We, the barbarians
Economic science is up for the chop, and the profession has been put on the defensive. Those who imposed austerity during the last great crisis called on what they thought made up the fundamentals of the economy. The rare ones who rejected this stringency pleaded, for their part, for action in this discipline that would align with other aspects of society since economics– that is decidedly not a science – is neither pure nor innate. Those who imposed austerity still have not listened. However, the future is uncertain, and any prediction as a calculation is illusory, since this modern economic “science” feeds off counter-truths, or should we rather day myths, to be polite, that in turn find themselves in a sort of game of skittles turned upside down by reality. Didn’t they used to teach us, a few years back, that inequalities shouldn’t worry us because – after all – the wealth at the top of the pyramid will end up trickling down? Today, it’s the rentiers – those being people who earn their keep without having to work – who are the non-object of attention of the vast majority of economists who assure us, in full support market efficiency, that those who make money have indeed earned it! In fact, this morbid liberalism that is infecting our economies is working hard to convince every link in the chain of the most-well-off’s invaluable contribution to society.
How can we thus not ardently doubt the credibility of those who guide us, like Ben Bernanke – not yet in this era head of the Federal Reserve but a renowned expert on the Great Depression – that declared in 2004 that one “of the dominant features of the economy over the last 20 years has been the considerable drop in macroeconomic volatility”? This came while the FBI, at the same time, was formally put on guard against an “epidemic” (I’m quoting) of real estate credit fraud that was systematised in the US, and that would 3 years later unravel into the worst financial crisis in 80 years… Prior to this global catastrophe of 2007 and 2008, hadn’t the brotherhood of economists claimed the final victory for capitalism,which had finally been able to cure these endemic problems made up of stock market crashed and depressions? This is why the precursory signals were totally ignored, and is also why a majority of economists even found a way to describe the enormous crisis that followed as a pebble in the cogs that would end up finding its cruising rhythm again. Without, however, recognising that it’s government and central bank money – ours, therefore – that would save the day.
However, the loans granted to Lehman Brothers up to 2008 seemed guaranteed because – after all – no American financial institution had defaulted since 1930. Lending to Greece seemed just as sure since this country – after all – shared its currency with Germany. Treating US mortgages as safe investments and marking them with the maximum AAA grade, exactly like Treasury Bonds, seemed like a good deal because – after all – the US property market hadn’t suffered any setback since the Great Depression. Households were therefore called upon to indebt themselves because the price of bricks and mortar in the US couldn’t depreciate. Banks could therefore securitise these debts that would never default. And governments were commanded to deregulate because recessions were – right? – a relic belonging to the past.
So, the US and Europe’s woes that followed were not brought on by the negation of risk but rather by the conviction and intuition – that were wrong, evidently – that the risk was under control. Until a generally insignificant incident, a simple spark, a virus in distant lands weighed in on valuations, caused an avalanche, and made us sit up and take note that our quantification of risk was biased, that we’d really badly miscalculated. The great weakness to come is simply an echo of the period of relative calm that we’ve had for about 5 years, because economic torments inevitably follow periods of prosperity. Stability is therefore deceptive: it is destabilising, and it is of course Minsky who championed this theory. Financial history unequivocally shows us that risk-taking will never go away but will merely take on other forms that will make us drop our guard, that will make us overall very vulnerable, and that is exactly what is happening now. Have the barbarians arrived? Absolutely, and they’ve always been here, these instincts that derail us and this behaviour that destroys us.
The recent stock market collapse and the stagnation of our economies for more than ten years are however undeniable proof of efficiency being a trick of the eye, with regards to economics that is in no way science, and that is, in fact, just another addition to the human appetite. A crucial question must therefore be asked: can economics, that is in reality a “post-mortem” discipline in that it can and does only observe facts after they have taken place, still claim to influence government policy in times of great weakness and huge losses to their credibility in the eyes of the politicians who take refuge behind economists ? Or is economics just a laundrette or recycler of theories and axioms, in which case economists would just be chameleons… I shall end by citing Franklin Delano Roosevelt who warned his citizens in 1938: “History proves that dictatorships do not come from credible executives, but from weak and incompetent governments”.