This is a follow up to a piece posted on 7 February Kevin Rudd’s essay on the global financial crisis and another piece posted a month later The Turnbull answer to the Rudd essay.
The Monthly, which published the Rudd essay, has published in its May issue The Rudd Essay & the Global Financial Crisis in which the opinions of what it describes as five ‘influential thinkers’ from the international scene are given. Its reason for doing this is stated as being its disappointment at the media response to the essay: “The overwhelming majority have been carping and superficial. Virtually no one has offered a penetrating critique or proposed an alternative account of the most significant economic calamity since the Great Depression.” Even the ABC comes in for criticism for not conducting an interview with the PM on the essay. [more]
In the The Political Sword piece The Turnbull answer to the Rudd essay, some of the local responses are outlined. Turnbull wrote a piece that ridiculed the essay and concluded that it was “wrong in every respect and is nonsense.” He declared Rudd’s essay ‘absurd’ and dismissed it out of hand. Piers Akerman, writing in The Daily Telegraph said: “In a 2569-word essay in The Australian, Turnbull shredded Rudd’s economic strategy, his philosophical core and, finally, in little more than a paragraph, his character.” There were other comments, not so condemnatory, but nonetheless somewhat dismissive and short on systematic analysis. The Monthly aims to reverse this omission.
The full article is recommended for those who are interested in the detailed analysis it provides. What follows is a summary. Robert Manne wrote the introduction and introduced the commentators. Some of his comments are incorporated into the text below.
The first commentator is Eric Hobsbawm, described as ‘a lifelong member of the Left’ and author of The Age of Revolution, The Age of Capital, The Age of Empire, and The Age of Extremes. He begins: “Kevin Rudd’s essay makes two major contributions to the debate on the present world crisis of capitalism, which is now recognized to be the major breakdown of the economic system since the Great Depression after 1929. It recognizes clearly that the market fundamentalism of 1973 to 2008 has failed utterly and cannot be restored, a significant statement coming from the prime minister of Australia. It also recognizes the irrelevance of ideological arguments about ‘the nomenclature’ of the system that will succeed it. This is a welcome sign that the politico-economic debate is at last entering the twenty-first century, although Kevin Rudd’s own sketch of the post-crisis system almost certainly underestimates the scope and need for future state or other public action.”
Hobsbawm queries how confidence can return to markets or the banking system without a period when governments exert control more explicitly than they now do. He addresses climate change and concludes “Fortunately, the systematic and necessarily gigantic public investments to take on the world’s environmental crisis offer a more civilized equivalent to World War II, which made it possible to overcome the heritage of the last Great Depression. Whether or how it can be effectively pursued should determine not only how the world economy recovers, but the future of humanity in the twenty-first century.” This contrasts sharply with the view of those who see the GFC as a compelling reason to delay mitigation of global warming.
David Hale, head of the Chicago-based consultancy Global Economics, argues that the present crisis arose not from systemic failure or false ideas, but from a range of what were easily avoidable factors: the global savings imbalance, obsession with home ownership, and the mushrooming of ill-regulated securitisation financial products. He begins: “The current global recession will be a more defining event than any other business cycle since the 1930s. As Prime Minister Kevin Rudd noted in his February essay, ‘This crisis has become one of the greatest assaults on global economic stability to have occurred in three-quarters of a century.’”
In describing the genesis of the crisis Hale rejects the idea that central banks were responsible. Instead, he says that ”...the downturn resulted from the collapse of the residential real-estate market in the US, and its potential impact on the solvency of major financial institutions.” He attributes the perilous situation the world faces to excess global liquidity, the American home ownership obsession, and securitization, aided and abetted by the triple A ratings offered by ratings agencies, for high fees. He asserts it would be incorrect to blame private-sector greed; rather he sees a failure of regulatory authorities to recognize the lending excesses resulting from errors in risk management by private sector lenders.
He concludes that the challenge for governments will not be simply to increase regulation, but to do it effectively with better checks and balances to improve the management of risk.
Dean Baker, co-director of the Center for Economic and Policy Research in Washington DC, the first to warn of the housing bubble, unlike Rudd, does not believe in the power or sincerity of neo-liberal ideas, and says the neo-liberal deregulatory rhetoric of conservatives is essentially hypocritical as they favour state-enforced regulation when it there to come to the rescue to transfer wealth from the have-nots to the haves.
