Tuesday, September 30, 2008

Capitalism's crisis: why Mike was right

Economic crises always bring out the retrospective prophets. During the Great Depression, the grim years of global 'stagflation' in the 1970s, and the short but sharp shocks of the late '90s, and now the crisis of 2008, self-proclaimed experts have come out of the woodwork to insist that they'd seen trouble coming all along, but been ignored by governments and investors. The left as well as the right has liked to claim the mantle of Cassandra: there's an old joke that says that Marxists have predicted seven of the last two recessions.

One man who can justly claim to have foreseen the present crisis is Mike Beggs, the unreasonably clever graduate of Auckland University's sociology department who is currently studying and teaching in Sydney. Back in 2002 and 2003 Mike and I used to enjoy long boozy lunches in Auckland bars: I would lean back and slurp my Newcastle Browns, and Mike would discourse with remarkable fluency about the enormous bubble that he saw growing around the world economy. Mike was working on a Masters' thesis on the so-called 'knowledge economy', and he seemed to relish poring over vast printouts of the latest economic data from the United States and Europe. He was also interested in what academics like to call the 'microstructural' aspects of the economy, which meant that he would trawl the media and the blogosphere to find out how individual workers and households invested money and consumed goods, and how their choices were affecting their lives.

Soon after beginning his research, Mike had been struck by the ease with which credit was being made available, in the United States in particular. In tones which combined wonder and fear, he told of how struggling American families were receiving credit cards and cheques for thousands of dollars in the mail from banks they had never even patronised. All they had to to use the cards and cash the cheques was fill in a form and post if off. Mike explained that all this easy credit was an unsustainable attempt to to keep the economy gowing by stimulating demand artificially. Back when real estate moguls were still talking about an endless boom, Mike was warning of a day of judgement.

You don't have to rely on my testimony for proof of Mike's prescience: over the past couple of years his Scandalum Magnatum blog has regularly forecast trouble for the economy. Over the last year, Mike found more and more people who were inclined to take his pessimism seriously. Last year, when he gave a public lecture on Marx's economics and the state of the global economy, Mike recognised a wealthy Sydney stockbroker in his audience.

It's puzzling that Scandalum Magnatum has gone rather quiet now, in what should be Mike's hour of vindication. Instead of proclaiming himself Cassabdra, Mike is posting about Jimi Hendrix and Brian Eno. Perhaps, though, Mike has too much integrity to join the 'I told you so' game being played out in so many corners of the internet. Read the archives of his blog, anyway.

7 Comments:

Anonymous Anonymous said...

Beggs looks like a kid.

3:49 pm  
Anonymous Mike Beggs said...

Cheers Maps!

Ironically I've become a bit of a crisis-skeptic in the years since I started studying economics proper and over the last year I've been on the soberer side of the boozy lunches... My reluctance to play Cassandra came from a better understanding of how money works and the power of the central bank.

But now things are indeed looking like a really big deal and I'm not in such a good position to say I told anybody so.

I'll try and get a suitably ambivalent post up soon... As for my online silence, it all comes down to the thesis, and at the moment, a paper that needs urgent preparation for the Historical Materialism conference in a few weeks.

4:11 pm  
Anonymous Anonymous said...

Heh, I feel vindicated. It looked like a classic case of thesis-itis to me.

Anonymous 1 you're wrong as usual. If anything, Beggs looks a bit like Hamish Dewe.

5:50 pm  
Anonymous Anonymous said...

Hamish Dewe is a notorious kid.

Yours,
Michael Arnold (and everybody else that knows him)

11:56 am  
Anonymous Anonymous said...

Stiglitz on the crisis:

http://www.guardian.co.uk/commentisfree/2008/sep/30/marketturmoil.wallstreet

11:59 am  
Blogger Richard Taylor said...

I thought that was Hamish.

In brief the problem with Capitalism is not new - it is caused by overproduction. These cycles always occur. They may not be preventable.

Things are not as bad as it all looks - most economies actually have sufficient resources. NZ is in quite a good position - the panic comes from people with big investments etc often those investments are in dubious companies. It is a question of supply and demand fluctuating and unwise use of credit is also a problem - but to run a business one needs "cash-flow" so share capital (or other loan monies) etc is /are always needed.

The US economy is so huge that its inefficiencies are magnified. The problem with Capitalism (and other "isms" or economies - is that they rarely look sufficiently to the infrastructures - the causes of big inefficiencies and (failures literally of systems - Power, bridges, roads, flood protection, aircraft safety, hospitals, etc etc ) - as it happens I think Labour have done well keeping a tight reign on spending. National will be bad news - NZ could sink under John Key
-it certainly wont be pleasant under the Nats in any case.

My grandfather made money from stock market speculations - he anticipated (he speculated "against") the "crash" for the 30s and also he bought up houses of poor people in London and sold them for a big profit. But I think these profits were offset by costs so he didn't end up a millionaire or anything - just well to do as they say - pulled himself up from the mud so to speak!

(But I think he became (deleteriously) obsessed with monetary matters and so on - which often happens with people who come from the "lower" strata who "make it" or think they have...)

And in a like manner the big companies usually ride right through these depressions etc

Certainly there are no Gnomes running it all!

10:20 pm  
Anonymous Anonymous said...

Who is Mike Beggs? Some kind of fucker?

2:39 pm  

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