Friday, October 24, 2008
How Bad Will It Get? An Amateur's View
I can't help thinking that most media economists and business journalists are underestimating the probable severity of the unfolding economic crisis. I don't claim to be an economic expert - far from it - and I have to admit that my feeling here is, precisely, a feeling more than it is anything else. Nevertheless all of the economic figures and signs look particularly ominous to me and I distinctly get the sense that the media are, in general, choosing to be rather more optimistic than is warranted. This underestimation of the crisis (if I'm right about it), I suspect, stems from a sort of disorientation - mainstream economists really are out at sea at the moment. Neoclassical economic theory - the hegemonic economic theoretical framework and the particular approach that most media economists take for granted (naturally) - simply doesn't provide its practitioners with the conceptual tools to grasp what is going on. Most of them know that something is very wrong with that hegemonic framework (indeed, even Alan Greenspan seems to admit that orthodox economics has been discredited by recent events), but in the dust and confusion of the collapse of this framework the tendency seems to be to assume that, partial nationalisation of the banking system and slow-motion resurrection of some strange half-forgotten beast named John Maynard Keynes notwithstanding, things will carry on more or less as normal.
In general, however, the media have been consistently (to invoke its own currently fashionable jargon) 'behind the curve' during the whole of the crisis so far. It's now widely accepted (in the days after The Governor of the Bank of England's recent headline grabbing speech) that the international banking system came within days of total 'meltdown'. To be sure, the news reports of a couple of weeks ago at the height of the banking crisis were clear that something major and very worrying was going on - there was more than a whiff of panic in the tone of some of those reports - but I don't remember anyone suggesting that the banking system was on the verge of collapse. This is why I'm a little bit sceptical about those reports today, in the wake of the publication of official ONS data showing that the British economy has contracted, which suggest that Britain is heading for a recession similar in magnitude to that of the early 1990s. Most news reports I've seen or read have made this early 1990s comparison. But why settle on this particular measure of the probable severity of the downturn? Surely there's a good chance that things are worse than that. No one can know for sure how bad it will be (largely because the economy is not some force of nature but a name we give to some aggregation of human transactions, investment and consumption decisions and other social relations between human beings - and the concrete course of its development is, therefore, ultimately unpredictable and certainly not fore-ordained), but a number of things suggest that the relatively mild downturn of the early 1990s may not be the most appropriate historical comparison.
For one thing, the world economy today has hit the skids after having been driven forward over the past couple of decades by a series of increasingly insane speculation and credit bubbles. The financialisation of Western economies, together with the level of increase in consumer debt over the past couple of decades - a 20 year stop-gap to temporarily shore-up growth while manufacturing and industry was steadily hollowed out, unable to survive the squeeze of increasing international competition under 'globalisation' in the era of cheap overseas labour costs - is unprecedented. The 1990s recession marked the end of 5 or 6 years of the Thatcher- Reagan boom. That, surely, was child's play compared to the last 16 years of continuous credit fuelled expansion.
Though the immediate banking crisis seems to have been resolved, at least for now, there's little doubt that things are going to get a lot worse in the 'real economy'. It's worth remembering that the ONC figures for UK GDP shows a contraction in the period before the collapse of Lehman Brothers and the height of the banking crisis - the effects of that crisis, then, will not show up in the 'real' economy stats for some months yet. The worst is yet to come and it will be much more than a 0.5 per cent contraction.
There are other factors we need to take account of too. One obvious thing here is that US national debt has reached unparalleled proportions. Of course, the US continues to spend astronomical sums in Iraq on a weekly basis - and one of the key contributing factors in the downturn of the 1970s, it should be remembered, was the massive level of US military expenditure in Vietnam. The dollar is highly vulnerable - any major run on the dollar, sparked perhaps by another Wall Street bankruptcy, would have serious consequences.
