Samuel Brittan, a conservative columnist in the Financial Times, argued on 24 September that the crisis demands “a Treasury directive to [state-owned] banks to replace profit maximisation with a requirement to promote economic recovery”.
The labour movement should demand that all the banks and high finance are expropriated and put under democratic control with a priority of saving and improving services and jobs, not maximum loot for bosses and shareholders.
Neo-liberalism, and capitalism itself, are signalling their delirious inhumanity and infirmity. “Global economy pushed to brink”, headlined the Financial Times on 24 September. Even if there is not another crash like 2008 soon, a period of depression is certain.
The escalation of the eurozone crisis (bond price slump for Italy and Spain, expanded but failed bail-out plans for Greece) and the dollar crisis in August 2011 (drastic cuts forced through, ratings agency downgrading creditworthiness of US Treasury bonds [IOUs]) has reached the point where Tory Chancellor George Osborne talks of “six weeks to save the eurozone”.
Yet mainstream politics is as if seeing economic life in an inverting mirror. Everything the “Keynesian” critics, of the stripe of Ed Balls, said against the Tories’ cuts plans in 2010 has been confirmed, even in a bourgeois economic framework.
• the Tories (and neo-liberals everywhere) are on the offensive politically;
• the banks feel confident enough to indignantly (and successfully) demand loosening and delay of the mild regulatory measures aimed at them;
• the diehard Blairites like Mandelson are on the offensive in the Labour Party, demanding more Labour commitment to cuts;
• Balls is mumbling, almost defensive;
• the union leaders demand no more, economically, than “closing tax loopholes”, etc.;
*• The street-campaigning left mostly limits itself to defensive calls to “stop the cuts” and “save pensions”, sounding a militant note only by talking up action like 30 November and injecting phrases like “24 hour public sector general strike”.
Under the carapace of labour-movement sluggishness, millions know these are drastic times calling for drastic measures. Socialists must educate and agitate, orienting to the possibilities of unexpected explosions, rather than tone ourselves down to the political level set by dead-weight influences in the labour movement.
The current turmoil is a culmination of thirty years’ spiralling expansion of a bubble, or house of-cards, of financial speculation and credit (or, in other words, to look at the other side of the coin, debt). The bubble had partly deflated several times before:
• the 1987 crash of world stock markets;
• the US savings and loan (mortgage) crisis of the early 1990s;
• the European Exchange Rate Mechanism crisis of 1992;
• the “Asian crisis” of 1997-8, which also involved the managed collapse of one of the USA’s biggest hedge funds;
• the “dot.com crisis” of around 2001.
Big capital had recovered fast from all those crises, with limited damage, and continued blithely on the credit-expansion spiral.
The September 2008 crash, following on a US mortgage-market crisis developing since late 2006, was big enough, and full enough of ricochets, to wreck the global banking system.
Lehman Brothers went bust, and many other banks would have done the same but for governments bailing them out.
The governments’ stepping-in, their “socialism for the rich”, “privatisation of gains and socialisation of losses”, allowed capitalist production to start recovering. By 2010 world trade and output were increasing fairly briskly, especially in China, India, Brazil, etc. though less so from the richer countries (except Germany.
The 2008 bail-outs shifted the focus of the stresses from private capital to governments.
Government creditworthiness is more durable than the creditworthiness of individual banks, but has progressively come under pressure, culminating in the current twin crises of the eurozone and of the US budget. These crises have been compounded by the slow fumbling and haggling in the eurozone, and the resurgence of “voodoo economics” in the US Tea Party and Republican right wing.
In 2008-9 the crash was limited by the Chinese government launching what must be the biggest programme in world history of investment in fixed capital: new factories, roads, airports, buildings...
It will be very difficult for the Chinese government to offset a new sagging in world markets for its manufactured exports by a new fixed-investment boost. Already the Chinese government is anxious to clean up rapid price inflation (now 6.5%) and local-government debt blow-outs.
According to Nouriel Roubini: “China did not suffer a severe recession [in 2008-9]... only because fixed investment exploded. And the fixed-investment share of GDP has increased further in 2010-2011, to almost 50%.
“China is rife with overinvestment in physical capital, infrastructure, and property: in sleek but empty airports and bullet trains... highways to nowhere, thousands of colossal new central and provincial government buildings, ghost towns, and brand-new aluminium smelters kept closed to prevent global prices from plunging...
“Eventually, most likely after 2013, China will suffer a hard landing....”
A greatest unknown is the response to the turmoil of the Chinese working class, now hundreds of millions strong, concentrated in huge factories, and already militant despite its organisations being illegal.
In 2008 analysts such as Paul Mason argued plausibly that the financial crash had fatally discredited neo-liberalism even in ruling circles.
They were wrong, and the fact they were wrong has shaped the sequel. As soon as the perceived immediate threat that “if money isn’t loosened up, this sucker could go down” (George W Bush, September 2008) had faded, the leading capitalist states sought a rigidly neo-liberal, profit-prioritising path for recovery.
The ruling classes had never forgotten or abandoned Keynes, and willingly went for a brief Keynesian moment; but once the first panic was over, all their attention went to using the crisis to beat down labour, increase social inequality, squeeze social overheads, marketise, and privatise. Germany passed an amendment to its constitution mandating balanced budgets in future, and pressed other EU states to do similar.
The USA was the slight exception to that rule for a while, its federal government rejecting cuts for much longer than European governments did; but it has been pulled into line by the Tea Party pressure in its budget crisis. The Democrats have now had to promise a debate in Congress on an amendment to the US constitution mandating balanced budgets.
Rising inequality since 1990 — in the US, in Britain, in much of the world — has been one of the main forces driving global financial fragility.
The cascade of cash into the pockets of the rich produces a waterfall of buying in the markets for financial paper of various sorts — all essentially speculative “tickets” to future profit. The expansion of financial markets also claws in the poor (sub-prime mortgages, credit-card debt). Eventually the bubble bursts.
Slumps generally narrow inequality, at least for a while. Ruined capitalists fall further than ruined workers. This time, although the USA has scarcely started any economic recovery, inequality has sharpened. The average daily spend of middle and lower-income Americans in July  was $63, down from $64 a year ago [despite 3.6% price inflation]. The daily spending of upper-income Americans rose from $119 to $128 (FT, 4 August 2011).
In Britain, while top bosses at the top 100 FTSE companies had median earnings rise 32% last year (FT, 27 July 2011), workers’ real wages dropped 2.7% (Daily Telegraph, 13 July 2011).
The driving force here is the greed of capital to use the crisis to trim costs and prepare for maximum profits in a future recovery, and the relative weakness of unions. It is rational for each individual capitalist, but makes escape from depression more elusive overall.