‘This is the hangover of a major bubble’

Economic journalist Doug Henwood, editor of the New York-based Left Business Observer and a contributing editor to The Nation, caused waves with his 1997 book Wall Street: How It Works and For Whom. He dissected the world’s greatest financial centre, exploring the disparity between Wall Street’s enormous power and how little it contributes to the real economy where goods are produced and jobs created.

In his new book, After the New Economy, Henwood addresses the 1990s boom, when a technological revolution was supposed to have given rise to a new era of productivity. What made him write the book?

‘I got the idea during the heat of the New Economy mania’, says Henwood. ‘I couldn’t believe serious people were taking it seriously. Stock touts, sure, but I kept hearing people who should have known better going on deliriously about postmateriality. I could not believe some of the entities – in New York alone, Pseudo.com and Kozmo.com come to mind – that got IPO and venture financing. Semioticians fresh out of Brown were getting web design jobs.

‘I knew it was a bubble of truly historical proportions, but it wasn’t an easy moment to be a skeptic. Alas, for a variety of personal and professional reasons, I didn’t get the book done until after the bubble burst – which means I don’t get any points for being a prophet. But then after it burst, normal American amnesia combined with Bush’s Fifty Year war made any serious consideration of the boom nearly impossible. And not only analysis of the boom, but of the longer-term features of US politics and culture – like financial recklessness, techno-utopianism, and our penchant for unreflective optimism – that fed it.

‘I’m quite a technophile myself. I abhor the neo-primitivism popular among some critics of economic orthodoxy. But I think the USA is too obsessed with quantity and not enough with quality. We have near-Third World levels of poverty jammed right next to luxury – one of the richest neighbourhoods in the USA, the Upper East Side of Manhattan, is right next to one of the poorest, East Harlem. Growth doesn’t solve problems like that, and can make them worse. We need better and smarter, not more. Which isn’t to say I’m against more – it’s just not our most urgent priority.

‘The Bushies are in many ways less pro-capitalist than the Clinton crowd was. In fact, quite a few of the intellectuals around Bush see the boom of the 1990s as decadent, and look to military models of society as being more disciplined. During the 1990s, people like Robert Rubin [Clinton’s treasury secretary] travelled the world dismantling barriers to the free flow of capital. The Bush gang doesn’t seem to care so much about that – the quality of their economic appointments, domestic and international, is very low.

‘They want to invade places and take them over – and I don’t really understand to what end. I don’t think they get much of an economic return for it. They appear to be in the grip of some nineteenth century style lust to control territory.

‘In some ways, a Republican presidency makes it harder for the US left, because politics ends up being about fighting to preserve some of the social gains of the twentieth century – unions, minimum wages, a half-humane public sector. Also, there’s a tendency to think of Bush and the Republicans as the problem, and not, to be old-fashioned, capitalism itself.

‘Garry Wills argued in Nixon Agonistes that the 1960s happened because during the 1950s, liberals and leftists could say it was Eisenhower’s fault, and once “our” guy got in things would be better. Well, “our” guy got in and things still sucked, so lots of people concluded The System was the problem. Something like that happened in the late 1990s with the explosion of the Seattle movement. I look forward to it happening again, which is why I’m hoping some Democrat beats Bush – not because I expect life to get that much better, but because I hope after a year or two people might start thinking Systemically again.’

What about the war on terror at home? How are civil liberties standing up to the preoccupation with security? ‘Badly. There are certainly precedents in American history – Lincoln suspending habeas corpus during the Civil War, the Palmer raids after World War I (someone got six months in jail just for saying Lenin was a smart guy!), the McCarthy era. But it’s bad – and not just the roundups of immigrants and the indefinite detentions without charge, but also the private acts of censorship in the media; the self-censorship that makes people feel frightened to offer a contrary view.’

Robert Brenner and others have emphasised the fragile character of the US economy, dismissing any talk of dynamism or expansion. Do you share the view that collapse is around the corner? ‘No. Crisis and collapse are always possible, but I think big government and indulgent central banks make a 1930s-style collapse impossible. I do think that we’re in a more troubled economic period than we saw in the 1980s and 90s. The recovery is very troubled, and job growth almost non-existent. This is the hangover of a major bubble, and it takes some time to work through. Also, just as inflation was the sickness of welfare/Keynesian capitalism, I think a tendency towards deflation and stagnation is the sickness of the neoliberal era.’

Is the trade deficit, and the dependence on credit evidence of a structural weakness in the US economy? ‘This is the major weak spot for the USA – the massive dependence on foreign capital, some $2billion every business day. No country, not even a superpower, can run current account deficits equal to five per cent of GDP forever. If the USA were a “normal” country, it would be due for an IMF package. But it isn’t a normal country. So the big adventure of the next few years will be seeing how America gets its foreign accounts back into balance – slowly and relatively painlessly, intensely with some sort of financial panic, or somewhere between.’

Doug Henwood is in London to talk about his new book on Wednesday, 28 January 2004 – 7pm, downstairs at 72 Great Eastern Street, London, EC1 (nearest tube: Old Street). Phone Susan Wood +44 (0) 20 7 243 2411 for more details. Buy After the New Economy from Amazon UK or Amazon USA.

James Heartfield is the author of The ‘Death of the Subject’ Explained, Perpetuity Press, 2002 (buy this book from Amazon (UK)); and Great Expectations: The Creative Industries in the New Economy, Design Agenda, 2000 (buy this book from Amazon (UK)). He is also coauthor of Sustaining Architecture in the Anti-Machine Age, Wiley-Academy, 2002 (buy this book from Amazon (UK) or Amazon (USA)). See his website