GLOBAL SUB-PRIME LOSSES ARE EXPECTED TO EXCEED $4 TRILLION IDEAS FOR BEACH READING
Leander McCormick Goodhart OS (RGGP)
Capitalism 2.0
DR PURSHOUSE
Vince Cable 'The Storm: The
World Economic Crisis and What it
Means' - clear and cogent analysis
of the recent mistakes and possible
solutions
John Stuart Mill 'On Liberty' - a
classic statement of the case for
free speech and freedom of action;
arguments as relevant today as they
ever were
MR GALLETLY
Platform - Michel Houellebecq
You know all the pro's and con's of
globalisation, but this novel forces
you to put the economic analysis in
a moral context. Think of it as a
love story, a moral enquiry about
Western civilisation and, an analysis
of the sex tourism industry. An easy
read - but a troubling one.
The Logic of Life - Tim Harford
Every ambitious economics student
will have read this and been
refreshed by the (sometimes
counter-intuitive)conclusions Harford
reaches about speed dating,
prostitution,racism etc. Don't just lie
on the beach reading the book,
investigate the 'rationality' of fellow
sun seekers.
MR ALLEN
Try JK Galbraith's "The Great
Crash, 1929". It is readable and
relevant to today's events.
Students might care to spot the
similarities in origin and
differences in policy response
when comparing with today's
Credit Crunch.
ETONOMICS
Welcome to
the end of an era.
Economic liberty is
under fire and
capitalism, the
incarnate dream of
free markets is
braced for a heavy
and withering
attack.
Governments that
have adopted a
laissez-faire
approach have
been drenched
with icy water,
angering the
public with a $2.5
trillion global
bailout financed by
the tax-payer. We
pretended not to
see this crisis coming. We expected that
the good times would roll. Unfortunately
the party is now finished. Have a good
look round, there is not even a half
empty punchbowl to be seen.
Hangovers are the price we pay for
an age of excess. For many, 2009 marks
the finishing post of a golden age - nearly
twenty years of stable economic growth,
high employment and relatively low
inflation, a period once described by the
Governor of the Bank of England as the
‘NICE’ decade and by others as the
Great Stability. Hundreds of millions of
people around the world have risen out
of absolute poverty and globalization has
helped to create a new emerging middle
class of over a billion people, a mass of
people have become accustomed to their
cars, iPods and flat screen televisions.
Sadly, recession is the inevitable
correction to capitalist excess. Most of us
have never seen a bona fide downturn.
Recessions and slumps seemed
unthinkable, stages of the business cycle
confined to economic history textbooks
and left to gather dust on the bookshelf.
But recession looks real now - and it
hurts. The harsh
reality of our
crisis is flashed in
front of our eyes
and we have
started to
apportion blame it couldn’t possibly
have been our
fault of course.
Dick Fuld, Adam
Applegarth, Fred
‘the shred’
Goodwin - these
are the real
culprits capitalism and all
it stands for has
been one of the
first victims of the
witch hunt.
Over a century
and more, the capitalist system has
proven its merit for billions of people
around the world. Where capitalism has
flourished, countries have embraced
globalization and open markets and have
enjoyed prosperity as never before. Just
look at China- a country only socialist by
name, in reality as capitalist as Uncle
Sam himself. In contrast, where
enterprise has been smothered, countries
have suffered. Think starving North
Koreans, oh and Stalin- look at what
happened to the Soviet Union.
Capitalism isn’t perfect. We just
have to accept that periodic crises are
part of the landscape. Although the crises
can be harsh and devastating, we learn
from them how to better manage the
system. Yes it will take a long time to
improve, but so does everything- from
flight to fine wine. The Wright brothers
did not come along the day after Icarus. I
don’t think that capitalism is anywhere
near its final breath.
But why do policy makers in he
Treasury at the Bank of England want to
seize our banks? Shouldn’t failing
enterprises be left to fail? After all, that is
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THERE ARE 23 WALL STREETS IN THE UK
the point of the free market. Back to
Biology 101- Darwinian “survival of the
fittest”. I think they have good reason for
the moment many of our leading banks
remain close to the edge trying to deal
with a mountain of toxic debt and we
need to rescue them. Look what
happened after the collapse of Lehman
Brothers in September 2008. The entire
global financial system was almost
destroyed - on the point of meltdown,
just days (perhaps hours) from the abyss.
