[OPE] Wallerstein, "The Politics of Economic Disaster"

> Commentary No. 251, Feb. 15, 2009
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> "The Politics of Economic Disaster"
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> Every day, I read another economist, journalist, or government official
> opining on how best to achieve economic recovery in this country or that.
> Needless to say, the remedies all contradict each other. But almost all of
> these pundits seem to me to live in fantasyland. They actually seem to
> believe their remedies will work in some relatively short period of time.
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> The fact is that the world is only at the /beginning/ of a depression that
> will last for quite a while and will get far worse than it is now. The
> immediate issue for governments is not how to recover but how to survive
> the growing popular anger they are all, without exception, facing.
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> Let us start with the economic realities of the present. Just about
> everybody throughout the world - governments, enterprises, individuals -
> has been living above their income for the last 10-30 years, and doing it
> by borrowing. The world went giddy with inflated earnings and inflated
> consumption. Bubbles have to burst. This one has now burst (or actually
> several bubbles have burst). The impossibility of continuing on this path
> has sunk into consciousness, and suddenly everyone has gotten scared that
> they are running out of real money - governments, enterprises,
> individuals.
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> When that fear takes over, people stop spending, or lending. And when
> spending and lending declines significantly, enterprises stop producing or
> slow down. They may close down entirely, or at least fire workers. This is
> a vicious cycle, since closing down or firing workers leads to lower real
> demand and causes further reluctance to spend or to lend. It's called
> depression, and deflation.
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> For the moment, the United States government, which is still in a position
> to borrow money and print money, intends to throw some new money into
> circulation. This might work if the government threw an awful lot, and
> threw it wisely. But quite probably, it won't do it wisely. And quite
> probably throwing the amount that might work amounts to little more than
> creating another bubble. And the dollar might then really fall much faster
> than other currencies, pulling down the last important prop to the
> world-economy.
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> In the meantime, there is less and less money for daily consumption of all
> kinds for the bottom 90% of the world's population (and it's not so good
> for the top 10%). People are getting restless. Just in the last month, we
> have seen people in the streets protesting economic difficulties in a
> growing number of countries - Greece, Russia, Latvia, Great Britain,
> France, Iceland, China, South Korea, Guadeloupe, Reunion, Madagascar,
> Mexico - and probably a lot more that haven't been noticed by the world
> press. In fact, it's been relatively mild up to now, but the governments
> are all on edge.
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> What do governments do when their primary concern is dealing with internal
> unrest? They really have two choices - shoot the protestors, or appease
> them. Shooting works only up to a point. For one thing, the agents of
> force must themselves be well-enough paid to be willing to do it. And when
> there is a serious economic downturn, arranging this is not all that easy
> for the regimes.
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> So the regimes begin to appease their populations. How? First of all, by
> protectionism. Everyone has begun to complain about the protectionism of
> other countries. But the complainers are all practicing it themselves. And
> they will do a lot more of it. The free market economists all tell us that
> protectionism makes the overall economic situation still worse. That's
> probably true, but politically quite irrelevant, when there are people in
> the streets wanting jobs - now!
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> The second way governments appease when there is unrest is by
> social-democratic welfare measures. But to do that, governments need
> money. And governments get money from taxes. The free market economists
> all tell us that raising taxes (of any kind) during an economic downturn
> makes the overall economic situation still worse. That may be true, but in
> the short run that's also irrelevant. As it is, in a downturn, tax
> receipts fall. Governments can't keep up even with current expenditures,
> not to speak of paying for increased expenditures. So they will tax in one
> way or another. Or they will print money.
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> Finally, the third way they appease is by a healthy dose of populism. The
> real income gap between the top 1% and the bottom 20% both within
> countries and worldwide has grown enormously in the last thirty years. The
> gap will now be reduced to the more "normal" gap that existed in 1970,
> which is still very large, but somewhat less scandalously large. Hence,
> you have governments talking now of "income caps" for bankers, as in the
> United States and France. Or you can prosecute people for corruption, as
> in China.
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> It's a bit like being in the path of a tornado. The worst can come upon
> governments suddenly. When that happens, they have only minutes to take
> shelter in their cellars. The tornado then passes, and if one is still
> alive, one comes out to survey the damage. The damage will turn out to be
> very extensive. Yes, one can rebuild. But then the real argument begins -
> about how one rebuilds, and how fairly one shares the benefits of
> rebuilding.
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> How long will this gloomy picture prevail? No one knows or can be sure,
> but it will probably be a good number of years. In the meantime,
> governments will face elections, and voters will not be kind to the
> incumbents. Protectionism and social-democratic welfare serve governments
> the way the cellar does during a tornado. The quasi-nationalization of
> banks is another way of taking shelter in the cellars.
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> What we the people have to think about and prepare for is what we do when
> we emerge from the cellar, whenever that is. The fundamental question is
> how are we going to rebuild. That will be the real political battle. The
> landscape will be unfamiliar. And all our past rhetorics will be suspect.
> The key thing to realize is that rebuilding can take us into a far better
> world - but it can also take us into a far worse one. In either case, it
> will be a far different one.
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> by Immanuel Wallerstein
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> [Copyright by Immanuel Wallerstein, distributed by Agence Global. For
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> the copyright note is displayed. To contact author, write:
> immanuel.wallerstein@yale.edu <mailto:immanuel.wallerstein@yale.edu>.
>
>
> These commentaries, published twice monthly, are intended to be
> reflections on the contemporary world scene, as seen from the perspective
> not of the immediate headlines but of the long term.]

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Received on Tue Feb 17 09:58:30 2009