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TechnoratiThis Crisis Is Also a Big Opportunity
A 2008 New Deal could start by shutting down the world's tax havens
It was slower. It was quieter. It looked for a moment only like a stream of suited men carrying cardboard boxes. But the Great Crash of 2008 is going to change your life, as surely as the last time we all stared at footage from Lower Manhattan and Washington DC and asked, how did this happen?
The world looks different now. Even if the bailout finally goes ahead, credit is drying up; unemployment is sure to swell; and the dogma-dream that drove Western politics for 30 years is dead. So why am I feeling - tentatively, terribly - optimistic? Because great crises can spur great changes. As we slough off the deadening delusions that have dominated our thought for so long, new and better worlds become possible.
But before we figure out what the world will look like when the rubble is cleared away, we need to understand how this happened. What brought us to this thud? Who put the Dow into downturn? For 30 years, conservative politicians have - often with good intentions - conducted an experiment. They believed markets work best when government monitors them least. So they steadily stripped away the restraints on corporations that were put in place after the Great Crash of 1929. Regulations? Rules forbidding dodgy mortgages? Trade unions? Progressive taxation? These simply got in the way of generating wealth, damaging us all. Once you removed all these "distortions", the market would create equilibrium and growth for all.
But now we know. The ideology was given free rein - and it has come to this. If you recreate the economic conditions of 1928, 1929 soon follows. Franklin D Roosevelt introduced rules watching big businesses closely for fraud or gambles that could bring the whole system crashing down. Politicians Greenspanning across the 1980s and 90s - both Republican and Democratic, Conservative and Labour - rolled it all back, so businesses could suddenly behave in risky and bizarre ways again. Corporations were now allowed to sell houses to people with terrible credit ratings at astronomical interest rates, while risking virtually no capital of their own. They could then repackage these lousy mortgages as bonds and scatter them throughout the global banking system like landmines. We have deregulated ourselves to the brink of a depression.
It turns out markets are like yeast. Without yeast, your bread won't rise. But if you leave out all the other ingredients, then you will be left with nothing but an inedible fungus. But this is also why the talk of "the end of capitalism" isn't quite right - and actually gives the people responsible for this crash a glib get-out.
"Capitalism" isn't a monolithic block. There are many ways of using markets as a wealth-generating tool without turning them into a Golden Calf. In Scandinavia, they have married markets to a state that takes more than 50 per cent of GDP to lift up everyone left out by the market and green the economy - and it has produced the happiest, most productive societies on earth. It's called social democracy. It's a form of tethered capitalism protected by a strong state from its own destructive impulses - and it works.
So what has died this week is not capitalism but its most fanatical Gordon Gekko wing: the one that has dominated debate for decades now. The belief that markets are self-correcting, or naturally produce equilibrium, turns out once more to be a piece of pure theology. Without a steel cage built of state regulation and trade unionism, markets will cannibalistically feed upon their own flesh.
The last Wall Street Crash produced the New Deal in the US, but this time any reaction confined to just one nation will fail. Markets are now global, even as their regulators remain stuck at national borders forlornly clutching their passports. If we are really going to check and balance markets properly, we need a global New Deal. Of course the most obvious forms of fraud and folly that precipitated the crash must be stopped first - but the mooted proposals for new global financial regulators should only be the beginning. This is a moment not just to send in the fire engines, but to think big.
Here's how a global New Deal could work. Shut down the world's tax havens, so the super-rich who caused this crisis can no longer wriggle out of contributing to the societies in which they live. Some $23trn (£13trn) is stored away in them. Of course the tax haven-lovers will squeal that it's impossible - but after the 9/11 massacres, every single one blocked al-Qa'ida's accounts in the face of US demands within weeks. At the same time, introduce a Tobin tax - a 0.1 percent surcharge on all international currency speculation. And start severely fining corporations that commit crimes abroad, instead of coddling them.
The loose change from these three measures would be enough to pay for the current bailout, and any others to follow. But the bulk of the proceeds should be used to stimulate the economy amidst collapsing markets - and there is a way to do this that simultaneously deals with the other even greater meltdown: man-made global warming.
In the first New Deal, Roosevelt employed three million people to work in America's great parks and to clean the environment. Today, a global New Deal could generate tens of millions of good jobs securing the transition away from an ecocidal economy to a sustainable one. It is a huge and urgent job. This would be state action saving the market from itself twice over: there wouldn't be much market activity on a planet that is melting and sweltering.
None of this will come easily. The New Deal wasn't simply handed down by Franklin Roosevelt: it was demanded by millions of people furious that their government had sold them out for so long. The entrenched interests fought hard to maintain their world, their way; they'll do it again. But a global New Deal can happen - because it must. The old dogmas - that state action suffocates the economy - will still be mouthed, but an ever-more sceptical public will remember this week, when Wall Street came begging for state action to prevent economic collapse.
In the darkness, a sea of shimmering opportunities has just opened up. Market fundamentalism is dead. Long live the New Deal - and active, regulating, redistributing government.
