The Great Recession was a global economic failure that devastated world financial markets as well as the banking and real estate industries. This economic failure led to increases in home mortgage foreclosures and caused millions of people to lose their life savings, their jobs and their homes. While the US has rebounded in many ways, it has also become more unequal, less vibrant, less productive, poorer, and sicker than it would have been had the crisis been less severe. The downturn has wiped away demand for certain types of work, skewing the jobs market in a way that has hurt the middle class for whom wages only recently started increasing again, and a middle class that has been shrinking since before the crisis in 2008. Even after the recession the US remains in a new Gilded Age, with income as concentrated as it was in the years that preceded the Depression of the 1930s.
The collapse of the Roman Empire was associated with economic failure. While the scale, complexity, and violence of government were unmatched, the emperors lost control over their whole realm insofar as that control came increasingly to be wielded by anyone who paid for it. Meanwhile, the richest senatorial families, immune from most taxation, amassed more and more of the available wealth and income, while also becoming divorced from any tradition of military excellence. One scholar identifies a great increase in the purchasing power of gold, two and a half fold from 274 to the later fourth century, which may be an index of growing economic inequality between a gold-rich elite and a cash-poor peasantry. The rich senatorial aristocrats in Rome itself became increasingly influential during the fifth century; they supported armed strength in theory, but did not wish to pay for it or to offer their own workers as army recruits.1
The rise of the Ottoman Empire coincided with the global transition between agrarian economies and industrial economies. Industries were emerging to provide alternative employment opportunities for those who could not be absorbed in agrarian practices. However, the Ottoman Empire failed to replicate a viable economic structure that would transverse the region and ensure that economic benefits are felt even by the lowest societies. In contrast to the Empire’s early expansionist period, it was the conservatism of this economical approach that became a problem and ultimately led to the failure of their system. With Portuguese control of the Spice Islands the Turks lost their monopoly on the spice trade going to Europe, which cost them a great deal of money. The Spanish Empire in the Americas brought in a huge influx of gold and silver to Europe that triggered rampant inflation during the 1500’s. This inflation hampered the Ottomans from transitioning their economic system.2
The “Roaring Twenties” ushered in the new age of the consumer along with widespread fraud in the financial and banking sectors. Radios, air conditioners, washing machines, and automobiles were all being purchased with “buy-now-and-pay-later” plans. By 1929, consumer credit was helping the average family enjoy the prosperity of the day. Business was good, profits were up, and stocks, which were also being purchased on credit, were soaring. In 1929, investor “pools” were formed to trade stocks. The pool would buy the shares, use media contacts to spread favorable news or rumors, and then “paint the tape” with large, meaningless trades among themselves. This would draw attention to the stock, allowing the pool to sell the shares, usually at much higher prices, to an unsuspecting public. During the two months between the actual peak in the economy in August 1929 and the October crash, personal income and wholesale prices were declining, and industrial production was actually plunging.
In the 1970’s and into the 1980’s the Soviet Union seemed to be one of the most stable political units in the world. In international politics the Soviet Union was very strong and seemed only to be getting stronger. It was, for example, securing political client states in Africa. The Western powers believed this image was valid. But in the Soviet Union few things were really what they seemed to be. In the middle 1980’s about fifty percent of the industrial output of the Soviet Union was going to the military – to maintain parity with perceived increases in US military budget. This military build-up left severe shortages of industrial goods for the rest of the soviet economy. Along with the decline in growth, there was drawn-out failure of Soviet agriculture. However, the demand for grain in the cities was increasing, so it was necessary to buy grain in the international market.
While the price of petroleum was high it was feasible to finance the purchase of grain from international sources. When Mikhail Gorbachev was assured of gaining control of the Communist Party and the government of the Soviet Union, he did not intend in dismantling communism, rather he intended to make it work. In response to the Russian invasion of Afghanistan, Saudi Arabia increased its production of petroleum drastically and consequently, the price of petroleum fell. When the price of petroleum fell in the late 1980’s the Soviet Union needed to borrow the funds from Western banks to purchase the needed grain. The Reagan Administration understandably took credit for destroying the Evil Empire, but the irony of it is that the successful strategy arose as a result of economic problems, plus reforms brought in by Gorbachev were opposed by the military industrial complex – an elite oriented towards militarism.3
Globalization has created the golden age of money laundering and the rise of kleptocracy. A kleptocracy is a government ruled by corrupt politicians who use their political power to receive kickbacks, bribes, and special favors at the expense of the populace. Kleptocrats may use political leverage to pass laws that enrich them or their constituents and they usually circumvent the rule of law. Contemporary studies have identified 21st century kleptocracy as a global financial system based on money laundering (which the International Monetary Fund has estimated comprises 2-5 percent of the global economy). Since 2011, more than $1 trillion has left developing countries annually in illicit financial outflows. A 2016 study found that $12 trillion had been siphoned out of Russia, China, and developing economies. Western professional services providers are an essential part of the kleptocratic financial system, exploiting legal and financial loopholes in their own jurisdictions to facilitate transnational money laundering.
