Unemployment fell. There was uninterrupted growth averaging 2.8% between 1998 and 2006, with none of the wild gyrations seen under the Tories from 1979 to 1997.

Little wonder, then, that Bank of England governor Mervyn King talks about the period since 1997 as ‘the NICE decade’; non-inflationary, consistently expansionary.

But the good times have rolled on what may yet prove unsustainable foundations, including huge recourse to public and private debt, over-reliance on the City, and stagnation in manufacturing that has created a trade deficit of record proportions.

As Brown’s replacement, Alistair Darling - pictured - may soon find himself no more Mr NICE guy. In particular, inflation seems to be back in the system. The UK cost of living is increasing twice as rapidly as the European average. Consumers are paying 4.9% more for their groceries than a year ago, and 4.4% more for gas and electricity.

Hence today’s Bank of England decision to opt for the fifth quarter-point interest rate hike since last August. That is going to start hurting many mortgage payers and businesses with variable rate loans.

It should also assist in ensuring that sterling - already at a 26-year high against the dollar - remains over-valued, much to the detriment of UK exporters.

Time was when setting interest rates was a political decision. But one of Brown’s first acts when he took up his last job was to hand that power over to the Bank.

That leaves the Treasury with solely fiscal policy as a tool for macroeconomic management. New Labour monetary policy essentially amounts to watching the financial markets and hoping for the best. Let’s all keep our fingers crossed.

I’ve almost given up entirely on reading what passes for the ‘Marxist economic analysis’ offered on the websites and in the publications of UK far left groups.

Most of them seem to have been predicting imminent capitalist collapse ever since I became politically active over a quarter of a century ago.

Some academic writers are making serious attempts to understand the dynamics of the world economy using Marxist categories. I’ve just started reading The Economics of Global Turbulence by Robert Brenner, which rejects the standard analysis that the long downturn can be attributed to the impact of 1960s/1970s working class militancy on the rate of profit, and blames horizontal competition between national capitals instead. Cracking first chapter, verdict later.

It’s a world away from the bog standard catastrophism provided by another R. Brenner, namely Richard Brenner of Workers’ Power. You kind of wonder why he bothers putting a question mark at the end of the title of his latest offering, Foreshocks of a Global Economic Earthquake?. You know he wants a slump real bad.

OK, it’s unfair to single Richard out. His work strikes me as no better and no worse than the output of, say, Socialist Appeal or Peter Taaffe’s economic writings for the Socialist Party. Best of the bunch is Bill Jefferies of Permanent Revolution, whose sober assessments are always worth reading.

Of course, one of these years the end of the capitalist world could really be nigh. Capitalism is a cyclical system and moves from boom to slump. Given the current state of financial markets, it is even possible that we do stand on the brink of a global economic earthquake.

Even as I write these words, global equities are plunging on the back of liquidity fears, just hours after a European Central Bank injection of €94.8bn into the money markets, in a bid to shore up confidence in the financial system.

Here’s how the Financial Times today summarises the way things look from the trading floor right now:

Traders have only two scenarios for how the world’s markets and economies deal with the credit market crunch; muddle-through or meltdown.

There is little ground in between. If the credit problems blow up into a full crisis, involving the collapse of a big financial institution or two, the gloomiest predictions will be fulfilled. If they stop short of this, strong corporate and economic fundamentals suggest we should muddle through.

Bear in mind that the last few weeks have seen several thousand billion dollars knocked off the value of financial assets, equating to about 5% of world GDP. Most of this is what Marxists refer to as ‘fictitious capital’: it shouldn’t have too much impact on the real economy. The trouble is, the financial economy is now worth the equivalent of ten years’ worth of world GDP.

As a humble journo, I naturally don’t claim anything like the prescience of the average self-appointed Trot sect economic guru. But the upside is that hacks need a far lower wordcount to put their point of view across.

So permit me to compress page after page of their ramblings into this: if the credit markets go tits up, things could get ugly.

What's going to happen next in the global financial markets? Talk to senior bankers - and I have been doing just that today - and most will admit they simply don't know.

There's a minority view that the fundamentals are strong enough to haul through. The IMF is still predicting 5.3% growth in the world economy for both 2007 and 2008.

