As the old saying suggests, be careful what you ask for, because you may get it. The hubristic here in China are well on their way to discovering some uncomfortable truths of arrival as a great power.
For the last twenty years, rapid economic growth has fuelled fevered aspirations of catching up with and surpassing America. The Darwinian view of world affairs that China’s educated classes have embraced is coupled with a remarkable obsession with America, often to the exclusion of the other 75% of humanity that also lives outside the borders of the Middle Kingdom. That is because America is presently number one, and, as one of my students remarked last year, being or becoming number one is all that counts.
Eventually, if trends continue—a big if—then the leadership in Beijing and the youthful nationalists will get their way. Rising incomes added to the vast demographic base will let China surpass America in economic weight, with the military power to match in due course. Such fantasies of a “Chinese century” intensified after the 2008 Olympic spectacle and the West’s financial crisis. Resource-hungry China’s investment and trade profile in other parts of the developing world has also been rising.
But the fantasists of arrival are getting a rude awakening, a foretaste of what is to come as they try to occupy some big shoes. Protests against Chinese companies’ practices in Africa are already becoming more frequent. And most strikingly, in July and again in October, spokesmen for al-Qā‘idah urged jihad against China in terms eerily reminiscent of earlier pronouncements against the West. When the torch passes to you, it is easy to burn your hand.
The immediate cause of al-Qa‘idah’s invective against Beijing was the crushing of an uprising by Muslim Uyghurs, in the northwestern region known by Han Chinese as Xinjiang and by independence activists as Uyghuristan or East Turkestan. Many observers note that news of the crackdown and of underlying discontent has ruined China’s image across much of the Muslim world.
Of course, the Uyghurs’ grievances are a complex matter and barely a blip on the world’s radar screen most of the time. And al-Qa‘idah, for all its sound and fury and bloodletting, is a relatively small network among radical Islamists and unlikely, at least in its present form, to outlast this generation. Yet the reactions to these events both inside China and outside in the Muslim world are important because they reveal some deep sensibilities and fault lines, which I suspect will become much more evident and politically consequential over the next decade or two.
Not long after I returned to China in September, one of my students expressed an opinion that resonates a good deal among those of the same generation and relatively comfortable background. She remarked that while she could sympathise with the anti-régime protesters in Iran over the summer, as having a just cause, the Uyghurs who revolted around the same time were simply “evil people” with murderous instincts. Now I know that most of that sentiment probably flows from a widespread desire to protect one’s own ethnic group, against what are seen here as marauders ungrateful for the spending and security that the central government bestows on them. And Islamists abroad generally have not got worked up about China in recent years, except out of tribal solidarity with their coreligionists whenever tales of abuse hit the headlines. If this were all that were at stake, the bitterness of the last few months would be of little account.
But the instincts run deeper. The widespread sympathy among educated young Chinese for the protesters in Iran is rooted in what amounts to a common way of life, as secular late-moderns whose main yearning is unfettered access to an often libertine global consumer culture. For the upper middle class youth of China’s coastal cities are more Westernised than they might like to think. They want to copy the West in all respects except, perhaps, multiparty elections, which might get uncomfortably turbulent. And the few thousand Twitterers who ventured out of prosperous North Teheran into the streets are similarly far removed from the Iranian hinterland, which has twice voted in large numbers for Mahmoud Ahmadinejad. Their vision of Iran has far more in common with that of the deposed Shah’s fellow travellers, than with that of most of their fellow citizens. Anyone who sees either group as representative of its respective country is much like the Harvard professors who have been known to express surprise whenever America elects conservative presidents, because they do not personally know anyone who votes for them.
