by Maddy Evans of Jubilee Debt Campaign
Hello econowhat! This is my first blog for the site, and I was lucky to go along to the North East London reading group before I started writing, so I had chance to discuss some of these ideas before committing them to words.
There’s quite a range of items on the list for part 3. The nef briefing ‘Reboot’ gives a very short introduction to where we are now, which you can read in ten minutes, and the David Harvey ‘Crisis of Capitalism’ animation is quite quickly watched too, although it takes some time to digest! The other two articles are much longer, but definitely worth reading, and if you’re pushed for time the introductions give you a good flavour of what they’re saying.
One of the main things to come out of the part 3 readings and our discussion was that there are many ways of telling the story of the financial crisis, and most have something valid to say. As the readings in Part 1 pointed out, economics isn’t a hard science and different commentators bring their own ideologies and assumptions to how they analyse the financial crisis.
David Harvey suggests that there are 5 genres of describing the financial crisis: that it was due to the unavoidable flaws of human nature, that it was institutional failures, that economists were obsessed with a false theory (the theory of laissez faire free market economics), that the crisis had cultural origins (e.g. a desire for home ownership in the US) or that is was due to policy failure (lack of regulation, or too much regulation of the wrong sort). He goes on to frame his own story of the crisis which focusses on the ‘internal contradictions of capital accumulation’ and the role of crises in the history of capitalism. Watch the film to hear his story, the animation itself is so nice to watch that I watched it repeatedly without getting bored.
Krugman also opens by stating the parameters of his story about the crisis, it’s what Harvey identifies as ‘people were obsessed with a false theory’, Krugman says the main problem was the ‘profession’s blindness to the very possibility of catastrophic failures in a market economy.’ Krugman gives an interesting overview of how different economic beliefs have fallen in and out of fashion – from Keynes to neoliberalism and back again – yet again underlining the point that economic decisions hugely influenced by human beliefs. Krugman says “As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.”
Since I started working on this reading group, I’ve read a lot of books about the financial crisis. The majority of them focused financial mechanisms (with confusing names like CDOs – collateralised debt obligations, CDSs -- credit default swaps and so on), the behaviour of bankers and in what ways they were incentivised to act or not act, and the money supply. Trying to get inside the mind of people who ‘package up’ doomed mortgages and make them look like attractive assets is fascinating, but telling the story in this way can risk overlooking what was happening in the global economy that lead up to the crash. If we look solely at the behaviour of bankers and their financial products, the solutions we come to may be too narrow.
Stockhammer’s article ‘inequality as a root causes of the crisis’ takes a look at what was going on more broadly, and shows how inequality on a domestic and international level interacted with financial deregulation to cause the crisis. He argues that in response to falling or stagnating domestic demand due to rising inequality, two growth models have emerged – one is the ‘debt-led’ model where growth relies on debt-fuelled consumption, and secondly an ‘export-led’ model where growth is fuelled by export demand. These growth models have been necessitated by rising inequality, and have resulted in growing trade imbalances, the growth of the financial sector, rising household debt, and rising property and asset prices. These factors, he argues, are at the root of the current financial crisis. For people who care about social justice this is an important point – not only can inequality be seen as unjust, but it also destabilises the global economy creating a crisis prone system.
Of course, whilst these crises may be contributed to by inequality their occurrence deepens this divide rather than blowing it out of the water. Someone in the reading group this week reminded me of the Joe Slovo quotation: ‘The real question is not whether the system works, but for whom it works’. We discussed the problems of turning to politicians, bankers or economists to implement systemic change on the basis that these political and economic elites actually want to see a system that isn’t prone to crises – perhaps we need to do more to recognise who is benefiting from these crises in order to know whose analysis, whose ‘story’, of what to do next is worth listening to!
In the North East London reading group we’ve spent a good portion of time in each meeting talking about why it’s so hard to change this crisis prone system, and how one economic ‘story’ has come to dominate not just policy decisions, but the way that we relate to each other and formulate our ambitions. Someone else in the group quoted Slavoj Zizek in saying “ it’s easier to imagine the end of the world than the end of capitalism”. We had fun discussing why that is! We talked a lot about different ‘cultural’ approaches to economics and how these are created by the education system, media and government in different countries. Some of us were more positive than others about breaking the rule of this economic story, but we all agreed it was essential if we want real change.
It was a really interesting discussion, and I can’t wait for the next one. Everyone is welcome to the reading groups advertised on this website, so please come along, or get in touch about starting your own if there isn’t one near you! I just heard yesterday that there’s a group starting up in Glasgow in January. If you can’t come along, get involved by commenting below this blog.
Each week someone from the econowhat? team will be reading the books and articles and watching the film. That person will post up their comments here to get the discussion started, then please add your own comments. The bloggers are not expert economists, but other people we know are, so don't be shy to ask questions.
Nadia Idle, War on Want
Maddy Evans, Jubilee Debt Campaign
Ruth Bergan, Trade Justice Movement
New comments cannot be added at the moment due to a technical problem which should be fixed soon. In the meantime you can join in the discussion on the Facebook group.