As spiked contributor Rob Killick recently wrote: ‘The question of how to get the economy growing again has been barely mentioned during the course of the election campaign. There are some populist, but essentially tinkering, supply-side proposals to get the sick back to work. Noises have been made about getting the banks to lend to business, without any detail of how this could be done. But none of the parties has any serious plan for how to help create a dynamic UK economy.’
The recent crisis has shown that there are no automatic responses to economic downturns. Recessions are not necessarily radicalising, nor do they always create a desire for progress. How we experience a crisis – how we seek to explain it and attempt to address it – is mediated by our understanding of society’s potential. And indeed, it is the prevailing political and social views in the years leading up to 2008 that have influenced how the recession has been interpreted and re-presented back to us.
A superficial discussion of the crisis
The most predominant explanations of the economic crisis have to do with individual greed, irresponsible borrowing, excessive consumption and financiers’ reckless speculation.
Time and again, bankers and their bonuses are presented as proof of greed run amok and as the cause of the crisis. Denunciation of big bonuses is meant to denote a profound understanding of what went wrong. In last week’s televised leaders’ debate in Britain there were plenty of references to Sir Fred Goodwin and other bankers. On the other side of the Atlantic, Naomi Klein says that the banks’ culture is ‘an orgy of greed’. There is a strong moralistic streak running through the discussion of greedy bankers, which is reinforced by a condemnation of the apparently decadent practices among them – spending on booze, nights out with lapdancers, and so on.
In turn, an attack on the bonus culture has easily slipped over into an attack on a materialistic culture generally. For example, home-owners also stand accused of bringing on the financial crisis, by taking on mortgages that they couldn’t afford. In his book Reset, Kurt Andersen argues that everyone is to blame. Americans developed ‘an unfettered zeal for individual getting and spending’ in the decades before the crisis. ‘For 20 years we’ve had Homer Simpson’s spot-on caricature of the quintessential American: childish, irresponsible, wilfully oblivious, fat and happy’ (for more on Andersen, see here).
From this perspective, the recession is in fact welcomed as a salutary lesson for us all. The hope is that we will now constrain our impulses: less spending, less going out, and more time spent with the family – getting reacquainted with the ‘important things in life’. Greens in particular hope that the crisis will lead us to consume less and leave a smaller carbon footprint. Devin Leonard concludes his review of the book Green Gone Wrong: How Our Economy Is Undermining the Environmental Revolution with the following: ‘If there was ever a time to ponder the long-term consequences of our spending habits, it’s in the wake of the worst economic crisis in decades, which was fuelled by rampant consumer borrowing. Is it possible that we could save the planet and restore the economy at the same time?’
In prior crises, such as the 1930s, capitalism was faulted for not meeting needs, for not providing enough growth, jobs and income. The focus was on production – specifically the lack of expanding productive capacity – and the discussion was posed in terms of structural economic issues. If critics attacked excessive consumption, they focused on the consumption of the rich.
In contrast, today’s discussion is exceptionally superficial. It is preoccupied with individual behaviour and there is very little exploration of underlying economic forces. The current attacks on bankers is a caricature of criticism: they have much in common with late nineteenth- and early twentieth-century populist prejudices about financiers and Jewish people. And what is truly unique today is the fact that criticisms of consumption blame us all, not just the rich. We’re all complicit, or so they say. In the past, the lack of mass consuming power was a problem that needed to be addressed – today’s critics say the issue is that we’ve got too much consuming power.
How ‘anti-capitalism’ undermines a critical perspective
Why are the prevailing perceptions of the crisis so superficial and backward? In a nutshell, because ‘anti-capitalist’ values now predominate in Western societies. I put ‘anti-capitalist’ in quote marks because this critique is not in fact against capitalism or the market economy per se; it is really against any form of economy that seeks to promote dynamic growth and development. And it is the old left that has been at the forefront of promoting this perspective. Traditionally, the left has used a crisis to expose the limitations of the market, while the right has usually sought to defend the system. But in the past two decades the left has become anti-development, anti-consumption and misanthropic, which has had the effect of redirecting criticism away from the market itself, and towards blaming humanity in general.