Just as a religion-infused public sphere seems suffocating to the Teheran Twitterers, so too does religious fervour baffle and unnerve educated young Chinese. My students’ mouths have dropped open any time they hear the statistic that at least a third of their compatriots hold some sort of religious belief; they expect less than a tenth. Ironically, the Uyghurs are not as fervent, by and large, as Muslims in some other parts of the world. But the self-confidence of those who adhere, in however mild a way, to truths above the world’s flux is always a bit alarming to those of a more secular bent. Most of the time, confident secularists here can dismiss religiosity as harmless, as an endearing folk custom of China’s ethnic minorities or as something colouring distant societies that matter only for trade and diplomacy. When religiosity adds backbone to those who do not go along with the worldly trends everyone is assumed to want, however, bewilderment reigns. For tomorrow’s empire-builders, the alienness of a sentiment most of the world’s population feels will prove an obstacle. There will be no Lawrence of Arabia coming out of China to unruffle feathers in the Muslim world. Many an empire has shattered on the mountains of central Asia, and those peaks are sharp and sturdy still.
The other side of the coin is even more ominous. In an earlier era, many in the Muslim world respected the Chinese government for standing up to the West while invoking anti-imperialist themes. Now, they are discovering a hard-edged atheism and material ambitions that will press ever more heavily on the rest of the world. Among modern hegemons that have stridden over the planet, Britain had rapacious capitalism tempered by lingering aristocratic virtues, while America has had rapacious capitalism tempered by piety and a vibrant civil society. The excesses of the last half century, including the Cultural Revolution, have left very little in the way of such buffers for China as it arrives. The higher up the social scale one goes, the less of Confucianism—or even an earthy populism and good humour—remains to counterbalance a technocratic tone-deafness.
In the Muslim world, but also in Africa, Latin America, and South Asia, we should expect to hear more anti-imperialism of this flavour in coming years. Interestingly, however, very few of the educated here expect this to happen. A recent BBC/Globescan opinion survey found that Chinese versus foreign respondents’ perceptions of China’s rôle in the world have the widest gap for any country. Many here genuinely believe in Beijing’s own anti-imperialist bona fides as if we were still in the 1950s. They even suggest that China’s rise, by taking America and the rest of the West down a peg or two, will benefit the rest of the developing world.
This image, so prevalent in official media and textbooks here, is of a China once humiliated by colonialism and now courageously standing up to its former oppressors. Unfortunately for its proponents, that image today resonates very little with onlookers elsewhere. Important currents of opinion, both in the West and in the developing world, have a long habit of instinctively siding with David against Goliath. This cuts across the likes of everything from European anti-globalisation protesters to Latin American leftists to Middle Eastern Islamists. Even if in inconsistent or eccentric ways, such folk sympathise more often than not with governments and movements that challenge the North Atlantic power centres.
But conspicuously absent is any real backing among them for the Chinese political élite’s self-given mission of checking the West, and particularly the United States. Part of the reason is that the instinctive backers of David against Goliath sense that the “Chinese century” narrative is about becoming Goliath, not about abolishing Goliath-hood. One of my students last year observed that the difference between the Islamists and the Chinese nationalists is that the Islamists want to opt out of the money-mad game the West is imposing on the world, while the Chinese nationalists want to beat the West at its own game. All the talk a few months ago about a G-2 “Chimerica” consortium to run the world uncannily resonated with such fantasies of arrival. Anyone hoping for a more equal landscape of power in the world should know better than to look to the political classes here to bring it about, whatever they might say to some audiences some of the time.
If this interpretation is correct, then one could draw a variety of conclusions from it. Those enamoured of Western supremacy will be tempted to go back to Cold War rhetoric about containing China for everyone else’s sake. Conveniently, such an approach would also be about staving off the decline of Western power. I do not propose any such thing. For one thing, I hold no brief for Western supremacy. The core criticism of China as would-be hegemon can be applied equally well to its predecessor, and its predecessor’s predecessor, of both of which I am a citizen. Moreover, just as any indictment of American or British imperialism does not rightly touch those Americans and Britons who opposed it and did not benefit from it, so too should I hasten to point out that this new project of empire has very little to do with the interests of those Chinese who today stand knee-deep in rice paddies or slog away on construction sites for a pittance. The emerging problem is not one of China versus any other country. It is a more complex matter involving fault lines of interest and ideology that cut across countries. Those who control the political and economic apparatus of any major power cannot simply be said to speak for their populace, like some sort of undifferentiated mass.
