On the politics of a crash

Five percent of the population with the highest incomes... recieved approximately one-third of all personal income.

Corporate weakness inherent in... holding companies and investment trusts. It would be hard to imagine a corporate system better designed to accentuate a deflationary spiral.

A bad banking structure - it would be hard to imagine a better arrangement for magnifying the effects of fear.

This is not an analysis of the current economic climate in the USA and the UK. These aren't the words of a contemporary John Maynard Keynes or John Kenneth Galbraith - they're the words of Galbraith himself, describing the underlying reasons why The Wall Street Crash of 1929 lead inevitably to the Great Depression of the early 1930s. Every generation has the right to make mistakes, it's just depressing (pardon the pun) when a little background reading, a little acknowledgement of similar events past could have allowed us to avoid the same old tired mistakes of the 1920s.

As the elastic thinker documents here, we are truly enetering a new era, with economic history being made with every forced banking merger and every nationalisation of a private mortgage lender. No more cries of 'hands off!' from the denizens if the financial services industry; begging bowl in hand, bankers, both commercial and investment, reach for the State to suckle on its teat for much-needed respite from crashing share prices and the collapsing money markets.

No need to recount here how this latest credit crucnch-derived, sub-prime driven crises came about - ours is not to question why and so on - but let's think about what happens next. Whether the $700bn rescue package currently before Congress relieves the pressure on banks (at the time of writing the measures have failed in the House of Representatives), whether taxpayers' money saves Northern Rock and Bradford and Bingley, one thing seems to be certain - the days of GDP relying on the de-regulated, unmolested, bonus-driven City-based finance industry are numbered. Early indications are that markets either side of the Atlantic are underwhelmed by these unprecedented manoeuvres, as shares continue to slide. How on Earth banks can hold a gun to a nation's head and complain when it comes back with the best it can afford is both beyond me and the topic for another day.

Galbraith's contention is that a stock market crash only leads to a general depression if the economy is heavily dependent on consumer spending reliant on bouyant dividends, and if income inequality means that the wealthy few thus control vast swathes of economic activity. For years following the Great Depression, even during major stock market shocks, these condtitions weren't prevalant. What's frightening now is that we seem to have returned to the pre-1929 conditions - we can only watch this space in suspended horror as to where this crash will lead, but it is up to those with progressive ideals and economic knowhow to prepare to fill the void left by the death of unfettered capitalism.