Posts Tagged economy
The Washington Spring — 7 —
Everything I’ve read in recent weeks, and everything I’ve heard from my friends who work in banking, points the same way: we have returned to the same practices, the same follies and abuses that led to the current crisis. Companies are distributing the same extravagant bonuses and making the same absurd deals, and they’re doing it with the same greed, the same contempt for the public good and the same indecent attitude to money as before.
One can’t help but wonder, with Paul Krugman, whether the new American administration — who is supposed to set the tone – hasn’t failed to deliver the right message. Dealers were wary for a while, watching to see if they could resume their business practices as before. It seems they are now confident that nothing is going to change, and that they can carry on with impunity. They are confident because all the same faces are playing the game — on Wall Street, in the Senate and in the administration — and no one seems to want, or to be able, to put a stop to it.
In a sense, it’s understandable. America’s corporate giants wield enormous influence, and it’s quite understandable why no administration can ignore them. And I understand, too, how tremendously difficult it is for one politician, even if he is President of the United States, to antagonise Wall Street and risk breaking the cogs of the world’s leading economic power.
But understanding all this doesn’t put my mind at rest; rather, it makes me even more apprehensive. I understand Obama’s dilemma; but I am only more worried about his chance of success for it1.
I’ve said it before and I say it again — he must succeed. He must succeed on domestic issues such as reform of the banking sector and health insurance. And he must succeed in foreign affairs, especially in the Middle East, where it is critical that he bring peace to the Palestinians and Israelis and, more broadly, to the relationship between the West and the Muslim world, which is in danger of being swept away in the deadly reaches of Afghanistan, Pakistan and elsewhere. And then, of course, he must succeed in halting – or, at least, in significantly slowing – global warming.
I know it is very early days, still much too early to start talking about being disappointed. But it isn’t too early to articulate a few misgivings — about a certain lack of vision on some issues; and, on some other issues, a certain lack of determination.
(First published in French on August 7th).
The Washington Spring — 3 —
Those keen to follow closely America under Obama would do well to keep an eye on a number of warning lights. On the international front, there is the war in Afghanistan, the crisis in Iran, the peace efforts in the Near East and the policy towards Africa; on the domestic front, there is the economic recovery, health-care-system reform and so on. The list of indicators is long and I won’t cover all of it. On those matters I know a few things about, I will give my assessment every now and then, and amend it when either the situation or my view of events changes. On the many matters about which I know little, I will avoid expressing personal opinions, though I may recommend something worth reading from time to time.
The economy is a case of the latter. I don’t feel qualified to disentangle its many threads. Yet, since it is such an important issue that affects all our lives; and since it is the focus of ongoing, worldwide trouble; and because it is a matter on which Barack Obama’s administration cannot allow itself to fail, it is only natural that the conscientious observer pay it close attention.
Paul Krugman, winner of the Nobel Prize in Economics and a leading authority on the subject, has expressed his qualms about the economy. Krugman is a ‘liberal’ in the American sense — which, as everyone knows, means the opposite of the French definition. He is in favour of allowing the public authorities to play a significant role in the economy in order to offset the market’s influence. His benchmark work is entitled The Conscience of a Liberal1. The book is essential reading and should inspire all those looking for a middle road between the failed policy of interventionism and that idolatrous faith in market rule, which has unquestionably shown its limitations.
In his book, Krugman brilliantly develops a number of appealing ideas. He writes, for instance, that the American reaction to the Great Depression of 1929 was the “Great Compression” — of income — a process that turned the nation into a vast middle class. It is this America, he says, which was able to burst into patriotic and ethical action during the Second World War, to defeat Nazism.
Krugman writes that under Reagan, the United States returned to a time of inequality. Little by little, he says, the country unravelled its social fabric, became demoralised, and distorted the meaning of patriotism. The United States under ultra-conservative rule has led dubious wars such as the one in Iraq, where the majority of troops were young immigrants whose only motive was to obtain citizenship a little more quickly, and where countless activities were sub-contracted to private businessmen whose only motive was to grow rich on the army’s back.
The author concludes that as much as the conservative Republicans try to outdo their rivals in patriotism and accuse their adversaries of being ‘un-American’, their posturing is belied by the facts, namely that the American right cannot win a war, while the America born of the bold New Deal set up by Franklin D. Roosevelt was able to do so, brilliantly.
Krugman turns all the arguments that American conservatives have developed over the last thirty years against them. He advocates a steadfastly social capitalism, not just out of ethical concern, but also because it allows both the economy and international relations to be managed more efficiently, and because it allows democratic institutions to run smoothly.
It is no surprise, then, that Krugman expressed his disapproval very soon after Barack Obama presented his economic recovery plan. He found the plan timid, fearful and insufficient. He felt that the new president hadn’t dared take on the establishment, or Wall Street.
That Obama revealed himself to be prudent – extremely prudent — and that he didn’t choose to follow the bolder road that Krugman advocates, is indisputable. But was he wrong to do so? Will he regret it one day, as Krugman implies in his articles? It is hard to say. On the one hand, one can understand that the newly elected president, immediately confronted by a major crisis, didn’t want to risk turning the system upside down. On the other, I think it makes sense to ask, as Krugman does, if we can really face a major crisis without making a real break with the practices that led to the disaster in the first place.
The debate is of capital importance and far from over. I will continue to follow it closely, and to comment on it in these posts.
(First published in French on July 18th).