The Reminder is making its archives back to 2003 available on our website. Please note that, due to technical limitations, archive articles are presented without the usual formatting.
This is not the Crash of 1929 revisited, and we are not heading into a second Great Depression. No developed country this time round is going to face the 25 per cent unemployment rate that the United States experienced in the 1930s. ÒCapitalists can buy themselves out of any crisis, so long as they make the workers pay,Ó Lenin said, but itÕs more complicated than that. The capitalists didnÕt manage to buy themselves out of the Depression, mainly because they didnÕt know how to use the government (i.e. the taxpayers) to restore credit and confidence. They know now, however, and they can still buy themselves out of this crisis. With a little help from the government, of course. All right, itÕs not Òreal money.Ó It is credit that the US government will create by the electronic equivalent of printing money, and it doesnÕt come out of current taxes. It is debt that will eventually come out of the next generationÕs taxes, so not to worry. The boomer generation have spent their whole lives loading debt onto the following generation, so why stop now? But perceptions are everything, and for a moment there the tax-payers thought it was real money. They didnÕt like that. It was the deluge of e-mails, letters and calls from outraged voters that caused the bail-out legislation to be thrown out the first time it went to the House of Representatives on 29 September. Some Republicans argued that they could not support ÒsocialisticÓ measures like nationalising banks and capping executive salaries, but what really drove the HouseÕs rejection of the bill was the fact that every member faced re-election in five weeksÕ time. All 435 Representatives had their jobs on the line in the elections on 4 November, and those in marginal constituencies knew that they would be severely punished at the polls if they used Òthe taxpayersÕ moneyÓ to bail out Wall Street now. But the Senate (only a third of whose members face re-election this year) passed the bill easily on 1 October, once some crowd-pleasing sweeteners had been added. By the time the members of the House were herded back into the chamber to vote again on Friday, 3 October, the fix was in. A majority of Republicans, still hoping to cling to their seats in an anticipated Democratic landslide, still voted no, but enough Democrats had been persuaded to vote yes (by that same perception of an impending landslide) that the legislation slid through. The workers have been persuaded to save the capitalists (Òbecause itÕs not about Wall Street; itÕs about Main StreetÓ) once again. ItÕs not all over yet. There will probably be further bank failures and piecemeal government bail-outs in many countries, for the ÒtoxicÓ financial instruments based on sub-prime mortgages are widely held by banks and other financial institutions around the world. This does not add up to an economic Armageddon, however, although strenuous efforts are being made in the media to portray it as exactly that. The stock market can crash (as it did in 1987) without having much effect on the real economy. Bank failures are more serious, but they do not have to entail wider economic disaster either. The business cycle was overdue for a recession anyway, and there is certainly going to be one now, but despite all the apocalyptic talk it hasnÕt arrived yet. As for a rerun of the Dirty Thirties, that is not on the table even in the United States, where deregulation was most extreme and the creation of impenetrably complex financial ÒderivativesÓ of doubtful value was most enthusiastic. So you might as well take what entertainment you can from this spectacle of mass folly among the high and the mighty. The Masters of the Universe have been revealed as naive speculators who believed that property values could only go up. The journalists who preached the blessings of unregulated free markets have been unveiled as blind ideologues at best, and at worst paid propagandists. The response of American politicians at all levels has been pathetic. This mass folly will go largely unpunished, of course: these people are not going to lose their homes and end up poor. Most wonÕt even lose their jobs. It takes another old Commie (a pre-Commie, actually) to sum it up. In 1852 Karl Marx wrote: ÒHegel remarks somewhere that all great, world-historical facts and personages occur, as it were, twice. He has forgotten to add: the first time as tragedy, the second as farce.Ó Not the Great Depression, but the Reign of Folly.
