OK so the GFC isn’t all that bad. Granted real unemployment is over 20 per cent in many countries, an entire generation have lost their life savings, hundreds of banks have collapsed, one in seven Americans is living on food stamps, bankruptcies, suicides and broken dreams stalk the land, and the social fabric is unravelling, but it could be worse. For starters the richest one per cent of North Americans have more than doubled their wealth. US Congress can still afford to spend US$300 billion plus plus on a fighter plane that doesn’t work …and then there is the historical perspective.
The last time we had a financial melt-down on this scale was 1929. Millions starved. In Germany the majority voted for a centre left government but austerity forced by the banks and by the treaty of Versailles created the conditions for extremism. In Germany, Italy and Spain it was the Nazi’s who won out. The rest is history.
What is astounding about this round of global financial rorting isn’t that it happened, or that no one has gone to jail, or that there has been no real financial reform, or that the people who created the crisis profited from it, or that the rest of us are paying. What is astounding is that there has been very little critique of system itself among the mainstream commentariate, and even less advocacy of an alternative system. After-all, three simple laws would stop these events and associated wars both now and forever. They are:
1. ban derivative financial instruments;
2. all contracts must be non-transferable and non-saleable to a third party; and
3. restrict futures contracts to agricultural products (where they actually help farmers).
This is not to say that there are no other useful measures such as a Tobin tax, or that these three measures alone would stop economic bubbles or inflation – these are facts of economic life. However they would have stopped the Great Depression, World War Two in Europe, GFC 1 in the USA and GFC 2 in Europe. Oh, and the sharks haven’t finished feeding yet. GFC 3 is on its way…
On the one hand this sort of regulation would stop women dying in child birth because they can’t afford privatised medicine. On the other hand it would force speculators to make a living by actually producing something. For that reason it is not a policy option in any OECD country.
So what is the alternative? Despite the obvious and demonstrable failure of the free market / endless consumption / endless economic growth / exponential population growth model, it appears immune because there is no alternative meta narrative. Nazism is an unfortunate memory. Communism is discredited. State cronyism is facing hard limits in China, Russia and Iran. Social democracies in which the State distributes some of the wealth and provides for social goods like education and health care have fared the best. This has been Australia's story but it is hardly an 'ism' and we remain exposed through a free trade policy, high levels of foreign ownership and a floating currency.
Environmentalism sounds the alarm but you have to look a long way to find a comprehensive alternative global economic model or transition strategy. The Other Economic Summit (TOES) was an attempt at this. So is the moneyless economy. The anti-globalist movement has much to say but sometimes forgets that capitalism isn’t just an evil conspiracy – its’ how normal people actually behave. Trade is good and there is simply nothing wrong with a person who has two cows selling one and buying a bull.
The current system has failed because the monetary economy became de-linked from the real economy. When you have a fractional reserve lending system that allows banks to lend ten times what is deposited with them, and then a shadow financial system based on derivative contracts which is over twenty times bigger than the money system (some estimates go as high as 100 times), you have an inverted pyramid with the real economy at the bottom dwarfed by the imaginary economy of obscure financial instruments at the top. Inverted pyramids are inherently unstable and so the current monetary system has proved to be.
Those with an eye to what works have noticed two groups/sectors that have both weathered the storm with equanimity and prospered. They are the Islamic banking sector and the Amish, and lesser known groups that adopt similar principles.
These groups come with their own baggage of course. This includes misogyny, patriarchy, homophobia, harsh conformity and anti-intellectualism. OK, so headscarves, unrestrained fecundity and literal six day creationism may not be your thing, but can we learn something from these people? Is there a case for Biblical capitalism? I think there is. I intend to explore this in my next post.
Note: any irony you detected in this post was intentional.
Tag Line: GFC, Global Financial Crisis, Islamic Banking, Amish, Amish Banking, The Other Economic Summit TOES, EU Financial Crisis, Moneyless Manifesto, self reliance, self sufficiency