In another great 'voice of reason' piece in the LRB, John Lanchester acutely summarises the fix we're in. The combination of an arrangement of electoral interests that provides no opportunity for fiscal discipline; an unwillingness to restrain the big banks meeting ignorance about how exactly to do so without damaging 'honest' banking; and a looming debt hangover that will make us realise quite how comparatively mild the cost of the recession has been so far (compared, that is, both to prior recessions and the inescapable mathematics of how much we've paid to keep our economies moving) ... all this leads to only one likely outcome: inflation.
When alienating the voters or the power elite gets thrown out of the window, inflation is the variable that allows the global economic equation to add up back to zero.
"The government has to cut the deficit. That involves raising taxes and cutting spending. The government can’t do it too quickly, or it would tip the country back into recession. But the government will have to administer some cuts in spending, because the bond market insists on it. The government can’t cut too thoroughly, because the electorate won’t wear it. Inflation looks like the only way out. Not too much inflation, because the bond market wouldn’t like that. Also, the rules currently forbid it – but the rules, let’s face it, are the least of the problems."
And in the midst of this, the bankers continue to gorge.
Lanchester's half-hearted attempt to find some source of positive news amongst all this is the possibility that this represents the last fling of an old aristocracy aware that the mob is at the gates.
"Goldman Sachs clearly thought they were exercising heroic self-denial by awarding themselves a compensation pool amounting to a mere $16.2 billion. Haiti’s total GDP is $7 billion, and even before the earthquake one child in eight died before its fifth birthday; imagine Goldman turning over half its trough to Haiti in an attempt to change those numbers. Instead they praised their own ‘restraint’ in awarding themselves only 36 per cent of their revenue in pay pool, down from the usual 50 per cent."
Unfortunately, John, call me a pessimist, but I think your first option seems more plausible than the second.
"The bank bonuses this year are so grotesque that there are only two explanations for them. One is that investment banking culture truly is psychotic, in the strict sense of being out of touch with reality. That’s possible. The other explanation is that, as a French economist said to me when the crunch kicked in, ‘It’s over.’ He meant the whole obscene-bonus culture, the model in which the banks’ shareholders let the bankers pay themselves half what the bank ‘earns’, in the context of a regulatory and political framework in which the banks are allowed to do whatever they like. The proposals now being touted do not guarantee systemic safety, but taken together they will, for sure, make the system much less profitable. Maybe, just maybe, the bankers are pigging out this year because they suspect this is the last of the good times. If we’re looking for a glint of silver lining, does that count?"
