Random Variable

Brad Delong laments why can’t America be run by people like Gordon Brown. The PM announced a plan last Wednesday and started implementing it today, and is now being praised as the world’s saviour. A number of theories:

1. Ideology.
   • John Quiggin wonders if New Labour can at least remember their old-skool social democracy days. William Davies instead points out that New Labour has significant experience with PFI, which are like the proposed nationalisation plans in reverse. Also, the government is keen to point out that these are temporary measures, not a return to British socialism.
2. State institutional design
   • Executive branch is too weak, and the legislature, in the form of Congress is too strong. Even so, Congress gave Paulson the power to emulate Brown’s approach even when he didn’t ask for it.
   • The US state is simply too ineffectual at dealing with disaster in a timely fashion, alá Katrina. Krugman suggests that perhaps the government’s all FEMA’d out.
   • If William Davies is right, then perhaps the federal government is too abstracted away from being knowledgeable about US PFI equivalents.
3. No one had a solution any earlier
   • Unlikely, as Krugman, amongst others, had said that banks were undercapitalised at least as early as the third week of September.

The Register’s Andrew Orlowski tried to make the point that the initial failure of the Paulson Plan in Congress was a sign that democracy works, whilst also taking a snipe at the venerable OpenDemocracy. In retrospect, the article will be remembered for being typical of libertarian wingnuttery. However, there is something to be said about the way democracy worked in the US. In the UK, Brown didn’t need to pass emergency measures before parliament, but the US struggled to find a solution that would pass Congress. There was a wholesale failure of framing, and ideological blinkers clearly prevented the right plan coming about. How can we make democracy function better? In that it allows voters to account the government whilst also being informed about issues. Don’t think there’s an easy answer.

Finally, since the 42 days law was defeated in the House of Lords, there is hope about the health of the UK’s democracy.

John Quiggin points out the one positive element of New Labour being in power. They were once social democrats, and therefore can even contemplate socialist solutions, unlike their American counterparts (Paulson’s still contemplating non-voting equity):

It’s fascinating to wonder how Gordon Brown and Alistair Darling must feel about all this. Having long abandoned their youthful leftism, they have suddenly been forced by circumstances to implement something that looks superficially like socialism, and might even lead to a genuine restructuring of society (utopian I know, but who would have thought a month ago that we would have been wondering what to do with a nationalised finance sector). At the very least, Brown and Darling must have found it easier to adapt to the sudden collapse of the existing order than those who have never imagined anything else.

We are suffering just now from a bad attack of economic pessimism. It is common to hear people say that the epoch of enormous economic progress which characterised the nineteenth century is over; that the rapid improvement in the standard of life is now going to slow down-at any rate in Great Britain; that a decline in prosperity is more likely than an improvement in the decade which lies ahead of us.

I believe that this a wildly mistaken interpretation of what is happening to us. We are suffering, not from the rheumatics of old age, but from the growing-pains of over-rapid changes, from the painfulness of readjustment between one economic period and another.

J. M. Keynes, “Economic Possibilities for Our Grandchildren” (1930) in Pecchi and Lorenzo, Revisiting Keynes: Economic Possibilities for Our Grandchildren (The MIT Press, 2008).

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Friend and artist David Henningham suggests in the comments:

I had an idea for a new game; ‘Bank Assassin’. We go queue outside a bank that is in trouble with newspapers/banners two hours before the doors open and try and attract a queue that sparks a run. It’s like Tetris; either we go home when we’re bored, or the bank goes into administration. Job done.

As much as we like a good old-fashioned bank run in the UK, the problem is big capital owners withdrawing their funds from investors, not your high street customer. In fact, the whole crisis is based on the fact that there isn’t any money being held by high street shoppers, and the financial markets are just now catching up with reality.

I have much more to say on the crisis, but I haven’t fully developed my view yet, except to say that Delong and Krugman’s pro-nationalisation approach and Tabbarok and Cowen’s tough love both look reasonable at the moment.