‘Money/, So they say,’ sing Pink Floyd in Dark Side of the Moon, ‘Is the root of all evil today.’ And money makes the roots of the multipolar world, the power of great states, and the grand illusions of Western dominance in the world.
It was to the challenges of governing money that I turned in my podcast this week. I talked about the banking collapses in America (Silicon Valley Bank, Signature Bank) and Europe (Credit Suisse), and more broadly how financial collapses present challenges for governing the multipolar world and making sense of history. Without succumbing to panic!
In the podcast, I reflected on my own experiences working in government during financial collapses. I articulated three central dilemmas for government decision-makers in responding to financial crises:
- How to make prudent decisions on who pays for their losses, and mitigate impact on government debt?
- How to prevent banking system contagion for both business, government and consumers/depositors?
- How to avoid grievances about money, including bailouts, spilling over to a political crisis?
There are two larger dilemmas related to the multipolar world, both of which Adam Tooze, a leading economic historian and commentator, helped me understand better.
Firstly, how do decision makers bridge the gap between the modern financial economy and the fictional universe of economic statistics about national economies? Our national systems of economic bookkeeping have evolved as islands of GDP, trade and other attributes of money. The real transactions of the modern financialised economy are different to these fictions. Yet political leaders are oriented to obtaining a ‘beautiful set of numbers’ in the fictional universe, while being a hostage to fortunes made and lost by AI generated trading. Adam Tooze explains in Crashed,
“What drives global trade are not the relationships between national economies but multinational corporations coordinating far-flung “value-chains”. The same is true for the global business of money. To understand the tensions within the global financial system that exploded in 2008 we have to move beyond Keynsian macroeconomics and its familiar apparatus of national econnomic statistics.”
Tooze, Crashed: How a Decade of Financial Crises Changed Our World
Second, how do decision-makers make sense of the connections between geo-political and financial crises, between multiple economic crises over time, and between economic crisis and the crisis in democracy. Tooze makes a compelling case that the 2008 crisis did not end in 2008, but mutated and migrated around the world. He shows how geopolitical crises and financial crises are interlinked; the 2014 Ukraine/Crimea crisis receives a whole chapter in Tooze’s book. And he shows how doubts about democracy are fuelled by the decisions of governments on winners and losers, on steering financial systems that have escaped their understanding, on controlling events that may be beyond control. Financial crises and systems have dramatic consequences for democratic politics.
Tooze wrote towards the end of Crashed,
“Since 2007 the scale of the financial crisis has placed that relationship between democratic politics and the demands of capitalist governance under immense strain. Above all, this strain has manifested itself not in a crisis of popular participation, or the ultimate control of policy by elected leaders, but in a crisis in the political paties that have historically mediated the two. It has tested their programs, their coherence and their ability to mobilize support, and they have been found wanting.”
Tooze, Crashed: How a Decade of Financial Crises Changed Our World
I would go further, and argue the strains have revealed a much deeper, broader crisis in how we are governed. That is the issue I will be addressing in my book, Life After Western Democracy, but that argument will have to wait to another day.
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