The shift towards an anti-development and anti-technology outlook, especially among so-called progressives, has affected the interpretation of the recession. Prior to the financial crash, the left criticised capitalism for being too dynamic, as if it could increase production and consumption limitlessly. In this respect, the left held as many illusions as the most staunchly pro-capitalist ideologue. This excessive dynamism was said to have negative consequences in many areas, especially the environment.
Those who argued that capitalism was too dynamic were caught off-guard by the financial crisis. They were not sure how to respond, given that the downturn was a stark reminder of the pain caused by a lack of economic growth and employment. But rather than argue that the crisis showed the need for consistent development, the left pivoted to reinterpret the crisis as the result of too much growth, too fast. Their implicit ideal is ‘sustainable development’, or stasis, rather than dynamism, and the crisis was claimed to be the result of losing the proper balance.
Similarly, the common understanding of the recession has been coloured by a pre-existing anti-consumption attitude. In the years running up to the arrival of the financial crisis, the left in particular criticised so-called excessive consumption. Their attack was sometimes directed against the higher earners, such as ‘fat cat’ executives, but more often than not against the broader consumer society. The masses’ desire to purchase more was now considered a bad thing, as it distorted values and would make people unhappy.
This anti-consumer prejudice was then utilised to explain the recession. Rather than argue that the recession had revealed that capitalism could not consistently raise living standards, the crash was put down to a futile search to keep up with the Joneses, especially for bigger and better houses. The crisis was a ‘credit crunch’, and the working class in particular was now criticised for this expanding credit. The reality is that workers’ real incomes had stagnated, and many people sought to take advantage of low interest rates to borrow so as to maintain their living standards. But their critics adopted a moralistic posture and admonished people for trying to live beyond their means.
Finally, an underlying misanthropic viewpoint has also contributed to a distorted discussion of the crisis. Recent years have seen a return of the ideas of the population scaremonger Thomas Malthus and his notion of economic limits. This outlook is most clearly expressed by environmentalists, who see people’s impact on the world as one-sidedly destructive. The consequence of this outlook is to argue that there are too many people on the planet and we should stop procreating. For example, after reviewing a variety of possible individual acts that could help the environment, Lisa Hymas writes in Grist: ‘But even in aggregate, all of these moves don’t come close to the impact of not bringing new human beings – particularly new Americans – into the world.’
The stress on limits has been used to interpret the recession as coming about as the result of seeking to extend beyond natural boundaries. Moreover, this anti-human outlook has made it more readily accepted that ‘we only have ourselves to blame’. It also means that a crisis that has brought much pain and suffering can be perversely greeted as a welcome development, since austerity conditions will mean there are fewer people taking cheap flights, driving cars on vacations, and otherwise spoiling Earth.
The misanthropic emphasis on flawed humans is also expressed via conspiracy theories. Such theories hold that wicked individuals are colluding behind the scenes and that people cannot be trusted. Historically, conspiracy theories were the province of the reactionary right, but in recent times the left has adopted them in a variety of areas, including health (for example, vaccines) and terrorism (for example, the 9/11 ‘truth’).
A conspiracy of bankers is now one of the main explanations given for understanding the crisis. In the US, this has taken the form of bashing Goldman Sachs. Again, left-leaning commentators are taking the lead. Rolling Stone writer Matt Taibbi is the most rabidly anti-Goldman, and his description of the firm – ‘a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money’ – is now repeated ad nauseum by others. But a vampire squid was an image used by Nazis to describe Jewish financiers, and the description of Goldman as a ‘tribe’ is also an anti-Semitic trope. Taibbi may not be consciously anti-Semitic, but he is definitely conspiratorial. (And, in common with many writers on the liberal-left, he exhibits little desire to try to understand how financial markets actually work.)