14 Comments so far
Show AllThe big opportunity belongs to the progressives. We're going to push through localist legislation. We're going to limit enterprise size and asset ownership to ten man-powers, implementing progressive K-12 civics curricula, putting full costs in retail prices and full cycle production (i.e. all materials and wastes recycling), and we're closing down K St., taking down all the billboards, slashing the Pentagon budget by 2/3, banning all speculation, slashing healthcare costs by 2, shifting to renewable distributed energy including high speed rail, and we're banning most of the right wing ideology plus corporate personhood. De-baathification to commence immediately.
The only thing I do not understand from your statement is 'limit enterprise size and asset ownership to ten man-powers'. What do you mean by this? (and the rest sounds awesome btw)
THe difference between now and the Great Depression is that the newspapers of the early part of the century were not entirely in the back pocket of the market and these privately owned enterprises were not themselves under pressure from their boss that the stocks were falling and that the bailout would save them and the reporter's jobs....for the time being. This is what is happening in the US media.(It's on cable in Australia and the US news broadcasts are like the comedy channel, not that our media is much better)
In Australia, we have a similar market, however we have strict government regulators and the only ramifications we will be facing from this crisis you caused is from the shrinking of the global economy as a result of less US demand and a few investment banks have gone down dramatically which invested in junk from the US market.
One thing nobody has really mentioned is that the markets really weren't worth what they said they were 6 months ago. This 'loss of billions' in a day is not really correct, those stocks were just over-priced in the first place and now they're approaching their true value.
Australian for responsible corporate and governmental behaviour.
Rep. Brad Sherman D CA, was just on C-SPAN. He said that half the 700 billion would be going to foreign investors, like China and Saudi Arabia.
He also said that stock brokers have their people flooding the offices with messages to pass the bill, trying to make it look like all of us who've been sending the message that we don't want it to pass have changed our minds.
i don't like this article because it skirts the fundamental issue in the current round of economic hoopla, i.e., the issuance of credit. only when the aim of credit is to develop human productivity (the only real value which we humans produce) do we have real prosperity and a truly human society. and time and again we have seen that private ownership of the credit function does not work.
There is no need for Wall Street to be open more than one day a month for stock (investment) purposes.
An international New Deal sounds great but it's awfully utopian.
First things first. Can the federal government after January 2009 do something meaningful about restraining corporate capitalism within the United States? I agree that the current great unpleasantness presents a golden opportunity to restore some semblance of the rule of law.
I think the acid test will be whether a financial transactions tax in some form will be restored by the Congress to force Wall Street's Masters of the Universe to eventually fund their own emergency bail out(s). This seems a bipartisan no brainer to me. If that time tested reform cannot be enacted to recreate a revenue flow source for the needed federal regulatory mechanism (while simultaneously serving as a modest brake upon the cost free paper churning speculation that has run wild), then we might as well stick a fork in it.
Bill from Saginaw
"In Scandinavia, they have married markets to a state that takes more than 50 per cent of GDP to lift up everyone left out by the market and green the economy - and it has produced the happiest, most productive societies on earth. It's called social democracy. It's a form of tethered capitalism protected by a strong state from its own destructive impulses - and it works."
Of course. The most appropriate role for capitalism is society's beast of burden, or robo-servant. You put it to work in very specific and limited tasks. The people spend the appropriate time understanding what are the better interests of the society and they make appropriate demands on the markets and the government to uphold those better interests. Producers have to take a cut in status to become limited-role robo-servants who basically take production orders. Producers are restricted from making important production and allocations decisions and are restricted from influencing market and civic demands. Those who seek concentration of wealth/power are restricted from influencing the society. The most important guiding principles are simply to restrict the concentration of wealth/power/influence, and promote the enlightenment, responsibility and power of the greater population.
Shut down the casino and the gamblers will go away. The free-for-all of Wall Street is what draws them in the first place. But that is what Globalists want. No need to try to impose Global sanctions. Just regulate Wall Street and the high rollers will go elsewhere.
It was in 1985 that Reagan/Bush took us from a 'creditor' nation to the world's greatest deadbeat with tax cuts and destruction or our institutions and infastructure.
This Bush is just picking over the bones of our republic.
Now the carnivors are yelling that the Sky Is Falling if We-The-People don't Stand and Deliver.
There is an old African story about lions:
The hungry pride of lions lay in wait for their prey to be driven into their TARP by the roars of an old toothless lion named Paulson. The wisdom of ages says it's safer to run TOWARD the roars to escape. The frightened animals, called Senators, run away from the roars streight into the jaws of death. Which way will the remaining animals, called Congressmen, run on Friday?
Change that tenth paragraph phrase: "any future bailouts" to MANY future bailouts. If the US House of Representatives approves the bailout on Friday, Oct. 3, it WILL worsen global economic problems and result in many more costly bailouts that will continue to enrich the economic terrorists at ever greater expense to the rest of us.
The house needs to reject the Senate Bill and introduce Oregon Congressman Peter DiFazio's bill that actually has a chance of tempering the economic downturn.
Absolutely agreed
We don't need any "Globalist" anything. Good ideas in this article, but we don't need to be buying the internationalists "Global" farce.
Half our trouble comes from buying the "Global" storyline while every other country is busily practicing Nationalistic political and trade policies.
Isn't that what the new international deal would regulate? Currently the world is playing monopoly. The US came out big in the beginning but China just bought Times Square and is putting hotels on it.
Regulating world trade would serve the interests of every human being except the theives.