There has been some suggestion that a major world recession/depression cannot occur while China continues to grow and remains therefore capable of taking up any global slack. There is good reason to think, however, that things aren't quite so rosy with the Chinese economy as they might seem. This report, for example, suggests that the Chinese economy is 'stuttering' -'pausing for breath' after its Olympics preparations fuelled boom. 'Some critics', the report comments, 'say the rulers of the world's most populous nation have presided over a bubble economy that is just waiting to pop'. It would be rather foolish to assume that China will make things all right. It's worth pointing out, too, that we don't know how deep corporate-financial corruption goes in China - there is plenty of incentive for Enron style make-believe book-cooking in the 'special economic zones' of Shanghai and Beijing.
I wouldn't be amazed, then, if things turn out to be much much worse than 1990. One of the surprising things about this crisis has been how relatively sober and staid the socialist left has, so far, remained. Excepting Immanuel Wallerstein, at least, no one serious has predicted a 'final crisis of capitalism'. As Phil BC pointed out in an interesting post a few days ago, this has to be a good thing - the left almost manages to make itself look sensible and wise. I wonder, however, if, like the majority of media pundits, left wingers are underestimating the scale of the crisis - scared of being seen to exaggerate and looking silly, as the socialist left has so often before. A major recession/depression (?) would bring terrible suffering and we must hope that it can be averted, but if it came it would also bring great possibilities for political advance. Old political and economic certainties would break down (indeed they already have to a certain extent) to be replaced by a situation of flux in which the opportunities for remoulding and restructuring the ideological and political terrain would be substantial. Slavoj Zizek commented recently that politics is 'the struggle to define the "neutral" terrain' - it is, in other words, a battle to transform a particular world view into the universal, or, in Gramscian terms, a struggle for hegemony and to define the 'common sense of the age'. In periods of crisis the opportunities for rapid advances in such a struggle increase - the tempo of the day to day 'war of position' accelerates. The Thatcherites capitalised on the crisis of Keynesianism in the 1970s by waging a successful ideological war in a time of political and economic flux to redefine 'common sense' and to reconfigure 'neutral-ground' and the taken-for-granted. The left must be ready now to do something similar.
In general, however, the media have been consistently (to invoke its own currently fashionable jargon) 'behind the curve' during the whole of the crisis so far. It's now widely accepted (in the days after The Governor of the Bank of England's recent headline grabbing speech) that the international banking system came within days of total 'meltdown'. To be sure, the news reports of a couple of weeks ago at the height of the banking crisis were clear that something major and very worrying was going on - there was more than a whiff of panic in the tone of some of those reports - but I don't remember anyone suggesting that the banking system was on the verge of collapse. This is why I'm a little bit sceptical about those reports today, in the wake of the publication of official ONS data showing that the British economy has contracted, which suggest that Britain is heading for a recession similar in magnitude to that of the early 1990s. Most news reports I've seen or read have made this early 1990s comparison. But why settle on this particular measure of the probable severity of the downturn? Surely there's a good chance that things are worse than that. No one can know for sure how bad it will be (largely because the economy is not some force of nature but a name we give to some aggregation of human transactions, investment and consumption decisions and other social relations between human beings - and the concrete course of its development is, therefore, ultimately unpredictable and certainly not fore-ordained), but a number of things suggest that the relatively mild downturn of the early 1990s may not be the most appropriate historical comparison.
For one thing, the world economy today has hit the skids after having been driven forward over the past couple of decades by a series of increasingly insane speculation and credit bubbles. The financialisation of Western economies, together with the level of increase in consumer debt over the past couple of decades - a 20 year stop-gap to temporarily shore-up growth while manufacturing and industry was steadily hollowed out, unable to survive the squeeze of increasing international competition under 'globalisation' in the era of cheap overseas labour costs - is unprecedented. The 1990s recession marked the end of 5 or 6 years of the Thatcher- Reagan boom. That, surely, was child's play compared to the last 16 years of continuous credit fuelled expansion.
