By Adam Stromme
Today marks the seventh anniversary of the collapse of international finance.
But the spectre of the Great “Recession”- as it continues to be called in the face of economic definition– stretches far beyond the dramatic collapse of Lehman Brothers. Indeed, it marked a dramatic acceleration of trends that persist well into the present day. As the political world around us appears to be changing at a dizzying pace, it is important to remember that it is still doing so largely in reaction to how our collective management of the recession has been.
That radicalism is omnipresent can only indicate bad news.
First, there is the empirical reality. Economic growth in the United States hit pre-crisis levels a few years ago, but the equitability of the growth has actually been negative, leaving many households worse off despite economic growth. But even in the aggregate, the numbers still look grim. Britain, for example, has only formally “recovered” from the recession (as calculated by GDP) two months ago; even then, this recent growth does not necessarily offset the previous collapse in industry, which will take the nation decades to recover from.
Then there is the evolution of political tone. With a masochistic stress on deficit reduction that would make a flagellant blush, governments across the Western world have continued to cannibalize their social programs and other hallmarks of the social safety net at the very time that they are most in need. Expenses for this protracted economic downturn have been deemed too high to find ways to protect our most vulnerable.
But, if the luminaries in the business press are to be believed, this is all totally fine; the natural consequence of a finance led recovery. Furthermore, this is ideal, since it helps prevent the “largesse” of the state from encouraging dependency. And in as simple a fashion as that, we have transformed the nature of the sovereign debt crisis from a balance sheet crisis brought on by governments buying toxic assets from private investors to save the global economy to a sort of quaint moralizing about the dangers of big brother giving too much change.
Mark Blyth, Eastman Chair of International Political Economy at Brown University, is phenomenal exorciser of these primitive and misguided beliefs. The reality remains that, to quote his own words, austerity: “is also a dangerous idea because the way austerity is being represented by both politicians and the media- as payback for something called the “sovereign debt crisis,” supposedly brought on by states that apparently “spent too much”- is a quite fundamental misrepresentation of the facts. These problems, including the crisis of the bond markets, started with the banks and will end with the banks. The current mess is not a sovereign debt crisis generated by excessive spending by anybody except the Greeks. For everyone else, the problem is the banks that sovereigns have to take responsibility for, especially in the Eurozone. That we call it a “sovereign debt crisis” suggests a very interesting politics of “bait and switch” at play.”
Yet despite this, austerity is the prevailing elite consensus on the public role of government. Meanwhile, a turn towards the private sector-itself the origin of the ongoing crisis- yields even further leaps backwards. Finance is as unregulated as ever and even the most meagre of restrictions– quite literally left over from the “Big Bang“- are still intolerable to the modern financial class. Even Section 716 of the Dodd Frank Act banning the very financial derivatives that helped precipitate the previous collapse, was silently killed in a subcommittee.
Whilst austerity continues to remain the primary concern of the electorate, increasingly great systemic risks like these will also continue to accumulate in the financial system. Both are a product of a intensely “trickle-up” approach to economics. Both are a grave threat to the well being of the Western world. A viable alternative is just beginning to be recognized as such; it is time to realize it.