I am not an economist.
Never studied economics.
The graphs, the analyses, the spreadsheets, the intricate data fine tooth-combing is not something I do on a regular basis. Even if I had studied economics, I might have a better understanding of the language we use to describe capital flow and its merits and contradictions; but I can’t honestly say i’d understand economics as a science, any better. When the Queen asked top economists at the London School of Economics, why they didn’t see the credit crunch coming, they couldn’t answer. They knew nothing. All those years at a top economist school taught them nothing when it came down to it. So therefore, I, like everyone else, can only comment on the relationship between society and economics as I see it, from my perspective.
This is how I interpret the financial crash.
The first thing to note, is that this isn’t Capitalism. This is a system of perpetual yet flimsy consumerism. It is not a free market system. It is a Financial Sector system.
The obvious link between this crises, and society as a whole is also the catalyst for the problems. The subprime mortgage market began plunging around 2005. It was largely ignored because those who were losing their homes and livelihoods in cities like Detroit in the US, were predominantly Hispanic or African American. The media did not question it. The economists did not question it. The Bush administration did not question it. But it was a small basement fire that before long would engulf the World.
When white middle class towns and cities around California for example started to experience a wave of foreclosures, and people started owing more than their properties were actually worth, the World took note. Freddie Mac and Fannie Mae all but died. Lehmann was allowed to collapse. AIG, who snook onto the gravy train, expecting the housing market to be on an upward turn forever and ever, were bailed out and then faced a liquidity crises. It’s a funny thing, because this started to happen in 2007. Two years after the poorer black communities felt the pinch hard. Suddenly millions were losing their homes in the US. This didn’t appear to upset those who actually caused the mess in the first place.
Wall Street gave out bonuses of well over $30bn in 2007, despite crushing the entire system. Often you will hear Right Wingers defend these obscene bonuses with “you have to pay the best to get the best”. These people aren’t the best. If Wayne Rooney single handedly drives Manchester United down into the First Division, from the Premiership and then the Championship, he isn’t likely to get a massive bonus at the end of it.
The point of neoliberalism today, as it was in the 1980s, is to protect financial institutions at all costs. An it has worked. It concentrates wealth within the Nations with big powerful financial institutions. A report by the World Institute for Development Economics Research at United Nations University found that 1% owned 40% of global assets in the year 2000, and that the richest 10% of adults own 85% overall. In the US, it was found that 38% of the Nation’s wealth is owned by 1% of the population.
A similar study from the Federal Reserve shows that between 1989 and 2004:
“there are indications that wealth became more concentrated”
“from 1992 to 2004 the wealth share of the least wealthy half of the population fell significantly to 2.5 percent of total wealth”
During the 1980s, real wage growth stagnated both here in the UK and in the US. Money did not trickle down. This great neoliberal Thatcherite/Reaganomic experiment actually did nothing but make the wealthy, very very wealthy. The poverty rate under Thatcher was higher than it has been since. The wages and assets of the guys at the top increased massively at the same time as the average workers’ wage stagnated. You see for example, the fact that you have to earn far over the National average to be able to afford a home now. We cannot afford homes, and we are working in the UK the longest hours in Europe. We have nothing to show for it, except stagnating wages, and massively inflated wages for the guys at the very top. But, the propaganda of Neoliberalism, tells us that they deserve their wealth, and we deserve nothing. So we get nothing. This creates a problem, because the workers are in the majority and they are where the demand comes from for the economy to flourish. How do you fill the gap between keeping the wealthy very wealthy, and making sure the masses can afford to consume? Well, if you’re a financial institution you employ an idiot to come up with the idea of easy credit. Give everyone a credit card. Give everyone store cards. Give everyone subprime mortgages. You are essentially giving people money that doesn’t yet exist, in the optimistic view that everything will be okay, and the money will exist sometime in the future. I was offered a Student Credit Card with £1500 on it. I’m 24, but presumably my bank had also offered this non-existent money to 18 year olds. They are only just allowed to legally buy alcohol, and banks are already luring them into this hellhole of consumer capitalism.
David Cameron, when accused of socially cleansing London of poorer people, with his plans to cut housing benefit, said:
“The point everyone in this House has got to consider: are we happy to go on paying housing benefit of £30,000, £40,000, £50,000?
“Our constituents working hard to give benefits so people can live in homes they couldn’t even dream of? I don’t think that’s fair.”
