Every so often, humanity manages genuinely to surprise itself. Events to which we had previously assigned zero probability push us into what the ancient Greeks referred to as aporia: intense bafflement urgently demanding a new model of the world we live in. The financial crash of 2008 was such a moment. Suddenly the world ceased to make sense in terms of what, a few weeks before, passed as conventional wisdom – even McDonald’s, for goodness sake, could not secure an overdraft from Bank of America!
Moments of aporia produce collective efforts to respond to our bewilderment. In the late 18th century, the pains of the Industrial Revolution begat free-market economics. The crisis of 1848 brought us the Marxist tradition. The great depression produced both Keynes’s General Theory and Friedman’s monetarism. Over the past decade, the 2008 crash has given rise to a cottage industry of books, articles, documentaries, even films but not, so far, an overarching theory. Now, a compelling new book has arrived which deserves to be at the top of the reading list of anyone interested in the events of 2008 and eager to make sense of the aftermath .
Written by Adam Tooze, an English economic historian at Columbia University (and, in the interest of full disclosure, a colleague), Crashed: How a Decade of Financial Crisis Changed the World combines simple explanations of complex financial concepts with a majestic narrative tracing the prehistory and destructive path of the crisis across the planet (including long, apt and erudite chapters on Russia, the former Soviet satellites, China and south-east Asia). It also offers original insights into the nature of the wounded beast (financialised capitalism). Of the myriad unacknowledged truths that Tooze illuminates, some examples follow.
Many economies (Ireland and South Korea for example) that were run according to what the global establishment considered “best practice” (government and trade surpluses, light regulation of banks and employers) crashed the moment 90% of global money flows dried up. Why? Because the establishment’s prescription had skilfully left out the crucial truth that the main threat came from the banking system (not the state) and from private (not public) debt. That there were no runs on banks (perhaps with the exception of Northern Rock) meant little: financiers froze up (once called upon to repay unpayable debts, often in excess of their country’s national income) while operating a system whose survival depended on tsunamis of money rushing hither and thither. Meanwhile, American and European politicians, who had grown used to a cosy relationship with the bankers, converted a crisis of (super-rich) creditors into one of (poor and middle-class) debtors, pushing the losses of the former on to the latter – also known as socialism for bankers and austerity for the many.
Tooze reveals that the eurozone’s austerity, which condemned tens of millions of Europeans to cruel, unnecessary hardship, was originally championed not by conservatives but by Germany’s social democrats; and modelled on the brutality with which eastern European elites (raised on a diet of authoritarian communism) had imposed austerity on their own people (to preserve their private benefits via continued membership of the international financial elite). The EU may have succeeded in implementing, to this day, what I call fraudulent insolvency concealment (that is, a decade of loaning more money to the insolvent Greek state and to bankrupt European banks in order to hide the fact that there is no chance these debts and losses can be repaid), but it paid a gigantic price for this: a “historic defeat for European capitalism”, as Tooze puts it, not to mention its loss of legitimacy in the eyes of a majority of Europeans whose life prospects were either ruined or severely diminished.
On a slightly more positive note, Tooze helps dissolve several stereotypes: widespread German antipathy to lending to Greek, Italian and, generally, southern European “profligates” was not underpinned by racist sentiments but a belated reaction to west Germans’ fatigue from supporting their eastern German brethren a decade before. Moreover, along with a majority of Greeks, most Germans also opposed the bailouts of the German and French banks that Chancellor Merkel (along with President Sarkozy, the International Monetary Fund and the European Central Bank) imposed on successive Greek governments, thus pushing the people of Greece into permanent debt-bondage.
Brexit did not reflect some endemic xenophobia of the British but was due to a deadly combination of mismatched monetary policies across the Channel, causing an influx of EU workers into the UK (as the European Central Bank ridiculously reduced the supply of euros while the Bank of England printed pounds energetically, the result being collapsing labour markets on the continent while in the UK many, admittedly low-quality, jobs were being created), and George Osborne’s penchant for self-defeating austerity, which meant treating a large section of the population as cattle whose market value had tanked.
As for the war of words between Europe and the US, Tooze reminds us that it was not started by Donald Trump. It was Wolfgang Schäuble, then German finance minister, who at a G20 meeting in 2010 said the American growth model was “in deep crisis”, adding that “Americans have lived for too long on credit, overblown their financial sector and neglected their industrial base”. This prompted Tim Geithner, US treasury secretary at the time, to retort that the crisis had its roots in global imbalances caused by Germany’s (and China’s) mercantilism.
Informative, and often delightful, insights are to be found on every page. Back in 1967, John Kenneth Galbraith described how capitalism had shifted from a market society to a hierarchical system owned by a cartel of corporations: the technostructure, as he called it. Run by a global elite that usurped markets, fixed prices and controlled demand, the technostructure replaced the New Deal’s full employment objective with that of GDP growth. Though Tooze does not mention Galbraith directly, he implores us to grasp how Galbraith’s technostructure extended, post-Bretton Woods, its realm by adding the black magic of financialisation to its structure (through, for example, turning car companies like General Motors into large speculative financial corporations that also made some cars!), magnifying by a dizzying factor its power and, ultimately, replacing the aim of GDP growth with that of “financial resilience”: enduring paper asset inflation for the few and permanent austerity for the many.
The result was the strengthening of the technostructure’s dollar-based hegemony in a manner that no macroeconomic approach limited to looking at the national accounts of states can even recognise as, from the 1990s onwards, the “real action” was taking place in the balance sheets of the global financiers.
What this meant globally, is that imbalanced dollar-denominated financial flows, which had initially grown on the back of the US trade deficit, “succeeded” in achieving escape velocity and almost leaving planet Earth behind (once the bankers invented, created and kept on their own balance sheets toxic dollar-denominated instruments) – before crashing down violently in 2008.
In the end, the financialised technostructure was saved by two governments (America and China), while the neoliberal populist myth (that wholesale deregulation will make everyone’s dreams come true under the rule of democracy) is now dead. Is it any wonder that racism and geopolitical tensions are all the rage? Was it not inevitable, as some of us have been warning since before 2008, that a “nationalist international” would soon gain power, on the back of an explicitly xenophobic narrative – in the White House, in Italy, Austria, Poland, Hungary, the Netherlands, and shortly in Germany (once Angela Merkel is shoved aside)?
Tooze worries that, in this putrid political environment, the US and Chinese governments will never again be able to pull off a similar trick. To this I would add that the fantasy of apolitical macroeconomic management, promoted energetically by the technostructure, is the other side of the undeclared class war with which the establishment has been shifting all the risks and all the losses on to the weak, instructing them to “suffer what they must” – pushing them, in the absence of a progressive internationalist alternative, into the arms of a postmodern fascism. In his conclusion, Tooze draws a parallel between our present aporia and 1914, when an earlier illusion of some “great moderation” was shattered. On this I beg to differ. From where I stand, we are at a 1930 point – soon after the crash, and with a fascist moment upon us. If so, the pressing question is this: when will we rise up against the nationalist international bred across the west by the technostructure’s inane handling of its inevitable crisis?
• Crashed by Adam Tooze is published by Allen Lane (£30). To order a copy for £25.50 go to bookshop.hafta-ichi.com or call 0330 333 6846. Free UK p&p over £10, online orders only. Phone orders min p&p of £1.99
Source: The Guardian