by WOLFGANG STREECK
In the language of mainstream economics, crises appear as punishment for governments failing to respect the natural laws that are the true governors of the economy. By contrast, a theory of political economy worth its name perceives crises as manifestations of the ‘Kaleckian reactions’ of the owners of productive resources to democratic politics penetrating into their exclusive domain, trying to prevent them from exploiting their market power to the fullest and thereby violating their expectations of being justly rewarded for their astute risk-taking. [5] Standard economic theory treats social structure and the distribution of interests and power vested in it as exogenous, holding them constant and thereby making them both invisible and, for the purposes of economic ‘science’, naturally given. The only politics such a theory can envisage involves opportunistic or, at best, incompetent attempts to bend economic laws. Good economic policy is non-political by definition. The problem is that this view is not shared by the many for whom politics is a much-needed recourse against markets, whose unfettered operation interferes with what they happen to feel is right. Unless they are somehow persuaded to adopt neoclassical economics as a self-evident model of what social life is and should be, their political demands as democratically expressed will differ from the prescriptions of standard economic theory. The implication is that while an economy, if sufficiently conceptually disembedded, may be modelled as tending toward equilibrium, a political economy may not, unless it is devoid of democracy and run by a Platonic dictatorship of economist-kings. Capitalist politics, as will be seen, has done its best to lead us out of the desert of corrupt democratic opportunism into the promised land of self-regulating markets. Up to now, however, democratic resistance continues, and with it the dislocations in our market economies to which it continuously gives rise.
…
This is not to say, however, that the Clinton administration had somehow found a way of pacifying a democratic-capitalist political economy without recourse to additional, yet-to-be-produced economic resources. The Clinton strategy of social-conflict management drew heavily on the deregulation of the financial sector that had already started under Reagan and was now driven further than ever before. [11] Rapidly rising income inequality, caused by continuing de-unionization and sharp cuts in social spending, as well as the reduction in aggregate demand caused by fiscal consolidation, were counterbalanced by unprecedented new opportunities for citizens and firms to indebt themselves. The felicitous term, ‘privatized Keynesianism’, was coined to describe what was, in effect, the replacement of public with private debt. [12] Instead of the government borrowing money to fund equal access to decent housing, or the formation of marketable work skills, it was now individual citizens who, under a debt regime of extreme generosity, were allowed, and sometimes compelled, to take out loans at their own risk with which to pay for their education or their advancement to a less destitute urban neighbourhood.
New Left Review for more