Dispatches from the 10th Crusade

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Morning reading

It can be a real challenge to penetrate the cloud of cant and catchphrase that envelopes the discussion of the financial crisis. How profoundly this disarray has shaken American institutions is still far from evident to the great majority of people. Thus the allure of the conventional, that pattern of soothing slogans and bromides, which lulls the active mind to sleep, is very strong.

It is therefore always welcome to read fresh, creative analysis, of which the following two articles are exemplars.

First is Francis Cianfrocca’s assessment of China as “the world’s most Keynesian state.” He explains why this is so quite vividly; which in turn helps explain, perhaps, why commentators from Tom Friedman to Bono to the French Foreign Minister have recently given voice to their admiration for Chinese efficaciousness. For all of my adult life, an assumption undergirding the vision of Globalization was that Chinese openness to private enterprise and growth economics would eventually issue in openness to political freedom. In a word, capitalism would inexorably push that country toward liberty. Now it looks more and more as though the reverse may be true. Chinese capitalism, with its distinctly authoritarian bent, appeals to statists everywhere. They look at China and see a neat arrangement where private businesses answer meekly to the dictates of state policy, which includes an impressive range for profit and growth, thus placating the business class while maintaining the despotic structure of the state. The charm of this arrangement to, let us say, an enthusiast of green technology, or a politician in favor of socialized medicine, or indeed anyone sympathetic to what used to be called “industrial policy,” is no mystery.

Second, this column by Anatole Kaletsky in the (UK) Times is a fascinating read. If he’s right, it adds an intriguing new twist to my suspicion that it was a bad idea to allow the investment banks to become public corporations by issuing common stock. Kaletsky is not above a little creative mischief; he characterizes this development in banking in explicitly Marxian terms. Well worth a read.

Comments (5)

Now it looks more and more as though the reverse may be true. Chinese capitalism, with its distinctly authoritarian bent, appeals to statists everywhere.

This is one of the most serious problems that libertarianism faces. It's practically one of the 10 commandments of libertarianism that "more capitalism = more freedom." Reality is a cruel bitch and we are seeing that capitalism and tyranny can peacefully coexist.

It certainly doesn't help that capitalism has made the oppression of the Chinese lucrative for many businesses. All of the companies that have supplied equipment and training to build out China's shiny new surveillance infrastructure and that help support it by obeying their policies (Google, Yahoo, etc.) are profiting from it.

Talk to our poor and ask them how liberating capitalism is. This is a reason over half of polled respondents in former communist countries like Poland and Russia claim that life was better under communism.

As for Francis, you'd swear Keynesian was a four-letter word. China was and is mercantilist. There is a difference between that and Keynesianism.

Kaletsky's comparison of modern banks with Yugoslavian workers' co-operatives is facile. Those co-operatives did not have the implicit public backing for deposits modern banks profit from, nor did they have access to federal money at an almost 0% interest rate by which they buy U.S. Treasuries guaranteed by the public and reap the interest.

Workers’ co-operatives, by their nature, tend to decapitalise and plunder the businesses they control.

Why would this be? Would workers be unaware of the consequences of their actions? Only if they are short-sighted, ignorant and foolish, in which case no business structure can save them. The problem is not "in the nature" of a workers' cooperative. Indeed, that the workers' cooperative gives the workers a share in the profits of the company is a helpful thing. That the profits of the workers' cooperatives we call American banks come at the risk and expense of taxpayers is the only problem I see.

What, then, does Kaletsky propose? Removing the exposure of taxpayers and increasing interest rates, or reimbursing taxpayers through government regulation? As any Keynesian would do, Kaletsky chooses reimbursement, which is obviously better than doing nothing and letting the bankers line their pockets. But is increasing the powers of the central government and simultaneously the government's dependence on the Big Banks for tax revenue the best we can do?

Seems to me that China and the US are both heading towards the same type of economy, except from opposite directions. The neo-Marxists (or post-Marxists, as Paul Gottfried calls them) have learned that they need not totally control the economy in order to control the nation, provided they also control the culture. Hence, a system where the corporations and the state collude to control wealth and power is fine, since, as Paul puts it, "private businesses answer meekly to the dictates of state policy, which includes an impressive range for profit and growth, thus placating the business class while maintaining the despotic structure of the state." And the people are given the modern equivalents of bread and circuses -- fast food and television.

That anyone takes such articles seriously is truly cause for despair; that what should be the worn out conservative riff on Keynes still has traction likely means we are doomed. What exactly is the point? China keeps on "working" as long as growth stays north of around 8%. When things start slowing and we are in a liquidity trap a stimulus is all that is left. There are no policy implications and no slippery slopes. Monetary policy works until it doesn't and then all we have left is fiscal policy.

BTW, where were these articles when the United States engaged in a massive fiscal stimulus from 2001 on?

"The peculiarity of banking is that boards of directors, instead of protecting shareholders’ interests, have maximised employees’ earnings. Banks have been run as old-fashioned professional partnerships or workers’ co-operatives, in which the interests of the workers come first and outside providers of capital are treated as an afterthought."

Outrageous compensation at the top is a too common feature of American corporations in general, not just banking. Current bank profits are from trading not borrowing short and lending long.

Banks can't be allowed to fail in the sense that depositors get wiped out and functions need to be separated. All that requires a robust level of regulation and supervision.

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