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Global economy goes belly up

When the debt-fuelled boom came to an end a year ago, official pronouncements from every part of the world assured us that the economic fundamentals were sound. Gordon Brown was to the fore in his confidence that after ten years in his care, the British economy was better placed than most to weather what he and others told us was as a temporary problem affecting the world of finance dubbed the "credit crunch".

How different things look today. After months of falsely optimistic denial, the grim spectre of global recession is showing up in statistics from the US, Europe, the UK and practically everywhere else. So-called experts are playing catch-up in their hopelessly inadequate attempts to predict the course of this multi-dimensional crisis. Every day brings new surprises which force them to revise their forecasts of the severity, extent and duration of “the downturn”, which, it is now hoped, will bring its own silver lining to the clouds of inflation.

Those who are sticking with the dominant theories of the last few decades admit that the coming period will bring much painful “adjustment”. They say, however, that this is necessary to restore the economy to health and must be allowed to take its course, with hundreds of banks closing, production going into freefall and unemployment rocketing.

As the scale of the catastrophic crisis forces itself into brains dulled by the capitalist mantra “There is no alternative”, the chorus of calls for more and better regulation has given way to a plethora of more or less emergency proposals. As Larry Summers, Harvard professor, and former Secretary of the US Treasury has pointed out, chaos in the economy is reflected in cacophonous policy debate, with policymaking that is “increasingly reactive and erratic”.

There are many, fearful of the consequences of economic freefall, who are promoting a variety of contradictory, partial interventions to be made by central banks and governments acting either alone, or in unison. The interventions, it is claimed, could shore up the housing market, minimise soaring inflation, increase credit and debt, or restore “the balance” between corporate power and the strength of labour. With nothing better to go on, some with a sense of history are turning to the experience of previous crises for inspiration. Comparisons are being made with the 1990s, the 1970s and with the Great Depression of the 1930s.

But the reality is that there is no historical precedent for the present crisis brought on by unprecedented corporate expansion. As everyone knows, overproduction has led to the climate changing as a result of over-exploitation of the planet’s resources. Left to continue, diseases of overconsumption, like obesity, will worsen. Inequality will increase in leaps and bounds as the recession turns to crash. Wars for the world’s resources of oil, water and food will escalate. Let the war between Georgia – acting as America’s proxy – and Russia be a warning in this respect because the question of energy supplies is not far from the surface.

In reality, none of the policy actions being taken or being proposed to restore health to the economy can do anything but make things worse. What’s needed now is to bring the broken profit-chasing system to a conclusion. We should not aim to "rebalance" the 200-year old power struggle between capital and labour but to break the power of the corporations and to replace it with a new motivation – to identify and meet the needs of the majority with a new unified social, economic and political system which can restore the health of the planet.

Gerry Gold
Economics editor
15 August 2008

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