Google who’s to blame for the economic crisis and you’ll be gifted a bold array of stark headlines from Business Week to the Guardian’s 25 people to blame. I think there is something of a wintry chill to the blame game. With few pleasant distractions, many people are sharpening their knives for the creators of this mess. No one should be surprised, there needs to be some catharsis of public anger and who better a target than those in power or those with wealth. Nevertheless, while I think blaming is inevitable it’s also premature, and when we eventually pull out of the recession, and look to understand what occurred and how to prevent this kind of event in the future, the blame game as it currently stands will be a distraction from discovering the underlying causes.
First and foremost, it’s impossible to attribute blame correctly. Even if we identify some of the targets, it’s impossible to accurately calculate how influential their specific role was. This is logical, we haven’t even hit the bottom yet, and, even after we hit the bottom, the length of recovery will be different from country to country, with some roaring forwards and others limping out. The length of recession and recovery is necessary to gauge the true strength of the overall economy.
The housing boom masked the true strength of the global economy, creating a cheap credit speculative boom that glossed over the true growth of property based economies (particularly the US and the UK) but given the interconnection of the global market it actually added gloss across the global – hence Europe’s initial smugness at Anglo-Saxon recession was muted somewhat as the credit crunch subsequently caught up with the eurozone economies.
Even after the recession has ended and each country’s economic strength gauged more time will be needed; time for academics to pore over financial records of key players in the finance industries, to exam policy decisions and processes from Washington to the White House. Then and only then will we start to have a clearer idea of the causes of the recession.
That isn’t to say some figures are unworthy or inaccurate targets. There was a dangerous extension of the culture of risk taking, with Investment banks willing to invest heavily in derivatives despite warnings from prominent investors such Warren Buffet’s as early as 2003. Figures such as Madoff epitomised the dogmatic culture in banking circles, that a speculative boom was real growth a self-perpetuated deception emerged everyone was convinced because everyone else was. A confident mood replaced thorough empirical analysis of the true strength of markets.
Undoubtedly, blame should also be attributed to policy makers, de-regulation under Clinton and Bush (and Blair in the UK) in finance and pushing for home-ownership loans to those unable to afford them was an unsound practice. Even more culpable perhaps were the “wise men of finance”; the Federal Reserve and the Bank of England. These institutions stated goal of sound fiscal policy should have prevented such a dangerous over-extension of public debt from cheap credit and a booming property market. Yet both failed to take action, both lulled into the comfort zone of economic growth they as with the others, failed to rigorously examine the basis for this growth.
Even with targets such as these, the long lens of history could still present a far less individualist blame list, and this to my mind may be the heart of why the blame game of individuals is misleading. Historians, tend to look at complex phenomena, involving different groups from different walks of life and conclude that such a complex phenomena required a structure, and can’t simply be explained by individuals simultaneously choosing to participate. One possible explanation could be a value system that has encompassed economics, the so-called Anglo-Saxon culture of economics could be seen as a determining structure, encouraging excessive de-regulation and risk-taking and the kow-towing of politicians to the wisdom of Wall Street and the Square mile, without questioning their fallibility. Another could be the inherent weakness of politicians to whistle blow on false economic growth – they’re blamed if they’re correct and end the dream and ridiculed if they’re wrong.
Simply put, we won’t know for quite some time. Some figures could be latterly exonerated, unwilling actors in a wider plot, some whose crimes have yet to be uncovered will later be villified.
The US could roar out of recession and Europe could crawl out, in which case many might question the more cumbersome capitalism espoused by Merkel, but on the other hand, the US and particularly the UK may take some time to recover. . The blame for the recession may be all too easily placed at their feet and some might begin to question the unfettered capitalism that has characterised the post- Reagan/Thatcher era and wonder whether a more balanced capitalism, shorn of the inflation inducing booms and the credit crunching recessions, while less glamorous might not be more sensible.