So how do these new global fault lines cut across the landscape? Perhaps most obvious is that, whatever some might urge, there is no real likelihood of any Western Cold War against a rising China. Indeed, in the last few years there has been an unhealthy amount of kowtowing to this emerging diplomatic and economic power centre, by precisely those who are best situated not to have to do so. A couple of weeks ago, none other than Tony Blair penned a rather effusive editorial in the Wall Street Journal praising the accomplishments of the Chinese political élite and professing a Western interest in its continued success. He has had ample opportunity to hone such skills over years of accommodation to Washington’s imperial adventures. Other member states of the European Union—for the new presidency of which Mr Blair is presently a candidate—have also caved in repeatedly on issues such as how to handling visiting Chinese dissidents, to avoid offending such an important trading partner. Across the Atlantic, the number of what are often called “panda huggers” is also proliferating. America’s former Secretary of Labour, Elaine Chao, was recently appointed as an international adviser by the city of Wuhan. And the delicate timidity with which the Obama administration has handled its counterparts in Beijing is noticeable. Far from a new Cold War, the West’s sliding into tributary status fifty years hence seems more likely at this pace.
But we need not confine our attention to the West’s political élites. One can find many of the same habits of mind among a wider array of Westerners who engage with the Middle Kingdom. The last decade has seen many of the comfortable and astute swarm here like flies to a honeypot. They invest in China, learn about China, and master Chinese because China is supposedly booming and will continue to do so. They buy into the trajectory of the country’s rise and expect to attach themselves to it; the assumption and the activity become mutually reinforcing. Usually the affinity for Chinese culture does not run very deeply in such cases. If West Africa were booming instead, such people would be diligently learning Wolof and eating peanut stews.
All this suggests a larger pattern that goes far beyond any musings about great-power politics or competing empires. Just as prosperous youth in coastal China sympathise with the Teheran Twitterers, so too do likeminded foreigners identify with much of the project that the Chinese upper class has set for itself. For all the nationalistic rhetoric about Chinese exceptionalism today, it is quite likely—and panda-hugging foreigners generally expect—that China will evolve into something like a liberal régime sooner or later. Or it will at least be predictably capitalist and cosmopolitan enough, along the lines of Singapore, that the moneyed and mercenary around the world can relate to it well and use it to advance their own purposes. If that trajectory continues, then Beijing will occupy the same rôle as Washington and London before it. If the world needs a hegemon—if emerging structures of global governance do not run themselves, which they well might do a generation hence—then this would be a hegemon with which those who need to do business will be able to do business. There might be some indignant rhetoric at election time in the West, during the transition, but behind the scenes the baton will pass smoothly, just as it did in the 1940s.
Whether this comes to pass depends on many things. China’s growth may very well not continue, or India might outdo it, or the world’s comfortable might find more diffuse ways of guaranteeing their interests. I am merely noting the implications if this scenario does unfold. While such a transition would be convenient for the powers that be, it would be bitterly resented by more or less the same people who resent the current lineup of forces in the world. Changes on the surface would not win over the Islamists, or the poor in Latin America, or Africa, or elsewhere. They just happen to be the vast majority of the world’s population.
Such a scenario would also, crucially, be unsatisfactory to many decent people within China. Just as imperialism was abhorrent to many in Britain and America, because of the burdens, distortions, and fevers that it brought on their own societies, so too should this project repel many Chinese. An imperial power usually has a high level of inequality at home, keeping its commoners’ noses to the grindstone to pay for adventures abroad. It also ruins much of value in its own culture. I have been struck over the years by a peculiar attitude among many of my friends—both foreigners and Chinese who have lived abroad—who profess a love for Chinese culture. Elsewhere in the world, much of the appreciation of a country centres on savouring its present. Most deep Sinophiles I know love what China once was and what it might be in a very different future, but have deep misgivings about the fevers of moneymaking and powerseeking that warp its present. Far from wanting to attach themselves to its trajectory, they look on that trajectory in horror.
