The major crises of capitalism always shake the foundations of the economy, and this is the case today.
Ten years after the 1929 crash came the beginning of World War II. Ten years after Lehman Brothers went bankrupt, the situation is very different. The world economy has grown by 3.7%; full employment has returned with an unemployment rate that has fallen to 5.5% of the working population; world trade has increased by 4.4% despite the rise of protectionism; the growth gap between developed and emerging nations is narrowing, as is the imbalance in global transactions and payments.
Economic policy has therefore managed to ward off the risk of a major depression worldwide, and unprecedented means – in terms of scale, creativity and coordination – have been deployed. All the leverage that budgetary and monetary policy can muster has been brought into play in order to save the banks and to support demand, by means of lowering interest rates and instigating a Keynesian recovery plan on a global level that is mobilizing 40% of GDP of the major developed countries and China. The central banks have instituted programs of quantitative easing that have made them the primary holders of public debt securities. The establishment of the G20 has enabled recovery plans to be coordinated and made it possible for there to be global supervision of financial stability and for limits to be placed on protectionism.
Lessons have been learned from 1929. However, the lessons of 2008 have been all too quickly forgotten. The major crises of capitalism – the massive deflation of the 1880s, the Great Depression of the 1930s, the oil crisis of the 1970s, and the crash of globalized capitalism in the 2000s – can be differentiated from recessions and crises of limited effect financially or regionally in that they upset the workings of the whole economy as well as the pecking order of companies and nations. This is what we are seeing today: the massive destruction of production capacity is curbing potential growth; both public and private debt is skyrocketing; the middle classes in developed countries are being deeply destabilized; globalization survives but is being restructured on a regional basis; the conflictual domination of the USA and China is being strengthened to the detriment of Europe and most of the emerging nations; liberalism is being discredited and is putting democracy in a state of existential crisis.
It may seem that things have improved, but, under the surface, risks are fast reappearing. On the economic front, there is a slow-down caused by the fact that production has come to a standstill, and we are seeing a rise in oil prices and an incipient rise in interest rates (over 3% in ten years in the USA). From a financial standpoint, there is a return to the bubble economy, caused by global indebtedness (245,000 billion dollars, i.e. more than three years of world GDP), an abundance of liquid assets and incoherent financial regulation (alleged in the USA and excessive in Europe, highly repressive toward banks and permissive towards the “shadow economy” which handles over 900,000 billion dollars), and frenetic speculation with regard to high-tech companies. With regard to keeping things under control, the Keynesian recovery plan embarked on by the USA in an economy that has full employment is increasing the deficit (4.5% of GDP) and stimulating inflation (2.3%); lower taxes are exacerbating inequality and triggering share repurchase (over 1,000 billion dollars worth in 2018) – swelling the Wall Street bubble.
From a trade and monetary point of view, the open war that the USA has declared on China (taxing 250 billion dollars’ worth of Chinese imports) is also targeting its main allies. On the political front, a shock wave of populism is hitting the democracies. On the strategic level, we are seeing assertive desires for power, the unleashing of violence and the possibility of major armed conflict.
Now that deflation has been avoided, politics has left the field of battle. It has passed the buck to the central banks and the regulatory authorities and has fallen back on the nation states, making it impossible to respond to the global challenges of the 21st century. This is especially true of Europe. It is paralyzed, divided and impotent when it comes to dealing with Brexit, with the confrontation between the USA and China in which it is becoming an adjustment variable, with the resurgence of troubles for the euro (originating in Italy), with the immigration crisis, and with security threats from Jihadists and the démocratures [démocrature = a combination of democracy and dictatorship]. It has left a yawning gap for the populists to plunge into with solutions that are as simple as they are dangerous. What is needed is a return to the ability to make political decisions on a national, European and global level in order to ‘reinsure’ the markets, which are incapable of self-regulation and self-help. There is a surfeit of procedures but a dearth of responsibility – and that is why another crash cannot be ruled out.
(Column published in Le Figaro, 24th September 2018)