QUARTERLY ESSAY 32 American Revolution



Gavin Kitching

If there is a good place to be in a global financial meltdown, New York is clearly it. You get a sense of the crisis as a human product: if you actually know or live next door to some of the people involved, it is easier to see through the insistent media attempt to present it as some kind of uncontrollable natural disaster – a “tsunami” or a “meltdown.” Even the terms “crash” and “disaster” have this effect. It becomes altogether easier to see it as the unintended product of the actions of fallible human beings if you are walking your dog alongside them.

The journal form, and the way Kate Jennings’ excitement and trepidation over the election clearly mirrored that of hundreds of people around her and online, made our own obsessions seem okay. There was an almost hysterical feeling that Obama was somehow America’s last chance, perhaps even the world’s last chance, and if the great US public somehow managed to screw it up again, not only would the world go to hell in a handcart, but the devil would chortle all the way. It may not seem like this at all in three or four years’ time. (After all, I remember a similar kind of euphoria when Tony Blair was elected in Britain in ’96, after seventeen years of Tory rule.) 

Of course Obama will disappoint in certain respects: I expect that, whatever he does, the Arab–Israeli conflict will still be going on; some initiatives won’t work or will misfire; there’ll be a corruption incident or three. And then we’ll all be wise and judicious and balanced, and start giving six out of ten. But still, he’s got to be better than Dubya! The troops will surely leave Iraq. His administration will start to treat the rest of the world with some degree of respect. He will have to do something about US infrastructure and, in doing so, create work for people. And he won’t be afraid to tighten the regulatory grip on Wall Street with an enforcement agency that is both properly staffed and equipped.

Jennings’ essay has finally helped me grasp the problem – I mean the essential problem – behind the financial crisis, and it isn’t what I expected. When it began, I found myself struggling to understand what was happening. I thought that there were people who understood the problem and that if I read enough financial columns and articles I’d grasp it. And of course that’s not entirely wrong. Nouriel Roubini had some insight ahead of time (unlike Felix Rohatyn, for example, who just did the usual reluctant after-the-fact stuff). But this approach obscured the heart of the problem: the disconnection of the hundreds of thousands (even millions) of people just doing their thing in front of a computer screen from the combined effect and outcome of their actions. What American Revolution reveals, better than anything else I’ve read on the topic, is that most bankers and their trading minions haven’t got the faintest idea “what’s gone wrong” or why; that they were dealing in mechanisms they didn’t understand. So when it all unravelled, they were as pathetic and gobsmacked as the rest of us. Hence the generally underwhelming impression they made in front of Senate committees. I note that Jeffrey Sachs was inclined to make Alan Greenspan the evil spider at the centre of the web and one who did know what he was doing. Although that’s true of his cheap-money policies, even he, on his own admission, did not understand derivatives and assumed that banks had both the information and incentive structure to be rational risk-takers, rather than helpless jockeys on runaway mounts.

Perhaps, in a capitalist system, people do have to be protected from themselves. If the “planned economy” is out because it doesn’t work, then paternalism (and maternalism) is in. People have to be told that they can’t do certain things in the marketplace, because while it might be good for them in the short run, it isn’t in the general interest in the long run. And those “certain things” can be everything from zero-deposit mortgages, to “leverage levels” of fifty and above, to the clever-clever “securitisation” of risk which, when aggregated, produces massive, insecure, unpriceable risk.

But I think that’s going to be a hard row to hoe. There’s a heady “freedom” ethic in capitalism, and especially in American capitalism, which makes that kind of paternalism (especially when the state embodies it) a total ideological anathema. And once the pain of this recession is gone, you can bet your bottom dollar that the rhetoric of “freedom” and “choice” and “individual liberty” versus “Big Brotherdom” will be wheeled out once again, either to try and roll back re-regulation or to make it ineffectual in practice. Keynes is capitalism for grown-ups, but god knows whether there are, or will ever be, enough grown-ups out there to make social self-interest real and keep what the old man himself called “animal spirits” in check.


Gavin Kitching is professor of politics at the University of New South Wales and the author of, most recently, The Trouble with Theory.


This correspondence discusses Quarterly Essay 32, American Revolution. To read the full essay, subscribe or buy the book.

This correspondence featured in Quarterly Essay 33, Quarry Vision.


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