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#1
10-02-2008, 09:56 AM
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Who needs finance?
Who needs finance?
The downturn in the global economy appears to be broadening and deepening. The sub-prime slime has became the "Credit Crunch" in 2008, and last month heralded a further round of casualties on what some are starting to call "Manic Monday". US house repossessions started it all off, followed by mortgage lenders and banks in Europe. But more recently the US government felt unable to allow their Freddie Mac and Fannie Mae (public mortgage lenders) go under, but stopped short of baling out Lehman Brothers. The contagious fear of vanishing profits extended beyond mortgages to insurance giant AIG and beyond, and the geographical spread has widened to China and Japan. Workers could be excused feeling some sort of schadenfreude at the news of a bank running out of money or an insurance company failing to manage risk and hedge their bets. Who can fail to smile as another financial institution is found to have ignored its own advice ("The value of your investment can go down as well as up. You may not get back the amount of money you invested and should only invest sums of money you are prepared to lose"). So there may be fewer stories in the news of £100 burgers in the bistros or £30,000 drinks bills in the restaurants of the City of London, but of course the economic downturn impacts more on the poor than the rich. World socialists are opposed to capitalism – boom or bust. Recession just helps throw into sharp relief the logic of the market system. It does however also provide a good opportunity to highlight some important differences between capitalism, and socialism – where money and wages would not exist and production of wealth would be based on meeting real human needs. Firstly of course inside socialism there will be no work at all for the whole financial sector that is under such pressure at present. Pensions advisors, insurance salespersons, "independent" financial advisers, mortgage brokers, fund managers: all of these jobs are essential to the smooth operation of capitalism, but are socially-useless and would have no place in a socialist society. Over 1 million people in the UK – 4 percent of the workforce – are engaged in such activities which are wholly useless. When you factor in related jobs such as accountancy, real estate, and ancillary financial services the numbers mount up. Socialism will really make these positions redundant, but with the pay-off that people will be free to engage in work that is genuinely productive and socially useful. The market system is an incredibly wasteful mechanism for organising the production of wealth. It prevents people’s power over production. Interest rates rise in the US, and a hospital gets mothballed in the UK? The oil price rises and thousands of holidaymakers get stranded in a foreign country? The need for constant minute-by-minute re-evaluations of cashflow projections or return on investment expectations, for every project, every industry, every product results in a colossal waste of the planet's resources and humanity's energy and ingenuity. 
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#2
10-02-2008, 10:02 AM
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 A SOCIETY OF CONTRASTS  Everywhere you look today the contradictions of capitalism become more and more obvious. Great wealth alongside great poverty, starvation amidst plenty and a technology that makes space travel possible yet is unable to stop the destruction of war. Two recent examples of the obscenity of capitalism leapt from the pages of the media recently. "Caviar House & Prunier, on Piccadilly, has taken delivery of the Almas, a rare golden caviar once reserved for the Tsars of Russia. Despite the price - £920 for limited edition 50g tins - the shop claims a four-year waiting list." (Times, 19 August) "The price of rat meat has quadrupled in Cambodia this year as inflation has put other meat beyond the reach of poor people, officials said on Wednesday. With consumer price inflation at 37 percent according to the latest central bank estimate, demand has pushed a kilogram of rat meat up to around 5,000 riel (69 pence) from 1,200 riel last year." (Yahoo News, 27 August) Does this system not disgust you? We must abolish it. MARX AND MODERNITY Away back in 1867 Karl Marx in Das Capital explained how the so-called primitive accumulation of capital was based on robbery and murder. In Peru today a similar process is taking place. In Britain we had the highland clearances and the enclosure acts, in Peru it is the expulsion of the indigenous population. "Peru is considering sending in the army to break up protests by Amazonian Indians who claim the government is preparing a massive land grab in the country's remote jungles. ... The government has responded to an appeal for talks by declaring a state of emergency in three states and threatening protesters with military action. "Indigenous people are defending themselves against government aggression," said an Amazon Indian rights campaigner, Alberto Pizango. "This is not an ordinary or everyday demonstration. The Indians have told us they are not afraid. If the government declares a state of emergency they prefer to die there and show that this government violates human rights." Relations between indigenous groups and the President Alan Garcia have become increasingly hostile as the government has sought to exploit what are thought to be rich oil