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Hello to the new interventionism

By Richard Hil and Lester Thompson - posted Tuesday, 9 December 2008


We live in tumultuous times. The multiple crises that afflict the globe - climate change, financial meltdown, food and water shortages, terrorism and so forth - have become consuming anxieties in many countries.

In the rich west the current financial crisis has become a tortured existential moratorium on the volatile and ethically troubled capitalist system, and the likely effects of demand contraction, rising unemployment and declining economic growth. There is talk in some quarters of a “post neo-liberal” era marked by a return to greater government (neo-Keynsian) intervention in the affairs of the nation.

Others are looking to alternative systems of economic and political engagement based on principles of social justice and human rights. Others still are looking to localism, sovereignty, self determination and community empowerment as ways of countering the ravages of rapacious capitalism.

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The collapse of the international financial markets, triggered by the implosion of the US subprime market, has demonstrated with startling clarity how interconnected the global system has become and how easily unregulated financial capital can lead to catastrophe.

If Naomi Klein is right about the machinations of “disaster capitalism”, then the current crisis has the potential to also be the harbinger of repressive policies aimed at shoring up the power of corporate elites while putting a repressive lid on civil dissent. We might also remember Naomi Wolf’s stark warnings about the potential slide into fascism (“fascism drift”) under such circumstances and the likelihood that the current crisis, accompanied by economic downturn and social instability, may usher in further erosions of civil liberties.

The US has already lost a million jobs this year, retail demand has all but collapsed, and the backbone of US manufacturing industry - the fabled car industry - is facing bankruptcy caused by managerial ineptitude and stratospheric overheads. Similar scenarios of actual and immanent despair are occluding in other western countries. Faced with all this, governments have already put climate change on the backburner and many social programs are under threat. At the very least, we can expect to see radical reconfigurations in government policies and spending programs across the globe.

Meanwhile, the blame game is in full swing. Fingers have been pointed, mea culpas announced, and defences and justifications mounted. But rather than rallying to the assistance of beleaguered mortgagees in the US and beyond, the US mandarins have decided to hand over the remainder of its bailout package to the very financial institutions that contributed to the current crisis. This has bemused and horrified millions of “ordinary American people” who look to government for protection from the vagaries of the so-called “free market”, the dubious virtues of which were extolled by George W. Bush at the recent APEC summit in Lima, Peru.

Of all the tortured public (“we screwed up”) confessions that have thus far emerged, none is more evocative than that of the former chairman of the United States Federal Reserve Board, Alan Greenspan. In his anguished submission to the Congressional Committee of Government Oversight and Reform on October 23, 2008, Greenspan observed:

We are in the midst of a once-in-a century credit tsunami. Central banks and governments are being required to take unprecedented measures.

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The former financial maestro claimed he saw the crisis coming but not its current scale:

In 2005, I raised concerns that the protracted period of under pricing of risk, if history was any guide, would have dire consequences. This crisis, however, has turned out to be much broader than anything I could have imagined. It has morphed from one gripped by liquidity restraints to one in which fears of insolvency are now paramount.

In downplaying the human aspect of the crisis, its architects must search for technical explanations. Thus, Greenspan muses that:

… those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself especially) are in a state of shocked disbelief. Such counterparty surveillance is a central pillar of our financial markets’ state of balance. If it fails, as occurred this year, market stability is undermined.

This is techno-speak for “we trusted Nero” and can’t believe that he has let the city burn. Greenspan’s remarkable disclosure is a reflection of the ideological extremism that has dominated US policy for so long. Either he has been locked in an underground bunker for the last few years, or he simply chooses to see longstanding US traditions of corporate fraud and corruption as unfortunate market distortions.

The case of Enron (which occurred under Greenspan’s watch) might have been sufficient to suggest that rapacious self interest might require policy checks and balances. Yet there is no mention in Greenspan’s utterances of the culture of corporate greed, the absence of ethics, or of moral bankruptcy. His mindset is clear about the essential problem:

The consequent surge in global demand for US subprime securities by banks, hedge, and pension funds supported by unrealistically positive rating designations by credit agencies was, in my judgment, the core of the problem.

“Boys will be boys” apparently, but the problem for Greenspan and his ilk is that public “common-sense” is not buying these “under pricing of risk” or “unrealistically positive ratings” lines of argument. Instead, Jo Public sees fraudulent endorsements of obviously suspect mortgage applications, corrupt pursuits of brokerage rewards, and culpably irresponsible lending. Jo sees Greenspan and his acolytes as fervent disciples of a “market freedoms” ideology that is now on the run. The “greed is good” gang is not to be trusted.