He begins: “Prime Minister Kevin Rudd has in his essay given us a bold statement about the nature of the current economic crisis and laid out an ambitious agenda in response to the crisis. Unfortunately, the diagnosis of the problem is not entirely on target and therefore the response is not fully adequate to the enormity of the problem.” He insists that the problem was not free market ideology, because the policies of the free market ideologues did not correspond with their actions. They were only too happy to have governments intervene to bail them out of financial messes of their own making. They saw government intervention as a form of insurance policy, its name: ‘too big to fail’.
He attributes the crisis to a massive shortfall in aggregate demand and goes on to say that the size of the stimulus required is much larger than that which has been put on the table so far. He advocates spending on infrastructure, energy efficiency, and health-care reform. He argues that the American dollar is overvalued and must fall to a level consistent with a sustainable trade deficit.
He concludes: “Kevin Rudd should be commended for recognizing the opportunities created by the crisis. However, I believe that these opportunities are even more impressive than he indicates – if we have the courage to be creative and push the limits of the possible.”
Charles R Morris is author of The Two Trillion Dollar Meltdown. He praises and broadly accepts Rudd’s analysis but indicates he is more sceptical about the rigour and predictive capacity of the economics profession than about neo-liberal ideology.
He begins: “’I find myself in virtual complete agreement with his [Rudd’s] analysis of the current economic crisis, its historic importance and the nature of the response that governments will be required to make.”
Morris expresses surprise about how little the crisis was anticipated by mainstream economists. He documents that of the 102 forecasts of 51 economists of the 2007-2008 fourth-quarter to fourth-quarter real growth of GDP and the 2008 end-of-year unemployment rate, all were wrong and in the same direction although the predictions were made in early 2008 when the credit crunch was well underway. He insists that for the foreseeable future governments will be flying blind. He has little confidence in the economics profession being able to help: “Economists of all persuasions will readily offer advice confidently, eloquently and with panache. But they are just opinions, for macroeconomics is not a science.... The theoretical apparatus of economics ...are mostly imaginative constructs that can rarely be confirmed with any precision, and stem more often from ideologies than careful observation.”
He concludes: “Large scale interventions are the bluntest of tools. Policymakers will inevitably make major mistakes and the public will have to expect them to do so. The test will be not whether they get it right first time, but whether they recognize problems and make adjustments.”
The final commentator was John Gray, a British political philosopher and public intellectual who wrote Hayek on Liberty but later abandoned neo-liberalism for ‘pessimistic conservative pluralism’ with False Dawn and Black Mass. He agrees with Rudd that the neo-liberal chapter of world history has come to a close.
He begins: “Kevin Rudd’s analysis of the financial meltdown is refreshing in its radicalism. Rightly he recognizes that this is not just another episode in the history of market cycles but a more fundamental dislocation....Rudd’s analysis of the limitations and contradictions inherent on the neo-liberal conception of minimal government is astute and convincing.”
“The crisis was the predictable outcome of applying a narrow and unrealistic ideology, as Kevin Rudd explains. But it has some significant implications that are not much discussed in his account. Not only has a generation-long political project collapsed; its collapse goes together with a historic shift in geopolitics, in which power is leaking away from the US and its allies.”
He concludes with a sober analysis: “Beyond the impact on specific governments, the meltdown leaves the world without any effective global governance. No new power is emerging that could exercise hegemony in the aftermath of neo-liberalism in the way the US did after the fall of communism. Instead, we have a polycentric world, shaped by several great powers and ruled by none. In some senses this may be an advance, but the implications for energy and climate change are sobering. It is hard to see how the planetary environment can be protected when the breakdown of American-led globalization has left a kind of anarchy, with no new order on the horizon.”
So was Rudd right? From the comments of these five it seems as if he largely was. Some comment that his diagnosis did not go far enough or was not entirely on target, his remedy was in some ways insufficient, and his vision of the future not encompassing enough.
But all five treated the essay with respect, in contrast to local commentators, who ridiculed it, dismissed it out of hand, or found it to be seriously flawed and off the mark. So much for our resident experts! But what should one expect in this country? And from one’s own countrymen? As the scriptures say: “A prophet is not without honour, except in his own country.”
What do you think?
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