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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

downturn, ever down « Previous | |Next »
April 20, 2009

Before the global financial crisis and its economic fallout happened new office buildings and apartments were going up all over the Adelaide CBD at a furious pace. For the last couple of months or so the construction in the city has become rather quiet. Eerily so. The holes in the ground remain fenced whilst the building sites that are still active have skeleton crews working ever so slowly. Me? I'm waiting for the boarded-up shopfronts to appear so I can take a photo of the history we are living.

Meanwhile finance has boomed, becoming ever more powerful. The banks have enormous political weight and the executives of the world of high finance believe that they control the levers that make the world go round. For them it was axiomatic that the interests of the financial sector are the same as the interests of the country. The economy was always fundamentally sound.


The words "expanding" , "affluent" , "prosperous" and "efficiency" appear empty, now that the city is no longer trying to cannibalize itself and the dead commercial spaces start appearing. Things are getting worse is how it appears.

Life is being quietly snuffed out from the shock waves of a dirty economic bomb set off by the bankers who continue to make their millions whilst on the living off public subsidies. As the wreckage they have caused continues to mount we suspect that the finance industry has effectively captured our government and they are pushing onto the government the substantial problems (toxic debt) that have arisen. Corruption? Nay. The financiers are God's favoured children.

The shock waves continue to roll across the landscape causing destruction in their wake. More unemployment. Longer bread queues. Another firm collapses. The economic commentators talk in terms of "green shoot"s, “V-shaped” recoveries and “glimmers of hope”, whilst the Commonwealth Government subsides the old industries who promise "clean coal", and it turns its back on renewable energy. Corruption? Nay.

The economic commentators are still in the grip of the market mystique. They still believe in the magic of the financial marketplace and in the prowess of the wizards who perform that magic in the name of rational expectations and efficient markets. This belief system is the finance industry's cultural capital. Yesterday’s “public-private partnerships” have yet to be relabeled “crony capitalism.

As Paul Krugman observes:

But the wizards were frauds, whether they knew it or not, and their magic turned out to be no more than a collection of cheap stage tricks. Above all, the key promise of securitization — that it would make the financial system more robust by spreading risk more widely — turned out to be a lie. Banks used securitization to increase their risk, not reduce it, and in the process they made the economy more, not less, vulnerable to financial disruption.

Banks “do not want to recognise the full extent of their losses, because that would likely expose them as insolvent ... This behaviour is corrosive: unhealthy banks either do not lend (hoarding money to shore up reserves) or they make desperate gambles on high-risk loans and investments that could pay off big, but probably won’t pay off at all. In either case, the economy suffers further, and, as it does, bank assets themselves continue to deteriorate – creating a highly destructive cycle.”

| Posted by Gary Sauer-Thompson at 6:23 PM | | Comments (8)


As Johnson points out there is a paradox here ---the banks aren't going to lend a dollarl until the economy turns.” But the economy can’t recover until the banks are healthy and willing to lend. Moreover the current political balance of power gives the financial sector a veto over public policy, even as that sector continues to lose popular support.

Simple. break the bankers oligarchy. Restore competition.

Johnson's more realistic scenario is this:

The second scenario begins more bleakly, and might end that way too. But it does provide at least some hope that we’ll [ie the US] be shaken out of our torpor. It goes like this: the global economy continues to deteriorate, the banking system in east-central Europe collapses, and—because eastern Europe’s banks are mostly owned by western European banks—justifiable fears of government insolvency spread throughout the Continent. Creditors take further hits and confidence falls further. The Asian economies that export manufactured goods are devastated, and the commodity producers in Latin America and Africa are not much better off. A dramatic worsening of the global environment forces the U.S. economy, already staggering, down onto both knees.

As America sinks China rises.

Imagine a world in which people lived within their means ... only borrowed once in their lives, to buy a home as a place to live, not an investment ... and where disciplined saving was regarded as a virtue and the hallmark of a sensible individual.

There was such a world once of course, in the long boom after the Second World War. But it wasn't as 'efficient' as it could have been and the owners of capital were always looking to get greater returns, so they developed financial instruments like hire purchase to let people bring forward their consumption of goods and services, so that consumer spending tended to increase at a greater rate than national income. It was a good trick as long as it could be made to continue, and when people panicked every now and then and stopped borrowing, the government could be pressured into doing it for them.

Will the system withstand one last cycle? The signs are that it might. Eventually of course there will be nobody to take on enough debt to keep production going in excess of income and then the proverbial will really hit the fan ... but everyone hopes that will be some other day and maybe something will turn up in the mean time.

I've just glanced through P.J. O'Rourke's curious op ed in The Australian in which he handles a serious subject within his humorous style. He says:

Ronald Reagan summed up our problem in one sentence: "The nine most frightening words in the English language are, 'I'm from the government and I'm here to help."'Our greatest fear should not be the recession. Our greatest fear should be that our national leaders are engaged in "recession preservation". That their policies will make this crisis probably worse and definitely more prolonged.
I'm not saying that they mean to do this. But I'm not saying they don't. What's bad for us is good for politicians. The politicians are here to save us. And why would we want a politician here, if there's nothing to save us from?

For this libertarian there are no problems with the financial market ---it's the government. Let the recession rip is the message. The Barbarians --ie the worshiper's of Big Government who hate individual freedom --are back. They are inside the city gates wrecking the city.

He loves gridlock because gridlock means government can’t do things.That is good cos big government means that we have taken the road to Cuba--the road to serfdom.

Strange fellow O'Rourke. He says that:

Politics stink. And to my mind, libertarianism is a room deodorizer. It’s trying to keep that bad smell of politics out of home, school, and office.

The problem, says O'Rourke is not really politicians. The problem is politics. Why does politics stink?
Politicians are chefs— some good, some bad—but politics is road kill. The problem isn’t the cook. The problem is the cookbook. The key ingredient of politics is the idea that all of society’s ills can be cured politically. It’s like a cookbook where the recipe for everything is to fry it. The fruit cocktail is fried. The soup is fried. The salad is fried. So is the ice cream and cake. And your pinot noir is rolled in breadcrumbs and dunked in the deep fat fryer level where they are good for everyone.

Presumably, the key ingredient of politics-- the idea that all of society’s ills can be cured politically--- arises from fairness or justice.

O'Rourke stands for unfairness not fairness. That is not argued for though.

'The key ingredient of politics is the idea that all of society’s ills can be cured politically.'

What an absurd statement - an extremist extension of Thatcher's proposition that there is no such thing as society, just a bunch of individuals.

Politics describes the aspects of human behaviour concerned with managing our inter-relationships as part of a group. O'Rourke and his libertarian mates can fantasise about existence as if we're all free spirits who should just be allowed to do our own thing but it's romantic nonsense, contradicted by everything we know about history, biology, sociology and anthropology. Human beings can no more refrain from politics than we can refrain from eating. It's not a belief that ills can be cured but a process for maintaining civilised collective existence.

The trouble with libertarians is that they seek to reduce human experience to an endless series of market transactions in an atomistic economy, oblivious to all evidence about the way real human beings behave in practice and are programmed to behave.

The implication is that conservatives just wanted more tax cuts for the well off and for government to do nothing. They say that Australia remains a center-right country and, if they stand for unfairness, then they are opposed to g to redistribute income to the less well off and the unemployed.