{"id":858,"date":"2011-08-14T10:22:12","date_gmt":"2011-08-14T09:22:12","guid":{"rendered":"http:\/\/proutistuniversal.info\/?p=858"},"modified":"2011-08-22T12:59:01","modified_gmt":"2011-08-22T11:59:01","slug":"global-economic-downturn-a-crisis-of-political-economy","status":"publish","type":"post","link":"https:\/\/proutistuniversal.info\/?p=858","title":{"rendered":"Global Economic Downturn: A Crisis of Political Economy"},"content":{"rendered":"

by George Friedman.<\/strong>
\nformerly economic advisor of Roland Reagan.<\/em><\/p>\n

\"\"<\/a>

George Friedman<\/p><\/div>\n

Classical political economists like Adam Smith or David Ricardo never used the term \u201ceconomy\u201d by itself. They always used the term \u201cpolitical economy.\u201d For classical economists, it was impossible to understand politics without economics or economics without politics. The two fields are certainly different but they are also intimately linked. The use of the term \u201ceconomy\u201d by itself did not begin until the late 19th century. Smith understood that while an efficient market would emerge from individual choices, those choices were framed by the political system in which they were made, just as the political system was shaped by economic realities. For classical economists, the political and economic systems were intertwined, each dependent on the other for its existence.<\/p>\n

The current economic crisis<\/a> is best understood as a crisis of political economy. Moreover, it has to be understood as a global crisis enveloping the United States, Europe and China that has different details but one overriding theme: the relationship between the political order and economic life. On a global scale, or at least for most of the world\u2019s major economies, there is a crisis of political economy. Let\u2019s consider how it evolved.<\/p>\n

Origin of the Crisis<\/strong><\/p>\n

As we all know, the origin of the current financial crisis was the subprime mortgage meltdown in the United States<\/a>. To be more precise, it originated in a financial system generating paper assets whose value depended on the price of housing. It assumed that the price of homes would always rise and, at the very least, if the price fluctuated the value of the paper could still be determined. Neither proved to be true. The price of housing declined and, worse, the value of the paper assets became indeterminate. This placed the entire American financial system in a state of gridlock and the crisis spilled over into Europe<\/a>, where many financial institutions had purchased the paper as well.<\/p>\n

From the standpoint of economics, this was essentially a financial crisis: who made or lost money and how much. From the standpoint of political economy it raised a different question: the legitimacy of the financial elite. Think of a national system as a series of subsystems \u2014 political, economic, military and so on. Then think of the economic system as being divisible into subsystems \u2014 various corporate verticals with their own elites, with one of the verticals being the financial system. Obviously, this oversimplifies the situation, but I\u2019m doing that to make a point. One of the systems, the financial system, failed, and this failure was due to decisions made by the financial elite. This created a massive political problem centered not so much on confidence in any particular financial instrument but on the competence and honesty of the financial elite itself. A sense emerged that the financial elite was either stupid or dishonest or both. The idea was that the financial elite had violated all principles of fiduciary, social and moral responsibility in seeking its own personal gain at the expense of society as a whole.<\/p>\n

Fair or not, this perception created a massive political crisis. This was the true systemic crisis, compared to which the crisis of the financial institutions was trivial. The question was whether the political system was capable not merely of fixing the crisis but also of holding the perpetrators responsible. Alternatively, if the financial crisis did not involve criminality, how could the political system not have created laws to render such actions criminal? Was the political elite in collusion with the financial elite?<\/p>\n

There was a crisis of confidence in the financial system and a crisis of confidence in the political system. The U.S. government\u2019s actions in September 2008 were designed first to deal with the failures of the financial system. Many expected this would be followed by dealing with the failures of the financial elite, but this is perceived not to have happened. Indeed, the perception is that having spent large sums of money to stabilize the financial system, the political elite allowed the financial elite to manage the system to its benefit.<\/p>\n

This generated the second crisis \u2014 the crisis of the political elite. The Tea Party movement emerged in part as critics of the political elite, focusing on the measures taken to stabilize the system and arguing that it had created a new financial crisis, this time in excessive sovereign debt. The Tea Party\u2019s perception was extreme, but the idea was that the political elite had solved the financial problem both by generating massive debt and by accumulating excessive state power. Its argument was that the political elite used the financial crisis to dramatically increase the power of the state (health care reform was the poster child for this) while mismanaging the financial system through excessive sovereign debt.<\/p>\n

( By May 2011 US have 14.2 Trillion public and\u00a0 intergovernmental debt of which\u00a0China, Japan. United Kingdom and Brazil have highest stake.)<\/p>\n

Source: Stratfor<\/strong><\/p>\n

Next: Europe and China<\/p>\n","protected":false},"excerpt":{"rendered":"

by George Friedman. formerly economic advisor of Roland Reagan. Classical political economists like Adam Smith or David Ricardo never used the term \u201ceconomy\u201d by itself. They always used the term \u201cpolitical economy.\u201d For classical economists, it was impossible to understand politics without economics or economics without politics. The two fields are certainly different but they … <\/p>\n

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