How we got here

Today's great worry is the European debt crisis and the possible collapse of the EUropean monetary union. The NYT tells us that Moodys and the Paris-based Organization for Economic Cooperation and Development have both offered dire warnings of a massive new recession:

The credit agency warning that the problems may lead multiple countries to default on their debts or exit the euro, which would threaten the credit standing of all 17 countries in the currency union.

Our friend Dakinikat -- incidentally, that's Dr. Dakinikat to you; she now has her PhD. -- offers a sharp overview of the situation:

Reports from AFP show that the IMF may be planning a 600 billion Euro rescue plan for Italy. Italy is the world’s 8th largest economy. It’s the 4th largest in Europe. Needless to say, this is highly irregular.

It will be hard for our libertarian propagandists to argue that Italy has been run by socialists and libruls in recent years, but they will make that argument nonetheless.

So how did we get into this situation? The latest issue of Lobster offers some excellent historical perspective. (Please note that, as of this issue, you can't download the entire magazine at once; you must select individual articles, which open up in pdf.) You'll want Robin Ramsey's piece "The Crisis," which elaborates on the Labor Party's subservience to the City. All of this translates nicely into American terms: "The City" is equivalent to Wall Street and the Labor Party equals the Dems. (Obama = Blair? Yeah, that's about right.)

Sitting in the pub, a friend of mine said he couldn’t understand what was going on in the Labour Party at the moment. I said something to the effect that they had a problem: almost everything they believed about economic policy for the past 25 years was wrong; and imagine how difficult this makes things for the current leadership. They cannot say, ‘We’re terribly sorry: we’ve been wrong for the last 25 years. We plumped for the City and ignored the manufacturing base.’ Politicians don’t do this. Political parties not seeking election – e.g. the Communist Party of Great Britain – can say such things (and the CPGB did circa 1990). But for parties engaged in electoral politics this is impossible. Or is perceived as impossible. They are forced to change their policies while pretending all was well when they were in office. (Or almost well: they may acknowledge little things they did get wrong...)

Not that this problem is unique to Labour. As the coalition government talks about ‘rebalancing the economy’, away from the City towards manufacturing, they have the same problem. They also chose to bank on the City. The British political class and its attendant media made a huge mistake in the 1980s when, with North Sea oil revenues to spend, they chose to copy America and not Germany or Sweden.

My guess would be that the group around Kinnock wanted to get elected more than they cared about the state of the British economy or the fate of its citizens; and having lost two general elections, decided that the bankers were too powerful to challenge. By this time – 1988/9 – the City had been largely sold off to American banks in the so-called big bang of 1986 and was well on its way to being an extension of Wall Street; and thus to be anti-City of London increasingly meant being perceived as anti-American.

There are even voices within the City starting to ask if the ‘Big Bang’ of 1986, selling off most of the City to American banks, was a good idea:

‘Viewed from the perspective of the biggest financial crisis since the 1930s.....Terry Smith, the Tullet Prebon chief executive, now reckons Big Bang was a “colossal mistake”. Peter Meinertzhagen, the former chairman of Hoare Govett, says: “It’s absolutely not something to celebrate. Everything that went wrong in the City went wrong because of Big Bang – greed, nobody knowing their counterparties, and good firms getting taken over and wrecked.”’

This gets us back to one of this blog's recurrent themes: We've all been bamboozled into seeing the financial world in terms of capitalism vs. socialism, when the real dichotomy has been between finance capitalism and industrial capitalism. Industry (that is, makin' stuff) is the heart that pumps blood into our economy; finance capitalism is a vampire out to suck us dry.

I can't resist one further quotation (and a quote within a quote):

It is slowly dawning on the political class that the last 30 years, the whole services/knowledge economy thing has been a detour, funded by oil and then debt. With this come some interesting shifts. Here’s Charles Moore, former editor of The Spectator, the Sunday Telegraph and The Daily Telegraph.

‘It has taken me more than 30 years as a journalist to ask myself this question, but this week I find that I must: is the Left right after all? You see, one of the great arguments of the Left is that what the Right calls “the free market” is actually a set-up.

The rich run a global system that allows them to accumulate capital and pay the lowest possible price for labour. The freedom that results applies only to them. The many simply have to work harder, in conditions that grow ever more insecure, to enrich the few. Democratic politics, which purports to enrich the many, is actually in the pocket of those bankers, media barons and other moguls who run and own everything.’

A few fantasy writers have attempted to solve a problem underlying the vampire myth: If vampires ran the world, what would happen when they ran out of victims?

I think Europe -- and America -- are about to find out.