Here we are, in a world of financial and economic pain, with millions of people around the world facing unemployment, reduced pensions, and reduced incomes, all because of the “credit crunch” – and most of us are still in the dark as to how it all happened.
I’m a classically-trained economist (B.Sc. (Econ.), University College London, class of 1986), and I have only the foggiest idea of what’s been happening. I don’t feel too bad about this, though.
Alan Greenspan used to be the most influential economist in the world. A single word could move billions of dollars in one direction or another, leading him to be extraordinarily guarded in his public remarks as head of the US Federal Reserve from 1987 till 2006. The present crisis brewed up during Greenspan’s tenure at the top of the global financial system.
Fog at the top
On 23 October, Greenspan gave somewhat apologetic testimony to the US congressional “Committee of Government Oversight and Reform”, admitting that he’d got some things wrong, and, in effect, that he hadn’t understood what was going on either.
In recent decades, said Greenspan, “a vast risk management and pricing system” had evolved, combining top mathematicians, finance experts, powerful computers and a Nobel Prize-winning advance in economics underpinning the new “derivates markets”. “The whole intellectual edifice, however, collapsed in the summer of last year,” admitted Greenspan, “because the data inputted into the risk management models generally covered only the past two decades, a period of euphoria.”
Translation: smartest people on the planet, but we didn’t really know what the hell we were doing. Greenspan also admitted that his fundamental assumptions were wrong: “I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such as that they were best capable of protecting their own shareholders.”
The head of the committee, California Democrat Henry Waxman (who some may remember from earlier stringent investigations relating to the Iraq war) said to Greenspan: “You found that your view of the world, your ideology was not right, it was not working?” “Absolutely, precisely,” Greenspan replied. “You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”
Translation: I was a fanatic, and I didn’t know it – I didn’t realise how far from reality I was.
Earlier in the year, the former regulator had said that he and others were “in a state of shocked disbelief.”
Visibility clearing below
The mood elsewhere was closer to rage. In the past few months, in Britain at least, we’ve seen a burst of real class hatred – violent anger against the speculators, merchant bankers, hedge fund manipulators and general financial parasites who have profited so massively from destabilising the already reckless casino economy.
Is that the same thing as anti-capitalism? Well, there has been a bizarre upsurge in interest globally in the writings of John Maynard Keynes (the sceptical and reluctant capitalist) and of Karl Marx (the enthusiastic anti-capitalist).
Berlin-based publisher Karl-Dietz Verlag sold 1,500 copies of Marx’s Das Kapital this year, compared to previous sales of 200 copies a year. French president Nicolas Sarkozy has been seen reading the tome (pressure from Carla Bruni?) and there’s talk of a German feature film and a Japanese manga comic of the four-volume opus.
If this means that public discussion of “capitalism” is improved, then this is all to the good. (Having ploughed through part of Vol. III in college, I’m not sure what the effect is going to be.) “Capitalism” doesn’t mean greed. It doesn’t mean buying cheap and selling dear. Capitalism is a brilliant, dazzling social system in which everyone is theoretically free and equal, but financial and economic power – the means of life – are concentrated in the hands of a few.
The majority of us, lacking control over productive resources such as land and equipment, are “free” either to rent ourselves to the owners of capital, or to grind along in poverty.
The central crime of capitalism is not, however, the creation and maintenance of poverty, but the reproduction of wage slavery. The economy makes people into instruments (makes them see themselves as instruments, deserving no more) rather than enabling them to be self-governing co-creators.
We have (a kind of) democracy in the civil part of our lives. Regarding education, healthcare, policing, welfare services and so on, people in Britain have some say in the formation of policy, the direction of investment, the construction of institutions.
In the economic and financial part of our lives, though, almost all of us experience dictatorship. The line of authority inside a corporation is simple: one-way, top-down, without any representative democracy, any democratic oversight or judicial review. That’s a kind of slavery, and it’s one we have difficulty even seeing, because we all have free choices – whether to work in this dictatorial company or another.
Some of us are lucky enough to work in democratic economic environments, such as worker co-operatives. Most of us are not.
So is capitalism dead, in the wake of the financial crisis? Certainly not. As Noam Chomsky pointed out in our last issue, the concentrations of private economic power that have dominated postwar life – in Britain, in the US, globally – have barely been shaken. And there is no sign of a movement – or coalition of movements – that is in any position to transform these radically undemocratic capitalist institutions.
Capitalism is alive, if wounded. Those of us who want a peaceful world will have to find a way to rein in capitalism, and one day to overthrow it in favour of a more humane, constructive and democratic system.
For now, we must be content to educate and to organise for the more limited gains that are possible – in regaining trade union rights lost under Thatcher, for example, or restoring social housing. And while we organise, we can build on the insight that millions have shared: that the present system means socialism for the rich and punishment for the rest of us. Profits are private; the costs of the crisis must borne by the rest of us through billion-dollar bail-outs.
Because even so-called “free market” ideologists like Alan Greenspan have never believed in pure capitalism – they have always supported a capitalism protected from itself by a strong state, imposed on others by a brutal state.
You don’t need an economics degree to see that.