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Wallerstein: The Politics of Economic Disaster
Immanuel Wallerstein
Every day, I read another economist, journalist, or government official opining on how best to achieve economic recovery in this country or that. Needless to say, the remedies all contradict each other. But almost all of these pundits seem to me to live in fantasyland. They actually seem to believe their remedies will work in some relatively short period of time.
The fact is that the world is only at the beginning of a depression that will last for quite a while and will get far worse than it is now. The immediate issue for governments is not how to recover but how to survive the growing popular anger they are all, without exception, facing.
Let us start with the economic realities of the present. Just about everybody throughout the world – governments, enterprises, individuals – has been living above their income for the last 10-30 years, and doing it by borrowing. The world went giddy with inflated earnings and inflated consumption. Bubbles have to burst. This one has now burst (or actually several bubbles have burst). The impossibility of continuing on this path has sunk into consciousness, and suddenly everyone has gotten scared that they are running out of real money – governments, enterprises, individuals.
When that fear takes over, people stop spending, or lending. And when spending and lending declines significantly, enterprises stop producing or slow down. They may close down entirely, or at least fire workers. This is a vicious cycle, since closing down or firing workers leads to lower real demand and causes further reluctance to spend or to lend. It’s called depression, and deflation.
For the moment, the United States government, which is still in a position to borrow money and print money, intends to throw some new money into circulation. This might work if the government threw an awful lot, and threw it wisely. But quite probably, it won’t do it wisely. And quite probably throwing the amount that might work amounts to little more than creating another bubble. And the dollar might then really fall much faster than other currencies, pulling down the last important prop to the world-economy.
.. How long will this gloomy picture prevail? No one knows or can be sure, but it will probably be a good number of years. In the meantime, governments will face elections, and voters will not be kind to the incumbents. Protectionism and social-democratic welfare serve governments the way the cellar does during a tornado. The quasi-nationalization of banks is another way of taking shelter in the cellars.
What we the people have to think about and prepare for is what we do when we emerge from the cellar, whenever that is. The fundamental question is how are we going to rebuild. That will be the real political battle. The landscape will be unfamiliar. And all our past rhetorics will be suspect. The key thing to realize is that rebuilding can take us into a far better world – but it can also take us into a far worse one. In either case, it will be a far different one.
(15 February 2009)
Wikipedia: “Immanuel Maurice Wallerstein (born 28 September 1930, New York City) is a U.S. sociologist, historical social scientist, and world-systems analyst.”
Peter Singer: Un nouveau capitalisme est-il possible?
Peter Singer, Guardian
Is the global financial crisis an opportunity to forge a new form of capitalism based on sound values? So Tony Blair and the French president Nicholas Sarkozy appear to think. At a symposium in Paris last month entitled New World, New Capitalism, Sarkozy described (watch the video) capitalism based on financial speculation as “an immoral system” that has “perverted the logic of capitalism”. He argued that capitalism needs to find new moral values and to accept a stronger role for governments. Blair called for a new financial order based on “values other than the maximum short-term profit”.
It is surprising how readily politicians of all parties – even strong ideological defenders of the unregulated market – accepted the idea that the state should bail out banks and insurance companies when they got into trouble. With the exception of a small number of ideologically committed defenders of free enterprise, few were willing to take the risks inherent in letting major banks collapse.
Who knows what the consequences would have been? Many feared mass unemployment, a tidal wave of bankruptcies, millions of families evicted from their homes, the social safety net strained to the breaking point, and perhaps even riots and a resurgence of the political extremism that brought Hitler to power in Germany during the depression of the 1930s.
The choice to save the banks from the financial consequences of their own errors indicates a shift in values away from belief in the wisdom of the market.
(15 February 2009)
Japan’s Economy Plunges at Fastest Pace Since ’74
Hiroko Tabuchi, New York Times
Japan’s economy, the world’s second largest, is deteriorating at its worst pace since the oil crisis of the 1970s, hurt by shrinking exports and anemic spending at home.
The country’s real gross domestic product shrank at an annual rate of 12.7 percent from October to December after contracting for two previous quarters, the government said Monday. When compared with the third quarter of 2008, Japan’s economy receded 3.3 percent.
The fourth-quarter results were Japan’s worst quarterly drop since its economy contracted at an annual pace of 13.1 percent in the first three months of 1974. Japan’s export-driven economy is particularly vulnerable to the current downturn.
“There’s no question that this is the worst recession in the postwar period,” Japan’s economic minister, Kaoru Yosano, said after the results were released.
The dismal figures also place Japan firmly among the worst-hit in the global crisis, dwarfing economic declines in the United States and Europe.
(15 February 2009)
Related: Japan’s Leaders Powerless as Economy Plunges (BusinessWeek)
Job cuts swell ranks of homeless in Japan (AP)
Astyk: The Wealth and Poverty of Nations (and Neighbors)
Sharon Astyk, Casaubon’s Book
A while back there was a study that suggested that it is more expensive to be poor in the US in some ways, than it is to be rich. And to anyone who has actually been poor, this probably made perfect sense. Among the ways that being poor cost you money:
1. Your infrastructure is limited, so you are limited to what fits in your infrastructure – for example, you don’t have a car, so you can only shop at the convenience stores or those on your bus line, which are more expensive than the Walmart outside town. Your house or apartment is underinsulated, so your utility bills are extremely high. You have to have food and heat, so you pay them, and struggle.
2. You are less likely to have insurance, or to have exhausted your safety nets, so you are more likely to find yourself paying for acute costs because of things you’ve let go – instead of routine dental care, you don’t got the dentist until there’s a major crisis, involving multiple root canals. You can’t afford to have the roof replaced, so you wait until things start falling on your head.
… There are other ways that this high cost of poverty plays out, but these are enough examples to get you going. I’m willing to bet that some of my readers have experienced some of these costs themselves, and more probably will as the current economic crisis expands.
But unlike in prior recessions, ordinary people aren’t the only ones experiencing the new realities and limitations of poverty – governments at all levels are getting to know these restrictions. I recently listened to my state’s debate on what to do what the stimulus money being offered to them. The choices consist of:
1. Save the money to meet future budget shortfalls, which will definitely occur.
2. Spend the money in the vain hope of getting the economy moving on projects that were conceived back when we had a growth economy and probably won’t do much to alleviate our plight.
3. Use it to cover increasing gaps in safety nets – gaps that only get bigger, and devour more of the money.
None of these really deals with the primary need, which is for deep infrastructure change. But, of course, that’s just what it is beyond most poor people.
(16 February 2009)