Though the immediate banking crisis seems to have been resolved, at least for now, there's little doubt that things are going to get a lot worse in the 'real economy'. It's worth remembering that the ONC figures for UK GDP shows a contraction in the period before the collapse of Lehman Brothers and the height of the banking crisis - the effects of that crisis, then, will not show up in the 'real' economy stats for some months yet. The worst is yet to come and it will be much more than a 0.5 per cent contraction.
There are other factors we need to take account of too. One obvious thing here is that US national debt has reached unparalleled proportions. Of course, the US continues to spend astronomical sums in Iraq on a weekly basis - and one of the key contributing factors in the downturn of the 1970s, it should be remembered, was the massive level of US military expenditure in Vietnam. The dollar is highly vulnerable - any major run on the dollar, sparked perhaps by another Wall Street bankruptcy, would have serious consequences.
There has been some suggestion that a major world recession/depression cannot occur while China continues to grow and remains therefore capable of taking up any global slack. There is good reason to think, however, that things aren't quite so rosy with the Chinese economy as they might seem. This report, for example, suggests that the Chinese economy is 'stuttering' -'pausing for breath' after its Olympics preparations fuelled boom. 'Some critics', the report comments, 'say the rulers of the world's most populous nation have presided over a bubble economy that is just waiting to pop'. It would be rather foolish to assume that China will make things all right. It's worth pointing out, too, that we don't know how deep corporate-financial corruption goes in China - there is plenty of incentive for Enron style make-believe book-cooking in the 'special economic zones' of Shanghai and Beijing.
I wouldn't be amazed, then, if things turn out to be much much worse than 1990. One of the surprising things about this crisis has been how relatively sober and staid the socialist left has, so far, remained. Excepting Immanuel Wallerstein, at least, no one serious has predicted a 'final crisis of capitalism'. As Phil BC pointed out in an interesting post a few days ago, this has to be a good thing - the left almost manages to make itself look sensible and wise. I wonder, however, if, like the majority of media pundits, left wingers are underestimating the scale of the crisis - scared of being seen to exaggerate and looking silly, as the socialist left has so often before. A major recession/depression (?) would bring terrible suffering and we must hope that it can be averted, but if it came it would also bring great possibilities for political advance. Old political and economic certainties would break down (indeed they already have to a certain extent) to be replaced by a situation of flux in which the opportunities for remoulding and restructuring the ideological and political terrain would be substantial. Slavoj Zizek commented recently that politics is 'the struggle to define the "neutral" terrain' - it is, in other words, a battle to transform a particular world view into the universal, or, in Gramscian terms, a struggle for hegemony and to define the 'common sense of the age'. In periods of crisis the opportunities for rapid advances in such a struggle increase - the tempo of the day to day 'war of position' accelerates. The Thatcherites capitalised on the crisis of Keynesianism in the 1970s by waging a successful ideological war in a time of political and economic flux to redefine 'common sense' and to reconfigure 'neutral-ground' and the taken-for-granted. The left must be ready now to do something similar.
Wednesday, October 22, 2008
Resources on the Crisis
There's an excellent website called Radical Perspectives on the Crisis which gathers together a largeish number of articles by economists and political theorists (and philosophers like Badiou and Virilo) on the unfolding economic crisis, as well as providing some primers on basic political economy and 'crisis theory'. It looks like it will be updated on an ongoing basis. Worth a look. Also worth a look is a site called Market Meltdown 101 where you can listen to the response to the crisis of economists from the University of Massachusetts Amherst, such as Robert Pollin and Richard Wolff.
In one of the articles on the first website Immanuel Wallerstein not only predicts a depression rather than a recession but also comments, after a breezy discussion of Kondratieff cycles, that '[we] can assert with confidence that the present system cannot survive'. Well someone had to say it I suppose. Seems a bit of a rash assertion to me though.
In one of the articles on the first website Immanuel Wallerstein not only predicts a depression rather than a recession but also comments, after a breezy discussion of Kondratieff cycles, that '[we] can assert with confidence that the present system cannot survive'. Well someone had to say it I suppose. Seems a bit of a rash assertion to me though.