and gas deposits in lands owned by Amazon Indians. Energy companies have pushed deep into supposedly protected areas in the past year, leading to clashes with some of the most remote tribal peoples left in the world." (Independent, 21 August) US GAP WIDENS  Socialists often meet with the argument that while capitalism may have been a terrible system in the past, with the awful gap between rich and poor, today we are gradually improving things and such inequalities no longer exists. So what do the anti-socialists make of these recent statistics? "The rich-poor gap also widened with the nation's top one percent now collecting 23 percent of total income, the biggest disparity since 1928, according to the Economic Policy Institute. One side statistic supplied by the IRS: there are now 47,000 Americans worth $20 million or more, an all-time high." (San Francisco Chronicle, 2 September) Eighty years of reform and now the gap is even wider. BEHIND THE RHETORIC Capitalist statesmen often speak of high ideals like freedom and democracy but behind the high-sounding rhetoric there is usually a harsh reality. A recent example was the US vice-president's speech in Georgia. “Speaking in Georgia on Thursday, Cheney slammed Russia's "illegitimate, unilateral attempt" to redraw the country's borders and promised ongoing support for Georgia's efforts to join NATO. The Vice President's trip was accompanied by a $1 billion aid package announced in Washington Wednesday, for the purpose of rebuilding Georgia's shattered economy and infrastructure. Upon arriving in Azerbaijan on Wednesday, Cheney told the people of that country and their neighbors in Georgia and Ukraine that "the United States has a deep and abiding interest in your well-being and security”.” Fine words indeed, but behind them was a more sordid reason than concern for the well-being of the Georgian citizens. "Vice President Dick Cheney, on a tour of former Soviet Republics, was working to shore up U.S. alliances in the wake of Russia's military humiliation of Georgia - a mission whose outcome could have profound consequences for Washington's efforts to maintain and expand the flow of oil and natural gas to the West while bypassing Russia. " (Time, 4 September) THE INDIAN RUPEE TRICK Many Asian countries are depicted as "third-world" where an undeveloped economy leaves millions starving, but here is an example of an Indian capitalist who has learned the trick of exploiting workers to make a fortune.” Vijay Mallya, the founder and chairman of fast-growing Kingfisher Airlines, launched his first international route yesterday linking Heathrow with India's IT capital Bangalore - a daily service that puts the carrier in head-to-head competition with BA. ...The father-of-three, ranked 476th in Fortune's list of the world's wealthiest people, has 26 homes around the world and 260 vintage cars. He made his fortune as chairman of Indian drinks group United Breweries, the Kingfisher-beer owner that last year acquired Scotch whisky maker Whyte & Mackay for £595m." (Daily Telegraph, 5 September) 
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#4
10-02-2008, 10:11 AM
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    Socialist Party of Great Britain, 52 Clapham High Street, London SW4 7UN tel: 020 7622 3811 e-mail:spgb@worldsocialism.org Who We Are The Socialist Party is like no other political party in Britain. It is made up of people who have joined together because we want to get rid of the profit system and establish real socialism. Our aim is to persuade others to become socialist and act for themselves, organizing democratically and without leaders, to bring about the kind of society that we advocate. We are solely concerned with building a movement of socialists for socialism. We are not a reformist party with a programme of policies to patch up capitalism. What We Do Our aim is to build a movement working towards a socialist society. We publish literature, we hold meetings and debates throughout the country, we write to the press and state our case wherever possible on the media. We run weekend educational conferences, we sell tapes and pamphlets, we hand out leaflets, we contest elections, and we discuss our ideas with people wherever we can. We are unique The Socialist Party has been unique in Britain throughout the twentieth century for:
The Next Step The more of you who join the Socialist Party the more we will be able to get our ideas across, the more experiences we will be able to draw on and greater will be the new ideas for building the movement which you will be able to bring to us. The Socialist Party is an organization of equals. There is no leader and there are no followers. So, if you are going to join we want you to be sure that you agree fully with what we stand for and that we are satisfied that you understand the case for socialism. If you want to know more about the Socialist Party, its ideas and activities, please contact us. Back to the Socialist Party home page
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#5
10-03-2008, 10:39 AM
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Growing old disgracefully
In primitive society one of the greatest sources of human survival was the knowledge of the elderly. If you lived in a gathering/ hunting society the knowledge of where plants occurred, where animals existed and at what times of the year was essential for human society. Knowledge was power. So much was this the case for human survival that one of the first forms of religion was Ancestor Worship.