If that prognosis pans out, this will be the first occasion since the 1970s that growth has topped the 4% mark for five consecutive years.

On the other hand, some commentators are clearly spooked. Here's what one guy told the Financial Times:

Ken Murray, chief executive of Blue Planet Investment Management, who ran the UK's best performing investment trust last year, warned that markets could fall by a further 20 per cent.

He said: "We are entering one of the greatest banking crises in decades. The credit cycle has turned, bad debts are soaring, banks will go bust and stock markets will fall much further."

Of course the serious left should steer clear of mechanical 'catastrophism': the belief that a rerun of the Great Depression will automatically see the scales fall away from the eyes of the working class and suddenly catapult tiny Trot sects into the big time.

Call me a middle-age sell-out if you like, but I'm not actually praying for a serious economic downturn. Like many British workers, I've got a mortgage round my neck, and I'm kind of hoping that there will be enough money in my pension pot to fund a few years of retirement at some point before I drop dead.

As a long-term unemployed youth in the early 1980s, I learned the hard way that the working class always gets the worst of it in a slump.

Nevertheless, the idea that capitalism is a cyclical system that moves from boom to bust is at the heart of the socialist critique and of our advocacy of a planned economy.

A major recession is not a price anyone in their right minds would happily pay for a propaganda opportunity. But if that's the way things are heading, we should not refrain from showing how it underlines our case.

On some credible estimates, the subprime crisis could lead to two million repossessions in the United States. Hopefully most of those affected will find somewhere else to stay, even if entire families have to cram into friends’ spare bedrooms; inevitably, many won’t.

Tens if not hundreds of thousands of working-class Americans will be out on the streets. If that happens – and it is difficult to see what might avert it – the impact can only be highly visible. Think Katrina aftermath on steroids.

We could even witness the return of the Hooverville, as US shanty towns were known in the 1930s, lampooning the particularly dumb Republican president of the day. Whatever they get called in popular slang this time round, the term is likely to include some reference to the incumbent sitting in 1600 Pennsylvania Avenue.

But such considerations haven’t stopped one subsection of the rentier class making a killing, the Financial Times reports today:

A Californian hedge fund has made more than 1,000 per cent return this year by betting against US subprime home loans, making it one of the world's best-performing funds of all time.

Lahde Capital, set up in Santa Monica last year by Andrew Lahde, last week passed the 1,000 per cent mark, after fees, following the latest leg of the credit market turmoil. The fall in the value of subprime-linked securities has boosted a group of funds which spotted the problems in advance.

According to the FT, a ‘select group’ of hedge funds – is there any other kind? – has profited to the tune of $20bn by shorting subprimes through derivatives. You do not have to be a Marxist to recognise that this activity is absolutely parasitic.

In theory, derivatives have the legitimate function of allowing mortgage lenders to hedge against adverse market outcomes. But what Mr Lahde and his pals have done is to bet borrowed money on a sharp rise in homelessness.

I’m sitting here with my Hayek hat on, trying to think what defences an intelligent and reasonably-minded free marketeer might put forward for this. I cannot come up with a single one, although obviously I might be missing something.

Meanwhile, Mr Lahde has written to his clients, predicting deep recession:

"Our entire banking system is a complete disaster," he wrote. "In my opinion, nearly every major bank would be insolvent if they marked their assets to market." He also said he would be putting some of his own profits into gold and other precious metals.

No chance of donating even a few of the tens of millions of dollars secured by your cynical bet on other people’s housing chances into an emergency housing construction programme, Mr Lahde? Thought not.

The smelly little orthodoxy moved on from being the exclusive preserve of mildly eccentric laissez faire think tank nerds in half-moon spectacles to become the received wisdom of the parties of the mainstream right, ultimately spreading to international social democracy. That girl TINA has surely been putting it about.

But if the year 2008 so far is anything to go by, this particular truth may not be self-evident for very much longer. For the Federal Reserve to announce a surprise emergency 75 basis point rate cut is big league stuff in terms of conventional economic thinking.

The Financial Times today even compares the move to administering a shot of adrenaline to a heart attack victim. A further 50 bp is expected at the end of the month, should the patient fail to come round.