Nobody wants to ride that roller-coaster
again. But now we are in a situation rife
with moral hazard- where banks are
happy to reap the upside (they won’t fail
because someone will step in and prop
them up) and the taxpayer pays the price
when things go wrong. In this new age,
banks must bear proper responsibility for
their rewards as well as their risks.
Nationalization of much of the banking
industry is a short-term palliative but
nothing more.
Defending liberty
Paradoxically, in the short run state
intervention is necessary to defend
economic liberty. Many liberals, may
seem outraged at the idea of a new age of
stateism. They think that a bumbling
government will only serve to make
matters worse through government
failure. Ever since the advent of the
Reagan-Thatcher era in the 1980s, we
have distanced ourselves from regulation
because it is “bad”. Well, time for a
reality check - look where we are now.
Free markets speeding ahead with the
lightest of regulatory touches on the tiller
have managed to get themselves into a
pretty good mess all by themselves - self
regulation has proved wafer thin.
We mustn’t get tied up in ideological
knots. The Obama administration along
with many others is acting practically,
spending on bailouts and new bridges to
get people back in jobs. We need to shake
our antipathy towards regulation. Over
the past 20 years, we have believed in
capitalism as a free-for-all game. Recently
banks have changed the pitch with the
invention of ever more numerous and
complex financial products. However, the
rule book wasn’t amended and it has
fallen behind. We forgot the lessons of
1929; lessons which had the world
chanting “never again, never again”.
Capitalism can give us great
prosperity, but we need to recognise that
it does so only with government as
referee. Capitalism must live within
certain rules and government must
moderate capitalist excess. .
As devastating as this economic
crisis may be, every cloud has a silver
lining. The near meltdown of the
markets, fears over deflation and the
decline in world trade and investment is
prompting policy-makers to push the
reset button. The credit crunch and
subsequent recession has forced us to
reconsider what genuinely matters and
temper our tendency towards excess - this
is the end of the age of greed. Hopefully
this crisis will teach us the value of
normal living - learning to forgo the
second home, the third meal out this
week, the fourth car and the fifth TVand encourage us to wean ourselves from
an addiction to cheap credit.
Capitalism has proved to be an
immensely flexible system in the past and
despite recent shocks it isn’t going
anywhere. Yes, there are many
imperfections. Yes, freely-functioning
markets will deliver excess if left
unchecked. However, until somebody has
a better idea, capitalism is just about the
best system we’ve got.
Bad Samaritans
Joon-Son Chung (PJMcK) reviews Bad Samaritans, a new book on rise of South Korea
Most economies that have succeeded have done so by protectionism, not free trade. Ha-Joon Chang’s new book Bad Samaritans
criticises ill-advised deregulations, and signings of free trade agreements between emerging economies and developed countries.
His prologue addresses the process by which South Korea, once ‘one of the poorest countries in the world, and the sorry country [he]
was born in 1963,’ became ‘one of the wealthiest countries in the world.’ The Miracle on the Han River did not come with deregulation
and free trade. Poor children were forced to work in ‘factories where conditions were reminiscent of 19th-century “dark satanic mills’”
He recalls that students were encouraged to report anyone seen smoking foreign cigarettes. The country needed foreign exchange to pay
for investment – and importing ‘anything not essential’ was not the way to earn the hard currencies.
Chang criticises richer countries for preaching free trade to emerging market economies, having already achieved economic supremacy
through high tariffs. He asserts that ‘it is a very clever device that when anyone has attained the summit of greatness, he kicks away the
ladder by which he has climbed up, in order to deprive others of the means of climbing up after him,’ in other words, taking advantage
of those who are in trouble. Some countries have been press- ganged into opening up trade barriers, often even through military power.
But, most developing countries performed poorly under free trade. History is written by the winners. Having grown up in third-world
Korea, and currently working at Cambridge University, Chang has experiences of both worlds and in his book he brings together the
true history with economics.
Joon-Son Chung
ETONOMICS
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