STOCK MARKET WATCH -- Thursday, 10 July 2014

[Demeter]

6. The Neoliberal Bailout / Jonathan Kirshner

http://www.bostonreview.net/books-ideas/jonathan-kirshner-daniel-drezner-neoliberal-bailout

The System Worked: How the World Stopped Another Great Depression
Daniel W. Drezner
Oxford University Press, $29.95 (cloth)



The System Worked is a smart, thoughtful, and important book that I largely disagree with. Daniel Drezner, a professor of International Politics at Tufts University and notable public intellectual (he wrote a pioneering and widely admired blog for Foreign Policy and now writes for the Washington Post), has crafted a cogent, counterintuitive interpretation of the global financial crisis. The argument is neatly summed up by the book’s title, and on its first page: “The punch line of this book is that the conventional wisdom is wrong. In response to the 2008 financial crisis . . . global economic governance responded in an effective and nimble fashion. In short, the system worked.”

There is much to agree with in this claim: however bitter the experience of our lingering economic malaise—the “great recession”—the world did indeed avoid another Great Depression. Another such cataclysmic meltdown could have easily taken place in the wake of the financial crisis, as many analysts at the time feared. Drezner disarmingly notes that he was among the pessimists in those dark hours. He positions the book as his explanation of why he was wrong then and why, unlike many more conventional analysts, he is more sanguine now.

Drezner is right: the roof did not fall in, global economic performance stabilized, and, in many quarters, bounced back. But Drezner glances away from an elephant in the room: the system worked much better for some than for others. Speaking of elephants, one reason Drezner reaches conclusions different than those commonly found on the bookshelves sagging with crisis postmortems is that he is grasping firmly at the belly of the beast. There was “the system” before, during, and after the crisis, and it was in the heat of the moment that the system was at its best. But that same system arguably caused the financial crisis and, left largely in place, might yet contribute to another. As Peter Temin and David Vines argue in their book The Leaderless Economy: Why the World Economic System Fell Apart and How to Fix It (2013), while “the initial policy response to the crisis by world leaders” did the crucial job of preventing “a collapse of the world economy,” international cooperation is still wanting.

Nevertheless, to have avoided that meltdown was no small thing, and it was the result of good (or, at the very least, non-terrible) public policy. The System Worked attributes this outcome to the performance of international institutions. Drezner has in mind here the “set of formal and informal rules that regulate the global economy,” and he highlights the roles of the International Monetary Fund (IMF), World Trade Organization (WTO), The Bank for International Settlements, and the “G” country meeting groups (first the G7, now the G20). Drezner does not shy away from acknowledging the flaws and limitations of these institutions, and his central thesis, “the system worked better than is commonly believed,” cannot be dismissed as cheerleading.

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