It is among those people, and among those dispossessed and disdained by imperial projects of any colour and origin, that the promising ground really lies. For the sensibilities that are repelled by late modern lucre-lust, and the virtues that can steel us to resist its proliferation, know no homeland. It is hard to have moral clarity when one is trying to keep the loose change in one’s pocket while touching one’s forehead to the ground. By lifting up our heads, however, we can see those both near and far who also wish to stand firm, wherever they might stand. That kind of moral clarity, cosmopolitan in its own eccentric way, and resistant to the temptations of empires and counterempires, is perhaps more available to us today than at any time in living memory.
But Cf. “The Odd Couple”.
In the West there is a largely democratically unaccountable capitalism of the few (a plutocracy) which recently had the power to come very close to collapsing the world’s economy but is still hungry to have the power of ownership over everything, in the Middle a democratically unaccountable ideology of religious theocracy in Islam (an autocracy) and wanting to destroy all other ideologies, and in the East a fusion of a democratically unaccountable proletarian dictatorship and capitalism in China (an autocratic-plutocracy) wanting to monopolize all power and own everything. Our only hope to stop further abuse of ourselves by these monstrous regimes is to develop and reform democracy in the three areas of capitalism, religion and politics.
I think the only hope to stop further abuse of ourselves by the monstrous regimes is to turn off the petroleum spicket, something only nature will be able to do.
God forbid The baffled U.S.A. were not top dog anymore and unable to continue printing counterfeit money or entering debt levels that make loan sharks look dispassionate and burning the freshly minted money in empty oil barrels due to the relentless costs of an outsized standing army posted hell to breakfast and in general, being forced to believe its own bullshit hoisted up the glorious flagpole everyday in that tottering cesspool on the Potomac.
Talking of oil barrels or more simply barrels, Mao Tse-tung once said that political power grows from the barrel of a gun. He was only half right. Political power also grows from a barrel of money. The use of gun and money barrels has been taking place long before the first oil barrel made its appearance. Most people can easily grasp how power can grow from a barrel of a gun but not from a barrel of money, but the commoditization of nature is exactly that, the creation of barrels of money. One of the greatest rushes to commoditize nature was the rush to seize land in Northern America. Now an equally great rush is on to commoditize nature in Asia and especially China. This is not so much a land rush but a rush to use technology and the exploitation of people and nature to create barrels of money. It relies upon the swopping of barrels of money. This is where a government keeps the value of its barrels of money (currency) low and the value of other peoples’ barrels (currency) high by recycling their export earnings into the government bonds of the countries they export to. Of course, this has allowed some countries to be profligate in their public and private spending especially the United States. Having other currencies recycle their export earnings back to you means that you can keep interest rates low which creates the false sense of security that you can endlessly leverage your consumption of public and private goods through debt. The bursting of the Subprime Mortgage bubble was like the setting off of a nuclear bomb according to George Soros, the hedge fund manager and philanthropist. The Subprime explosion was the conventional explosive but the nuclear content was the massive public and private super debt Americans had accumulated under the thirty year mismanagement of the two political parties and the Federal Reserve which just happens to be owned by people with lots of barrels of money, the banks. The banks, as we know, have been happily making money from lending to corporations wanting to set up businesses in Asia and especially China and they loved making money from their fraudulent mortgage based Collateralized Debt Obligation financial instruments.
