What a difference a year makes. The conventional wisdom at the beginning of last summer was that the economy was performing wonders. Graham Turner, Larry Elliott and Dan Atkinson were among a small minority of economists and commentators prepared to say the emperor had no clothes. Now everyone can see that they were right.
Elliott and Atkinson’s new book, The Gods That Failed, is a sustained diatribe against those they believe have brought about the present financial crisis – the “New Olympians”. They are “a new elite of freebooting super-rich free market operatives and their colleagues in national and international institutions like the IMF, the World Bank and the World Trade Organisation”.
This elite managed to get “control” on a “false prospectus”: “They promised economic stability – and have delivered chaos and volatility. They promised an economic order based on enterprise, thrift and personal effort – and have delivered one based on chronic indebtedness and wild speculation. They promised a ‘transparent’ future in which all costs and prices would be clearly laid out – and have delivered a world of bizarre, occult financial knowledge. They promised a greatly expanded middle class of property – and share-owning individuals – and have unleashed havoc on professional and white collar career structures.”
The “New Olympian” gods are globalisation, liberalisation, privatisation, competition, financialisation, speculation, recklessness, greed, arrogance, oligarchy and excess. Yet, even now when the miracles they promised have not come to pass, “elected politicians bend over backwards to make life as pleasant as possible for them”. They get billions to pay off debts created by speculation, while everyone else is expected to compete just to keep their jobs.
The diatribe will make an impact on people frightened over their jobs, rising debts and prices. Excellent chapters attack New Labour’s economic policies and their impact on people’s lives. But it is weakened by irritating cultural side-comments.
The authors claim that 1968 somehow opened the door to Thatcherism, denounce the “liberal left” for its concern with “gays, women, disabled people, transgender” and accept the figures of a right wing think-tank on the growth of supposedly unnecessary public sector jobs concerned with such things.
The biggest weakness is the contention that the problem is solely with finance. They write, “Before the New Olympian takeover, market capitalism proved remarkably good at providing both peace of mind and material advancement.”
The Cold War weaponry that underpinned the world economy in post war decades gets barely a mention, nor does the way the long boom fell apart because of factors built into it from the mid-1970s. Instead, there is an almost conspiratorial view, focusing on a meeting of right wing free market “conspiracists” held in Switzerland in 1947.
The stress on finance leads the authors to look to a middle class “New Populism” to fight for increasing regulation and breaking up the gigantic financial institution while “deregulating genuinely private businesses”. In the short term they see “hope” in a G7 meeting contemplating “measures to reign in the turbo charged financial interests”. These are feeble conclusions to draw from so damning an indictment.
Graham Turner’s The Credit Crunch is a similar indictment to Elliott and Atkinson’s. But he goes deeper in locating the roots of the credit crunch. He focuses on the imbalances that have arisen because of the US and Britain importing much more than they export. Massive borrowing has been necessary to keep up consumption. These funds are borrowed from the foreign trade surpluses accrued by China, south east Asia and the oil producing states.
The imbalance arises because Western firms have used globalisation and overseas production to cut wages. The result is “overinvestment – capital cannot find markets because workers cannot afford to buy all the goods that are being produced.”
He tends to overstate the role of globalisation in destroying jobs and reducing wages, as against old fashioned employers’ offensives. More importantly, he does not ask why capitalists and governments are under pressure to conduct such offensives today. The answer lies in deep seated developments within the system as a whole and not just the rise of finance (which is a product of these changes, not the cause). But to begin to find real answers we have to go back to Karl Marx.
Turner’s approach, by contrast, is that of a Keynesian economist who still uses the basic tools of mainstream neoclassical economics even while criticising capitalism. This leads him to believe that if only central bankers had reduced interest rates sooner they could have prevented the credit crunch developing last summer.
This does not explain why the system was in such a fragile state that supposed mistakes of timing were so important.
Turner’s long discussion on the Japanese crisis shows how neither Keynesian nor monetary measures were able to solve it.
To me this suggests that when the system crashes, all the Keynesian horses and all the Keynesian men cannot put it together again. Again, his analysis is useful precisely because it points to a conclusion he has not yet come to and which Elliott and Atkinson are very far from – that those who accept their arguments have to seek to overthrow the system, not reform it.
The Gods That Failed is published by The Bodley Head. The Credit Crunch is published by Pluto.