We no longer live in a gathering/hunting society, we live in a modern capitalist society. This is a society where the majority work for a wage or a salary and a tiny minority live off the surplus value that they produce. Inside this society attitudes towards the elderly are completely different. If they are poor they are looked upon as a burden by the capitalist class and some sort of creature, that had they any decency would just disappear.   Away back in 1908 when state pensions were first paid in the UK there was the view that this piece of reform would end old-age poverty. People like David Lloyd George and Charles Booth hailed the legislation as a mayor breakthrough on the abolition of old-age poverty. "Yet 100 years on, 2.5 million pensioners – more than a fifth of all those aged over 65 – still struggle to pay their bills and keep their home warm" (Times, 31 July). Such is the nature of capitalism and the lick-spittles that operate it that they have come up with a great new idea that will save the owning class millions. "People will be forced to work until they are aged 70 if the basic state pension is to survive into the next century, according to the Government' s pension supremo. Lord Turner of Ecchinswell, the architect of radical reform in which the retirement age will rise to 68 by 2046, said that with no limit in sight for life expectancy, people are going to have to work even longer than he proposed" (Times, 31 July). When I was very young an elderly man taught me about capitalism. One of the lessons he taught me was – the owning class need young men and women to provide for them, but we don't need them. As in primitive society we must heed the elderly – knowledge is power. RD
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To view links or images in signatures your post count must be 10 or greater. You currently have 0 posts. Even the most beautiful society is worthless if it can't defend itself from reaction.
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#6
10-03-2008, 02:16 PM
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When the bucks stop
When the bucks stop
The current financial crisis highlights fundamental failings in a global economy run for private profit rather than broader social opportunity. Jim Stanford explains how risky financial speculation created a bubble that has now burst, and argues that we need to refocus attention on a real economy founded on the production of actual goods and services For the past year, the world’s financial system has been roiled by a cascading crisis of confidence. The consequences so far have included collapsed banks and brokerages, some $250 billion of officially declared losses by financial companies, a marked slowdown of real economic growth in several countries, and a recession in the US. More ominously, there may be a darker storm coming. Many observers, defenders of the current system as well as critics, fear this latest panic might just lead to ‘the big one’ – a structural conflagration that produces depression, chaos and dramatic change. I’m sceptical of this judgment and don’t think we should get carried away with doomsday prophesying. The global financial system has survived at least six major crises since the advent of neoliberalism in the late 1970s (see Red Pepper magazine June/July issue, page 30). Each time the system manages to rebound and regroup – ever more unequal, unbalanced and distorted, but still viable nonetheless. Even so, the current crisis is not remotely over, and could get much worse before it gets better. The events of the past year have proved that the financial system is both structurally unstable and impossibly unpredictable. So whether it causes larger and more disastrous problems or not, the current crisis is a fitting opportunity to challenge the effectiveness and credibility of the whole neoliberal project – not just its financial and monetary policies, but the way it runs the real economy too. What happened? The financial crisis of 2007-08 has its roots in the collapse of a speculative bubble in the US housing market. Average US home prices almost tripled between 1996 and 2006, driven skyward by low interest rates, tax subsidies and speculation. As with any speculative bubble, once the price for an asset starts rising strongly, other investors buy it solely to profit from that rising price. A bizarre American phenomenon called ‘sub-prime lending’ added fuel to this fire. Sub-prime mortgages are issued to lower-income home purchasers, who might not qualify for a regular mortgage. Lenders offered mortgages at low introductory rates, luring buyers to stretch beyond their financial means. Few understood that rates would increase dramatically in later years. Every bubble must inevitably burst – and this one eventually did, too. The immediate cause is some event that ‘pricks’ the optimism of speculative investors, turning greed to fear and causing them to rush for the exits. In this case, the downturn started with rising foreclosures, combined with increases in US interest rates. Amidst the subsequent financial carnage, the immediate victims of the debacle are the two million mostly low-income families who lost their homes in one of the largest forced evictions in history. Shock waves from the downturn were amplified by highly sophisticated new financial practices that first arose in the 1980s and 1990s. Gone are the days when home mortgages were issued by some mundane neighbourhood institution (a bank, credit union or building society) with good local knowledge of housing markets. Clever financial engineers developed creative, often bizarre ways to convert mortgage lending into a sexier, more lucrative arena. Mortgages (and other forms of routine consumer debt) were ‘securitised’. Instead of existing solely as a promise by a homebuyer to pay back the money, a mortgage became a piece of paper that can itself be sold and re-sold for speculative profit on financial markets. Ever more exotic securities, even further removed from the actual home that a real person lives in, were invented – like ‘credit default swaps’ and other hard-to-pronounce derivatives. But the tail came to wag the dog; these new securities are now gigantic speculative markets of their own, worth far more