Punk economics: it’s pure bonkers

Peston had a specific point in mind. With stocks and shares performing like yo-yos on rubber bands, was the terror of a return to recession among international investors guaranteed to bring a return to recession? As the business guru told it, markets that demanded debt reduction from over-borrowed nations are now interpreting austerity as weakness, and therefore hammering the banks on whom economies depend.

Result: clever people backed by computer programs, mathematical models, economic theories, hordes of brilliant underlings, and lots of someone else’s money have been working furiously to produce the very result they don’t want. Genius.

In the United States, meanwhile, the opinion pages have been full of articles, equally plaintive, written by Democrats who believe Barack Obama is a lost cause. Their specific point is that the man who promised hope and change scarcely two-and-a-half years ago has thrown away his chances of re-election in 2012. They say he has failed, and failed utterly.

Obama became President in January 2009 with a sworn commitment to clean up the mess left by George Bush and his cronies at home and abroad. Obama was going to sort out the banks, root out corruption on Wall Street, and get America back to work. Instead, he fudged decision after decision, allowing himself to be turned into a punchbag by the people Vince Cable – even Vince Cable – calls “right-wing nutters”.

The result was that a president who began with command over both houses of Congress wound up caving in to the Tea Party’s five dozen zealots in the debt ceiling row. He gave them their spending cuts; they gave nothing – zip, as Americans say – over the reversal of tax hand-outs to the rich, or anything else. The old, sick and vulnerable will pay down a few trillions of the $14.3 trillion national debt the Tea Party calls intolerable. Obama’s reward was a cut in America’s international credit rating.

Now here, as Peston might say, was an example of pure, unadulterated bonkers. It had less to do with the fact that Standard & Poor’s, the ratings agency in question, felt entitled to pass judgment on American democracy. No-one elected S&P, but it was not alone in concluding that the debt ceiling affair showed Congress at its worst. Equally, no-one elected S&P to (potentially) stick several tens of billions of dollars onto the interest bills of ordinary Americans when it cut a triple-A rating to AA+. But the agency could argue it was only doing its job.

What was bonkers, and a prime example of delusive mania where finance, markets and humanity are concerned, is that few – and certainly not the BBC – asked the Emperor’s leisure wear question. As in: who are these people?

I’ll tell you. S&P is one of three agencies on whose judgments nations and corporations depend. Yet between the autumn of 2007 and the summer of 2008 this trio “downgraded” $1.9 trillion of “mortgage-backed securities” – the famous subprime mortgages – they had passed previously as triple-A, as rocksolid investments. Theirs was a $1.9 trillion “oops”.

S&P and its rivals were not alone in plunging the globe into economic chaos, but their incompetence – some allege worse – encouraged the crisis. Yet here they are, a few years later, still being taken seriously. Whole countries and huge companies with tens of thousands of workers depend on the opinions of those responsible for one of the modern world’s major cock-ups. So S&P expresses a dislike for the way America conducts its politics. So markets tremble and presidents stumble. S&P hints, preposterously, that the US might renege on its debts. And no-one stops to say, “Hold on a minute”?

But then, no-one stops to wonder about markets whose demands for austerity can destroy communities across the northern hemisphere, make and unmake governments, eradicate productive industries, and still demand “a return”. No-one, no-one in power, stops to wonder why citizens around the world should stump up to cover the stupid bets of investment banking, and then tolerate the astounding idea of bonuses for the agents of stupidity. No-one even mentions theft.

That isn’t melodrama. Each act in the continuing international finance crisis has seen a fresh demand (with menaces) for the transfer of wealth from common folk everywhere to an elite that declares itself indispensable. Before the banking crisis Britain’s national finances were in good order. Now Chancellor George Osborne insists we must collectively pay off “the debt” lest S&P turns a beady eye on our AAA rating. Our own personal debts – huge, no doubt, but owed entirely to the self-same banks – are our problem.

You could quote Marx on the inherent instability of markets. You could have elementary arguments over “perfect competition” and “perfect information”. If you happen to have read Voltaire’s Candide, you could turn either phrase into satire. Proudhon and Engels were arguing a long time ago that a free market doesn’t even exist, whatever Robert Peston might say on the Six O’Clock News. Markets are rigged, always, in favour of those who have capital and property to begin with. Guns help, too.

You could say all of that, but I prefer the Sex Pistols: Ever get the feeling you’ve been had?

Obama understood most of this when he took office. He certainly understood that the entire “science” of economics, as useful for mapping reality as phrenology was for mapping the mind, had fallen apart. The new president knew what he was up against, and how vested interests could manipulate the kind of hatred that gets black men killed. But he sought the job, and he made those promises.

In July, 14 million Americans were out of work. The official unemployment rate – a milder version of reality – was 9.1%. Among teenagers, it was 25%. Among Hispanics, it was 11.3%. Among black Americans who are not currently president, it was 16%. Remind me: who were the people who turned out in their millions, and queued for hours to vote for Obama in November of 2008? His best hope of re-election is simply that those “right-wing nutters” can’t decide which slice of fruitcake they prefer.

In a mournful essay, almost an elegy in last Sunday’s New York Times, a professor from Emory University in Atlanta, Georgia, Drew Westen, wrote that, “when faced with the greatest economic crisis, the greatest levels of economic inequality, and the greatest levels of corporate influence on politics since the Depression, Barack Obama stared into the eyes of history and chose to avert his gaze”.

Back in 2008, when history in the making seemed to bewitch the world, I caught stick in some quarters for writing in these pages of a scepticism I couldn’t shake when Obama’s rhetoric took flight. I caught the whiff of Tony Blair, and still do. Perhaps that was unfair. Why expect one politician to overthrow the bonkers cult of the market, after all, when the rest of us accept madness as the best of all possible worlds?