Nicolas Sarkosy has fallen, and Angela Merkel looks like being next, as a majority of Europeans reject austerity policies that mean that millions of citizens will never work again and face a life of penury and hopelessness.
Once upon a time – a very long time ago – European governments solved their economic crises by exporting a stream of surplus people to kick-start new economies in “unpopulated” regions of the globe – the Americas, Australia and Africa. The use-by date on that option had long passed when Hitler launched his mad attempt to apply it across a vast swathe of eastern Europe and Central Asia by liquidating whole nations and colonising the ruins with millions of eager German colonists his bureaucrats couldn’t find for looking.
The demise of the population export option left only two others: cutting lending and spending back to nothing and letting the whole shebang descend into Dickensian horror – the unrestricted war of each against all – or managing the inherent instability of capitalism with a high level of government economic intervention, the great theorist of which was John Maynard Keynes.
Classical Keynesianism of the years from the Great Depression to the late 1960s had governments staving off the treat of fundamental social revolution by investing in social programs and big infrastructure projects. The idea was that this spending directly and indirectly generated employment and the results spilled downwards into the rest of the economy, ameliorating the effects of social inequality.
Keynes himself satirised his method by saying that unemployment would be solved if the government paid people to stuff banknotes into bottles, dump them in old coalmines, fill the mines in with municipal rubbish, and then pay private enterprise to dig them up to reclaim the money.
By contrast, Keynes’ economic traditionalist opponents reckoned that the moment a crisis emerged you should cut government spending to the bone to balance the budget. Typically, the result was that unemployment soared, less, rather then more, tax was paid, the government went further into the red and the population drifted to either the left or the far right versions of radicalism.
In the upshot, very roughly speaking, the problem of the Great Depression, which Keynes originally addressed, was solved by World War II, the preparation for which, and the conflict itself, was the greatest Keynesian stimulus package imaginable. Governments taxed and borrowed to the hilt to employ hundreds of millions of people to produce, operate and destroy vast amounts of technological stuff as well as trashing unprecedented amounts of already existing infrastructure.
In the midst of this orgy of creation and destruction, a whole new basis for stimulus was required and duly, in July 1944, the Bretton Woods agreement was born and the world capitalist system was saved by US dollars backed by US bullion. But in 1971 this solution fell into crisis and gold convertibility was terminated in favour of a system of virtually unlimited credit.
The long-dead Keynes ostensibly went out of fashion, but his ghost still walked. The new Keynesianism – which segued in after the end of the gold standard – went by the name of neo-liberalism. Now the whole project was outsourced to deregulated banks that handed out cheaper and cheaper credit to anybody with a pulse – ranging from hapless low-wage chancers in dead-end jobs to criminal Wall Street financiers. Keynesianism had gone feral.
Where once, getting a loan from the bank was an almost comically serious business in which you put on your best suit for an appointment with an elderly, anally-retentive bank manager, the new version of Keynesianism was a teenage bank employee driving round to your place to offer you as much cheap money as you thought you wanted.
All this was supposed to stimulate “growth” and maintain the semblance of wealth trickling down, but it was actually just a recipe for what became known as the global financial crisis. Governments which had controlled and directed the old version of Keynesianism, now became the victims of its outsourced and uncontrollable newincarnation.
There is a very real sense here that the whole range of old options for solving the global financial crisis within the framework of capitalism are bankrupt, dead, kaput. The problem is now too big, too chronic, and too universal for the old solutions to work.
• More Nick Possum at brushtail.com.au