The problem with focusing on conspiracies surrounding one firm like Goldman is not only that they are they wrong, but that they also direct our attention towards supposedly wicked individuals, and in turn towards our flawed human nature. The focus on corrupt individuals suggests that what is legal and allowed, what goes on in front of us, is otherwise okay, if not for nefarious goings-on behind the scenes. In reality, what is legal and apparent is the problem. Also, in a conspiratorial account that picks on one institution like Goldman, other groups that contributed to the crisis – such as politicians – are effectively absolved, and the broader systemic problems of the economy are dismissed.
All in all, from an anti-development, anti-consumption and misanthropic perspective, an economic crisis is not really something that provokes or requires a change in how society is organised. You might, as some have, even see benefits to a recession. Such an outlook undermines an active, aggressive response to overcome economic crisis conditions.
Using the state to keep a lid on growth
Compared with the popular perceptions of the crisis – which, as I have mentioned, focus on greedy bankers, senseless borrowers and mindless consumers – the discussion among economists, government officials and other professionals appears to be much more sophisticated. And yet a closer look shows that the same low horizons and anti-humanist tendencies found in the more widely held conversations can also be found in the economic arena, albeit expressed in more lofty theoretical terms.
With the arrival of the financial crisis, liberal-left politicians and economists proclaimed a new era had arrived. ‘Laissez-faire is finished’, said French President Nicholas Sarkozy. In his book Freefall, American economist Joseph Stiglitz wrote that the September 2008 collapse of Lehman Brothers ‘may be to market fundamentalism… what the fall of the Berlin Wall was to communism’. Such strong pronouncements, with the references to the end of the free market, suggest that the debate is about the fundamentals of the economic system.
However, these economists are, as they say in the American West, all hat and no cattle. They do not back up their words with a robust alternative. Most liberal economists would identify themselves as neo-Keynesians, and yet the worst economic crisis since the 1930s is not enough for them to put forward a solid defence of Keynesian intervention. Yes, government bailouts in the West have been influenced by Keynesianism, but these have only been introduced as short-term rescue plans and stimulus packages, not as a counter-model for the longer term. Having gone into deficit to shore up sinking ships, government officials are now resigned to just wait and hope their efforts work.
Slumps in the past tended to lead to discussions about structural, ‘macro’ issues regarding the entire economy. But in response to this crisis, liberal economists have focused narrowly on the financial sphere. Of course, it was the financial panic in 2008 that set off a chain reaction, but the job of an economist should be to understand all of the economy – both the ‘real’ and financial sectors. Instead, fixating on finance means that economists’ efforts have been mainly spent on arguing for greater restrictions on financial practices. While certain regulations may be reasonable, this approach does not address why the economies in the US and UK became ‘financialised’ in the first place – that is, so skewed towards finance relative to industry. The preoccupation with finance mirrors the popular view of reckless bankers. And, for all their high-minded theories, liberal economists can be as populist as any in denouncing greedy bankers.
Moreover, the discussion of what is wrong with finance is itself revealing. Here, liberal economists have criticised their conservative opponents’ theories of finance, such as Efficient Market Hypothesis and Rational Expectations Hypothesis. While these theories uphold the concept of a rational economic man, the liberal counter-critique emphasises that the various players in the financial world act irrationally. While the ‘rational’ theories are abstract and open to criticism, the liberal approach is even worse, because it assumes that people are essentially senseless.
Some who stress irrationality, like economic historian Robert Skidelsky and behavioural economist Robert Schiller, see themselves as following the footsteps of Keynes’ writings about ‘animal spirits’. However, this is a retro-fitting of Keynes to suit today’s concerns. Keynes was more interested in structural categories than in narrow investigations of investor psychology. The trendy discussion of irrational behaviour in economics is one of the main ways that the general anti-humanist tendency in society expresses itself in economic theory.
Liberals’ calls for greater state intervention may appear on the surface to be a return to older social-democratic ideas, but in fact they represent something new. The impulse behind them is different: whereas in the past, the state was said to be deployed as a vehicle to enhance growth, now the emphasis is on state control of the economy, trying to keep a lid on destabilising propensities of capitalism, especially in finance. In this way, this stress on state regulation is more akin to the idealisation of a static economy promoted by greens than prior notions of state intervention.
