Last Updated: Thu Jul 28, 2011 04:39 am (KSA) 01:39 am (GMT)

Michael Brenner: America and Europe, societies with deeply flawed economies, betray blind devotion to retrograde economic and social doctrines

“Los Indignados,” or the “Outraged” movement arrived in the Spanish capital for a massive rally. Protesters came from all over the country to demonstrate over the financial crisis and unemployment.  (File Photo)
“Los Indignados,” or the “Outraged” movement arrived in the Spanish capital for a massive rally. Protesters came from all over the country to demonstrate over the financial crisis and unemployment. (File Photo)

America and Europe’s approach to the rolling financial crises that have beset us since 2007 demonstrate striking similarities.

They reveal salient features of public life in the West that bode ill for the health of our democratic societies as well as for remedying our deeply flawed economies. The most notable feature is the dominant place of financial institutions in dictating how problems are defined and dealt with. Its logical corollary is the weakening of government authorities’ will and ability to act in defense of the common interest.

Together they are producing a revolution in managing macro-economic life that threatens to repeal vital elements of the great post-war compact that has given the Western world sixty tears of unprecedented political stability, prosperity and enlightened inter-state relations. The stakes are that high.

The record on both sides of the Atlantic is clear. Primacy has been given the restitution of those very financial interests and practices whose unbridled avarice and loose ethics led to the great crash of 2008. Public policies have been grounded on the unspoken, yet highly dubious assumption that the cause of the crisis was something other than the warped structures and practices of runaway finance and the accident prone markets they created for their innovative (and self-serving) products – Credit Default Swaps, Collateralized Debt Obligations and derivates of all sorts. Initiatives at reining in the financial high rollers have been timid, carefully limited and implemented lethargically. In Washington, key positions remain unfilled, regulations unpromulgated and the financial lobby has effectively neutered those few that now are operative.

In Western Europe, no major country has moved any more decisively to affirm the public interest in restoring a transparent banking industry that serves the genuine interests of manufacturing, commerce and investment.

The erratic and disjointed attempt of European Union members to address the crisis in Greece exhibit all of these traits. From the outset, there was a consensus that the creditors would under no circumstances be expected to incur losses. The European Central Bank took a number of steps to buy up debt instruments of questionable value just as the Federal Reserve has done on a more massive scale to ensure that the banks are made whole.

Furthermore, authorities admit their fear of a financial meltdown were they to do anything that endangered creditor interests. The intricate daisy chains of transnational finance are comprehensible by no one. They are the noose round the necks of officials and the vise on their thinking. So, in their ignorance, public officials yield to their anxieties.

Speculators in practice cast such a dark shadow over the process that their lurking presence has become the main determinant of what can be considered and what can be done. Now the Big Three American rating agencies have aggressively moved center stage with dire warnings of the disastrous fate that awaits those who challenge the financial markets whose dynamics they influence. They are the selfsame outfits that discredited themselves by slapping AAA ratings on sub-prime mortgage trash. The same outfits that earn most of their revenue from dealings with the financial houses they evaluate.

At the end of the day, it is the wage earners and small taxpayers of Greece, Ireland, Portugal, et cetera, who are forced to foot the bill for the malfeasances of other interests.

That is what the draconian austerity programs being imposed everywhere in the Western world mean. The net effect is the further transfer of wealth from the working and middle classes to the super rich. The dire consequences for our historic 20th century social achievements are ignored in the blind devotion to retrograde economic and social doctrines which have risen Phoenix like from the scrapheap of our tragic history.

(Professor Michael Brenner teaches at the University of Texas, Austin, and at the University of Pittsburgh. He can be reached at: mbren@pitt.edu)

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