Bonfire of Illusions: The Twin Crises of the Liberal World
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Something dramatic happened in the late summer and autumn of 2008. The post-Cold War world came to an abrupt end. This was the result of two conjoined crises. First, in its brief war with Georgia in August 2008, Russia asserted its military power to halt the expansion of NATO to its very borders. Secondly, on 15 September 2008 the Wall Street investment bank Lehman Brothers collapsed. This precipitated a severe financial crash and helped to push the world economy into the worst slump since the 1930s.
Both crises marked a severe setback for the global power of the United States, which had driven NATO expansion and forced through the liberalization of financial markets. More broadly they challenged the consensus that had reigned since the collapse of the Soviet bloc in 1989 that a US-orchestrated liberal capitalist order could offer the world peace and prosperity. Already badly damaged by the Iraq debacle, this consensus has now suffered potentially fatal blows.
In Bonfire of Illusions Alex Callinicos explores these twin crises. He traces the credit crunch that developed in 2007-8 to a much more protracted crisis of overaccumulation and profitability that has gripped global capitalism since the late 1960s. He also confronts the interaction between economic and geopolitical events, highlighting the new assertiveness of nation-states and analysing the tense, complex relationship of interdependence and conflict that binds together the US and China. Finally, in response to the revelation that the market is not the solution to the world's problems, Callinicos reviews the prospects for alternatives to capitalism.
neoliberal capitalism, in the US itself. If financial markets weren’t working properly there, after thirty years of deregulation, they never will.34 Let’s take a look then at three alternative perspectives on financial crises, Keynesian, classical–liberal and Marxist. Common to the Keynesian and Marxist approaches is an understanding that money matters. This is fundamentally different from the treatment of money both in the classical political economy of David Ricardo and in neoclassical
condition of corporations and the business outlook more generally. But it has had to place its hopes for stimulating the economy primarily on driving down mortgage rates and pushing up housing prices, so as to pave the way for increased household borrowing and consumer spending (including investment in houses). In their own terms, these hopes have been spectacularly realized.106 House prices in the US rose by 56 per cent in the five years to the peak of the market in the third quarter of
devaluation of capital needed to restore the rate of profit to levels that would launch a wave of sustained accumulation, but it might do so only through a prolonged depression as deep as that of the 1930s. The 1937–8 recession underlines the protracted character of that slump, which was only broken as states launched the rearmament programmes that pitched the world out of the frying pan of depression into the fire of war. Capitalism is thus stuck in a structural dilemma: if the leading states
The ‘adverse leadership’ proved to come from such paladins of the free market as George Bush, Alan Greenspan and Hank Paulson. 35 J. Schumpeter, A History of Economic Analysis (New York, 1954), p. 277. See Itoh and Lapavitas, Political Economy of Money and Banking, ch. 1, on classical approaches. 36 Quoted in H. Minsky, Stabilizing an Unstable Economy (New York, 2008), p. 129. 37 Ibid., pp. 4, 5. 38 J. M. Keynes, letter to H. D. Henderson, 28 May 1936, in The Collected Writings of John
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