Fifteen months into the global financial crisis, the slogan coined here last August remains as valid as ever: IKGW – It Keeps Getting Worse. But that is the objective situation. Subjectively, an important – arguably critical – improvement is underway. This is that governments, in the West and elsewhere, are finally beginning to move beyond shock and denial and face up to the enormity of the crisis. A few examples:
America: Unfortunately for Americans and the world at large, the dominant economic power is in a state of governmental paralysis as the Bush Administration winds down. Meanwhile, the stupid, childish and ridiculously long and cumbersome American electoral system has thrown up (no better term exists) two candidates, both of whom seem not to understand what is happening and neither of whom are prepared to relate seriously to the severe underlying problems of the American economy. What is certain is that the endless campaign blather avoids any discussion about the policies each candidate intends to introduce if elected. The voters have no inkling regarding either the substance of McCain or Obama’s economic policies, nor even the persona who would formulate and execute them. In the American presidential system, unlike in a parliamentary democracy, the identity of the Secretary of the Treasury (ie Finance Minister) – as of other key ministers – is not an issue in the campaign, as if it didn’t matter.
Fortunately for the Americans and the world at large, the current Treasury Secretary, Hank Paulson, is proving effective in getting at least the most basic things done – like preventing the global financial system melting down. Paulson’s key achievements have been last-minute, messy and unsatisfactory bailouts in March (Bear Stearns) and September (Fannie and Freddie) – but hey, that’s still better than the alternative. More fundamentally, Paulson has overseen a process in which the power and responsibilities of the Federal Reserve have been massively increased. This is the antithesis of democracy and may create other long-term problems, but at least he and Fed chairman Bernanke are functioning. More generally, unlike their political masters, they are facing up to reality, not running away from it.
Britain: Chancellor of the Exchequer (ie Finance Minister) Alastair Darling was widely derided recently for saying that the economic situation in his country and the world was the worst in the last 60 years – in other words, for telling the truth. Since his party (Labour) has been in power since 1997 it – and its leader, Gordon Brown, who was Chancellor until last year – are clearly responsible for the woeful state of the British economy, which is so bad that the US looks healthy by comparison. But Darling has done a signal service to his party and to the country as a whole, by slapping them in the face and telling them to get real. The recent fall in sterling – which is actually extremely positive for Britain – and the ongoing slide in house prices is also helping shake the British out of their sad pretence that the boom of recent years reflected sustainable economic growth. In the country that invented the ‘feel-good’ effect, feeling bad is a novel and unpleasant sensation for many people, but the essential prerequisite to taking themselves in hand and beginning to sort things out.
Ireland: The Irish boom was longer, stronger and of much greater relative impact on the country’s economy, society and demography than that of virtually anywhere else in the developed world. Unfortunately for the Irish, they blew the fruits of this boom on an insane splurge on real-estate, first at home and then across Europe. They are now paying the price – and it will be an even higher one than that exacted from the Americans, or even the British. The old rule of ‘the bigger they come, the harder they fall’ is proving painfully pertinent in Ireland.
Ironically, however, the Irish have a much better chance of pulling themselves out of the mud quickly and effectively, than do their much bigger Anglo-Saxon peers. Precisely because this is a small country with an open economy, a friendly society and an educated workforce, it is possible for a pro-active government to adopt radical measures that not only stop the rot, but actually turn the ship of state around and head it in a different and more promising direction. There are now clear indications that the Irish government – under a new Prime Minister, Brian Cowen, but of the same Fianna Fail party that has been in power for years – is going to at least try and do just that. How long it might take before a new captain does the same for the huge American battleship is anyone’s guess.