So where does this leave us? If you’ll excuse the dreadful pun it means for the American and other people not to shoot themselves in the foot by failing to recognize this political power of money and see that this latest recession caused by the Financial Crash was no accident but stemmed from the disproportionate political sway over government that a speculating minority have with control over many barrels of money. Having recognized the cause of the problem a move to preventing its re-occurrence has to be the democratization of the power obtained from excessive money holding and a reform of central government to regulate finance and unfair global trading. It means recognizing, particularly for Americans, that capitalism has ambivalence; very good for matching up need with supply and in part “efficient” use of resources but vulnerable to concentrating power in the hands of a minority who will use it unaccountably. It also means for Americans that they clearly see that even the most cynical observer of human nature and principal constitutional framer James Madison failed in the midst of the world’s biggest land grab to understand how the commoditization of nature could lead to abuse of power. It is difficult to know whether Madison’s fellow framers also understood the full implications of this commoditization. They knew that property represented power since even Thomas Jefferson proposed that all Virginian men be given fifty acres of land to make them eligible to vote. Virtually all of the Framers were wealthy men and many through ownership of property which paradoxically and naively was perceived to make men responsible citizens! To be fair to Madison the industrial revolution had not really developed to be the barrel filling money cow that it is today but both he and Jefferson had deep reservations about the economic ideas of Alexander Hamilton and feared the damage that would be caused by the encouragement of speculation. Irrespective of all this history, it has to be understood that the achievement of a moral nation is far from guaranteed by the American constitution which does not protect the majority of its citizens from abuse by a minority with their enormous powers of control gained from proprietorial ownership over many barrels of money. This year Hallowen casts a shadow across the land as we realize the majority have gotten the tricks and the minority the treats!
Only a well-insulated financier would equate the sub-prime farrago with the explosion of a nuclear bomb…it reminds me of Congress blathering about “nuclear options” as though a nuclear bomb were somehow an abstract thing that does not obliterate all life in its wake while wiping the landscape clean of buildings.
No, the sub prime debacle is simply a bunko operation gone badly…on a massive scale like the Credit Mobilier crisis or the financial mishaps of the French when they were attempting the Panama Canal or any of a thousand other brazen criminal acts meshed to “new financial realities” and the enhanced technological avenues for criminal actions when wed to a government that has excessive confidence in the voodoo and entrails reading of its clubby FED.
Property ownership does encourage a sense of stewardship and citizenship. the fact that this generation of propertied sots decided to turn the sense on its head and treat property as a slot machine and no verification loan credit derivative does not remove the efficacy of property ownership from the republic’s guidebook to probity. Had they observed real property controls, we would not be in this mess.
Having recognized the cause of the problem a move to preventing its re-occurrence has to be the democratization of the power obtained from excessive money holding and a reform of central government to regulate finance and unfair global trading.
The Marxists have certainly seized upon this sentiment but don’t count on a “democratization of the power” because it will only result in exchanging the Finance oligarchs with the Political oligarchs. Personally I’d prefer the tryanny of the former.
The metaphor of the nuclear bomb was merely used to illustrate that the Subprime Crash was just a trigger and not the sole cause of the recession. What Soros has to say is highly critical of the prevailing ideology of the last thirty years and therefore worth a little effort in trying to understand.
Nobody in their right mind would disagree that in theory property ownership should encourage a sense of stewardship and citizenship but the reality has turned out to be different in the world of money making or we would not be in this latest of many recessions and have a society of so much unfairness and dysfunction. I have suggested it’s the ambivalence in capitalism namely unequal power, or lack of democracy, that creates these problems of unfairness and dysfunction and that the Invisible Hand is not invisible but actually obscures this issue. I also suggest two things that in a world of globalized capital only central government working with local government support and at least equal control of capital by workforce and citizens can possibly hope to democratically regulate these adverse effects. If there is a better way forward I have not yet seen it convincingly argued.
Another straw man argument Gas. If its democratically decided why should it be Marxist ?
I didn’t contend that if it was democratically decided it was therefore Marxists. But it is likewise a strawman to contend if it is democratically decided it therefore not Marxist. The current leadership used those same sentiments you expressed to get elected and are now well on their way to implementing a central planning system. Of course they claim to be democrats as do all Socialists.