than all the residential homes in the land. Individual investors, pension funds, and even government agencies around the world invested in the trendy new products. They hoped for high returns on what they thought were secure assets; many had little idea what they were buying. So when the value of sub-prime mortgage securities began to collapse, investors around the world felt the pain. Speculators tend to leverage their investments heavily (using borrowed money to place their bets). This, combined with sudden uncertainty regarding the value of many securities, created a crisis of trust and confidence that spread through the financial system. Banks would no longer lend to each other, hedge funds were no longer allowed to trade on credit and brokers experienced sudden cash shortages. Eventually, banks and other institutions wrote off large amounts of securitised mortgages as worthless, and some companies collapsed entirely – like Bear Stearns, a major US brokerage, and Britain’s Northern Rock (temporarily nationalised, ironically by a fervently pro-market Labour government). The broad deregulation of private finance under neoliberalism contributed to this extraordinary fragility. Another painful side effect of the crisis has been a contraction in private credit creation. When private banks issue new loans, the money supply grows and spending increases; this credit-creating function is essential to economic growth and job creation. But being private profit-seeking companies, banks run this system in accordance with their own interests – not society’s broader need for growth and opportunity. When bankers are confident loans will be repaid, they aggressively push credit into the economy. When they are fearful of defaults, they withold credit – even from reliable customers. This is called a ‘credit squeeze’. When bankers are reluctant to issue new loans because of uncertainty and fear, even deep cuts in interest rates may have little impact on stimulating borrowing and hence spending. The whole economy, at this point, is hostage to the self- protective reticence of private bankers. The broader breakdown of trust and confidence, and resulting squeeze in credit creation, poses the greatest danger. And this is what central banks around the world have been trying to prevent. Led by the US Federal Reserve (still, ironically, the most pro-active, interventionist and in some way ‘Keynesian’ of all), they have injected hundreds of billions of dollars in short-term loans (or ‘liquidity’) into the banking system. This allows hard-pressed banks to continue regular borrowing and lending. We should remember that the ups and downs of the ‘paper economy’ (the financial sector, which trades in paper assets but doesn’t produce direct, real value) do not always affect the ‘real economy’ (where working people produce things – goods and services – that are actually useful). This disconnect is obvious when the paper economy is booming: record stock markets and financial valuations don’t at all translate into jobs or incomes for the rest of us. The disconnect is also apparent when the paper economy turns down: the disappearance of even trillions of dollars of ethereal paper value does not necessarily translate into genuine bad news for those of us who make our living through work, rather than wealth. But sudden shocks in financial confidence, and the disappearance of paper wealth, can have indirect negative impacts on the real economy. The transmission of the financial crisis into the real economy (through channels such as the decline in US home construction, or a decline in spending by consumers – perhaps because they’ve been shell-shocked by gloomy financial headlines) can convert a paper crisis into a real depression. At the time of writing, international financial officials were worried both about further financial panic and the growing impact of the sub-prime crisis on the real global economy. IMF officials estimated that total bank and brokerage losses would exceed $1 trillion by the time the crisis runs its course. Only one-quarter of this total has been declared so far by global banks and brokerages, so there’s a lot more pain to come. The IMF also downgraded its estimate for world economic growth – although no major economy, other than the US, is currently expected to experience a recession. The profit motive and private finance Fingers have been pointed at unethical US mortgage brokers (for issuing mortgages to families that could not afford them), lazy credit rating agencies (for failing to identify the risks associated with securitised mortgages) and greedy hedge fund investors (for placing risky bets with other people’s money rather than their own). All these practices contributed to the unfolding of this specific crisis. But this crisis, like those that came before it, is rooted in a deeper and more fundamental problem: namely, a financial system oriented toward maximising the private profit and wealth of investors, rather than facilitating and lubricating real economic progress for the rest of us. There are several factors underlying this:
Fixing the mess Global central bankers have been spurred into genuine action by the sheer scale of the present crisis. Led by the Americans, they waded forcefully into the fray – tossing around many tens of billions of dollars of liquidity, bailing out failed brokers and nationalising major banks. These actions were prudent, helping to avoid (for now, anyway) a much wider conflagration. The left, however, should demand public accountability from the private institutions that are now receiving an expensive public rescue. And we should expose the stark contrast between the spirit of interventionism that motivates these efforts, and the general ‘hands-off’ mentality that typifies neoliberal responses to other, equally urgent problems (such as substandard housing, preventable disease or environmental degradation). Calming the current storm is one thing, trying to prevent the next one is another. International financial officials have made very tentative, modest statements about reforming financial regulations to prevent similar abuses and excesses in the future (such as recent agreements by the G7 finance ministers and the Basel committee on banking supervision to very