Undoubtedly, as in the words of Samuel Brittan, the Financial Times columnist, we have recently been living in “a gloomy era of the glorification of the state.” The public sphere has been dominated by the amateurs trying to fix capitalism and the politicians who mainly shout at the “greedy financiers.” The new prophets of anti-capitalism, as well as those who were forgotten but managed to come back, predict the sad end of it or at least they hope somebody will keep a tight rein on this “awful” free market.
Various monitoring and regulatory bodies, established by governments and international institutions, try to outdo one another in issuing financial regulations to prevent the next crisis. Some regulations make more sense, others less, and some do not make any sense at all. However, one can determine this only by studying every single regulation individually.
Essentially, the regulations increase (and not reduce) the probability of the next crisis. They standardize regulated banks and financial institutions which results in a lack of variety among those companies. Consequently, they increase the probability that if something goes wrong in the financial services sector, the same fault will be duplicated in many other banks (of a similar profile). However, the overregulation is not the main subject of this column. What I would like to talk about is a startling contrast between the glorification of the state in the sphere of loudly proclaimed ideology, and specific actions in the sphere of economic policy. Especially the latter seems to be in contradiction with the ideological slogans.
Let us scrutinize the actions of some particular countries. The members of Eurozone have just signed an international agreement binding the countries which belong to the monetary union, to impose discipline on fiscal policy and maintain budget stability or even its slight surplus. If we take into account the fact that, for example, the last time France had a budget surplus was in early 1970s, then even with possible deviation from such discipline, it is a far-reaching change. The radical, left-wing government of Prime Minister Zapatero, through expansive policy and declining standards, caused the burst of “the bubble” in the housing sector. Additionally, it set to work and started to narrow (widened to 12% of GDP) the budget deficit. And a new Spanish, conservative government forecasts more fiscal discipline.
The coalition of conservatives and liberals prepared probably the most consistent programme to rebuild the British economy and the sphere of public activities. Unfortunately, in reality the actions of those in power differ from the promised dynamics of disciplined changes. Only in the USA, president Obama is still trying to increase public spending. However, he has been doing this without full support of his own powerbase from the Democratic Party, not to mention the Republicans. The Republicans not only explicitly ask for cuts in a very wide (as for American traditions) state budget but they also demand less, not more, taxes and regulations.
There is a big gap between ideological slogans and real-life politics. Why is that? The more optimistic answer says that politicians finally started to understand that deficits and artificially accelerated expansion, sometimes happening in a very short period of time, lead to catastrophic effects. We need to remember though, that for politicians such intellectual change would be rare.
It is the alternative answer that would be much closer to truth in a majority of cases. The politicians, deep inside, still believe in the glorification of the state and they know that their demoralized, demanding electorate expects them to do so. Therefore, they keep shouting out their ideological slogans, but for fear of bankruptcy (as they still need to postpone the payments of the heap of debt) they follow a policy which would be accepted by those who buy the bonds that are being constantly sold. It’s a little bit like in the old joke about “double thinking” in communism. Quoting the words of the revolutionary poet: “We say: Party – but we think: Lenin; we say: Lenin, but we think: Party.” Meaning: this is how we have been saying one thing and doing the other for many years now…
Translation: Anna Martinsen