Gas. Since you continue to want to frame the debate in pejoratives allow me to return the compliment. How would you describe the Federal Reserve as anything but an organization run on lines akin to Marxism and Central Planning. It is for all intents and purposes a private organization that acts in the interests of private banks with little democratic accountability. Its members are largely drawn from the private banking sector. Its centrally planned decisions set the parameters for the operation of the economy but the reasons for the decisions tend to be secretive largely because politicians mistakenly believe that to question them will challenge the Reserve’s independence. Indeed even the right-winger, Milton Friedman, in a 1962 essay stated “Politically independent Central Banks give undue influence to the interests of commercial bankers”. See Professor Epstein’s essay in this link:-
http://www.peri.umass.edu/fileadmin/pdf/conference_papers/SAFER/Epstein_Federal_Reserve_Policy.pdf
Also Professor Alan Blinder states when he was a Clinton Vice-Chair appointee on the Federal Reserve “As I often said, while I was on the Fed it’s their economy, not ours.” See Axel Krause’s essay in this link:-
http://www.notre-europe.eu/uploads/tx_publication/Etud7-en.pdf
Indeed as a consequence of the Federal Reserve’s mishandling of the economy leading to the Financial Crash under Alan Greenspan’s tutelage Congress is currently attempting to redress the accountability issue through a half-hearted and hence controversial bill S.1803.
The point I have been trying to make is that the use of checks and balances to provide democratic accountability is required not only in government but also in private enterprise beyond a minimum size. Of course, I understand Agency theory where the politician can often have a self-interested agenda in opposition to the electorate, but that is equally true of the businessman being in opposition to the interests of the workforce and the economy as a whole, for example, by squeezing wages and global outsourcing, or the example of deliberate fraud in the case of Wall Street counterfeit CDO’s. In the end though you are still left with the need to provide checks and balances to mitigate unfair self-interest and the requirement of human beings is consistently one that these check and balances are imposed fairly and openly through a democratic process which means legislatures and enforcement by government. There is no example of a complex society where these issues are resolved solely on a contractual basis.
Alan Greenspan admitting the Federal Reserve Private Banking Cartel is above the law and therefore accountable to no one pretty much I guess like a Centrally Planned Marxist dictatorship :-
http://www.youtube.com/watch?v=pVmxQsvj6lo&feature=related
Bruce thanks for the links.
I don’t have a problem with these proposals but my point is that under the current leadership these reforms don’t have a snowballs chance in hell.
And its far worse than just the Agency theory, which is clearly evident, but the fact that through the Agency theory the electorate is soft pedaled Socialism to make it more appeasable by word games and Ad Hom attacks against its opponents. Probably a 1/3 of the electorate is already convinced of Socialism and another 1/3 of the electorate is gullible to emotive appeals for it. Add to that the Education system is run and taught by Socialists.
The best we can hope for is that the next election cycle the electorate wake up and remove some of the Socialists so that the bullet train to Socialism that we are currently riding slows down some. The earliest possible date for these proposals is probably 4 years but that would require some pretty nifty politics to occur. One of the keys to that will be how we frame the issues and the words we use. If we frame it the same as the Socialists, as an envy of wealth and the covetous taking of that wealth, how would the electorate discern the difference?
