These are dismal days for those who attempt to run the affairs of the world. But how should we understand it?
It would be a basic error to look at our present situation as if it were rationally comprehensible. The limits of rational explanations are that they assume rational men and women make decisions and that they will respect the limits of their power and behave realistically. This has rarely been true anywhere historically over the past century, and politics and illusions based on ideology or wishful thinking have often been decisive. This is especially the case with the present bunch in
We are right to fear anything, particularly a war with
Although the whole is far more important than the parts, the details of each part deserve attention. Many of these aspects are known, even predictable, there are — to paraphrase Donald Rumsfeld — the “known unknowns and the unknown unknowns” — the “x-factor” that intercedes to surprise everyone. All of these problems are interrelated, interacting and potentially aggravate or inhibit each other, perhaps decisively, making our world both very difficult to understand — or to run. Putting them together is a formidable challenge to thinking people outside systems of power. It has always been this way; fascism was in large part the result of economic crisis, and World War Two was the outcome. How factors combine is a great mystery and cannot be predicted — not by US or by those ambitious souls who have the great task of making sure there is no chaos. We wish to comprehend it but it is not decisive if we don’t; for those who have responsibility to manage it, this myopia will produce the end of their world-and their privileges.
What is important to watch?
We can rule out the Left, that artifact of past history. Socialism ceased being a real option long ago, perhaps as early as 1914. Since I have just published an entire book, After Socialism, and detailed its innumerable myopias and faults, I need not say more than that it is no longer is a threat to anybody. The fakirs who lead the parties who still use “socialism” as a justification for their existence have only abolished defeats at the hands of the people from the price capitalism pays for its growing follies. That confidence- freedom from challenge by the unruly masses– is very important but it is less and less sufficient to solve the countless remaining dilemmas. The system has become increasingly vulnerable, social stability notwithstanding, since about 1990 and the formal demise of “communism”.
The failure of socialist theory is much more than matched by the failure of capitalism because the latter has the entire responsibility for keeping the status quo functioning-and it has no intellectual basis for doing so. The crisis that exists is that capitalism has reached a most dangerous stage in destructiveness — and no opposition to it exists. This malaise involves foreign affairs and domestic affairs — vast greed at home and adventure overseas. If the foreign policy aspects are largely American-originated, the rest of the world tolerates or sometimes collaborates with it. Its downfall is inevitable, perhaps imminent. The chaos that exists will exist in a void. No powerful force exists to challenge, much less replace it, and therefore it will continue to exist — but at immense and growing human cost. Alternative visions are, for the moment at least, mostly cranky.
Ingenious and precarious schemes in the world economy today have great legitimacy and flourish in the sense that the postulates of classical economics postulated are fast becoming irrelevant. It is the era of the fast talker and buccaneer-snake-oil salesmen in suits. Nothing old-fashioned has credibility. Joseph Schumpeter and other economists worried about pirates, but they are more important today than ever before-including than during the late 19th century when they were immortalized in Charles Francis Adams Jr’s Chapters of Erie. The leitmotif is “innovation,” and many respectables are extremely worried. I argued here in Counterpunch recently (June 15 and July 26) that gloom prevails among experts responsible for overseeing national and global financial affairs, especially the Bank for International Settlements, but I grossly underestimated the extent of anxieties among those who know the most about these matters. More importantly, over the past months officials at much higher levels have also become much more articulate and concerned about the dominant trends in global finance and the fact that risks are quickly growing and are now enormous. Generally, people who think of themselves as leftists know precious little of those questions, questions that are vital to the very health of the status quo. But those most au courant with global financial trends have been sounding the alarm louder and louder.
The problem is that capitalism has become more aberrant, improvisatory, and self-destructive than ever. We are in the age of the predator and gamblers, people who want to get very rich very quickly and are wholly oblivious to the larger consequences. Power exists but the theory to describe the economy which was inherited from the 19th century bears no relationship whatsoever to the way it operates in practice, a fact more and more recognized by those who favor a system of privilege and inequality. Even some senior IMF executives now acknowledge that the theory that powerful organization cherish is based on outmoded 19th century illusions. “Reconstructing economic theory virtually from scratch” and purging economics of “neoclassical idiocies,” or that its “demonstrably false conceptual core is sustained by inertia alone,” is now the subject of very acute articles in none other than the Financial Times, the most influential and widely-read daily in the capitalist world.
As an economic system capitalism is going crazy. In late November there were $75 billion in global mergers and acquisitions in a 24-hour period-a record. Global capitalism is awash with liquidity — virtually free money — and anyone who borrows can become very rich, assuming they win. The beauty of the hedge fund is that individual risks become far smaller and one can join with others to bet big — and much more precariously. Henced, spectacular chances are now being taken: on the value of the U.S. dollar, the price of oil, real estate — and countless others gambles. In the case of Amaranth Advisors, this outfit lost about $6.5 billion at the end of September on an erroneous weather prediction and went under. At least 2,600 hedge funds were founded from the beginning of 2005 to October 2006, but 1,100 went out of business. The new financial instruments — derivatives, hedge funds, incomprehensible financial inventions of every sort-are growing at a phenomenal rate, but their common characteristic, as one Financial Times writer, John Plender, summed it up on November 20. , is that “everyone [has] become less risk adverse.” Therein lies the danger.