Meanwhile, George Bush is drawing up what looks suspiciously like a good old fashioned 1970s fiscal stimulus package. Omigod! State intervention! Whatever happened to absolute trust in free markets automatically reaching optimal equilibrium? One suspects a likely increase in aggregate demand for copies of the General Theory in Washington bookshops.

But reasserting the idea that governments have a responsibility to keep the economic show on the row raises the question of just how far they can. One of the reasons we are where we are now is that the Fed was unable to stop the private sector knocking out ever increasing quantities of junk loans throughout its rate tightening cycle of 2004 to 2006.

Meanwhile, the Bank of Japan has demonstrated that not even de facto negative interest rates can kick start an economy once deflation has seriously set in.

If the US is not in recession already, it will be soon enough. Trendy talk of ‘decoupling’ notwithstanding, US consumer spending has for years been the major engine of growth in the world economy. Slackening demand in Chicago cannot but have a knock-on effect in Chindia.

Shocking as the measures already taken may seem to free market fundamentalists, it is instantly clear that they are too little, too late. More radical moves are going to be necessary, irrespective of who is in the White House.

Meanwhile, as the Northern Rock debacle in this country underlines, even New Labour might start thinking again about public ownership. This would seem easily to be the best solution for the stricken mortgage bank; it is only Brown and Darling’s refusal to think the unthinkable – for fear of being tarred with an Old Labour brush – that has scuppered nationalisation. It may still be forced on the Treasury.

Think of all of this as climate change; if the economic temperature gets a couple of degrees hotter, the left will have its best opportunity in a generation to make the case that the market doesn’t always no best.

Silly question, I know. An arrangement like that would seem pretty damn good to those of us who open our payslips each month and gasp at the amount that has been docked for the benefit of the Inland Revenue.

Well, Britain is offering just such a deal to hundreds of thousands of the richest people on the planet right now, and the little so and sos have even got the cheek to gripe.

The reason for the grumbling is that for many years now, wealthy foreigners have had the option to live here as so-called non-domiciles, leaving them not liable for any UK tax on overseas earnings or offshore assets.

As shadow chancellor, Gordon Brown repeatedly attacked the loophole that allowed this to happen. Belatedly, New Labour is now looking to change the rules, so that such people are taxed at a flat rate £30,000 per annum after a seven-year freebie period.

For multimillionaires - and most of these people are multimillionaires, if not billionaires - this move is essentially symbolic. The sort of people willing and able to spend £1,000 on a single meal won’t even notice the difference in their bank accounts.

Neoliberal Britain builds society around the needs of business, from the education system to infrastructure spending to state subsidies for low pay. So it is only appropriate that the rich contribute to the arrangements that enable them to accumulate and hold their wealth. What they are being asked for doesn’t begin to cover what they truly owe the rest of us.

Oddly enough, non-doms don’t see things this way. Some of them have been moaning about the proposals to former Confederation of British Industry chief Lord Jones (pictured), now a minister in a Labour government without being an individual member of the Labour Party.

In an interview with the Financial Times today, Lord Jones argues that taxing non-domiciles could drive them out of London, ending the capital’s standing as a financial services centre.

Don’t believe a word. London’s pool of financial services expertise would remain in place even if the rentiers departed. What’s more, my guess is that few of those affected would willingly trade the excitements of a great world city for life in some low-tax Dullsville, for the sake of a tax bill that comes in at less than the Bulgari sparklers many of them will be buying their mistress later this month.

Yet the debate as it is being played out in the media is missing the most important point. Effectively, the super-rich are being for asked what will vary between a low single figure percentage of their income to a small fraction of 1%.

Standard rate tax payers are paying 20%; middle-income earners - and I’ll admit I am one - are paying 40%. Where is the fairness in taxing the working and middle classes proportionately several hundreds times more highly than the private jet set?

Good on GMB general secretary Paul Kenny for calling for Jones to go. It’s just a pity that Britain no longer has a labour movement with the self-confidence to demand progressive taxation, let alone the expropriation of the expropriators.