My position is simple. Capitalism I regard as ambivalent unlike yourself. I see it as both beneficial and exploitative. I see it as driven by innovation, competitiveness and greed. Most people would agree the purpose of an economy is to give benefit to all. The central issue, therefore, becomes one of how incentive can be combined with fairness and both with sustainability. I have tried to show that far from autocracy being confined to Marxist, or Socialist, countries the United States is already living under autocracy, or socialism, in the form of an oligarchic socialism in which an unaccountable Federal Reserve, owned and dominated by a private banking elite, determines the parameters of the economy. Of course, this elite, works with other capitalist elites and politicians to maintain ascendancy. The banking elite, however, is key. It strongly resists any form of democratic regulation of its activities because this would restrict its abilities to make profits either through the creation of highly leveraged public and private debt without moral hazard, arbitrage and even outright fraud such as the counterfeit CDO’s and CDS’s. Indeed since much profit is made from gambling maintaining a volatile economy of boom/busts is very much in the interests of banks through credit expansion and going long on the rise and short on the fall. If it can avoid debt exposure by bundling and selling loans on to other unsuspecting customers it has the finest of all possible worlds and if it can lend money to governments for Keynesian fiscal expansion after the market’s boom/bust activities have crashed the economy, or encouragement of war mongering, or government borrowing to prop up health care and social security through declining real wages and hence tax take then so much the better for bank profits. Major banks always look to profit from any opportunity that arises, or they can manufacture, irrespective of the effect on the economy or the wisdom of the device. Their exploitative behavior dominates the beneficial. After all they don’t have to run the country. For those who do have to live in the country and suffer the consequences of their behavior it is only natural and fair that democratically determined regulation should be sought. This is why the Federal Reserve should be made accountable and why it will avoid being given the role of single regulator under the Obama regime as Obama so naively wanted earlier this year. The bankers realized this would put the Fed too much under the spot light and they will push for a toothless watch dog council to maintain watch over the existing regulators. The bankers fear no attack on their autocracy from Obama since he is unlikely to attempt to democratize the Fed under the mistaken belief there is no democratic alternative to the Fed maintaining their “independent” autonomy from electioneering politicians. Obama still mistakenly subscribes to the Fed line that their mission is to direct the economy in the long term interests of “the people.” The bankers have, however, got to do their best to undermine certain Democrat and independent-minded politicians like Ron Paul who challenge their autocracy and arguments.
Finally, in using the terms “covetous” and “socialism” I would argue you are again using them perjoratively and coercively in trying to denigrate the idea that there should be democratic regulation of capitalism, or indeed democratic decision about the provision of other goods and services such as education. The double irony of this coerciveness, however, is the socialism you so much detest already exists right under your nose in the form of oligarchic socialism as I state earlier. This, of course, is also the irony that over the last thirty years of the neo-liberal mantra of market fundamentalism the ideology was conspicuously silent with regard to democratic theory. The result has been the ideology’s unglorious unmasking with the Financial Crash.
Greenspan was warned three years before the Financial Crash about the danger of the Credit Bubble by the Bank for International Settlements:-
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/2794461/Governments-caused-the-credit-crisis-but-capitalism-gets-the-blame.html
Obama wants the Federal Reserve to be the lead enforcer for the proposed Regulatory Oversight Council!
Bruce,
Epstein’s main proposal is congressional oversight of the Fed. If Congress is run by Socialists the Fed will merely become a tool for redistribution of wealth.
Some of the other proposals have some merit and may work to some degree to limit collusion amongst bankers.
But earlier you said, “There is no example of a complex society where these issues are resolved solely on a contractual basis.” That’s because it has never been tried in a complex society! If the contracts aren’t enforced then the contract is null and void anyways!
I asked before on this forum what tort reforms could be implemented so that citizens have equal access to the legal system. No response. Now the problem may have been I asked an actual working attorney. The problem with Epstein’s proposals are they still are vulnerable to politics and collusion. If you want real democratization of the Fed open up the closed legal system so that contracts can actually be enforced. Make the bankers actually hold up their contracts instead of bailing them out. Their is nothing inherently wrong with derivatives as they spread risk but when it’s done in a closed system with no real consequences the bankers have nothing to lose.
And speaking of pejoratives, “counterfeit cdo and cds'”, “warmongering”, etc., make my comments seem quaint.
