WORLD VIEW:'THERE ARE decades when nothing happens and there are weeks when decades happen." Lenin's remark from 1917 resonates powerfully at the end of 2008. Suddenly the world we became used to over the last 30 years has fundamentally changed. The rush of events recalls the pace of change in the late 1930s which led the famous BBC announcer to say: "This is Alvar Lidell with news of fresh disasters", writes Paul Gillespie
Relations between the global and the local, between market and state have shifted dramatically. Ireland, as one of the states most open to globalisation, has been hit directly. For those who remained oblivious of this fact, thinking the local might be insulated from these events, Trotsky's remark is apposite: "You may not be interested in war, but war is interested in you."
This is not to accept that Ireland is blameless for many of the troubles we are in at the end of 2008. The fact that Ireland bought so fully into what Keynes's biographer Robert Skidelsky calls the "efficient market hypothesis" - the view that financial markets could not consistently mis-price assets and therefore needed little regulation - means we are overexposed to what Alan Greenspan, no less, described last October as the "ideological flaw" based on the idea that the market system is self-correcting.
Consider just two related Irish policy failures over the last 10 years. In April 1998 the Government announced a package of measures to cool the booming housing market, accepting a number of proposals in a report by Peter Bacon and associates.
But the report's basic proposals to limit the number of houses built to about 55,000 per annum and thereby to contain the explosive growth of the property sector were rejected under pressure from the builders.
And on top of that the Government further fuelled the boom during the McCreevy and Cowen years, coming to rely on windfall property and sales taxes to cut income taxes and fund growing public expenditure. The sudden collapse of the property and consumer booms this autumn makes spending cuts and tax increases next year inevitable. Without these twin mistakes we would be better insulated from the international storm.
All look to Washington ahead of Barack Obama's ascent to power. It is still the eye of the storm in policy, political and economic terms because of the extraordinary lengths to which the treasury and federal reserve have gone in reducing interest rates and hugely expanding lending programmes. These now outstrip anything in the Fed's 95-year history, whether measured by the monetary base, currency in circulation, total bank borrowings for the federal reserve or reserve bank credit. All shot up in the last three months.
That is why commentators who foresaw this autumn's collapse and therefore have more credibility than others describe this as the "greatest" depression for a century, outstripping the 1930s. Paul Krugman does not go that far but talks of the return of depression economics and calls for a revival of Keynesian demand-side economics and policy measures. They all expect it will get much worse next year before it gets better. Nouriel Roubini foresees a severe global recession next year with a hard landing in the emerging economies of Europe, Asia and Latin America. He says it is not the end of market capitalism, but undoubtedly a deep transformation of the financialised and highly leveraged system built up over the last 10 years.
Another alarming scenario would see an L-shaped depression in the US succeeded by Weimar-style hyper-inflation along the lines of what happened in Germany in 1923-4, if Obama's ambitious recovery programme does not work. In that case yet another openly predicts "The Collapse of '09 in which markets will tumble and major businesses will fail. Revolution: What will be the spark that ignites it? Who will fire the shot heard around the world? And Obamarama: High hopes, broken promises: Some victories, major failures."
This turbulent picture cries out for adequate analysis and understanding, especially by those on the centre-left who are now directly or indirectly back in the policy driving seats. For them Keynes is a central figure.
Skidelsky, writing in the January 2009 Prospect magazine, quotes George Soros as saying "the salient feature of the current financial crisis is that it was not caused by some external shock like Opec . . . the crisis was generated by the system itself".
Its causes include the aforementioned efficient market fallacy, but secondly a false moral and ecological compass of economic growth as the measure of all things. That is why we should be wary of glib talk about a recovery expressed in growth terms alone. It is increasingly recognised that unbridled capitalist growth and ecological survival are incompatible.
And thirdly, there is the holy grail of globalisation which for many of these years was supposed to deliver millions out of poverty through technological progress that would in due course abolish national frontiers and usher in a world polity run on neoliberal lines. Any interference in this process was deemed impious, as Skidelsky puts it. He quotes the Canadian philosopher and critic of orthodox globalisation John Ralston Saul who noted that this era saw many binding trade and economic treaties but that "almost no counterbalancing binding treaties were negotiated for work conditions, taxation, the environment or legal obligations".
The next generation must put those in place if the capitalist system is to be saved from itself, as these theorists and policymakers believe is both necessary and possible.