Hedge funds will bet on anything, natural disasters and, soon, longevity of pension fund members being only the latest examples of their addiction to taking chances.
On September 12, 2006, the International Monetary Fund released its report on “Global Financial Stability,” and it was unprecedented in its concern that “new and complex financial instruments, such as structured credit products,” might wreak untold havoc. “Liberalization,” which the “
At the end of October, again the Financial Times, Jean-Claude Trichet, head of the European Central Bank, deplored these new financial products, which have been increasing and growing into the trillions. He wrote that he could not comprehend them; that there is scant oversight over them; that many are pure hype; that nothing prevents them from creating immense domino effects on the entire financial system were they to collapse, thereby also dragging the well-regulated parts of the system down. Then, at the beginning of November the quasi-official UK Financial Services Authority issued a report that detailed the existing risks to the entire world financial structure. Despite its tone, it is dynamite.
The FSA report documents the many risks to the private equity sector: excessive leverage, unclear ownership of risk, market abuses and insider trading. There are conflicts of interest of every sort; the system is opaque; hedge funds made inherent dangers even riskier. “Given current leverage levels and recent developments in the economic/credit cycle, the default of a large private equity backed company or a cluster of smaller private equity backed companies seems inevitable.”
Given this growing consensus of risks, on November 13 Sir John Gieve, the deputy governor of the Bank of England, concluded, in the Financial Times, that each national state regulating full-blown financial crises was no longer feasible: the financial system is international in scope today and no national mechanism can handle it. There have been at least 13 borderline or full-blown financial crises since the late 1970s and some of the methods for dealing with them would be “less easy to deploy” under present conditions-which is a polite way of saying they were irrelevant. His conclusion: Regulators “should practise coping with global crisis,” “work together” on practical examples to develop machinery, especially to avoid the “moral hazards” of bailing out firms in trouble, including “closing down a large firm in an orderly way.”
The chances of developing a common trans-national approach or rules are close to zero, if only because nations of the world are rivals in the bid to attract financial companies and regulation, or lack of it, is a major factor on where to headquarter. When the next financial crisis occurs, and the likelihood of that happening has grown by leaps and bounds, it is more likely than ever to drag the entire global economy with it. At least the “experts” think so. They did not before now.
So economics may foul up politics. Perhaps not, but it could become a very important factor in the overall situation.
President Bush made the election a referendum on the war and was badly repudiated; his party suffered a disaster. Disorientation, depression, and defeat have left the president and his neoconservatives adrift. They have power, two more years of it, and we are at the mercy of people who are irresponsible and dangerous. Their rhetoric proved a recipe for disaster in
The most devastating analyses of
From its very inception there was a warrior ethic in the Zionist ideology, one it shared with diverse reactionaries in
There are many dangers, from fascistic politicians like Avigdor Lieberman becoming even more powerful, to yet greater emigration abroad of those Jews with high skills. The latter is happening.
Repentance or Rapture?
Above all, in
But it is very difficult to anticipate what this administration will come up with, though disasters over the past six years have made a number of alternatives far less probable. In a way, that is a good thing, although the cost in lives lost and wealth squandered has been immense. The Baker/Hamilton bipartisan commission is deeply split and if — with emphasis on “if” — if it happens to come up with a clear alternative the president is free to ignore it. The Pentagon has formulated alternatives, summed up as “go big,” “go long”-both of which would require 5 to 10 years to “Iraqize” the war– or “go home”, but it is divided also. One thing certain, however, is that it has neither manpower, materiel, nor political freedom to make the same mistakes as in
A great deal depends on the President, whose policy has utterly failed in
A number of the neocon theoreticians have repented the Iraq adventure, and even criticized some the basic premises that motivated it, but it would be an error to assume that this administration has some contact with reality and can be educated-by the electorate or by alienated neocon intellectuals. There are still plenty of people in
All of these factors, and perhaps others not mentioned here, will affect each other. The whole is very often no stronger than all the parts. All surprises that thwart the Bush administration’s freedom to act are now to be welcomed, and while the world’s financial system is the leading candidate for upsetting the
Wishes are not reality and the U S has an endemic ability to hold onto its wishes and fantasies as long as possible. Desire often leads to its acting despite itself. But its resources are far more constrained now than they were six years ago, much less for the
We shall see.
Gabriel Kolko is the leading historian of modern warfare. He is the author of the classic Century of War: Politics, Conflicts and Society Since 1914, Another Century of War? and The Age of War. He has also written the best history of the Vietnam War, Anatomy of a War: Vietnam, the US and the Modern Historical Experience. His latest book is After Socialism.