GAS. Equally if the Federal Reserve is run by neoliberals brings you up against the current arrangement of thinking a quasi-governmental body run by “experts” (experts who didn’t foresee the credit bubble crash) will not have an agency problem and a partisan political problem. I don’t think you can avoid, or should always avoid, politics in such an important issue as setting market parameters and economic objectives. The issue that is usually argued, however, is that you should deter electioneering conflicting with what’s best for national economic outcomes which results in the trustee solution. I think it possible to substantially reduce the agency problem with the right revolving doors and anti-corruption laws. It has been proposed the 12 Federal Reserve Banks have boards that are democratically elected with prospective candidates running for election on the usual basis of expertise and/or political affiliation/ideology. Whether 12 banks are sufficient I’m not sure but in my concept of how things can run better increasing the number of individuals democratically involved in decision making does have the benefit of getting fresh analyzes, ideas and solutions on the table and the economy is if nothing like a very fast and adaptive organism and you do need adaptive solutions to control its direction. Relying on self-regulation in the market to control the formation of bubbles obviously hasn’t worked irrespective of Greenspan and the Federal Reserve governors relying on a cheap money parameters policy (It was the cheap money policy wot made me blow the bubble Gov, honest!). Allowing credit to freeze up as a result of excess profligacy being punished would have resulted in chaos with nobody getting paid because trust had evaporated due to the banks not trusting each others paper or financial standing. Lehman Brothers filing for bankruptcy proved that. Interestingly with regard to testing adaptive solutions, the Swiss now use a lot of computer voting on referenda issues and regional Federal Reserve Banks could also make use of this mechanism for feed-back on proposals. I suspect that such a solution would deliver more of a right wing consensus on matters financial and economic at this stage in America’s development but increased democratization has the benefit of making that consensus more involved and therefore reflective of their decisions.
For me the contracts issue is still the same that political views and agency issues intrude into the legal enforcement (It’s the same old trustee issues. Take corporate person-hood as an example.). I also don’t think you can separate out the market from government as you do. They’ve grown up together in the sense that lying behind money is a bunch of regulations that need enforcing but also that money represents votes and a lot of people get out-voted in the marketplace leading to income problems which government ameliorates. You only have to look at government expenditure breakdown to see how much is going to make up for income not gained in the marketplace. It would lead to a more peaceful life if you could take politics and agency issues out of human affairs but you can’t and this is why we continue to look for democratic solutions articulated through more representative bodies.
As a postscript, yesterday I came across a perjorative use of the word “socialism” that gave me pause for thought, but first a little history. In hunter-gatherer times there was primitive communism, or socialism, then along came herding, agriculture, property and money, the whole commoditization of nature and class divide stemming from the theory of surplus value where the worker is only paid part of the value of their labor allowing accumulation of capital owned by the few. Here is Marx’s theory of human economic history from Wikipedia:-
http://en.wikipedia.org/wiki/Marx%27s_theory_of_history
Of course the rest of history after Marx shows that we prefer our market capitalism because of the freedom to develop and choose our goods and services. However, two things that Marx told us was that capital would pursue profit from other countries through globalization and that in pursuit of profit there would be a drive towards monopolization. Phillip Blond, the English, Red Tory philosopher uses the term modal monopoly in reference to the globalization of credit and manipulation of the financial markets. See here for a brief explanation of his view with a link to his original Prospect magazine article that fully develops his thesis:-
http://www.humaneeconomy.com/?p=199#comments
Phillip Blond is clearly saying that capitalism is ambivalent. It may give freedom to develop and choose our goods and services but it also creates massive dysfunction through the relentless pursuit of profit. He also argues that it is more basic than that, it is a splitter of human society. We increasingly live in an age of two human tribes. The Invisible Hand under our current predominant version of capitalism separates a few one way and the many another. The prospect of unity for the human tribe is, therefore, denied by this ambivalence. It is generated we know by our hard-wired natures of being both self and other concerned. Through the development of language, however, we are dialogical creatures, prone to have dialogue with each other to discuss matters and take joint decisions to deal with those matters and frequently these include problems arising from our hard-wired natures. It, therefore, seems obvious that the worthiness of any economic and political philosophy should be defined by its prospects for healing this split. The act of deciding matters together, to use democracy, is our best way to achieve this. It is the absence of democracy that creates the tribal split.
What was that perjorative use of the word “socialism?” Well it was somebody saying that because democracy is weak in an era of global monopolization we live in an age of “Socialism for The Rich.” And that I guess brings us back to the start, this article on China!
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