Random thoughts on an economic crisis…

An unusually interesting piece by Madeleine Bunting in the Guardian last month where she engaged with the issue of the lack of response by the public over the banking/financial/economic crisis. She noted that:

… the biggest puzzle is the public. The enormous advertising campaigns of the banks must play a role; some say the total spend last year was around £30m. The cutesy animation and friendly “real” bank staff must work at some level to delude the public, to calm and reassure that all is as normal. It’s trading on some folk memory of banks as sober and reliable. Add to that the massive patronage – of the arts, sport and good works – in the last few decades designed to inspire shock and awe.

This public deference is also evident in how effectively the banks have used complexity and expertise to dodge accountability. “You wouldn’t understand” was the mantra provided to regulators, politicians and the public, just as priests in a cult might tell devotees. The complexity required a superior intelligence and skill, insisted the “masters of the universe”, as they recruited the sharpest minds. This is a version of the meritocracy against which Michael Young warned so presciently in 1958, using a phrase that has been stubbornly misunderstood ever since. He recognised that meritocracy was a form of elitism; it could be as ruthlessly exploitative as aristocracy and, in both, deference and patronage play integral roles. It’s worth remembering that Young predicted revolution by the disfranchised against the meritocracy – but not until 2033.

I think that the answers to this are to be found in the same area as those discussed recently in relation to the John Lanchester book. Simply put the orthodoxy is the overwhelming discourse, there is a sense that this orthodoxy is correct and crucially that it is pointless to explore alternatives. In a curious way it reminds me of the old trope about ‘there being no life outside the party’ for ex-CPers with perhaps the same sort of manichaean basis to it.

There are other issues at work in relation to banks in particular. Not that long ago the hierarchical relationship with banks was one of customers being near supplicants when making applications for loans. And that top down relationship I think goes beyond the idea of banks as ‘sober and reliable’. I think it feeds into an approach where the bank was not quite entirely, but to some degree almost unquestionable. After all the bank had something approaching the power of life and death.

And allied with that then there’s the reality that for many the bank was the repository – quite literally – of much of what they had, whether in terms of mortgages or savings. It’s very difficult to turn that around conceptually to being a relationship where the customer is giving something to the bank rather than that the bank is holding something over the customer. It’s almost as if the bank has an hostage – and perhaps explains why some of the talk of mortgage boycotts and such like has run into the ground.

All this is impressionistic and it would be useful to see something more empirical brought to bear on the topic. But widening this out it explains perhaps why public anger is so diffuse about the crisis.

What’s most curious about this is that up until even two decades ago the idea that states across the globe would adopt such essentially passive measures in the face of recession would have seemed wildly at odds with previous economic practice in the post-war period. The idea that ‘austerity’ was the sensible course of action in recessionary times would have been regarded as hugely counter-intuitive for the obvious reasons, that such austerity stifles the very growth which is needed to pull away from recession.

But again as touched on by Lanchester, the capture of social democratic parties intellectually by the neo-liberal right, or rather the retreat or surrender by such parties to nostrums of the impossibility or inadequacy of interventionism is perhaps the key issue. One can view this as a loss of heart or perhaps a poorly worked out economic foundation to their philosophies (in that they didn’t offer strong counter critiques) or whatever. One might also attribute it to a dynamic where winning back state power – even if once won they resiled from engaging with the potential of that state power was more important in the short term than demonstrating through work on political economy that state power [and by the way I’m not an out and out statist and have always believed that intervention should be across a spectrum rather than narrowly focused just on the state] had an efficacy in such contexts.

I’ve been listening to a lot of US politics podcasts, most notably, Left Right & Centre from KCRW, which take the view that the ECB and eurozone as a whole are replicating the worst mistakes of the US banking crisis by attempting to support the banking sector over the economy.

Their incomprehension at the policies being pursued here in particular is deeply disturbing and perhaps all the more so because it is generally positioned within a more rather than less orthodox approach. As Matt Miller said on the latest edition of LR&C:

“It’s also true that Greece took on tons of debt that was beyond their ability to pay… and that they’ve huge issues in their tax collection and public employment that are legitimate issues to be revisited…

But the real scandal, it seems to me, and this happened in Ireland… is that the entire effort of European politicians is to avoid having the private sector bank bondholders that are holding Greek debt from taking any reduction from 100% on the dollar of the debt that they’ve taken on and the pressure, and the idea that we’ll insulate banks because they don’t have enough capital to withstand losses, is really what got us into this mess in the first place, banks banks operating with very thin levels of capital whose losses end up becoming nationalized in this situation.”

And they point to the intrinsic problem of the eurozone itself preventing an orderly devaluation. This doesn’t sound good. And that’s beyond the capacity of the Greek – or this – polity to absorb what is being asked of it.

That thought in mind Constantin Gurdgiev makes an interesting point in the latest Village magazine in the front page piece on the economy. He notes:

…the periphery label attached to Portugal, Ireland, Italy, Greece and Spain. In 2010, its ‘periphery’ accounted for 35% of Euro-area GDP, 40.5% of its population and 40% of the total gross government debt. I doubt any US administration would ever be arrogant enough to call, say, the States west of the Rockies, the ‘periphery’…

Perhaps Gurdgiev is reaching a little in incorporating Italy into the PIGS acronym, perhaps not. But this surely feels like a crisis that the EU is remarkably unprepared to face up to. And even if we calibrate an intrinsic bias against the EU into the statements of those noted above that still leaves little room for comfort.

And that led to another thought. Last week I watched two films about the resistance to the Nazi’s, the interesting Flame and Citron, set in Copenhagen and following the fortunes of two nationalist resistance fighters and the equally interesting, but perhaps more harrowing, Army of Crime which followed a Paris based Resistance group which was largely but not exclusively made up of non-French nationals and Communists. I’d recommend both, but something very curious struck me during the latter. Throughout the film the narrative is interspersed by Vichy and occupied France radio announcements about the activities of the Resistance.

Listening to the radio announcers detailing the ‘crimes’ against the Nazi’s and the infrastructure there was an almost overwhelming urge to shout at the screen ‘but it’s an occupied country and they’re resisting and you’re pretending nothing has changed’.

Oddly familiar.

Another thought. I’m not a believer in conspiracy theories, though I find them fascinating. And I don’t believe this crisis was deliberately generated on behalf of anyone in order to suppress populations. That said I do think that it is proving to be an educative moment for some of the great and good as to how passive populations are and how much can be removed from them before there is serious unrest. I have little doubt that the lack of response is being filed away for future use – in much the same way as the response to the security measures taken during the visit of the Queen provided a not dissimilar educative moment for the Irish state.