Karl Polanyi’s The Great Transformation: The Political and Economic Origins of Our Time (1944)… is a book of imaginative and wide-ranging historical sociology that traces the rise of the modern capitalist market from the industrial revolution in England in the late 18th century (the “great transformation” of the book’s title) to the convulsions of the 1920s and 1930s and the outbreak of the second world war.
Polanyi’s book begins in the unlikely setting of the Pelican Inn – a pub in Dorset, England’s “west country”, where in the 1790s agricultural labourers met to protect their living standards. It goes on to provide a compelling, if wilfully digressive, account of how modern markets work; and in particular of the inbuilt instability, and inexorable swings and oscillations, that they embody. The author challenges the idea that there is anything “natural” or universal about the modern market; Polanyi emphasises the cultural and political underpinnings of markets, and shows how this complex phenomenon – at once generating wealth and provoking instability and poverty – is the particular outcome of modern industrial society.
His conclusion is a product of the broad, social-democratic, and informed liberal opinion of the time – that is, in the aftermath of the great depression in the 1930s and during a global war: that markets are human and contingent entities that have to be regulated, and managed, by states. There is no such thing as a “hidden hand”. A “pure” market unanchored to other social institutions and practices cannot exist. [continued…]
What’s happening now on Wall Street is seen as a new story. It is not. It is a very old one.
Karl Marx wrote about it; so did John Maynard Keynes. More recently, tycoon George Soros has pronounced on it, as has the redoubtable Economist, a decidedly pro-free market financial magazine.
This old story is quite simple: Capitalism is unstable. It is an economic system that can be ruthlessly productive. But is also one of wheels within wheels – internal contradictions Marx called them – that can, and regularly do, spin out of control.
Marx, a German philosopher suffering from boils, saw these contradictions as opportunities; he figured that capitalism’s self-destruction would lead to a better world.
Keynes, a British economist who liked to speculate in foreign currency over his morning tea and toast, saw them as problems that could destroy a world he rather liked. The welfare state edifice that bears his name was designed in the post-1945 period to, literally, save capitalism from itself. [continued…]
Debating with Al Gore in the presidential election eight years ago, George W. Bush defined a new, humbler attitude towards the rest of the world. “I’m not so sure the role of the United States is to go around the world and say, ‘this is the way it has got to be’,” he said. “I just don’t think it’s the role of the United States to walk into a country and say: ‘we do it this way, so should you’.”
In one area Mr Bush might be about to get his wish, though not perhaps in the way he expected.
The events of the past few weeks on Wall Street have handed ammunition to the opponents of free markets well outside the financial sector and way beyond America’s shores. A model of freewheeling finance the US has pushed around the world, which had already undergone some tactical withdrawals over the past decade, appears in headlong retreat.
For some, the retreat of the Washington model risks turning into a rout. David Rothkopf, a senior Commerce department official during the administration of President Bill Clinton, says the world is at a turning point. “This is a watershed,” he says. “This is the end of 25 years of Reagan-Thatcherism, ‘leave it to the market, less government is better government’. That is over – period.” [continued…]
What we are witnessing, in the broadest sense, is the bankruptcy of modern economics. Its conceit has been that we had solved the problem of stability. Oh, there would be periodic recessions, but the prospects of a major economic collapse were negligible because we knew how the system worked and could take steps to prevent it. What’s been so unsettling about the present crisis is that it has not conformed to the standard model of business cycles and has not submitted to familiar textbook solutions.
A hallmark of the crisis has been the stark contrast between the “real economy” of production and jobs and the tumultuous financial markets of stocks, bonds, banks, money funds and the like. Even with the 60 percent drop in housing construction since early 2006, the real economy has so far suffered only modest setbacks. Yes, there are 605,000 fewer payroll jobs than there were in December; still, 137.5 million jobs remain. Meanwhile, financial markets verge on hysteria. The question is whether this hysteria will drive the real economy into a deep recession or worse — and what we can do to prevent that. [continued…]
Sometimes, if you want the real answer, you have to ask a dumb question.
Alex Blumberg, a producer at “This American Life,” a public radio show that specializes in old-fashioned storytelling about local slices of Americana, has never owned a house or had a mortgage, let alone covered the financial industry. Nonetheless, he was fascinated as he watched the subprime mess unfold.
His dumb question? “Why are they lending money to people who can’t afford to pay it back?”
In 2006, Mr. Blumberg began bothering his friend Adam Davidson, an experienced business reporter at National Public Radio, about subprime loans. Mr. Davidson, who had a broad knowledge of global capital markets, patiently walked him through collateralized debt obligations, yield and risk curves, and the growing amount of international capital in need of a home. But Mr. Blumberg still didn’t get it. How could securities based on lending money to bad risks be good business?
“I was embarrassed for him,” Mr. Davidson said. “I understood how money flowed around the world and I was talking to big-picture thinkers.”
Soon, Mr. Blumberg was madly surfing the Web and torturing his wife and friends with arcane talk about loan syndication and credit-default swaps. “It was a very unhealthy obsession,” he says now. “I just couldn’t understand how they could expect to be paid off when everyone I knew was maxed out on their credit cards. And these were very big loans.”
He decided to do the story for “This American Life,” a show that has a reputation for discussing things like summer camp and inner demons.
“I told him, I don’t know how you’re going to do a story about mortgage securitization for ‘This American Life,’ but good luck,” Mr. Davidson said. But by December of last year, both Mr. Davidson and the broader markets were beginning to have their doubts about whether the fallout from subprime lending had actually been contained.
