This is an excerpt from the NY TIMES about former Fed chief Alan Greenspan’s grilling by lawmakers in Washingon:Mr. Greenspan conceded a serious flaw in his own philosophy that unfettered free markets sit at the root of a superior economy.
“I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms,” Mr. Greenspan said.
Referring to his free-market ideology, Mr. Greenspan added: “I have found a flaw. I don’t know how significant or permanent it is. But I have been very distressed by that fact.”
Mr. Waxman pressed the former Fed chair to clarify his words. “In other words, you found that your view of the world, your ideology, was not right, it was not working,” Mr. Waxman said.
“Absolutely, precisely,” Mr. Greenspan replied. “You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”
Am I alone in deriving a little grim satisfaction from hearing Greenspan recanting his monetarist neo-liberal weltanschaung? However it is certainly the case that capitalism will now begin to absorb the facts and adapt to the situation, bringing a neo-Keynesian perspective back into vogue, a little reminiscent of those tag wrestling bouts when the wrestler losing could somehow stretch out from a prone and utterly defeated position to bring onto the mat his partner, thus relieving himself from his impending defeat, well capitalism has a ready line of tag partners, fascism has stepped in on more than one occasion, I suppose that neo-keynesian ideas will be employed to justify the state and its resources( the taxes we all pay), now being employed to ensure capitalist property relations are preserved, whereas the current crisis should really be tackled from asking the really fundamental question, namely how can something as important as global economic development and prosperity be left in the hands of such a patently illogical system.
The main question here is how finance capital, yes dust off your Lenin, the controllers ultimately of both the banks and industry have been able to shift the political balance of forces in their favour over the past 30 years, destroying the restrictions on capitalism's power globally which had been wrested from the worlds ruling class over the previous 50 years.
Communist Party of the USA Chairman Sam Webb traces the crisis back to the political offensive of the Reagan administration against American organised Labour, and the USSR and the role that it played in supporting anti-imperialism across the globe, especially in the Middle East, Africa, and Latin America.
"While financialisation was an outgrowth of the systematic weakness of US capitalism, it was also the leading edge of a neo-liberal model of capital accumulation designed to restore US capitalism's momentum, profitability, and dominant position in domestic and world affairs"
But Webb goes on to argue,financialization is a two-edged sword, not all peaches and cream. Indeed, its very successes opened up new fault lines in the U.S. and global economy, making it, as we so graphically see, unsustainable.
While it stimulated the domestic and global economy, it also left the USA with an astronomical pileup of household, government and corporate debt which can’t be unwound overnight.While it gave an impulse to economic growth, it also introduced enormous instability into the arteries of the U.S. and world economy, evidenced by the frequent financial contagions at home and globally over the past two decades.
While it prolonged the upward cyclical movements of capitalism, it has also set the stage for a hard economic landing and a much deeper crisis eventually, which is what we are experiencing now.While it created wealth on a substantial scale, it also successfully engineered the biggest transfer of wealth in US and European history from wealth creators — the world’s working people — to wealth appropriators, the upper crust of U.S. and European finance capital.
While attracting mobile capital the worlds financial markets, it also has made the economies of the western world dependent on the willingness of foreign investors to absorb massive amounts of debt, something that they are increasingly less inclined to do, as the dollar fell in value on international currency markets and markets collapse.While the debt-driven purchasing power of western consumers bolstered global demand, it also tied the world’s economy to the apron strings of a very heavily financialized, indebted, and unstable US economy.
As this year's financial woes spread beyond Wall Street to engulf much of the world's economy, the contours of debate over the crisis have also broadened. First narrowly defined around loans and bailouts, the debate has morphed into a wholesale reconsideration of the capitalist model and free-market economic orthodoxy. ""Laissez-faire is finished,"" said French President Nicolas Sarkozy in a recent speech. ""The all-powerful market that always knows best is finished."
The spectacle of a crisis of confidence in capitalism, largely unthinkable just a few years ago, has prompted a rethink of some of the most established aspects of modern economic theory. It has renewed the prominence of John Maynard Keynes, a Depression-era British economist who argued that free markets would not ""self-correct"" and that government involvement would always be needed to guarantee that market gains translated to improved living standards across society. Keynes wasn't an anti-capitalist--rather, he hoped government intervention would buttress the capitalist system against excesses and thereby preserve the positive aspects of the system. Keynesian theory stands in contrast to that of Friedrich Hayek, whose argument for a more hands-off approach to free markets won significant support in recent decades. An analysis from the FT says Keynes' renewed influence is now visible ""everywhere"": in Sen. Barack Obama's economic plans, for example, but also in recent comments from President Bush that U.S. bank takeovers were "not intended to take over the free market, but to preserve it.""
The policy implications of this ideological shift remain unclear, but could go on display in mid-November when world leaders will meet to discuss the future of international market regulation. Some analysts say the summit, convened jointly by Bush and Sarkozy, could produce a framework for managing the future order of financial and commercial relations akin to the 1944 Bretton Woods Agreements, which many economists now criticize as obsolete.
Some economists are also ringing a note of caution about systemic changes. In a new editorial, the Economist ""hopes profoundly"" that a move toward regulation takes into consideration the beneficial aspects of capitalism and the fact that no other system has proven better at creating wealth and preventing poverty--points made by Keynes himself. Regulators should work to manage the system better, the piece says, but not to scuttle it altogether. Doing this won't be easy. Martin Wolf, the FT's chief economics commentator, says that the effort to preserve liberalized capital markets faces a major intellectual challenge, given the severity of the crisis. ""We're going to have to do a very credible job of explaining that we're going to do better in the future, managing the global adjustment on macroeconomics,"" Wolf says. ""It's going to be very hard."... I know...I know....sadly the forces of progress and socialism had their most powerful wrestler in their tag team taken out of existence by the other side, so despite all the arguments in favour of its demise, capitalism is likely to survive even this crisis, and the best we can hope for is that the forces of democracy will be able to wrest a 'new deal' style approach to this slump, and it looks like its going to be one humdinger of a slump.
