Many solutions, including some audacious ones, promise a way out of the crisis. In order to analyze them, it is helpful suspend our usual caution and imagine a limitless and benevolent power (albeit a fictional one) that guides us to a better world. To understand the real, we must appeal to the unreal. To find safe harbor, we must use a utopian vision as our guiding star. Do not worry, dear reader. I am not king, nor will I ever be. However, it is a scenario worth imagining – a hypothetical that may help in evaluating which measures are capable of reversing the fearsome imbalances that rock the planet today. Some examples: the disproportionate ratio between the rich and the poor (people, countries and regions); between those who desire war and the overwhelming majority who want peace; between the 6,000 leaders that manage the planet (politicians, financiers and technocrats) and the 6.5 billion people led by them; between the billionaires that spend $100 million on yachts that are of no use except to compete in a regatta that lasts 15 minutes (the America’s Cup in Valencia) and the two billion people who earn less than a dollar a day and get around on foot; between the excesses of a few and the penury of the many; between the multiplication of unnecessary goods and the lack of basics like food and water; and between huge military spending and inadequate investment in health and education. On top of those problems, we face the perverse combination of two defective systems, a failed socialism and a bankrupt capitalism, as well as the impudence of those (on the left, center and right) who rise to power only to enrich their allies.
If I were king of the world, I would decree a moratorium on the frenetic accumulation of wealth and promote its redistribution; I would encourage schools to teach children to think less about themselves and more about others, less about having more and more about living better, less about entitlements and more about obligation, less about country and more about planet, less about today and tomorrow and more about the future, less about television and more about vision, less about us and more about the creatures with whom we share the earth, less about quantity and more about quality. I would assemble a body of wise men and women to draft a constitution that, in its every article, integrates innovation with conservation. I would institute a new Nobel Prize for those whose work brings together science and ethics. I would suspend the current Nobel Prize in economics until practitioners in the field learn to once again combine math with morality.
But is it possible to harmonize financial structures with ethics? A month ago, I took a short vacation to Mexico after finishing writing a book that touches on the subject of late capitalism corrupted by financial speculation. The working title for the book is South of the Crisis: A Latin American Perspective on the Late Capitalist World. To stay intellectually engaged on my vacation, I brought with me a recent book by Joseph Stiglitz (winner of the 2001 Nobel Prize in economics), in which he speaks about just these linkages between economics and ethics. The book is called Free Fall. America, Free Markets, and the Sinking of the World Economy. [[Joseph E. Stiglitz. Free Fall, New York: Norton, 2010.]] In his economic theory, Stiglitz emphasizes the role of incentives. When the incentive structure (which functions like the grammar of an economy) is distorted, the behavior of individuals and businesses orients itself “rationally” toward speculation. This in turn distorts the economy, above all the ability of markets to correctly assign prices. These pricing errors then feed themselves, producing enormous bubbles that ultimately burst. Given the complexity of the instruments involved and the interrelation of agents on a planetary level, this leads to systemic risk and the potential collapse of the entire system. According to the author, the root of the problem is loss of control over elemental variables. This has less to do with economic theory than with a political ideology, which has spread worldwide since the Reagan-Thatcher-Friedman-Greenspan era.
Stiglitz’s method involves “peeling an onion,” folding back layer upon layer of these distortions to reach a core that is no longer economic but, in fact, ethical. As Stiglitz is a great economist, he tries to salvage the good of his discipline while discarding the spurious. But even he cannot deny that over the last 20 years economics has functioned less like a science than like a promotional vehicle for a model of power that emphasizes concentration and privilege.
What I take away from all of this is that there is a deep relation between economics and ethics, a connection well established in the seminal works of Adam Smith, a theorist who critics have sorely misinterpreted. The connection is as follows: Markets are not self-regulating. Smooth functioning depends on the presence of structures (social, community and state) that exist outside the market but define its parameters. In the European case that I am most familiar with, that of central Italy, this framework takes the form of a hereditary confidence in medieval structures. This permits communities to develop prosperous small- and medium-sized businesses that enrich the communities themselves and augment (rather than diminish) social equality. Today, these businesses are in the process of being supplanted, and in some cases damaged, by recent waves of globalization. Such development happened from the “bottom up,” that is, up from the level of community ethics. An interesting example: When the Italian communists realized that they would never assume national power, they dedicated themselves to winning local elections in central Italy. Their leadership was distinguished by an absence of corruption and strong support for civic associations, which in turn helped businesses throughout the region. These civic associations, in fact, became pro-capitalist. And everything turned out fine.
