No Great Depression

2008-10-07 00:00

This is not the crash of 1929 revisited, and we are not heading into a second Great Depression. No developed country this time around is going to face the 25% unemployment rate that the United States experienced in the thirties. “Capitalists can buy themselves out of any crisis, so long as they make the workers pay,” Lenin said. But it’s more complicated than that. The capitalists didn’t manage to buy themselves out of the Depression, mainly because they didn’t know how to use the government (the taxpayers) to restore credit and confidence. They know now, however, and they can still buy themselves out of this crisis. With a little help from the government, of course.

All right, it’s not “real money”. It is credit that the U.S. government will create by the electronic equivalent of printing money and it doesn’t come out of current taxes. It is debt that will eventually come out of the next generation’s taxes, so not to worry. The boomer generation have spent their whole lives loading debt on to the following generation, so why stop now? But perceptions are everything and for a moment there the taxpayers thought it was real money. They didn’t like that.

It was the deluge of e-mails, letters and calls from outraged voters that caused the bail-out legislation to be thrown out the first time it went to the House of Representatives on September 29. Some Republicans argued that they could not support “socialistic” measures like nationalising banks and capping executive salaries, but what really drove the House’s rejection of the bill was the fact that every member faced re-election in five weeks’ time. All 435 representatives had their jobs on the line in the elections on November 4, and those in marginal constituencies knew that they would be severely punished at the polls if they used “the taxpayers’ money” to bail out Wall Street now.

But the Senate (only a third of whose members face re-election this year) passed the bill easily on October 1, once some crowd-pleasing sweeteners had been added. By the time the members of the House were herded back into the chamber to vote again on October 3, the fix was in. A majority of Republicans, still hoping to cling to their seats in an anticipated Democratic landslide, still voted no, but enough Democrats had been persuaded to vote yes (by that same perception of an impending landslide) that the legislation slid through. The workers have been persuaded to save the capitalists (“because it’s not about Wall Street; it’s about Main Street”) once again.

It’s not all over yet. There will probably be further bank failures and piecemeal government bail-outs in many countries, for the “toxic” financial instruments based on sub-prime mortgages are widely held by banks and other financial institutions around the world. This does not add up to an economic Armageddon, however, although strenuous efforts are being made in the media to portray it as exactly that.

The stock market can crash (as it did in 1987) without having much effect on the real economy. Bank failures are more serious, but they do not have to entail wider economic disaster either. The business cycle was overdue for a recession anyway, and there is certainly going to be one now, but despite all the apocalyptic talk it hasn’t arrived yet.

As for a rerun of the Dirty Thirties, that is not on the table even in the U.S., where deregulation was most extreme and the creation of impenetrably complex financial “derivatives” of doubtful value was most enthusiastic. So you might as well take what entertainment you can from this spectacle of mass folly among the high and the mighty.

The masters of the universe have been revealed as naïve speculators who believed that property values could only go up. The journalists who preached the blessings of unregulated free markets have been unveiled as blind ideologues at best and at worst paid propagandists. The response of American politicians at all levels has been pathetic.

This mass folly will go largely unpunished, of course: these people are not going to lose their homes and end up poor. Most won’t even lose their jobs. It takes another old Commie (a pre-Commie, actually) to sum it up. In 1852 Karl Marx wrote: “Hegel remarks somewhere that all great, world-historical facts and personages occur, as it were, twice. He has forgotten to add: the first time as tragedy, the second as farce.”

Not the Great Depression, but the Reign of Folly.

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