May 2009

Essays

The Rudd essay & the global financial crisis (Part I)

By Robert Manne
Introduction

The Monthly was surprised and gratified when Kevin Rudd offered us his analysis of the global financial crisis, earlier this year. We were, however, puzzled and disappointed by the quality of the media response to it. There have been very many references to the essay in major Australian newspapers. The overwhelming majority have been carping and superficial. Virtually no one has offered a penetrating critique or proposed an alternative account of the most significant economic calamity since the Great Depression. Even on the ABC, no interview has been conducted with the prime minister where his interpretation of the current economic meltdown could have been tested or explored.

Several weeks ago, because of what seemed to us the unsatisfactory nature of the Australian public debate, the Monthly invited responses to the Rudd essay from some of the most influential thinkers who had written on matters pertinent to its central themes.

The forum begins with Eric Hobsbawm, the author of the magisterial quartet The Age of Revolution, The Age of Capital, The Age of Empire and The Age of Extremes. Hobsbawm, a former communist and lifelong member of the Left, is not only unquestionably the most formidable interpreter of the patterns of world history from the French Revolution to the present day. In his final volume he analysed, with great prescience, both the cultural contradictions and economic instability of the post-Keynesian neo-liberal era. Hobsbawm praises Rudd's courage in recognising the depth of the present crisis. However, he thinks Rudd underestimates the difficulty of what now needs to be done.

David Hale profoundly disagrees. Hale is the head of the Chicago-based consultancy Global Economics, and one of the world's leading analysts of the Chinese economic miracle. For many years he has been among the most valued interpreters for Australian audiences of the broader trends in the international economy. Unlike Rudd, and even more so Hobsbawm, Hale argues that the present crisis arose not from systemic failure or false ideas, but from a range of what were relatively easily avoidable factors: the global savings imbalance, the American homeownership obsession, and the mushrooming of ill-regulated securitisation financial products.

Dean Baker is co-director of the democratic-progressive Center for Economic and Policy Research, in Washington, DC, and a regular columnist for the Guardian online. As early as 2002, Baker, alone among economists at that time, described the American housing market as a bubble certain eventually to burst and with catastrophic effect. Unlike Rudd, Baker does not believe either in the power or sincerity of neo-liberal ideas. For him, the neo-liberal deregulatory rhetoric of American conservatives is essentially hypocritical. In reality, the conservatives favour many state-enforced economic regulations but only of a certain kind, those which transfer wealth upwards, from the have-nots to the haves.

If Dean Baker was the first economist to warn of the dangers of the housing bubble, Charles R Morris, a lawyer and banker, was the author of the first serious history of the current economic crisis, The Trillion Dollar Meltdown, which was soon retitled The Two Trillion Dollar Meltdown and, if David Hale is right, will now need to be retitled once again as The Three Trillion Dollar Meltdown. While Morris praises and broadly accepts Rudd's analysis of the global financial crisis, a lifetime of close observation of the relationship between the American economy and its financial sector has led him to scepticism not so much about neo-liberal ideology as the claims to rigour and predictive capacity of the economics profession as a whole.

John Gray, a British political philosopher and public intellectual, came to prominence in the mid 1980s, when he published the most significant interpretation of the central figure in the history of neo-liberalism, Hayek on Liberty, which earned from Hayek the highest praise. In the late '80s and early '90s Gray abandoned neo-liberalism for a position of pessimistic conservative pluralism, with a series of books, including False Dawn and the recent Black Mass, which interpreted neo-liberalism as the last of the utopian dreams to have disfigured Western history since the emergence of what he called the Enlightenment project. Like Rudd, Gray believes that with the end of illusions about the miracles of the unregulated market, brought about by the global financial crisis, the neo-liberal chapter of world history has come to a close. Like Hobsbawm, however - although for quite different reasons - Gray thinks the response to the global financial crisis will require more radical rethinking of fundamentals than the Australian prime minister presently accepts.

Robert Manne

Robert Manne is emeritus professor of politics and vice-chancellor’s fellow at La Trobe University. His most recent books are The Mind of the Islamic State and On Borrowed Time.

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