The end of capitalism?

Reading the news these days you could well get the impression that we are not just seeing the end of capitalism. No, what is happening in front of our eyes is the end of the world. The German newsmagazine DER SPIEGEL just had a front page with a picture of a dollar note where a bullet had been shot through the head of George Washington. DER SPIEGEL called it “the capital crime” and announced “a world crisis that has only just begun”.

Other magazines tell the same story. In October, there was a grim looking black and white picture of a queue outside a soup kitchen on the cover of TIME magazine. Apparently it wanted to prepare us for a rerun of the 1930s which TIME called “The new hard times”.

Meanwhile, the British Economist’s graphic designers have been the most creative illustrators of the economic crisis. Every week now, it seems, they manage to come up with a new way of reminding us that we are living in truly dangerous times. In September they had a picture of a maelstrom, pulling skyscrapers and banks into the abyss. The headline consisted of just two words and a question mark: “What next?” The Economist gave the answer two weeks later with the silhouette of a man looking down from a high cliff. “World on the edge” The Economist proclaimed, but this time without a question mark.

After all the doom and gloom in these magazines, there could hardly be an increase in drama although I am still waiting for the headline “We’re all dead but we don’t know it yet”.

Do these headlines remind you of something? Only a few months ago there were some similar doom and gloom stories on the covers of the world’s magazines. But they had nothing to with economics, collapsing banks and the like. Last year’s end of the world was all about climate change, of course. Soon large parts of the world would become uninhabitable, they claimed, and then followed the well-known litany of floods and droughts, rising sea levels, famines and new diseases and ultimately the end of the world. It seems as if the media only had to change the subject, but not their general apocalyptic tune. Today’s end of capitalism is yesterday’s global warming.

But climate change was not the first end of the world story, either. If we only go back over the past 20 or 30 years, we have had all sorts of things which were thought to threaten the world as we know it. Think of AIDS, SARS, BSE, asbestos, the Millennium Bug, passive smoking, radiation, the end of oil, bird flu, and the limits of growth. Looking through the archives of the front covers of DER SPIEGEL, TIME and The Economist I would estimate that at least a quarter of them have always been about some new crisis which was thought to bring disaster, if not the end of the world. If only a fraction of them had turned out to be true we probably would not be here today.

Although these scares were all quite different, ranging from salmonella in food to road safety, there were a number of features which they all had in common. They all started from some plausible assumptions, but soon they developed a life of their own. Journalists like to pick up on scares. Headlines like the classic “Small Earthquake in Chile; Not Many Dead.” simply don’t improve your paper’s circulation. “The end is nigh” is much better.

The other thing that most scare stories have in common is that in a sense it does not really matter in the end whether the threat is real or not. A catastrophe that stubbornly refuses to happen has never damaged the reputation of those who had previously warned of it. Think of the members of the famous Club of Rome who predicted in the 1970s that the world had reached the limits of growth and mass starvation and abject poverty would be the future for billions of people. What followed was quite the opposite of their predictions, but far from being discredited the Club of Rome keeps publishing its doom-mongering reports until the present day.

Ludwig Erhard, the father of the German Wirtschaftswunder (the post-war “economic miracle”), once said that it was easy to forgive false prophets if things turn out better than they had predicted. If that is true then there is no cost to making exaggerated prophecies of doom. When they are wrong we will readily forgive them, and if not then the doomsayers can always say “We told you so!” From a game theory point of view, pessimism seems to be a good strategy. You cannot get closer to a free lunch than by predicting the end of the world.

But there is another thing that most scare stories have in common. They are often used by special interest groups to promote their own agenda and increase their funding or revenue. Jump on the bandwagon of a crisis, and as a scientist you can campaign for better research grants. Applying for funds to analyse the mating behaviour of beetles in North Queensland has higher chances of success if you include a reference to the impact of climate change. Lawyers made a killing out of compensation cases for largely hypothetical damage from asbestos. Car manufacturers like Toyota have long understood that subsidies can be gained if only they claim to offer a solution to global warming. And we should not forget that governments and politicians also love these crises: “You have a problem? Let us fix it for you!”

In the observation of Christopher Booker and Richard North new threats almost never fail to increase the size of government. Wherever there seems to be a problem governments are quick to pass new laws, spend more money and establish new regulatory agencies. Surprisingly, these new institutions remain in existence even when the threat has disappeared. Remember the German Waldsterben, the dying of the forests? In the early 1980s it was believed that acid rain would kill Germany’s forests within a few years, and the German government started compiling an annual “state of the forests” report as an emergency measure. Today, Germany’s forests are bigger than ever - but trees are still being felled for new “state of the forests” reports.

You may wonder what all this has to do with our current economic crisis? Where is the connection between mad cows and mad bankers, you may ask. But I think that there are quite a number of parallels between the usual scare stories and the economic crisis. Nevertheless, let me state quite clearly that there is one big difference, too. Most other scare stories belonged to the realm of imagination. The Millennium Bug, for example, seemed to be a huge threat to mankind, but in the end it did not do any real harm - apart from the billions of dollars that were pointlessly spent to prevent planes from falling out of the sky, lifts being stuck and power stations shutting themselves down.