16 September, 2008
Economy Nobel prize winner Joseph Stiglitz has the accurate analysis of this week’s meltdown of the financial markets in the Guardian:
“The new low in the financial crisis, which has prompted comparisons with the 1929 Wall Street crash, is the fruit of a pattern of dishonesty on the part of financial institutions, and incompetence on the part of policymakers.
We had become accustomed to the hypocrisy. The banks reject any suggestion they should face regulation, rebuff any move towards anti-trust measures – yet when trouble strikes, all of a sudden they demand state intervention: they must be bailed out; they are too big, too important to be allowed to fail.
It was all done in the name of innovation, and any regulatory initiative was fought away with claims that it would suppress that innovation. They were innovating, all right, but not in ways that made the economy stronger. Some of America’s best and brightest were devoting their talents to getting around standards and regulations designed to ensure the efficiency of the economy and the safety of the banking system. Unfortunately, they were far too successful, and we are all – homeowners, workers, investors, taxpayers – paying the price”.
There are a few lessons to be learned from this financial crisis.
To start with, it is time to leave the neo-liberal deregulation religion behind us. The belief that “the market” (whatever that is) will solve all problems (including climate change, the “biggest market failure ever”) has been enough discredited after 25 years. Yes, it has created enormous wealth for the wealthy (who now own their own private islands and jets and have magazines on “how to spend it”), but the average citizen has not become more happy and extreme poverty still rules this world. And the price of this deregulation capitalism has been the collapse of the fragile ecosystems that make our life on this earth überhaupt possible and the greedy over-consumption of essential finite energy sources and raw materials.
After this collapse of wild-west Wall Street capitalism, It might be time again for a period of strong governmental intervention but without resorting to the old social-democrat neo-Keynesian remedies or authoritarian solutions (. What we need is smarter regulation (not Verheugen’s “less red tape” disguised as “better regulation”). Unfortunately, we might need a new generation of smarter policymakers to make this happen. The politics of media spinners and one-liner champions is not going to bring us this smarter regulation. So we are in a bit of a mess here.
One of the first smart moves policymakers should make in this crisis is to establish a worldwide floor price for oil. Indeed, one of the biggest victims of the current market meltdown could be the new “green energy” wave. Whatever the economic crisis, the climate/energy crisis will not go away but might disappear of the short-term political agenda. Therefore, we need incentives to keep the flight out of fossil fuels and into renewable and energy savings solutions for our future economies alive. Let’s not make the same huge mistake as we made after the 70s oil crisis.
We have just entered the difficult transition tunnel to a new sustainable world. There will be many more shocks on the way and our democratic systems will be heavily tested over the next 15-20 years. Energy wars and further globalisation setbacks will not be avoided. The faster we start finding the new political generation which can give us the new smarter regulation, the quicker we will see the end of the tunnel.Author : Willy De Backer