How Capitalism Survived The Crisis

On December 7, 2011, in banking, Federal Reserve, monetary policy, by Jon Lewis

The Legacy of the Crash: How the Financial Crisis Changed America and Britain. Edited by Terrence Casey. Palgrave Macmillan, 2011, pp. 291, $32.00 Historians, when studying economic or political events, often focus on whether a particular historical occurrence represents a break from, or continuity with, the past. There is, for instance, a general consensus that [...]

The Legacy of the Crash: How the Financial Crisis Changed America and Britain. Edited by Terrence Casey. Palgrave Macmillan, 2011, pp. 291, $32.00

Historians, when studying economic or political events, often focus on whether a particular historical occurrence represents a break from, or continuity with, the past. There is, for instance, a general consensus that the Great Depression, and both FDR’s and the Supreme Court’s response, represented a departure from American legal and political history, when the federal government intervened far less in economic affairs. But what of the responses to the financial crisis of 2008, when a Republican administration pursued a deeply interventionist strategy in the hopes of preventing a worldwide economic collapse, and the British government effectively nationalized a major bank? Did that represent the beginning of the end for Anglo-American capitalism or a temporary departure from business as usual?

The Legacy of the Crash, edited by Terrence Casey (Rose-Hulman Institute of Technology), attempts to shed light on how the crisis and its aftershocks may have transformed American and British political culture. Given that the chapters were originally academic papers presented at a September 2010 conference, it is unsurprising that the prose is largely scholarly, with numerous citations. The book is divided into three sections: the causes and consequences of the financial meltdown; political trends after the crash; and how public policy changed after it. While The Legacy of the Crash would be most valuable to scholars, readers interested in learning more about how the financial crisis affected the United States and the United Kingdom can nevertheless benefit somewhat from a perusal of the book.

Casey, in the book’s introduction, contends that the origins of the financial crisis had multiple causes. He argues against simplistic explanations of what went wrong. “It may provide moral or political comfort to identify a sole culprit, be it greedy bankers, economic theorists, short-sighted politicians, misguided regulators, or irresponsible homeowners. Reality though is closer to the plot of Agatha Christie’s Murder on the Orient Express, where everyone was guilty.” This passage, while pithy, might have been better written to acknowledge that, whereas everyone was guilty, not everyone was equally guilty. After all, it would be difficult to imagine that the crisis would have occurred but for the Federal Reserve’s easy money policies enacted after the dot-com bust in the early 2000s.

Are the American and British versions of capitalism similar? In “Was there Ever an Anglo-American Model of Capitalism?” (Chapter 2), Wyn Grant (University of Warwick/International Political Science Association) puts forth the argument “that the UK does conform to a liberal model of capitalism, not least in terms of the centrality and mode of organization of the financial services sector, but that the terrain is more contested than in the US.”

If there was indeed a crisis of capitalism, as Casey suggests in his essay, “Capitalism, Crisis, and a Zombie Named TINA” (Chapter 3), does that logically infer that capitalism is doomed to the dustbin of history? Quite the opposite, according to the author, who cites Margaret Thatcher’s acronym, TINA — There is no Alternative (to Anglo-American capitalism). “This crisis of capitalism, in short has yet to produce a counter-liberal coalition in either Britain or America, let alone that has maneuvered to a position of electoral success. Mrs. Thatcher’s axiom still rings true, at least for now.” When the two aforementioned authors write of liberalism, it should be emphasized, they are speaking of classical liberalism and free market capitalism, rather than of the American liberal-left political tradition. The Occupy Wall Street movement may, however, be the beginning of an anti-TINA coalition. Indeed, it would appear that at least one Republican pollster is concerned about the impact of OWS on Americans’ perceptions of capitalism.

While the Anglo-American model may arguably remain intact, the United States and the United Kingdom have their differences. In “Fiscal Policy Responses to the Economic Crisis in the UK and the US” (Chapter 5), Edward Ashbee (Copenhagen Business School) argues that despite the notion of an Anglo-American model of capitalism, “there were, as the financial crisis unfolded, important economic policy differences between the US and the UK. In particular, discretionary fiscal policies took very different forms.” Tom Bale (University of Sussex) and Robin Kolodny (Temple University) cite the work of other writers and remind us that that, while both are center-right parties, the Conservatives and the Republicans have both their similarities and their differences.

In the book’s conclusion, Casey posits that there was a crisis of capitalism. It was expected that the political economies of both countries would take a new path. “And yet, as chronicled by this volume,” he writes, “so much of what has occurred since then belies this prediction. In terms of public policy, economic governance, and political trends, there has been far more consistency than change.” Whether one accepts Casey’s argument, of course, is a matter of perspective. A Tea Party activist, for instance, might posit that the Obama Administration’s interventionist policies, if not combated, will fundamentally alter the relationship between the federal government and the private sector.

Casey, however, is spot on in arguing that, “one would hope that the primary legacy of the crash is to demolish the sense that ‘it cannot happen here’ and that politicians, financiers, and even individual consumers will adjust their behavior accordingly.” This assessment is even more pertinent in light of the failure of the congressional super-committee and the yet uncertain effects that the European debt crisis will have on the American and British economies.

In conclusion, The Legacy of the Crash will be more useful to the scholarly community, rather than to policymakers. While the chapters on the causes and consequences of the crash (Part I) have some useful insights, they do not substantially break new ground. The comparative approach between the United States and the United Kingdom, however, is a useful one. It would certainly be beneficial if more scholarly analyses of the financial crisis acknowledged how the Bush Administration’s policies in late 2008 were similar to, or different from, policies enacted by other western governments. Today, it is the Continent, rather than the United States or the United Kingdom, which faces an immediate financial crisis. One could imagine that in a couple of years hence, scholars will gather to assess how various European governments either succeeded or failed to respond to events that may or may not end the Euro.

Jon Lewis (c) 2011

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