Greenspan was a well known ideological advocate for a deregulated financial sector. Take for example remarks made at his 2003 presentation to the Financial Markets Conference of the Federal Reserve Bank of Atlanta, Sea Island. In seeking maximum freedom for the markets Greenspan noted that: “… an excess of rules - in the extreme case, central planning - has also been shown to stifle initiative and produce economic stagnation.” He wisely recognised the “tension” between governmental rules and market mechanisms, but erred on the side of minimal government: “if our market system is to function smoothly, the vast majority of trades must rest on mutual trust and only indirectly on the law.”

Market fundamentalists like Greenspan have a problem in how to attribute their failure of economic foresight. Was the whole neoliberal ideological position wrong or can it be maintained by blaming too much intervention rather than too little? Greenspan answers by rationalising that, rather than an ideological or personal failure:

The whole intellectual edifice … collapsed in the summer of last year because the data inputted into the risk management models generally covered only the past two decades, a period of euphoria.

In a curious, perhaps romantic, nod towards the supposedly self regulatory powers of the “free market”, Greenspan noted that: “[Current] markets for an indefinite future will be far more restrained than would any currently contemplated new regulatory regime.”

Greenspan’s radical neo-liberal detractors see too much reticence in the overlord - indeed, they blame him for too much interventionism! They argue that protective fiscal policies are a bit like protective welfare policies in that each reduces the sense of risk experienced by individuals and each impoverishes self reliance and entrepreneurship. Just as free welfare provision programs reduce an individual’s motivation to work, so fiscal and even monetary policy reduce the negative consequences of bad economic decision-making and encourage risky behaviour. Thus the only way to prevent market distortions and crises is to stay out of the market altogether.

In a last ditch effort to rescue their ideological juggernaut neoliberals the world over have mounted arguments which suggest that the crisis was caused by some policy decisions made nearly a decade ago when, for example, Bill Clinton tried to assist families into home-ownership. Any intervention is bad intervention it seems, and thus they claim an unassailable position where any market problem is explained away because of some previous intervention.

In the ideal neoliberal world there should have been even less policy intervention than there was even through the last comparatively-unregulated policy period. As there never seems to have been a time when the market has been entirely free enough for the neoliberal fundamentalists it is doubtful whether their elusive Utopia will be achieved. Perhaps the real problem started when Jesus overturned the tables in the temple and gave moral justification to economic interventionism. Or could it be that neoliberals distrust democracy, which they see as beholden to interest-groups and therefore detrimental to free market mechanisms?

Apparently even the most minimal intervention becomes a heresy, hence the disdain directed by neoliberal market fundamentalists toward Greenspan. He did indeed turn a blind eye to intervention of a particular bent. As noted in the latest issue of the New Internationalist:

[Greenspan] only flowered when George Bush’s neocons brought in a programme of market uber alles. Tax cuts for the rich, runaway military spending, a vast deficit, and a boom in finical profits fuelled by the explosion of credit. The writing was on the wall if you cared to read it … [and] Greenspan chose not to.

Greenspan’s was part of a dominating world-view that since the Reagan-Thatcher era had upheld Hayek’s outlook that there is no alternative to market fundamentalism. During the Bush period Greenspan was part of an ideological machine that was so committed to strengthening the market that they were prepared to instigate an unjust war for oil, trample on civil liberties and even breach the Geneva Convention.

When the neocons used their “market uber alles” beliefs to promote militarism, imperialism and monopolistic corporate power, the neoliberals were quietly complicit. Under this neocon/neoliberal rightwing alliance public values regarding the care of the environment, truth-in-government and care of the family and community were overridden by market and militaristic propaganda machines. Even when Hayekian fundamentals like the rule of law, were trampled upon by militarist excesses, the neoliberals were relatively quiet.

Public sensibilities were slow to respond to these excesses, but respond they did, first by publicly discrediting Bush and then by decimating the Republican conservatives in the US election. Faced with the unfolding consequences of market fundamentalism, citizens will no longer accept the civil, social or environmental costs.

Further, it is now expected that newly entrusted leaders will enact, intervene, and plan for a better, safer and healthier future. Now, after all of the ideological failures and corporate shenanigans of the last decade, Obama (and Rudd) are expected to fix an economy built on massive private debt, rebuild communities and prevent social breakdown. This is a monumental task. Given the power of vested corporate interest and the complicity of the commercial media it is a task that requires the support of independent online media and active community members. One thing is for certain - the world will never quite be the same again.

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About the Authors

Richard Hil is Senior Lecturer in the School of Arts and Social Sciences at Southern Cross University, NSW.

Lester Thompson is a Senior Lecturer in Social Welfare at Southern Cross University, Gold Coast.

Other articles by these Authors

All articles by Richard Hil
All articles by Lester Thompson

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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