Introducing neo-con economics


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How does nationalising one of the UK’s biggest banks “crowd-in the private sector”? That was the first question I had when I saw the front page of Thursday morning’s FT (£) saying the government stood ready to nationalise RBS to get credit to flow to the real economy.

Friedrich-HayekBut given that this government’s founding ideology is that the private sector knows best (because Hayek has told us so), then what evidence is there of a market failure requiring nationalisation?

The Labour government nationalised just two banks in 2008, Northern Rock and Bradford & Bingley, because they were both about to individually collapse.

When RBS and HBOS received equity injections, and all the major banks received a line of credit together with a guarantee policy they could buy into, this broader intervention was required because the whole system was about to collapse; it was not the failure of a specific institution.

Given the only banks that were nationalised by Labour had individually collapsed outside of a meltdown, and the coalition are now thinking about nationalising RBS, the obvious question becomes: is RBS about to collapse?

The answer is a resounding no: it’s capital levels are fine. It’s not lending, but neither is any other bank. There is a broad market-wide problem of low lending, but that doesn’t justify nationalisation either.

 


See also:

Northern Rock and Bradford & Bingley: Labour’s gift that keeps on giving? 2 Mar 2012

If RBS’s board is not held to account, it could become a new Leyland 24 Feb 2012

Political leaders – Stand up to the bankers, you have only your chains to lose 8 Aug 2011

Failure to remutualise Northern Rock does nothing to prevent repeat of collapse 3 Aug 2011

UK fulfilling fruits of 1980s deregulation not 1970s “paranoia” 16 Sep 2009


 

This is supposed to be a government dominated by Orange Book liberals and neo-Thatcherites. Their ideology informed their view that their policies were going to let loose the private sector to grow as we’ve never grown before.

At the same time, their ideology is also that markets can’t fail, and because markets can’t fail, there is no justification to nationalising RBS from a neoliberal perspective.

That is unless the neoliberal philosophy has been replaced and neo-con philosophy is now being applied to economic policy by this government.

Neo-cons are more familiar in the pre-emptive strike foreign policy world of George W Bush’s “axis of evil”.

To quote a pithy summary of neo-con political philosophy:

“Because man is by nature evil… He therefore must be dominated.”

This underlying moral analysis might appear a small change from neo-liberal analysis, but in fact it’s night and day when applied to economics.

Neoliberals are always worried about incentives – neoliberals think people are lazy – but they still believe contracts will be honoured: once people are incentivised the market will work; but if you’re a neo-con then you don’t believe the market will always work, because neo-con people are evil.

RBS’s nationalisation is not the only evidence of this new neo-con economic philosophy in this government.

Another example is Jeremy Hunt’s comment on G4S’s failure on its Olympic contract:

“I think it’s completely normal that you’re going to find some contractors, on a project of this size, who can’t deliver on what they promised.”

This is an extraordinary comment given G4S’s failure meant eleven thousand troops were required. The stock market (the neoliberal’s arbiter of truth) definitely saw it as catastrophic and marked down G4S’s share price by ten per cent. To hear a government minister say we should expect a large contractor to fail is very surprising from a government steeped in neoliberal ideology – to expect a major contractor to fail to honour its contract is not a neoliberal standpoint.

Needless to say, Jeremy Hunt isn’t a Marxist, but he just might be a neo-con; Halliburton vs. News Corp – discuss…

And the idea of nationalising RBS comes straight from a neo-con economic playbook.

Go back to the second half of the quote from Leo Strauss that said:

“…[man] therefore needs dominion.”

While the Orange book liberals can’t justify the nationalisation of RBS, for the neo-cons it is the evil of RBS shareholders/management/the City that is stopping bank lending and therefore there are calls for RBS to be nationalised. Economically this neo-con view is deeply damaging.

That the banks aren’t lending doesn’t mean the banks are evil; it means the banks don’t believe in the economy. And the danger of this neo-con economics is that our economic problem is a shrinking economy, not a dispersed “axis of evil”.

This is not to deny the urgent need to address the mire of illegal behaviour in the City that has been exposed (again) in the past month – and it is unacceptable there has been not a single conviction in the UK for the crash of 2008.

But we need to listen to the wisdom of one of the comments stuck to the window of a Barclays branch by Move Your Money protesters ahead of Bob Diamond’s Treasury select committee appearance:

“I want banking to return to normal.”

We need the financial system to be restored to its proper place, not cast as an “axis of evil”; restored to a place where banking serves the real economy and not the other way around.

An economy in which no-one is trusted is a disaster: when economic underperformance is being caused by an “axis of evil” from trade unionists to bankers, and from contractors to public sector workers, then on whom do we rely to grow our economy?

 


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  • http://twitter.com/TaxChicKen Chic-Ken

    Ideological idiocy on this level wouldn’t even pass as a first year undergraduate paper. The author has conflated opposing ideologies. Did he just like the sound and resonance of the word “neo”.

    Not worth addressing the argument because it is intellectually incoherent.

    This site was part of the public debate when Will Straw ran it. No more.

  • Anonymous

    Of course you can’t address anything which disagrees with your ideology.

    But that’s not surprising from someone who can’t accept that people following HMRC guidance are not doing anything wrong.

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  • Mr. Sensible

    An interesting thought…

  • http://www.reddit.com/r/CafeHayek/ Invisible Backhand

    My guess is Cormac thinks neoliberalism is a coherent and consistent philosophy. It’s actually about whatever the rich and powerful want at that moment, even if it contradicts dogma.

  • Anonymous

    It’s not really about ideology, it is about a reasonably coherent story to push while you go after the important things : money, money and money.

    None of their ideology holds water logically and they can’t explain how society and humanity benefit from it. It’s not meant to benefit society or humanity, it is meant to entrench class rule and allow general pillage of society.

  • Anonymous

    Sorry, I didn’t see your post before repeating its message!

  • Anonymous

    The usual blustering rhetoric. Please explain what you mean, if you can.

    ‘Not worth addressing the argument because it is intellectually incoherent.’

    Surely they are the arguments clever people like you need to ‘address’ in order to explain to us idiots where we are going wrong.

    Or could it be that you are just another two-a-penny troll who hasn’t really got a clue, just lots and lots of bogus outrage and pomposity?

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  • Anonymous

    It’s perfectly logical from their perspective. Logical does not equate to beneficial for the majority.

  • http://www.facebook.com/people/Stephen-Wigmore/61311392 Stephen Wigmore

    This is pretty weird. Did someone have too many beers last night?

  • http://www.facebook.com/people/Stephen-Wigmore/61311392 Stephen Wigmore

    or indeed, earlier on in the day.

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