Notice, how only some gamblers were bailed out and others not. Politically connected insiders become systemically important. This is a sign of the casino economy… taxpayer-funded bailouts of politically connected big boys. Privatising profits and socialising losses.
Why so little has changed since the financial crash[2]
Martin Wolf on the power of vested interests in today’s rent-extracting economy
After the Great Depression and a second world war, people wanted change. They got it. France calls what followed les trentes glorieuses.
he 1980s saw a radical change of ideas on the role of the state and markets, the goals of macroeconomic policy and the job of central banks. Again, the aim was a fundamental transformation.
So what happened after the global financial crisis? Have politicians and policymakers tried to get us back to the past or go into a different future?
The answer is not clear. People want to Drain The Swamp. The Swamp is still kicking and screaming at populism.
That is what happened in 1918. Then they had just come out of a devastating war. So the new ideas were about peace — "collective security" and a League of Nations. But they wanted to return to the prewar economy
In 1918, then, they mostly wanted to go back to a better version of the past
After the crisis of 2008, they wanted to go back to a better version of the past in financial regulation.
In both cases, all else was to stay the way it was.
The financial system is much as before… Efforts to lower debt in the private sector were modest.
The financial crisis was a devastating failure of the free market that followed a period of rising inequality within many countries. Yet, contrary to what happened in the 1970s, policymakers have barely questioned the relative roles of government and markets.
Concern is expressed over inequality, but little has actually been done. Policymakers have mostly failed to notice the dangerous dependence of demand on ever-rising debt. Monopoly and "zero-sum" activities are pervasive. Few question the value of the vast quantities of financial sector activity we continue to have, or recognise the risks of further big financial crises.
It is little wonder populists are so popular, given this inertia, not to mention the miserable experience of so many citizens since the crisis and, in important cases, before that. Politics abhors a vacuum… One cannot beat something with nothing.
The persistent fealty to so much of the pre-crisis conventional wisdom is astonishing.
What makes this even more shocking is that there is so little confidence that we could (or would) deal effectively with another big recession, let alone yet another big crisis.
What explains the complacency? One reason might be the absence of good ideas.
Some have argued for a shift from debt to equity finance of house purchases. Others have called for the elimination of the tax deductibility of debt interest.
Some note the perverse impact of executive incentives.
Some argue convincingly for higher equity requirements on banks.
Others ask why only banks have accounts at central banks. Why should every citizen not be able to do so?
A more likely cause of inertia is the power of vested interests. Today's rent-extracting economy, masquerading as a free market, is, after all, hugely rewarding to politically influential insiders.
Yet the centre's complacency invites extremist rage. If those who believe in the market economy and liberal democracy do not come up with superior policies, demagogues will sweep them away.
A better version of the pre-2008 world will just not do. People do not want a better past; they want a better future.
[1] Financial crisis: Are we safer now?
[2] Why so little has changed since the financial crash
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