This is interesting for a few of reasons. Firstly, housing benefit has only gone up recently, because many people have been kicked out of their jobs as a result of the failings of the Neoliberal system David Cameron holds so dear. The benefit is a safety net for those who were unfortunate enough to lose their jobs. It is fine, if you managed to escape the chop, and can still afford your house. But no one knows what the future brings. What if double dip recession hits as a result of these cuts the Coalition are introducing? A lot more people will lose their jobs, and wont be able to find one for quite some time, when 10 or 12 people are chasing the same job. So, do they get kicked out of London too? They aren’t scrounging. They are victims of a crises of Neoliberalism.
Secondly, the comment suggests that David Cameron sees no inherent problem with the way the housing market actually works. He hasn’t said he’ll make it easier for people to be able to actually afford a house. He simply offers ways to prop up a grossly overvalued housing market. The reason that “constituents working hard” can’t afford home they “even dream of” is because the Tories of the 1980s sold all social housing, and the Financial Institutions have been ripping people off ever since. Apparently, Cameron has no issue with this.
And thirdly, kicking the poor out of London isn’t going to free up housing for Cameron’s “hard working constituents“. These hard working people wont suddenly flock to the City of London for homes that are now magically cheaper; purely because these hard working people are having to deal with stagnated wages, inflated prices, and a mass of debt encouraged by the Tories, Labour and the Banks for thirty years. The homes will be bought up by property developers, and people who want nice little London bachelor pads, becoming a city of croissant-at-Canary-Wharf-eating businessmen.
British households, on average, tripled their debt over the past thirty years, mostly housing market debt. They had to, in order to keep up. Now, what happens what you can no longer pay that debt back? The subprime crash happens. And then suddenly banks stop lending, because they have no money themselves. They gave out this fake money, that not only didn’t exist before, but doesn’t exist when they suddenly need it. So now business can’t borrow. So unemployment shoots up. But then demand across the marketplace falls, because people have less and less disposable income. So businesses go bust. Good times!
Millions became unemployed, millions lost their homes, the suicide rate shot up, the homeless rate was at a forty year high, and yet bonuses on Wall Street in 2008 were close to $32bn. Quite a nice rewarded for ruining lives.
Consumerism obviously can only exist and perpetuate if there is some sort of emotional attachment to it. The need to “fit in”. I HAD to have Nike trainers at school because kids have their own social heirarchy going on, and we all have to try to fit in with it. We are what we own, that is how consumerism, supported by governments and the media have presented life. Volvo embodied this idea beautifully, with the slogan “Life is better lived together”. We need to buy an XBox 360 because all our friends play online together, we don’t want to be left out. How can we afford it? Ah yes, student credit card. Or, buy on finance, on which you pay about one and a half times as much as you would have done if you’d have brought it from a shop. Easy credit rears its ugly head once more, to ease our need to “fit in”.
The Financial institutions keep getting fatter that way. Wealth becomes very concentrated. Capital becomes just as powerful and destructive, as the Unions were in the 1970s. This isn’t helped by the fact that businesses everywhere, and in fact, our consumer haven itself, relies on the Financial sector. The sector truly is too big to fail. They weren’t lying. Which means those working within the Financial sector are very very powerful people. And so people start to pump money into the Financial sector.
A few economists have pointed out, that although capital accumulation appears limitless, when you start to make a lot of money, you start to look for other avenues to invest in, in order to get one over on your competition. You need to expand. But there are limits to expansion (scarcity of labour supply, consumption, production etc). But those limits are barriers that need to be broken, according to Capitalist thought. Marx stated that “Every limit appears, as a barrier to be overcome” as being a massively destructive force at the heart of the Capitalist ideal. The consequence of being unable to use this mass amount of surplus profit in expansion, was that more money was pumped into speculating on the stock market, in unproductive ventures with absolutely no social good. When the stock market tanked, the money tanked with it.
When an entire financial system is built essentially on fake money, it is no wonder it didn’t last. For Nobel prize winning economists and top level financial experts at the Bank of England or the Federal Reserve, not to notice this, is a massive failure and quite frankly, disastrously unnerving. This isn’t Capitalism. It is a financial sector consumer economy. And out of nowhere, its failings are socialised. Suddenly we blame the public sector. Suddenly government spending on help for single mums has to be cut. Why? What have they done? They didn’t gamble away the Nation’s money on dodgy packages and risky easy credit. In fact, they took on the easy credit, because without it, they can’t afford to eat, what with wages stagnating across the board, and unemployment at a decade long high. Irresponsibility in the Financial sector has been ignored, and blamed entirely on the public sector.
That is how I viewed the crises.