The more they talked, the more Mr. Davidson realized the education was going both ways. They eventually came up with a one-hour collaboration between NPR News and “This American Life” called “The Giant Pool of Money” that was broadcast last May and became a much downloaded primer on all the mayhem that followed. [continued…]
The failure of the financial bailout bill in the House is a classic example of an old adage: all politics is local.
Despite the fact that President George W. Bush and the leadership of both parties lined up behind the bill, the rank and file of both parties — particularly on the Republican side — rebelled in light of polling that showed the American public is deeply skeptical about a planned $700 billion bailout for the financial industry.
With just over one month left before the November election, politicians of both partisan stripes are concerned primarily about one thing: their own political futures. [continued…]
So how could a major bill described by the president and both parties’ leaders as critical to well-being of the nation’s — and the world’s — economy go down to defeat?
There are no easy answers here, as the House’s stunning defeat moments ago of the financial bailout legislation is putting us into seemingly uncharted territory. But while the final tally, with 133 Republicans and 95 Democrats voting no, was a surprise — all morning, Hill sources were predicting narrow passage — the signs were there that the measure was in trouble: [continued…]
A furious family squabble is raging among free-market advocates over the Bush administration’s economic-rescue plan, between those who say let debt-ridden businesses fail and those who warn of a deep recession if government doesn’t bail them out.
The fight has divided conservatives as well their grass-roots supporters, who make up a large part of the Republicans’ political base and threaten to undermine party unity in the middle of a close presidential election. That grass-roots backlash has to a large degree fueled House Republican opposition to the Treasury’s bailout plan.
Lawmakers say they have been inundated by a wave of voter anger to the proposed bailout of troubled banks and other financial institutions. Republican Sen. John Cornyn of Texas says his offices “have received more calls and e-mails on this issue in a short period of time than were logged even on the contentious immigration issue in 2007.” [continued…]
Barack Obama’s September 9th trip to Lebanon, Virginia, in the southwestern hill country, came at a moment of deep unease among Democrats. John McCain’s selection of Sarah Palin as his running mate, eleven days earlier, had yielded rich results, in Republican enthusiasm and in polling numbers. Several polls showed McCain pulling ahead of Obama, and some Democrats worried that Obama’s slogan of “Change” was a frail substitute for an emphatic message spelling out just what change he hoped to bring about. It seemed that the Obama camp had been knocked off balance by the Palin factor. Some Democrats feared that Obama himself—cool, cerebral, aloof—was a problem, reflected by the campaign’s apparent inability to counter McCain’s bold communications strategy effectively. Most disturbing, polling revealed that voters were increasingly inclined to trust McCain on the economy—an issue on which the Democrat should have the advantage.
If Obama was feeling deflated, he did not show it when he bounded onto the stage that afternoon in the Lebanon High School gymnasium. The crowd of about two thousand had been warmed up by Cecil Roberts, the fire-breathing president of the United Mine Workers of America (who offered the observation, which was making the rounds that week, that “Jesus was a community organizer”). Obama, shedding his suit jacket and rolling up his shirtsleeves, worked the crowd hard for more than an hour. He joked about the hubbub surrounding McCain’s choice of running mate (“I’ve been to forty-nine states now. The only one I haven’t been to is Alaska, and I realize now that maybe I should have gone up there”), and then began a performance that was as populist in theme and as personal in style as a Harvard lawyer could credibly deliver. He portrayed an America that had lost its dream, becoming a nation whose people stood in unemployment lines as their homes were being foreclosed on. He decried C.E.O.s who “give themselves million-dollar bonuses, even as they’re closing down a plant.” And he portrayed John McCain as being hopelessly out of touch.
“I don’t think John McCain is a bad man,” Obama said. “I just think that he doesn’t get it. I just think that he doesn’t understand what the American people are going through right now.” Obama attacked Republicans for their trickle-down economic theories, and McCain for buying into them. “They call it the ownership society in Washington,” he said. “What they really mean is, You’re on your own. Your plant closes up and you lose your job, you’re on your own. You’re sailing along, trying to look after your kids, if you want to go back to college, you’re on your own. You’re a poor kid, lift yourself up by your bootstraps, you’re on your own. . . . Now, I guess if you think that somebody making four million dollars is still middle class, maybe you think it’s worked. But if you’re like an ordinary person, making thirty or forty or fifty thousand dollars, then you realize how tough things are. And that’s why I’m running for President, because that’s what I come from, that’s where I’ve been.” [continued…]
When Mike Pyne and other union foot soldiers knock on doors to promote Senator Barack Obama, they often confront a tricky challenge: how to persuade union members to vote on the basis of their wallets rather than on issues like abortion, gun rights and race.
In battleground states like this one, union voters could be vital to the outcome of the election, and the labor movement has mounted a huge push on behalf of Mr. Obama, the Democratic presidential nominee, built largely around the message that with unemployment rising, the financial system reeling and gasoline and food prices soaring, the nation cannot afford to have another Republican in the White House.
The labor effort appears to be making headway. Social issues have moved to the background while the economy is foremost in the minds of many voters, and Mr. Obama appears to be benefiting politically. People like Tom Crooks, an electrician at a paper company’s research center, are telling union canvassers that they are “definitely leaning” toward Mr. Obama because they are worried about their financial well-being. [continued…]