Disorientation on the right
For conservative economists, such as those at the ‘Chicago school’ (based at the University of Chicago), the crisis has led to soul-searching. According to their theories, a financial meltdown should not have happened. Many have since accepted that the bailouts were necessary and recognise that this has damaged the integrity of their free-market arguments. Richard Posner is one who has done an about-turn. Posner, who is both a leading judge and a prominent Chicago-based economic commentator, calls the crisis ‘a failure of capitalism’. He now argues that banking is inherently unstable and requires state monitoring and controls.
It is often not fully appreciated how disorienting the recession has been for the elite, especially for those on the right. Some say that Bush administration’s increase in deficits undermined the right’s credibility, but I would argue that its embrace of the bailouts were even more damaging. Before 2008, the strident free-market ideology of the Thatcher and Reagan variety had long gone, and it was clear that the state remained a major component of the economy. But the market was still upheld as the arbiter of efficiency, for both conservatives and ‘Third Way’ liberals.
Consequently, the financial panic was confounding for many. As Gillian Tett wrote earlier this year in the Financial Times: ‘Not only is the financial system plagued with losses of a scale that nobody foresaw, but the pillars of faith on which this new financial capitalism were built have all but collapsed. That has left everyone from finance minister or central banker to small investor or pension holder bereft of an intellectual compass, dazed and confused.’ Tett quotes the head of Merrill Lynch’s Moscow operations, Bernie Sucher, as saying: ‘The last time I ever saw anything like this, in terms of the sense of disorientation and loss, was among my friends [in Russia] when the Soviet Union broke up.’
Conservatives have been hypersensitive as to what they view as attacks on the capitalist system and strides towards socialism. They take Sarkozy and Stiglitz at their word, and believe the market economy is under siege. But as noted, liberal economists’ reforms are tepid and focused on finance, and they assume the market continues to play a central role. (And even if liberals did return to old-style Keynesianism, that theory/policy was an attempt to save capitalism, as Bruce Bartlett, in The New American Economy, and others on the right have admitted.) Conservatives assert that the ‘future of capitalism’ is now at stake, but this says much more about their insecurity and defensiveness than anything else. The market economy faces no real opposition, and yet the market’s defenders feel threatened.
In its leader column that concluded its ‘future of capitalism’ series, the Financial Times appeared to take a more balanced view: ‘Capitalism comes in many varieties and the cavalier thesis that less regulation is always better has been exposed as false; but the main features of the liberal market economy – private property rights, smart but even-handed and arms-length regulation, and democratic politics – are uncontested. Capitalism’s worst crisis in 70 years has not prompted a serious alternative vision of society.’ This statement encapsulates simultaneously both the strength and weakness of pro-capitalist arguments today. On the plus side, as the FT correctly notes, capitalism really has no alternative. But on the minus side, this defence of the market is a negative one – it goes ‘uncontested’ – instead of one that is based on a robust, positive case for its benefits.
A large part of the reason for the right’s disarray is that few appreciate that the debate has changed. In attacking ‘socialism’, conservatives are knocking down a straw man. What they do not recognise is that the prevailing critique attacks development and progress in general. It only sometimes takes the form of a criticism of the market, but even when it does, it is not really about the market mechanism itself but about economic growth.
Historically – at least in the twentieth century – capitalists and capitalism have not been affirmed in the wider culture. As Nick Gillespie points out in Reason, there have been few pro-capitalist narratives: ‘Can we at least acknowledge that there is something fabulously odd about a culture that depends on capitalism but that will not ever acknowledge it in the stories it tells itself about itself?’ But in today’s culture, with many espousing ‘sustainability’ as the ideal, this is true to an even greater extent. If stasis is the goal, capitalism will no doubt be blamed for creating excess and a consumerist culture (even, ironically, when it is in crisis, and can’t consistently deliver the goods), as well as being considered morally suspect.