modestly strengthen capital adequacy rules and other bank regulations). The emphasis in these proposals is on oversight and transparency, not genuine regulation. They wouldn’t significantly alter the hyper-risky behaviour that produced the current meltdown; they would just shine a little more light on it. They wouldn’t prevent future financial bubbles – but they might allow a bit more of the blame to be shifted to the victims (who, in a more transparent world, should have known what they were getting into). And financial interests are already mobilising to fight even these timid steps toward re- regulation. Genuinely preventing future chaos will require a far more thorough-going overhaul of private finance – guided by a critical understanding of the destructive and irrational incentives created by a deregulated, for-profit financial system. Here are the key areas that should be emphasised: Regulation The most exploitative and dangerous financial practices should be tightly regulated, and in many cases simply prohibited. Regulations should prohibit unethical lending behaviour, curtailing manipulative practices like those that drove the US sub-prime debacle. They should also impose genuine capitalisation and reserve requirements; these would force banks and other institutions that issue financial securities to keep a significant reserve cushion (consisting of real money or government bonds, not high-risk securities) on account with public regulators to guard against financial panics and collapse. Public guarantee system When investors panic, that panic itself becomes the problem. This is why a strong public guarantee system, protecting at least the core of the financial system (routine consumer and business lending, and non-speculative personal investments up to some ‘middle-class’ threshold) is an essential precondition for financial stability. If savers and investors know their funds are backed up by state guarantees, they have no reason to rush to withdraw their funds when panic strikes. Socialising credit creation At the end of the day, the risks associated with private finance will always be socialised (as they have been in the current crisis) simply because the costs of major financial failures are too severe, and too widely distributed, to tolerate. So why don’t we socialise the whole process, or at least part of it? In particular, finding more stable and publicly- accountable ways to organise the mundane credit- creation process that is an essential lubricant for real economic progress, but without recourse to the gigantic, expensive paper casino that currently meddles in this function, would be a logical response to the spectacular failure of private finance. In this view, bread-and-butter lending (to homebuyers, consumers and real businesses) is like a ‘public good’: something we all depend on, but can’t trust the private market reliably to supply. Developing public or non-profit vehicles to perform this function – including publicly-owned banks, credit unions, building and mutual societies and other non-profit vehicles – is thus a credible and timely demand. Addressing the real downturn As financial panic undermines conditions in the real economy (as has already occurred in the US), governments must step in quickly with powerful measures to offset spending weakness and support jobs. The Bush government’s ‘stimulus’ package consists almost entirely of tax cuts (surprise, surprise) which will have little impact on immediate spending and production. Lower interest rates, too, have little stimulative power during a private credit squeeze. This situation calls for good old-fashioned direct spending and job creation by government and its agencies: pumping new demand into the economy through infrastructure projects and public services. If this requires deficit spending, then all the better: the resulting flow of new government bonds will give panicked investors a genuinely safe harbour during the current financial storm. Prioritising real investment Today we can make a strong argument to shift the entire focus of economic policy away from the financial sphere, and back toward the real economy – where we produce concrete goods and services that actually contribute to our collective prosperity. This overarching theme can be reflected in everything from tax proposals (finding ways to mobilise more capital in real investment projects, both public and private), to monetary policy (emphasising a steady, sustainable supply of credit, rather than phoney inflation targets), to labour market policy (supplying capable and motivated workers for the jobs our macroeconomic strategy will create). Our argument is strengthened by the failure of the neoliberal model to achieve its supposed core objective. Despite vibrant profits, despite financial deregulation and sophistication, despite globalisation, real capitalist businesses invest a shrinking share of their record profits in real capital investments – and our economies are performing sluggishly as a result. This failure is a gigantic chink in the ideological armour of neoliberalism, which we should exploit to the fullest. I do not subscribe to the ‘worse-is-better’ school of social change. I hope fervently that the current financial crisis does not spread because it will leave in its wake massive job losses, evictions and poverty, affecting many millions of people who can least afford them. But I also believe this is a moment when socialists can advance a very fundamental critique of the failure of neoliberalism: not just its high-flying financial incarnation, but the very essence of its economic project. The needless, dramatic crisis afflicting the global financial system proves that the neoliberal project has gone badly wrong. And we can be thinking very big thoughts indeed about how to change and ultimately replace it. Jim Stanford is an economist with the Canadian Auto Workers Union in Toronto, Canada, and author of Economics for Everyone, a ‘textbook’ for activists recently published by Pluto Press
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To view links or images in signatures your post count must be 10 or greater. You currently have 0 posts. Even the most beautiful society is worthless if it can't defend itself from reaction.
