Simon Johnson gives a fascinating insight into the banana republic style economics described as ‘capitalism’ in America:
In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.
But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.
To describe America as having a ‘free market’ based economy would be like describing China as having a democracy. The facts simply bear no resemblance to the rhetoric. Johnson argues in his piece that the financial sector has essentially taken over the government and is running it to serve its own interests. And that means socializing risk and privatising profit. The banks engage in risky practices knowing full well the public will bail them out should it go wrong. All profits are privatised and the money is sucked in a never ending stream upwards to the rich. If this charade goes on, the US will face inevitable bankruptcy, as the debt incurred by a consistently imploding financial system will become completely unmanagable. And if the government continues to slash away at social spending, an increasingly desperate population will take to the streets when it can no longer feed itself.
Johnson argues that the key to economic recovery is to break the financial oligarchy that now runs the country and most of the world – and that will take nothing short of a revolution.
Ben Cohen is the editor and founder of The Daily Banter. He lives in Washington DC where he does podcasts, teaches Martial Arts, and tries to be a good father. He would be extremely disturbed if you took him too seriously.