Finally Alistair Darling has gotten the message. The erstwhile bearded Trot himself has brought the UK’s number five mortgage lender within the ambit of proletarian property relations. Only another 199 of the top 200 monopolies to go and Britain becomes a workers’ state, comrade.

Shame the government didn’t see things the same way when Rover was going tits up. But in the financial services-driven British economy of today, grubby little manufacturing concerns seem somehow not to count.

What this episode proves is that nationalisation really is no worse than, say, bestiality, ebola, paedophilia, diabolism or any given combination thereof, and could at least be seriously discussed in other contexts.

Yet even as an advocate of various forms of common ownership – varying from nationalisation to municipalisation and workers’ co-operatives, depending on circumstances - I don’t see any special merit in bringing a one-time building society that got too big for its boots into the public sector.

It was surely right to try to protect depositors; the greedy shareholders can frankly swivel. As economics textbooks make clear, the dividends they have been pocketing all these years are their reward for putting their capital at risk.

The principle is the same as having a tenner on a gee gees; if you lose the bet, you don’t get your money back. Without state intervention, Northern Rock would be worthless. The whinging from the likes of RAB Capital is nauseating.

The danger with today’s development is that public ownership will be regarded simply as a means of bailing out companies up a well-known creek, while the positive case for such measures will be disregarded entirely.

Let's get away from the lie that the unfettered market economy the Tories and New Labour alike have nurtured has been a runaway success. It has wrecked manufacturing industry, and reduced British workers to the lowest level of employment rights in the industrialised world.

Privatisation has, of course, freed taxpayers of the need to pump hundreds of millions of pounds a year into inefficient nationalised industries. Now we just pump billions of pounds a year into inefficient privatised businesses instead.

Selling off such natural monopolies as the railway system and basic utilities simply licences the fleecing of the customer for the sake of private profit.

Legally speaking, the first duty of a private company is act in the best interests of shareholders. But anyone with any sense wants hospitals to act in the best interests of patients, schools to act in the best interests of pupils, and water and electricity companies to act in the best interests of consumers.

The notion that private sector management is inherently superior to, or necessarily ‘more dynamic’ than, public sector management surely stands as comprehensively shredded as the last set of Enron accounts. Consider such triumphs as Railtrack, Equitable Life and Marconi.

That’s why the railway system is subsidised by the taxpayer to the tune of £5bn a year, three times what was paid out to BR. According to the House of Commons transport committee, the tube now costs the taxpayer a staggering twenty times as much as it did when it was in the public sector.

Some industries are – as economic theory used to recognise - natural monopolies. There is no point building a second set of water pipelines and installing a second set of taps in every household.

But in order to control or influence a major company, the choice is basically between regulation, financial incentives and public ownership. Given that private firms exist to maximise profits, it is perfectly reasonable to legislate that they do not do so by cutting down rain forests or using toxic chemicals.

It is unrealistic and unreasonable to try to use regulation to ensure that it pursues a goal entirely different from maximising profits, such as satisfying social needs within a framework of sustainable growth. After all, the company can be taken over and the management sacked if it strays from the profit maximisation path.

That’s were democratic social ownership comes in. The right have won the propaganda war on this one for more than two decades. But if the left cannot put the idea back in circulation, nobody else will.

There was talk aplenty of economic meltdown after the stock market collapse of 1987, the Asian financial panic of 1997, and the Russian default followed by the Long Term Capital Management bailout of 1998. All proved false alarms.

Yet things are getting so bad out there in the markets right now that catastrophism is no longer the preserve of the likes of Militant Tendency and the Workers’ Revolutionary Party. If it wasn’t such an inappropriate metaphor, you could almost say it is becoming big business.

Leading the way in all this is a man called Nouriel Roubini. A professor of economics at Columbia University, Roubini is expecting a re-run of the Great Depression, an event as indelibly seared into the collective consciousness of the global ruling elite as the October revolution is in the folk memory of the revolutionary left.

He is increasingly a fashionable name for economics pundits to quote. Larry Elliott bigs him up in his Guardian column today, which concludes that ’a return to soup kitchens and dustbowl economics should not be ruled out’.

