Thursday, 28 October 2010

The price of bread and circuses

There is a really interesting new book by an economist Raghuram Rajan called Fault Lines. He argues that what led to the change was not just greedy banks, but growing social inequality in the West.

And - to put it crudely - when western governments were threatened by growing protests and dissatisfaction with this inequality, they simply bought the people off by giving them a mass of cheap money.

Raghuram Rajan has an extraordinary statistic. That if you look at the the growth in real incomes between 1976 and 2007, 58% of it went to the top 1%.

Faced with this, governments made a political choice. Rather than reform society, they removed all restrictions, gave up on their moral disapproval, and allowed a system to be created by the bankers that let everyone borrow.

It was better to give in and allow the "little people" to borrow rather than let them keep on striking and threaten social order. And what's more you could make lots of money out of it.
The BBC's Adam Curtis, back in June, summarising Raghuram G. Rajan’s Fault Lines. Rajan's book has just won the Financial Times and Goldman Sachs Business Book of the Year Award. Yet the housing bubble, which was an integral part of the debt crisis. is being quietly airbrushed out of the picture and our patrician rulers are endlessly - if inaccurately - trying to pin the blame for our troubles on the welfare state and public services that at least went some way towards ironing out the massive inequalities that caused this almighty mess in the first place.

It'll be interesting to see what happens now that the social lubricant of worry-free debt has dried up. "Interesting" as in the famous curse "may you live in interesting times"...