Though unanticipated, the growth of opaque financial systems has become one of the key features of globalization: enormous amounts of money are now moving around the world covertly. Kleptocratic regimes not only are able to wield power inside Western institutions and game them to their own ends, but also use their financial heft to project influence on international media and events. Republican National Committee deputy finance chair, Elliott Broidy is now under investigation for alleged efforts to use his influence with the Trump administration to sell government influence. A probe is investigating the claim that Broidy sought $75 million from a Malaysian business official if the Justice Department ended its investigation of a development fund run by the Malaysian government.4 The Mueller investigation is analyzing the efforts of George Nader to turn Broidy into an instrument of influence at the White House for the rulers of U.A.E. and Saudi Arabia.
Neoliberalism unleashed multinational corporations, however, the benefits of globalization, outsourcing and automation came at a high cost. Companies in developed countries moved their production processes to low-wage countries or outsourced parts of their production processes to low-wage countries. Workers in developed countries who were employed in these manufacturing and service industries have become unemployed with neoliberal policies adopted by the developed countries. The result for most people in the West has been stagnation of incomes and decreased hope of better lives for their children. The failure of the present economic model has led to the rise of right-wing populism in Europe and the US. With these ideas now discredited, it’s time to devise a new narrative to guide our economies in a way that prevents neoliberalism’s excesses, promotes universal well-being as an economic imperative and ensures nationalism doesn’t once again win the battle of ideas.
In 2016 the IMF released a paper questioning the efficacy of mainstream economic policy of most of the Western world since the Cold War – basically a policy that has resulted in increased inequality and stunted economic growth. The neoliberalism of small government and austerity easily evolved into ideology, constraining the choices we appear to have and providing cookie-cutter solutions. The present ‘version’ of neoliberalism must be rejected as ideology that now masquerades as economic science. However, the market, private enterprise or incentives work when deployed appropriately. What is missing in this economic model is social policy around how much redistribution a society should seek. It is time to change public perception around the economy. It is now clear we need policies that benefit all sections of the population so that everyone enjoys the benefits of globalization, and reap rewards in terms of opportunities to reach their full potential.
The legacy of the Great Recession is a sicker, more unequal, more racially divided society. Some workers do not rebound from a recession for years, if ever, their skills degraded and their earnings diminished. Tomorrow’s narrative needs to recognize that economies are part of societies and nature but not the only important thing – the poorer members of society are still feeling the worst effects of the last recession. We must do more than point out these shortcomings; we must shift the narrative. It is necessary to usher in a new world of radical transparency. This will begin to counter the existing corruption in the system. Political events of today erode confidence in the status quo and heighten the legitimacy of alternative ideas. Movements must come together espousing an alternative. We must capitalize on the existing crisis created by the failure of neoliberalism and work cooperatively to introduce a new paradigm.
1 Was the fall of the Roman Empire a catastrophe? (23 July 2018) https://www.quora.com/Was-the-fall-of-the-Roman-Empire-a-catastrophe
2 What problems did the Ottoman Empire have within itself? (26 Oct 2017) https://www.quora.com/What-problems-did-the-Ottoman-Empire-have-within-itself
3 Thayer Watkins. The Economic Collapse of the Soviet Union http://www.sjsu.edu/faculty/watkins/sovietcollapse.htm
4 Carol D. Leonnig, Devlin Barrett, Ellen Nakashima & Josh Dawsey. (17 Aug 2018)GOP fundraiser Broidy under investigation for alleged effort to sell government influence, people familiar with probe say https://www.washingtonpost.com/politics/gop-fundraiser-broidy-under-investigation-for-alleged-effort-to-sell-government-influence-people-familiar-with-probe-say