If half Roubini’s predictions pan out, you can expect to hear a lot more of this guy over the next period. It wouldn’t surprise me if his PA is even now booking television slots well into 2009.

Naturally his arguments – summarised here if you are interested - concentrate on the prospect for the US. Here’s Wolfgang Münchau in the FT today on the outlook for Britain. The language is less lurid than Elliott’s, but the prognosis unmistakeably gloomy:

In the next few years, I expect the UK economic miracle to be exposed for what it was: an overlong joyride on the back of an overlong asset price bubble. The UK economy is about to undergo a downturn at least as large as that of the US – maybe even worse, because of an even more inflated housing market and because the financial sector constitutes a larger share of gross domestic product.

He may be way off the mark, of course; in truth, the predictive track record of bourgeois economists hasn’t been much better than that of the left. Neoclassical economics has not foreseen a single stock market crash; its supporters sincerely believed that shock therapy would deliver a free market in Russia, because ‘corrupt gangster capitalism’ is not one of their theoretical categories.

Yet let's grant the consensus position. The obvious question is how the political tactics of socialists can best take advantage of a changed situation that is going to do much to puncture the unquestioning faith in the free market that has grown up over the last three decades, while abjuring a crude ‘slump-radicalisation-revolution’ model.

Astonishingly, there is currently no dissent from the neoliberal consensus at any point on the spectrum of establishment politics. Yet market forces are not in any way akin to the force of gravity, for instance. Economic policy is a matter of deciding priorities. Another world is possible.

One point we should never tire of making is that neither the Tories nor Labour can bring about uninterrupted economic growth under capitalism. As Lord Lawson himself noted: ‘Abolition of the economic system is not within the power of any government to deliver.’

Moreover, we should also stress that the market is incapable of respecting the environment, which provides no price signal to express the cost of its erosion or even long-term destruction.

But whatever we do, the message needs to be more refined – and argued with rather more attention to detail – than was often the case in the past.

Now something is clearly sticking to the saucepan, as last week's failure of Carlyle Capital Corporation and JP Morgan’s dramatic rescue of Bear Stearns over the weekend underlines.

The job losses on Wall Street will translate into job losses on Main Street soon enough. There can be little doubt that the US is currently in recession, even if the time lag involved in collecting and processing data means that this is yet to be confirmed by the stats.

Americans are no longer in a position to act as the world's consumers of last resort; the repercussions will be felt globally.

Until now, the prognoses offered by serious economic commentators for the coming period have been divided. But in the last few days, the optimists appear suddenly to have gone to ground. A consensus seems to be emerging that we are about to witness a sharp downturn, and perhaps the nastiest since world war two.

Some are even drawing parallels with the 1930s, a decade whose events are indelibly impressed into the collective consciousness of the international ruling class. Yet economics textbooks insist that a re-run of the Great Depression - pictured - is now impossible. Welfare payments - even at the nugatory levels on offer on the other side of the Atlantic - supposedly constitute built-in stabilisers.

Unfortunately, the same smelly little orthodoxies that prevailed in the Hoover era have been received wisdom ever since the collapse of the Keynesian consensus in the late 1970s. Even now, some neoclassical economist somewhere is arguing that benefits need to be cut so that the labour market clears.

Efforts by policymakers to influence the economy deploying solely the prescriptions of the last three decades will prove, to use Keynes' own analogy, as efficacious as pushing on a piece of string. As the experience of Japan in the 1990s proves, not even interest rates tantamount to free money are guaranteed to restart an economy once a property bubble bursts.

What is more, if the Fed does go ahead with today’s anticipated full percentage point interest rate cut, one consequence could be the destabilisation of emerging market economies that peg or tightly manage their currencies against the dollar.

US interest rates below 3% will fuel inflation in places such as China, Russia and Saudi Arabia. The resultant surging food prices could even fuel social unrest in these countries.

It’s odd to reflect that nobody under 35 will have experienced a serious or protracted recession in their working lives. Younger readers can take it from those that have; they are not much fun. They don't translate into automatic radicalisation, either.

Remember the late eighties and early nineties, when hundreds of thousands of people lose their homes, as mortgage repayments became just too much for them?

