The other day, I was asked in an interview whether finance was killing democracy. Judged over the post-war period, the answer must be a qualified ‘no’. But things at present are not looking good.
Finance has not killed politics—if anything, the ongoing financial crisis is lading to a reawakening of politics on a scale we have not seen in many years, particularly a re-awakening amongst young people. If the young are out on the streets demonstrating, it is for quite understandable reasons. Most obviously, the crisis has illuminated the weaknesses of neo-liberal capitalism in a way many though inconceivable a decade ago.
Not only is neo-liberal ideology deeply misleading—the idea that ‘free markets are infallible and don’t require regulation—but the economics it has produced is disastrous. Inequality is growing everywhere, particularly in the main Anglo-Saxon countries where it is higher today than in the 1930s.Youth unemployment in the most of Europe ranges between 20- 40%, and we are at risk of producing an entire generation which is locked out of decent work and income. European ‘austerity’ is destroying the cornerstone of the post-war social settlement; ie, our welfare state.
As for democracy, we have recently witnessed the toppling of two governments by the bond markets, and doubtless there will be more. This is largely the fault of a political elite dominated by bankers which designed a Eurozone where each member- state’s borrowing was vulnerable to attack. This ‘fragility’ of the Eurozone—the lack of a common fiscal policy and a genuine Central Bank able to act as lender of the last resort—is leading to growing national antagonisms, the most obvious being between Greeks and Germans (a proxy for north v south Europe).
What is truly dangerous is that the financial markets’ notion of ‘common governance’ is all about ‘greater fiscal discipline’, by which is meant stringent enforcement of the 3% budget deficit limit, the 60% indebtedness rule and, most recently, the notion that all Eurozone countries should follow Germany in adopting a constitutionally binding ‘balanced budget’ (debt brake) provision. Such views are based on the simple-minded premise that a national economy can be run like a corner shop, the ‘handbag economics’ preached by Maggie Thatcher and more recently by the Schwabian housewife, Angela Merkel.
Not only are such views wrong (they ignore basic national accounting definitions), but they can lead Europe into even deeper economic gloom. As credit dries up, Europe is on the verge of a new financial crisis which will almost certainly lead to renewed economic depression. Moreover, the costs of all this is being borne once more by ordinary workers, and increasingly by the middle class. Like markets in the general, the financial market can be a good servant… but it is proving to be a very poor master.
If we know anything from history, it is that long periods of economic crisis tend to lead not to more progressive politics but rather to its opposite; the right-wing politics of xenophobia. Witness the German depression of 1932 under Chancellor Brüning which saw the extreme right rise from virtually nothing in 1929 to assume power in 1933. I am hardly the first to say it, but we are living in dangerous times.
#1 by pasbaxo on November 26, 2011 - 7:15 pm
The practized liberal conception is not executed as consequent as the term suggests, whereas more price outflows to below could have been leaded to les overproduction and destruction of products.
Eiher a liberal economic conception of monetary suppliance defined within the monetary system as a claim on the ECB bank not creating initially debt posts to the enterprises as consequence of an amount to be borrowed could have been leaded to a less insolvable position of enterprises as suggested.
#2 by Ardath Blauvelt, Hollis, NH on November 26, 2011 - 10:34 pm
It is astonishing that nothing in history, no facts or reality, can shake some people’s absolute conviction that there are no such things as economic laws, just as the same people believe there is no such thing as natural law. Economics do not need freedom in order to function, just as people do not. Everything can be programmed, designed, managed, planned and executed, if the leaders are just smart enough. Every time it fails, it’s never the theory, it’s that the executors were not smart enough. The only way socialism works is if printed money, ostensibly backed by a government promise, is the bedrock of the system, because money or whatever the tender is, will have no meaning or value otherwise. People do not work for nothing forever, any more than power yields its self-interest to the common good in any other way than rhetorical. No matter how the facts are massaged, economics depend on some kind of real basis and when the “full faith and credit” is shot, so is the promise. This is the scenario that leads to desperation and the rise of the tyrant who promises to make it all better, and then is betrayed by the inevitable assertion of power’s absolute laws. Yes, we live in perilous times because the market’s economic laws have been overridden by the socialist promise of a free lunch, not because the market failed. Markets promise nothing which keeps people from expecting something for nothing; socialism promises everything, based on nothing.
#3 by Betterworld on November 27, 2011 - 12:44 am
George, you are absolutely right to focus on the political fallout likely from the Great Depression. That is where the real fight is happening and, so far, I like what I see – much less trust in institutions, leadership and elites.
Politics is the only weapon we have yet to try to solve the economic crisis. The economic Neanderthals of neo-liberal capitalism, who are leading us into a sure-fire double-dip through their bean-counting austerity programs, will eventually be taken out and shot.
Whether the holder of the gun is a fascist or a communist is anyone’s guess, but you won’t find the answer to that question in an economics text book, certainly not in a neo-liberal one.
#4 by Pedro on November 28, 2011 - 10:30 pm
Hey George, according to you, shouldn’t the Euro and the European Union have both disappeared?
#5 by jwholland on November 29, 2011 - 12:18 pm
The current crisis that we find ourselves in was caused by govt attempts at regulating the markets (Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act, Commodity Futures Modernization Act, which exempted credit-default swaps from regulation. The rewriting of the Community Reinvestment Act, which put added pressure on banks to lend in low-income neighborhoods) and the govts management of interest rates (keeping them artificially low and therefor flooding economies with cheap credit).
This caused the bubble and many people are to blame. Had the markets been allowed to correct the excesses of past years and bankrupt entities not been bailed out by hardworking tax-payers all over the world (as pure capitalism teaches), the problem would have been less serious for the majority, and very serious indeed for those that took all those silly risks, as a fair society would hope (and capitalism dictates should happen).
My point is basically that Capitalism is not the problem. Capitalism is human nature. The problem stems from the cosy relationship between govts and markets, who in collusion, distort the markets, steal from the poorest and least represented, and make sure they are never held accountable.
To place all the blame of the current financial crisis at the feet of capitalism is a very simplistic, inaccurate and dogmatic way of looking at a complex problem and will distract from the real debate that needs to be had about what level and what kind of governments involvment do we want in the market.
If we simply blame capitalism, we won’t deal with the real problem at hand and will simply redo the same mistakes next time the bubble grows.
Serious modern debate, please. Not silly pre-WW1 you vs. us arguments. We are all in this mess together. The young people are right to be on the streets of London, New York, Athens and Madrid and they are right to be angry towards the banks, wall street and their governments. Those that should know better should not try to revive the old Capitalism vs communism argument once again. That battle has been fought and won already.
#6 by Pedro on December 2, 2011 - 3:34 pm
Yeah, the british are living in ‘dangerous times’:
[ http://www.bbc.co.uk/news/business-15820601 ]
#7 by Guillaume on January 14, 2012 - 10:16 am
I think Finances helped to promote non democratic regimes. They didn’t killed democracy directly.
Explanation is simple : When a company decide to move working forces to non-democratic regimes, their value on financial markets gets higher, as they made immediate profits.
By doing that we have promoted china to the top.
Democracy will not survive without support.
May all financial places beeing cursed for promoting the disaster !
Sadly our children will pay the price of their mistakes. In my town teenagers prefear learning chineese than studying history (“better for my future they said”).
Stop dealing with countries that does not respect human rights !
Stop capitalism without morality !