehmann Bros. cast a long shadow. The banks are too big to jail and too big to allow to fail; and they are too powerful to break up. The Western policy elites have no idea what to do about the systemic risk this all generates. Which is worse: to break up the banks and expose ourselves to more upheaval, or to prop them up for fear that tougher regulation and enforcement of losses and splits will be lethal?
- There is no Keynesian New Deal. The idea that the failure of capitalism is on a par with that of the 1930s sounded convincing: so what could be more attractive – and more sensible – than a new New Deal, and ideally a Green New Deal? But this time the Depression is being managed by people who either don’t believe in New Deal-type state stimulus or who would like to do it but are too constrained by their neoliberal opponents. And the neoliberal elites in place since the early ’80s have at least one clear idea about the banking crisis: it needs to be shared with the state, creating a knock-on sovereign debt crisis that can be used to prop up neoliberal positions. This has worked, at least.
- It’s the economy, stupid; so it’s the Stupid Economy. The pressure of economic crisis has distracted governments, citizens and investors from the diagnosis of global ecological risk, a process made worse by determined ideological lobbying against climate science, which has worked well in the USA, Canada, Australia, UK and parts of the EU. And so action to mitigate climate change has not been taken on the scale needed; and so the Western economies are ever less fit for long-term purpose in the face of ecological risk. The smart thinkers in TNCs have been unable to bring enough ‘sustainable business’ influence to bear on their peers and on neoliberal governments.
- Incumbent interests rule, but without trust. No-one in the post-1980s elites can bear to renounce neoliberal ideology, their personal stakes in the system, the Euro project or fossil fuel dependence. As a result, no-one can make the reforms needed, and changes in government have no effect: whoever gets in, the mess remains the same. And so the policy elites in government and finance rule without effectiveness, public trust or support, but with no risk of being overthrown.
- All the above is a recipe for further sickness in democratic culture, with populist movements of the Right making advances. But these will be unable to command majorities. So we will have untrusted neoliberalised majority rule, making enforced concessions to fringe populism – as we have seen for five years in the USA and are about to see in the UK with UKIP. This will be a recipe for continued political gridlock and for more neoliberal austerity policies, which will continue to weaken all sources of demand in the economy. The ‘Japanisation’ of the West looms, in which austerity becomes stsgnation.
- Logically there is no reason why the fate of the Euro should make or break the EU. But the political logic of the Eurozone crisis is that it can be solved only by either deeper political and fiscal integration, or by selected countries being required, or allowed, to leave the Euro. Since the former is deeply unpopular across the EU and would probably also lead to the departure of the UK (which despite the rhetoric would be viewed with horror by Germany and others), the likelihood is that some departures from the Eurozone group will be permitted before the crisis is over.
- The next IPCC climate report will be bleak, and will be met by a barrage of climate-denialist attacks on the one hand, and platitudes by governments on the other. The governments will admit the need for urgent action, regret that it can’t be afforded at present, and pledge themselves to determined efforts to achieve economic growth so that we can have the spare cash to ‘tackle’ climate change caused by the side-effects of economic growth. As a result of stasis at a national level, more companies will be forced into action on their own, along with cities and provinces. (That these make common cause is one of the few hopes we have for change). And more and more people will conclude that since we appear to be unable to mitigate ecological risks through supply and demand management and innovation, we shall have to take the risk of geo-engineering.