This blog began life a few months ago in response to the European crisis and with a view to campaigning in favour of our Modest Proposal. The New Year comes with a renewed commitment to the Modest Proposal but also with two new initiatives.
The first new initiative is called vitalspace.org; a joint project with Danae Stratou the purpose of which is to create a platform from which to issue an open-ended invitation to kindred spirits to join us in casting a fresh eye upon the twin crises of our era (economic and environmental). vitalspace.org was Danae’s brainchild. Her idea was that art can lend a hand in creating a new, de-polarised awareness about humanity’s great contemporary challenges. A prism through which everything makes more sense and seems less futile. Perhaps you too can fruitfully look through that prism. So, do visit www.vitalspace.org, take a look around and send us your own contribution (by clicking here). Texts, videos, photos, anything you think fits in (but first look here)
The second initiative is a short book that I have just today began writing and which I plan to finish by the end of January. Its full title: The Global Minotaur: The True Origins of the Financial Crisis and the Future of the World Economy (to be published by Z Books). Here is an abstract of what I intend the book to be:
In 2008 the world astonished itself. Apprehension replaced intellectual complacency and an anxious public began to demand explanations of what had happened. So, what happened? And what was the significance of the Crash of 2008 for the generations to come?
The Global Minotaur suggests that the events of 2008 mark a turning point in world history which cannot be understood properly in the conventional way of blaming financialisation, greedy bankers, remiss regulators, profligate borrowers etc. etc. The book’s main argument will be that the crisis which erupted in 2008 is invested with the significance both of 1929 (the first major global financial calamity that turned into a global depression) and of 1971 (the collapse of Bretton Woods). Financialisation was not the cause of 2008. Nor was ineffectual regulation of banks. Greed was not the culprit. Nor was globalisation the perpetrator. The Fed’s policies did not initiate the crisis. Europe’s monetary union was flawed. But it was not responsible for the catastrophe that now afflicts Europe. All these were but co-determined symptoms of a general dynamic to which they contributed. What was that dynamic? The proposed book’s title offers a hint.
1929 brought us (once the war was over) a Global Plan (1947-1971). In its context, world capitalism was managed centrally (e.g. fixed exchange rates and controlled capital movements). An interventionist USA exported capital and goods to its two main overseas protégés (Europe and Japan) and, thus, acted as the main creditor economy. Hegemony provided stability and set the parameters of global growth on the basis of a twin surplus of capital and trade (in relation to the rest of the capitalist world).
During the 1960s US hegemony was challenged when the twin surplus turned into a twin deficit, threatening the dollar and the capacity of the US to project its economic power globally. The Global Plan, thus, came to an end. 1971 saw the deliberate dismantling of the Global Plan and its substitution with a calculated disintegration of global capitalism. The purpose of this ‘controlled destabilisation’ was to allow for ever increasing US trade deficits financed by a steady flow of capital from the rest of the world. Hegemony was therefore maintained on a very different basis: massive and ever increasing deficits financed consistently by the rest of the world. Just like the Athenians maintained, in the name of peace and ‘prosperity’, a steady flow of tributes to the Cretan beast, so did the ‘rest of the world’ (this time voluntarily) sent a tsunami of capital to Wall Street (between $3 and $5 billion net daily for more than 25 years).
This Global Minotaur became the ‘engine’ that pulled the world economy from the early 1980s to 2008. It was highly unbalanced, relied on ever increasing deficits to keep itself going, caused much devastation in the third world, boosted poverty within the US itself (as it imposed unprecedented austerity on the US working class in order to maintain the low inflation necessary to remain attractive to world capital), and created the circumstances for a slow burning recession in the US’ former protégés (Europe and Japan). Nonetheless, it also financed remarkable technological innovations, created (at least of paper) tremendous wealth, enriched beyond their wildest dreams those in the centre and the periphery of financialised capitalism and, more importantly, created a level of global aggregate demand that gave the impetus for the growth of China (and to a lesser extent India).
The Crash of 2008 is associated with the financial sector where it materialised. Thus it appeared as a crisis of financialisation. However, the book will argue, financialisation was a mere byproduct of the Minotaur, as opposed to a process with its own independent causes. If you give Wall Street bankers $3 to $5 billion new money daily to play with, they will devise ways of making that money work for them. It is in their nature to do precisely that. The question is not what the bankers did with the incessant capital flows that came their way. The question is: Why did so much capital flow toward them for so long (thus enabling them to set the financialisation process into motion)? What were the causes behind the stupendous capital inflow into Wall Street; which I call the Global Minotaur? How did this extraordinary creature survive for so long? Did it rise spontaneously or was its ‘birth’ aided and abetted by the US government?
Once we comprehend the dynamics of these capital inflows into Wall Street, it is straightforward to come to terms with its repercussions; i.e. with Wall Street’s financial instruments (which were devised on the back of the Minotaur) and the manner in which, soon after their inception, they developed a logic and a life of their own. The book will explain how, from the mid 1990s onwards, these financial instruments began to play the role of private money. Thus, a huge boost in the quantity of ‘money’ doing the rounds in global markets (particularly between 2000 and 2008) gave rise to inexorable profiteering, a gargantuan increase in real estate and financial assets, an unstoppable surge of privatisations etc. World capitalism, in short, got hooked on the private money produced almost at will by banks and financial institutions, forcing the hands of government to join in.
Alas, the mountains of private money gave rise to mountainous bubbles. When these bubbles burst in 2008, the private money turned into ashes and the world entered a new phase. Governments rushed in to replace the lost private money with freshly minted public money. The intervention worked for a while but soon after the financial sector began creating fresh private money in the form of bets; bets that the states would buckle under the debt they procured to save… the financial sector (from itself). Thus the crisis continues in different guises (oscillating between the private and the public sectors).
The book will account for our current conundrum as follows: While the Minotaur remains alive, albeit injured and timid compared to the pre-2008 era, it no longer has the capacity it once did (during 1980-2008) globally to create sufficient aggregate demand to avert crises. Today’s crisis in Europe, the heated debates about austerity versus further fiscal stimuli in the US, the clash between China’s authorities and the Obama administration on exchange rates, the role of Germany on the world economic stage etc. are best seen as inevitable symptoms of the weakening Minotaur; of a global ‘system’ which is now as unsustainable as it is imbalanced. The book will finish with an assessment of the near future and the options available to us for reintroducing a modicum of reason into a highly irrational world order.
Watch this space for more snippets of The Global Minotaur…