Hit by unfamiliar criticisms, conservatives are now struggling with how to respond. Some are very defensive. It was noteworthy that the Texas Board of Education, which is generally conservative and has undue influence on the country’s school textbooks, recently decided to remove the word ‘capitalism’ from their texts. ‘Let’s face it, capitalism does have a negative connotation’, said one conservative member. At the theoretical level, Yuval Levin calls for recovering the case for capitalism’ in National Affairs. To Levin’s credit, he recognises that populist noises complaining about government ‘takeovers’ from certain corners are not the same as an argument in defence of capitalism. But his case for capitalism is based on a restoration of moral virtues (he looks to Adam Smith’s Theory of Moral Sentiments). This suggests that he believes the criticism of capitalism’s moral shortcomings is one that needs to be answered, and thus the argument is essentially defensive in nature.
Challenging the consensus
Different sections of society have responded differently to the crisis. As I have noted, liberals and conservatives appear, on the surface, to be divided on the future of capitalism, but both share a lack of confidence. The differences between them are real enough, but it is worth noting that these differences conceal the fact that the bottom line is a consensus on a number of key points. Specifically, there is agreement that we should:
Avoid examining production. All sides share a preoccupation with finance and banking, and are at least circumspect, if not downright hostile, towards consumption. But little effort is devoted by any to a reconsideration of production. The slamming of bankers serves to displace blame away from politicians (who ought to get at least if not more blame) as well as to obscure how serious the underlying problems of the productive sphere are. If bankers’ bonuses truly are the worst aspect of the crisis, then there is no need for a thoroughgoing debate about the economy – all you need to do is adopt a quick-fix solution like higher taxes.
Accept austerity to come. All sides agree that public spending must be cut, and that living standards in general must be restrained if not reduced, in the future. There is some debate about timing, but not about the necessity. This is because, long before the credit crunch arrived, voices ranging from the greens to the Tories argued that people’s material desires had got out of hand. Some might emphasise how consumption damages the planet, others how it harms family or community life. When the crisis hit, it was then easier to blame people for irresponsible borrowing. Now that we’re more than a year-and-a-half past the meltdown, the calls for restraint and austerity build on this prior message. This is why there is no real debate about austerity, why it is not contentious.
Adopt a fearful, victim mentality. For some time, we have lived in a culture that is fearful. The greatest doom-mongering emanates from the left, but both left and right agree that the world has become an exceedingly dangerous place. In this context, individuals are portrayed as vulnerable and weak victims. This widespread cultural mood has had implications for how the economic crisis is interpreted. For example, Michael Moore, in his movie Capitalism: A Love Story, presents loans as so complicated that the average worker could not possibly understand them. Thus, working people are presented as hapless victims of unscrupulous moneylenders, rather than autonomous individuals who can take responsibility for their personal finances, as well as defend themselves if someone tries to take advantage of them. This emphasis on a complex world that leaves us vulnerable encourages a fatalistic and passive posture. If we feel powerless, there is no point in trying to debate and understand the economy, since we’ll never be able to influence its direction.
Challenging the current consensus means confronting each of these points: insisting on the importance of production (and innovation in production); resisting austerity and focusing on expansion of the economy, rather than lowering horizons; and contesting the depiction of the world as unknowable and fearful, and encouraging an active, problem-solving attitude towards economic issues.
Truly to challenge this consensus, we have to recognise that ‘anti-capitalism’ is now the biggest barrier to progress. True progressives ought now to focus on challenging ‘anti-capitalism’ and the poisonous, anti-humanist notions that underpin it, if we are to have any hope of achieving the great aim of moving society forward to a time of plenty. Against those who preach the politics of limits, we should argue that the possibilities for humanity are limitless. The good news is that the economic constraints we face are largely of our own making, and represent first and foremost a failure of imagination – which means that it is within our control to do something about all this.
Sean Collins is a writer based in New York. Visit his new blog, The American Situation, here.
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