In the summer of 2008 the global economy felt a major explosion. It was the housing bubble going pop followed by the gurgling noise of billions and billions of dollars in over valued financial assets swirling down the toilet. This precipitated what was clearly the greatest economic crisis since the Great Depression. Massive funds were poured into an effort to stabilize the financial systems. So far no real recovery has been achieved. It doesn't seem like an exaggeration to say that the world economy is at an historic turning point. What direction will it take?
These four diaries provide background for this diary.
Globalization, A Pictorial History
Neoliberals: Where Do They Come From?
Birth Of Neoliberalism
Neoliberalism Triumphant
The US presidential electoral contest took place in an atmosphere of real financial panic. The anger directed at the outgoing Republican administration contributed to the wide margin of victory for Barack Obama. The new administration staffed many of its key positions with people recycled from the Clinton administration. This is the face of Democratic neoliberalism.
Lawrence Henry Summers has been thrown out of some of the world's most prestigious places. After serving in the Reagan and Clinton administrations he became president of Harvard University. Ultimately he was forced to resign from that position as a result of blatantly sexist public comments. It seems quite plausible that Obama would have liked to have nominated him as Secretary of the Treasury, but considered that too politically risky a move. Tim Geithner was selected as his stand in and Summers was installed in the White House staff position of Director of the National Economic Council, a position not subject to senate confirmation. As an economist and government official he has a long track record of developing and promoting neoliberal policies.
Lawrence Summers
He has had a very key role in determining the economic policies of the Obama administration and most of the other people in important economic positions have similar backgrounds. I am not claiming that as a group they are either incompetent or evil, but they are consistently neoliberal in their policy views. The economic policies pursued by the administration clearly reflect that orientation.
Vast sums of money were spent to prop up the global financial system. When Wall St. was threatened with collapse the neoliberals found that the idea of a Keynesian government intervention wasn't abhorrent at all. It involved major deficit spending and great increases in the public debt. It was effective in stabilizing the financial markets. Similar policies were followed in Europe.
The recession which followed has resulted in an increase in unemployment which continues to hover around the 10% level.
As the US and other governments have addressed this aspect of the recession there has been considerably less appetite for Keynesian intervention. Modest programs of economic stimulus were effective in acheiving some stabilization in the employment picture, but there are no credible indications of any real recovery.
The neoliberals of the Reagan and Bush administrations were not generally adverse to deficit spending and the accumulation of debt as long as it was used to advanced their agenda. Using it to fund tax cuts and military spending was quite acceptable to them. This resulted in a high level of accumulated debt prior to the 2008 financial crisis. The deficit spending to finance the bailouts and stimulus programs were added to that. The US now has a level of public debt as a percentage of GDP equal to that at the end of WWII. I have previously done a detailed discussion of that situation.
Sovereign Debt And Economic Growth
The world now has a rising chorus of neoliberal deficit and debt hawks. They are convinced that debt and inflation are the great barriers to an economic recovery. Several of the member nations of the European Union have been forced to embark on sever austerity programs. The IMF has moved from bludgeoning the third world nations of the global south to applying the same treatment to Europe. I consider this to be a very significant and troubling development.
The US is faced with economic commitments on the international stage. We spend vast sums in the effort to maintain our role as the sole military superpower and global cop.
There is little prospect that any real progress is being achieved that will lead to a reduction in those expenditures. We seem likely to continue to chose guns instead of butter.
The neoliberal program of kicking down the doors of the third world has been heavily focused on feeding the energy driven addiction of industrialized nations to fossil fuels. The multi-national corporations that have orchestrated this resource exploitation have often created ecological disasters in various parts of the world. However, outside of some environmentalist fringe groups, most Americans were only concerned about what it would cost them to fill up the SUV. Now the ecological chickens have come to roost and they are covered in oil.
The true dimensions of the catastrophe in the Gulf of Mexico have not even begun to emerge. America is going to be forced to face some fundamental questions about the future of its energy policies. All of these questions are inherently economic questions. The disaster itself and the emergency policies that have been put in place are going to have an immediate and likely significant impact on an already troubled US economy. Whatever long range decisions we make about energy policy in light of this experience will have an even greater economic impact.
In this broad overview of economic history we have seen that at critical times of economic change and upheaval major shifts have occurred in the dominant paradigm of political and economic orthodoxy. The pattern has been mercantilism to classical liberalism to social democracy to neoliberalism. It is always much easier to get a perspective on the past than on the present. Are we presently in a crisis comperable to the 1930s or the 1970s? It seems plausible that we are.
As nostalgic as some of us feel about the political values of social democracy, it does not seem possible that we could just roll back the clock and do the New Deal over again. For better or worse we live in a very different world. It's possible to frame the conflict in terms of Marxist/Hegelian dialectics. The thesis is social democracy. The antithesis is neoliberalism. What will be the synthesis?