Marx Was Right

Foolishness Beyond Reckoning

Karl Marx said that history repeats itself; the first time as a tragedy, the second as a farce.

Johan Norberg, senior fellow with the Cato Institute has written a "step back and count the daisies" article on the financial collapse of 2007-8. It is worth reading. A couple of citations will give a flavour.

He argues that the system was fundamentally and fatally flawed--and remains so. If there is one salient factor that produced the collapse it was the persistence of society in general and government in particular attempting to prevent people having to face up to risk. Protecting people is the fundamental principle of Western democracies. Norberg writes:

The problem is, we do not have a casino economy. To borrow a metaphor from child rearing, we have a "helicopter economy." Helicopter parents hover over their kids, preventing them falling and hurting themselves. This means their children never grow up and learn to see dangers for themselves. And for this very reason, such children will eventually fall in more serious and dangerous contexts instead, because risk is part of the human condition. The helicopter economy works in a similar way. The government hovers over the banks and investors, making sure they do not get hurt too badly (and cleaning up any messes they leave behind.) Whenever there is an accident, the benchmark rate is lowered, the central bank extends credit and taxpayers' money is pumped in. The players never learn to look out for risks; they just continue their reckless behaviour, and sooner or later they will fall off a ledge that they were not watching out for and pull us all down with them.

Capitalism without bankruptcy is like Christianity without hell -- it loses its ability to motivate humans to be prudent or respect their fears.

Secondly, while there is general agreement now on what caused the crisis to happen. Enough has been said and written on the subject. But here is the kicker.

There is a broad consensus that the way was paved for this financial crisis by record-low interest rates, huge deficits and large-scale credit-financed consumption. Today, governments around the world are trying to solve the crisis -- by means of low interest rates, huge deficits and large-scale credit-financed consumption. Many people now agree that the Fed's record-low rates of 2001 to 2005 contributed to the financial crisis. Many observers now think it was utterly senseless of Alan Greenspan to cut rates drastically without worrying about the credit boom that might ensue. I would be more understanding of their moralizing if those same observers were not also demanding that central banks do the same today.

Greenspan simply wanted to avoid depression and deflation in the only way he could. For the same purpose -- avoiding depression and deflation -- the central banks of the world have now cut rates significantly faster and further than he did, without worrying about the inflationary boom that may ensue. The feelings, the intentions and the arguments are the same: Now we have a crisis, tomorrow we will worry about when it comes, in the long run we will all be dead.

Marx was right. We live amidst a grand farce. We are repeating the same cycle. But with each rotation, the populace becomes more and more immured from facing up to risk, less tolerant of hardship, more demanding of government action and intervention, and governments become more brazen and bold ("we solved the problem last time--we are the men of the hour. There is nothing we cannot fix.")

New Zealand, under its "make me no waves" government has fallen into exactly the same paradigm. It, too, is practising helicopter economics--but in its defence, it is precisely what the masses want. Having decided that God does not exist, our soft-despotic democracy has looked to the heavens to find a new god. Its avatar is a helicopter. In the pilot's seat sits a giant man. On his forehead is engraved his number: 78.