The delusions of Leftist ideology Czar Will Hutton about the financial crisis are dangerously typical

The economic and financial crisis was caused by social democratic ideals. The Left must not be allowed to blame the crisis on non-existent free markets

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Will Hutton
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The Commentator
On 3 June 2012 10:50

Will Hutton, ideology Czar for many on the British Left and, therefore, much beloved by the BBC, is at least right on one thing about the current economic and financial crisis sweeping the West.

He has a keen understanding that the matter of who gets the blame for it is of the profoundest significance not merely for current policy, but also for the way in which the contours of the ideological debate will be drawn for decades to come.

Indeed, his attempts to locate the causes of what everyone agrees is a crisis unprecedented in most of our lifetimes in the alleged “free-market“, “neo-liberal“ agendas of the last few decades border on the obsessive. He protests too much, and in so doing reveals a degree of desperation that itself betrays the weakness of his arguments.

In Sunday’s Observer – to non-Brits, the Observer is the Sunday version of the Guardian – he is at it again, and the contradictions and delusions he seeks to peddle are breathtaking:

“For a generation,“ he says, “the world, with the London/New York financial axis at its heart, surrendered to the specious theory that lending and financial contracts could grow many times faster than the underlying economy. There was a blind belief that in a free market banks could not make mistakes.“

On the contrary, there was an entirely rational belief among bankers and other financial institutions that they would never be properly held to account if things went wrong – as they would be if they operated in a truly commercial, free-market environment.

They correctly calculated that, in most cases, they were too big to fail. They understood, perhaps subliminally in some cases and more consciously in others, that they did not in fact operate in a free market at all but in a social democratic twilight zone between the public and private sectors.

How right they were. 

Hutton is simply lost in this debate, wandering in traffic in his dressing gown and slippers: completely unable to see the world around him for what it is. Hence the following, extraordinary statement:

“Here is a classic case where all the gains were privatised, and all the losses were socialised. It was the much-maligned state that had to step in and clear up the mess left behind by the private sector. The free market wasn't so free after all – in fact it proved astonishingly expensive for the public purse. People across Europe still pay the price.“

The line that, “The free market wasn't so free after all...“ is almost too painful to read. Yes Will, exactly, and that’s the point you're failing to internalise even as you're writing it down.

Can’t he see that if the gains were privatised – which they were – and the losses were socialised – which they also were – then, by definition, the markets in which the banks operated weren’t free? Indeed, the notion that people or institutions in the private sphere will never be held fully accountable for their actions and that the state is always there to pick up the pieces, is the quintessential social-democratic compact.

Everyone in the markets tacitly knew this, and they adjusted their risk strategy accordingly – a fatal set of errors that was compounded by other social democratic experiments such as the state subsidized (sub-prime) mortgage loans that, arguably, started the whole crisis off in the first place.

But the failings in Hutton’s thinking go wider than this. He seems oblivious to the broader context of an entitlement society which flushes 40-50 percent of gross domestic product through the state. There isn’t a neo-liberal theorist alive that would say that such a state of affairs conforms to their ideological preferences. It’s big state social-democracy, and there’s no way to wriggle off the hook.

Bankers may have been free to trade with one another, but they did so inside the cotton wool realities of the broader social democratic society.

And then there’s Hutton’s attitude to the euro, which he wholeheartedly supports. The whole enterprise has social democratic prejudice written all over it, regardless of whether a given political party supporting it calls itself Left or Right. It too must be factored into the debt mess we are now dealing with.

The one size fits all euro-zone abolished free markets in currencies and interest rates, masking divergences between European economies and encouraging lenders in the reckless belief that there could never be a reckoning for lending to countries such as Greece since the entire edifice would be protected by Germany.

That’s not an excuse for disastrously bad risk assessment by the bankers that bought the debt or the governments that issued it, but it does go a decent way to explaining why both parties operated in the way they did.

On an analytical level, none of this should be too difficult to grasp. But the thinking of Hutton and his kind is not driven by analysis. It is driven by emotion and ideology.

It is vital that the gaping holes in their arguments are exposed, and the crisis is understood for what it is -- a crisis of the kind of social democratic agendas that Will Hutton and company have been putting in place for decades. 

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