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#7
10-03-2008, 02:24 PM
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Crisis of a gilded age
Crisis of a gilded age
Deregulated capitalism may have come to a crunch, says Doug Henwood, but there’s nothing new on the horizon For the past two or three decades sceptics watched as deregulated finance got ever more reckless, as the gap between rich and poor widened to a chasm not seen since the turn of the last century, and they said, ‘Someday there’s going to be hell to pay for all this.’ But despite a few nasty hiccups every few years — the 1987 stock market crash, the savings and loan debacle of the late 1980s, the Mexican and Asian financial crises of the mid-1990s, the dot-com bust of the early 2000s — somehow the economy regained its footing for another game of chicken. Has its luck finally run out? It might seem odd to link the current financial crisis with the long-term polarization of incomes, but in fact the two are deeply connected. During the housing bubble, people borrowed heavily not only to buy houses (whose prices were rising out of reach of their incomes) but also to compensate for the weakest job and income growth of any expansion since the end of World War II. Between 2001 and 2007, homeowners withdrew almost $5 trillion in cash from their houses, either by borrowing against their equity or pocketing the proceeds of sales; such equity withdrawals, as they’re called, accounted for 30 percent of the growth in consumption over that six-year period. That extra lift disguised the labour market’s underlying weakness; without it, the 2001 recession might never have ended. But that round of borrowing only extended one that had begun in the early 1980s. At first it was credit cards, but when the housing boom really got going around 2001, the mortgage market took the lead. Now households are up to their ears in debt, and the credit markets are broken. Borrowing is only one side of the story. As incomes polarised, America’s rich and the financial institutions that serve them found their portfolios bulging with cash in need of a profitable investment outlet, and one of the outlets they found was lending to those below them on the income ladder. (That’s one of several places where all the cash that funded the credit card and mortgage borrowing came from.) They also poured their money into hedge funds, private equity funds and just plain old stocks and bonds. That 25-year gusher of cash led to an enormous expansion in the financial markets. Total financial assets of all kinds (stocks, bonds, everything) averaged around 440 percent of GDP from the early 1950s through the late 1970s. They grew steadily, breaking 600 percent in 1990 and 1,000 percent by 2007. With a few notorious interruptions, it looked like Wall Street had entered a utopia: an eternal bull market. Regulators stopped regulating and auditors looked the other way as financial practices lost all traces of prudence. No figure embodies that negligence better than Alan Greenspan, who as chair of the Federal Reserve dropped the propensity to caution and worry characteristic of the central banking profession and instead cheered the markets onward. As he said many times in the 1990s and early 2000s, who was he, a mere mortal, to second-guess the collective wisdom of the markets? He seemed to have no sense that markets embody no collective wisdom and often act with all the careful consideration of a mob. So while the proximate cause, as the lawyers say, of the current financial crisis is the bursting of the housing bubble and the souring of so much of the mortgage debt that financed it, that’s really only part of a much larger story. And while it’s inevitable that the government is going to have to spend hundreds of billions to repair the damage over the next few years, there’s a lot more that needs to be done over the longer term. This is the point where it’s irresistibly tempting to call for a re-regulation of finance. And that is sorely needed. But we also need to remember why finance, like many other areas of economic life, was deregulated starting in the 1970s. From the point of view of the elite, corporate profits were too low, workers were too demanding and the hand of government was too heavy. Deregulation was part of a broad assault to make the economy more ‘flexible’, which translated into stagnant to declining wages and rising job insecurity for most Americans. And the medicine worked, from the elites’ point of view. Corporate profitability rose dramatically from the early 1980s until sometime last year. The polarization of incomes wasn’t an unwanted side effect of the medicine — it was part of the cure. Although we’re hearing a lot now about how the Reagan era is over and the era of big government is back, an expanded government isn’t likely to do much more than rescue a failing financial system (in addition to the more familiar pursuits of waging war and jailing people). Nothing more humane will be pursued without a far more energised populace than we have. After this financial crisis and the likely bailout, it looks impossible to go back to the status quo ante — but we don’t seem ready to move on to something appealingly new yet, either. This article appeared in the 24 September 2008 edition of The Nation
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