The last few weeks have left many people wondering why, if we live in an age where TINA (There Is No Alternative) to the market is true, so many bailouts have occurred. While many have tagged George Bush as a socialist who has given up on the free market, a closer inspection and dose of honesty will demonstrate that what has most influenced and given shape to the financial problems we are facing is the collapse of any sense of leadership and political clarity by the people that run the country and the major institutions.
The dominant political and cultural outlook is one of ongoing anxiety where risk aversion has become the main goal both in politics and business. Smartly coined as "the politics of fear" by the British sociologist Frank Furedi, this all-pervasive sense that we "are at risk" from everything has led to a paralysis in both politics and business. As we know, the market and investors are broadly informed by the political and cultural landscape that surrounds them. While there always exists a certain amount of chaotic unpredictability within the market, often in the past this has been dealt with by having a clear vision and conviction that the political elite would promote to get society to subscribe to.
Over the past few months we have heard much about greedy financiers, hedge fund managers and even evil "masters of the universe" Wall Street-ers who were so obsessed with their own wealth that they have landed the rest of us "Main Street-ers" in dire straits. However, in the run up to the recent problems, it has been clear that we have witnessed leaders and commentators engaged in continuously over-inflating the problems, by making regular comparisons to The Great Depression and other recessions, which were very different both in form and content to the current situation. Thus in Britain and the US the ongoing reference to the 1930's and even the 1970's was entirely misplaced - an inflation rate of three to four per cent may not be pleasant, but it is nowhere in the league of Britain in the 1970's which was in the twenty percent range. Similarly in the US, there has been much incoherence as to the specific nature of the problems and little discussion as to what makes this so different.
It is hardly as though society is faced with the tough challenges of fascism or millions of workers staging national strikes and revolutions - which leaders in previous periods faced. Ironically, despite the shrill tones, TINA faces no alternative for the first time in modern history.
In previous recessions we have seen mass unemployment based on a slowdown in manufacturing (which in turn impacted the financial sector). As many commentators have noted, it is the financial tools and complex investment mechanisms that have undergone a collapse based on over leveraging credit. However, the reaction of banks to simply stop lending money and baton down the hatches is an immature and fearful outlook. Rather than deciding who is credit worthy and why - and then adopting a strategy of loans and investment on some rational basis, they have simply pretty much shut up shop hoping for the storm to blow past. Clearly, when banks stop lending to one another, the system will dry up.
Worse still, is the paralysis that the political elite have demonstrated. With McCain flip-flopping within two weeks from telling us that the economy is doing fine to then entirely transforming his position and telling us it is the worst situation since the 1930's. It is not just McCain however, but more broadly the leaders in society today who do not know how to give a lead. Thus, as economist Phil Mullan points out the last 12 months on both sides of the Atlantic has seen a situation of dithering, vacillation and then sudden panic and fire-fighting - all of which worsens the mood and outlook and does nothing to solidify a sensible well orchestrated response.
It has often been popular to polemicize against what is seen as the more parasitical components of capitalism in times of difficulty. These gripes however, don't represent any significant challenge to the belief in the market, rather attempt to stigmatize certain "rotten apples" as being the problem. While it is entirely understandable that many ordinary Americans are very concerned and somewhat outraged that they will have to pay for the mistakes of others, the response of some pundits, such as The Nation yesterday who cheered at the inability of Congress to pass the legislation as somehow being "invigorating" for democracy (and had to throw in a line about "odious bankers") is as mistaken as those from the very few free marketers who believe this somehow represents a joyous day for "freedom".
What has become apparent, as last Friday's "debate" between Barack Obama and John McCain demonstrated all too painfully, is that nobody seems to understand what is happening - much less presenting a clear and cohesive program to resolve things calmly and smoothly. Thus we witnessed the farcical chaos with Congress incapable of delivering the legislation - with juvenile school yard antics and childish behaviour by both Nancy Pelosi and Republicans (who have no alternative to the bailout) alike. All of the talk of "socialism" versus "unbridled capitalism" is a nonsense and it is about time we had a dose of reality. What we are witnessing is a discussion about how to react to a series of events that have been exacerbated by a risk-averse outlook. That entire discussion has nothing to do with socialism vs capitalism and is really a debate about how much how much state control should be exercised over the market.
Rather than the "madmen" that Bob Herbert believes are running free, David Brooks' point about authority seems to hit the right note. He rightly pointed out that it was nihilism and a lack of leadership as others have argued too, that continue this mess.
One thing is for sure, that while undoubtedly capitalism has changed in the recent period and that the financial sector is far more central to all of our lives with productive manufacturing being less significant in the west, the biggest problem we face is not "fat cats" and greedy bankers, but a culture of anxiety. The failure of today's leaders, so painfully demonstrated by the Congress debacle underlined the extent to which the narrow and childish outlook of so-called leaders is pervasive.
What we could all really do with is an honest and open discussion about how we organize ourselves in society without sloppily repeating terms such as socialism and cravenly trying to blame certain sections, whether it be "greedy bankers" or "stupid people" taking loans they cannot afford. This is a perfect opportunity to hold the line and argue consistently to stop panicking and start discussing - with real politics and not schoolyard name calling and labeling - how we can move forward in a rational way. Otherwise, we are destined to see the political rulers extend and prolong this situation. We will all be the losers if that happens.