This 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.