Yet, Italy no longer serves as an example of leading from the “top down.” The Scandinavian countries, however, do – with enlightened fiscal policies and state controls to avert speculation. The Danish mortgage model, for example, has run smoothly and without bubbles for the last 200 years.
The American tragedy is that, owing to a generalized ideology of deregulation and possessive individualism, an enormous gulf has opened between economic operations and any kind of local or community anchor or state oversight. The economy has been transformed into a gambling house of fictional values traded through financial “innovations” like derivatives and credit default swamps that dilute responsibility for the consequences of individual decisions. Worse still, because making money has become the sole personal and cultural goal, depraved schemes have been developed, like deceiving the poor into taking on mortgages and credit card debt that they can never repay. The grand irony is that when the speculation ended and the system collapsed, those responsible, as well as the government, had to recur to state intervention on an unprecedented scale. Today, American capitalism is state-managed, with major economic players sustained by the treasury and taxpayers: some socialism! The model was and continues to be unsustainable, making any kind of alternative experimentation and embracing of ethics – from the level of day-to-day practices to abstract economic theory – a welcome change.
In the post-crisis world, the discipline of economics will no longer dedicate itself exclusively to the fantasy of being an exact science and will return, instead, to its original function: providing an objective interpretation of social reality in all of its complexity, a reality that is by its very nature values-based. Economic analysis, like medical analysis, will remain scientific but will also become an art: the art of organizing the creation and distribution of wealth in order to serve values that are shared and debated.
I’ll now return to my fictional kingdom, where the desired and the possible reign supreme. I’ll begin by citing another new and interesting book. It is written by Richard Duncan, an investment consultant and Hong Kong stock market analyst, who also serves as an economist with the World Bank and as a strategic director of the firm ABN AMRO in London. Duncan set out to analyze the hegemony of the financial sector in the world economy and reached the conclusion that late capitalism is corrupt and has brought us to the brink of disaster. [[Richard Duncan. The Corruption of Capitalism, Hong Kong: CLSA, 2009.]] These days lots of books forecast a dark future for our rapacious and parasitic system, but very few endeavor to propose solutions. Richard Duncan does not hesitate. His suggestions are based on the pressing need to recalibrate the global economy and reestablish sustainable growth. He proposes creating a new type of macroeconomic context, one which is more stable and less risky. According to the author, this context can only exist when the world’s principal economies have balanced budgets, balanced trade, a monetary system in which governments can neither create nor devalue currencies and a rigorously monitored financial sector. He maintains that this context existed in the United States 50 years ago and that it is necessary to restore it. However, Duncan adds that a drastic rebalancing would provoke a new Great Depression. Accordingly, he proposes gradual adjustments. High taxes, a dramatic reduction in spending and protectionism would, after all, only recreate the dark days of the 1930s. But the alternative of not doing anything – or of sustaining a teetering economy through intensive spending and printing curency (as is done now) – will only delay the final collapse.
So then how do we move forward? The first step (which I would take as king of the world) is to direct public spending toward new “green” production technologies (which cause minimal environmental impact), alternative energy sources and public health. For instance, a vaccine against cancer (which could only be achieved through enormous investment) would provide sufficient returns to completely erase national debt (I’m referring specifically to the case of the United States). In terms of trade, protectionism is counterproductive, as is the manipulation of foreign exchange policy. To get around this problem, it is necessary to think outside the box. For example, a country like the United States could declare unilaterally that it would only import any goods produced by workers paid a global minimum wage that increases regularly, i.e. at a rate of $1 per day every year. This would increase the average global wage from $5 to $6 a day and so on, effectively tripling wages in the span of 10 years. Emerging countries like China would improve the lives of their workers and develop an internal market, rather than relying exclusively on export. In turn, the more advanced countries could export more of their own innovative production and eliminate fewer jobs. Trade between the current debtors and creditors would become fairer and healthier.
In terms of monetary policy, if I were king of the world I would strictly regulate and limit the kinds of currency printing that governments are able to make. Balanced trade based on a global minimum adjustable wage, massive investment in new technologies and a healthy currency would be the pillars of my imagined platform. Regarding the financial sector, I would decree outright the dismantling of large conglomerated banks, the strict separation of commercial banks and investment funds and a return to the old system of local and regional banks offering credit to small- and medium-sized businesses.
Finally (and with this measure I would end my reign), I would dictate that the representatives of the people (senators, counselors and all the rest) be limited to a single term in power. This would serve to deter bribery, corruption and enrichment through public office. If, by chance, the buying and selling of votes continued, I would decree that henceforth the representatives of the people would be chosen by lottery, as happened in some cities in Ancient Greece.
At that point, I would abdicate the throne and arrange for the subsequent elimination of the monarchy. With some good things, once is enough.