I thought I’d seen the ultimate self-parodic left-wing critique of the financial crisis when The Guardian furrowed its brow over its impact on ethnic minority investment bankers. But it took an unexpected determination by Republicans to — shock horror — actually stand up for their professed beliefs for once to really bring out the Trots.
I know Crikey has moved to the left, but I had to re-read Guy Rundle’s effort to check that yes, he was indeed claiming that not merely was the current financial turmoil a crisis of capitalism but that hundreds of millions of Americans — that’d be most of them — are ready to consider socialism.
Ah yes, those sunny uplands of economic utopia; from each, according to their tolerance for pain, to each, according to their rank in the Party hierarchy — all just a few bank collapses away.
Guy reckons the crisis reflects that western capitalism is “running on fumes” — or, more accurately, “rents” such as financial services and IP. Evidently he shares Kevin Rudd’s view that real economies, you know, actually make stuff, tangible stuff that a man can pick up and feel in his bare hands, or better yet drive around in.
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It may come as a shock to majority of gainfully-employed people in Australia who, by working in services-related industries don’t therefore have a real job, but they seem to have been able to lead their lives and raise their families unencumbered by such knowledge. Ignorance is evidently bliss.
In fact the crisis reflects some rather simpler propositions: that if you lend money to people who can’t pay it back you’ll lose it, and you’ll lose it just as readily if it’s in the trillions and sliced and diced into CDOs and “risk-managed”. And if you price money too low, like any other good, markets will find unproductive and inefficient uses to which to put it.
And if you don’t understand a financial services product, you shouldn’t be rating its risk — a sin for which the major ratings agencies have yet to be called to account. Oh, and if you don’t bother too much with regulatory oversight, then some businesses will try to pull swifties, and if they’re not detected other business will follow, because they feel the need to compete.
All of these have caused a crisis in capitalism but hardly of it. If anything, the crisis demonstrates that even the most brilliant financial engineers can’t defy basic economic laws for very long, although there was a few hundred mill and damn fine house in the Hamptons for those who timed their run well.
The most peculiar part about Guy’s analysis was his peculiar attempt to triangulate out of the right-left less regulation-more regulation argument. Alas, socialism doesn’t cut some third path away from that argument, it simply takes it to a ludicrous extreme where nothing can be done without regulation, including, eventually, the mere act pointing out how ludicrous it is. In any event, I haven’t seen anyone seriously arguing that over-regulation was the problem on Wall St, although I’ve seen quite a few attempts to blame African-American and Hispanic borrowers for the crisis, including one in the AFR today.
In Australia, we have slightly better regulation. Not massively superior, but sufficient that our major banks are not collapsing round our ears. We also have a substantial budget surplus, although more thanks to a mining boom than the economic sense of our political leaders. And by dint of an extended period of economic reform in the eighties, we’ve considerably freed up most of our markets so they operate with a fair degree of efficiency.
The United States can’t make the same claims, not by any stretch. If there’s a crisis of capitalism, it should be happening in Australia as well. By dint of good management and sticking to the basics of capitalism, we’ve avoided most of it. Capitalism works perfectly well. Or, in any event, it works a d-mn sight better than the alternative.