Meanwhile, millions more learned at first hand the meaning of the phrase ‘negative equity’. Much of the blame attaches to John Major, who as prime minister oversaw the policies introduced during his stint as cabinet minister and chancellor.

Crucially, the Conservatives persisted with interest rates as high as 15%, doing everything they could to keep sterling in the European exchange rate mechanism at a ludicrously over-valued rate against the deutschmark.

So oblivious were they to the pain the policy caused homeowners and exporters alike, you could be forgiven for suspecting chancellor Lamont’s special advisers were on drugs or something.

Interest rates today are rather more favourable. Three cuts from the Bank of England since December have brought the benchmark down to 5%.

The trouble is, New Labour has no say over the decision. One of Gordon Brown’s first acts after arriving at Number Eleven was to hand over rate-setting powers to the central bank. Critics at the time charged that this amounted to a policy of watching the financial markets and hoping for the best.

The consensus forecast is that the Bank will come up with further cuts this year. But if loans are no longer available to first time buyers, the cost at which they could be had if they had have been available becomes kind of academic, anyway.

As I have argued before, Brown was a broadly successful chancellor, and not only when measured against the yardstick of the unlamented – un-Lamonted? – bloke who used to whistle in the bath.

House price crashes are not necessarily fatal to the government of the day, as the experience of the Major years proves. The Tories went on to win the 1992 general election. It would hardly be fair if Brown was to be ejected for on these very grounds. But voters don’t seem to be in a very forgiving mood right now.

It doesn’t half make me feel old to realise that nobody under 35 out there has experienced an economic recession throughout their entire adult life. By the time I was your age, kids, I’d already survived two.

Now it looks like another downturn is on its way. Capital Economics – one of the most highly-regarded economic consultancies – predicts that gross domestic product will fall 0.2% in 2009, the first decline since the Major era.

Of course, as the old joke goes, economic forecasting exists in order to make astrology look good. The Treasury is sticking to the line that it expects GDP growth of between 2.25-2.75% next year.

But it has to be said that such a prognosis looks a touch optimistic. Figures from the Office of National Statistics show that GDP growth in the second quarter of 2008 was a big fat zero.

Recessions are about more than numbers on paper, of course. They spell misery for millions of people, as I know to my personal cost. In the early 1980s - at an age when many people are starting their careers - I was through no fault of my own a long-term unemployed youth. In the early 1990s, I got made redundant and became unwillingly self-employed. My head stayed above water, but only just.

My job seems secure enough this time round, touch wood. Middle-class professionals are usually able to survive slumps, perhaps with a spot of belt-tightening where necessary.

But according to a survey from the TUC published today, 3.3m workers – around 13% of the workforce – reckon they stand a fair chance of getting the boot over the next year or so. They have my every sympathy.

The thing is, in recessions, people usually look for somebody to blame. Understandably, their inclination is to blame the party in power. This need not be fatal to a government’s re-election chances. After all, the Tories won in 1983 and 1992.

But in the current climate, the reality that the economy is going to get worse from here on in is surely the absolute kiss of death to any hopes that Labour can somehow hang on to office if it delays going to the polls until the last possible moment. That’s just when the next recession is set to be reaching its lowest depths.

The birth of free market fundamentalism in its modern variant can be dated precisely to the other 9/11; on the 11 September 1973, Chile’s military overthrew the country’s elected socialist government and proceeded to let the market rip, in line with the prescriptions of Chicago University.

The bloody experiment that followed will forever give the lie to those who insist that political democracy is a necessary corollary of capitalism.

Among those who openly expressed admiration for Chilean dictator Augusto Pinochet and ‘the miracle of Chile’ were Margaret Thatcher and Ronald Reagan. Out when the post-war consensus and the New Deal, in came monetarism and reaganomics.

Come 1989 and bourgeois triumphalism started to go global. Stalinism was swept away and Russia subjected to a course of shock therapy that ultimately proved all shock and no therapy.
Even China has seen the introduction of modern capitalism in its most extreme form, again with few concessions to democratic basics.

Around the time of the dot com boom, there was much talk of a new paradigm. For the free market, the only way was up. Thus did the hubris of bourgeois triumphalism reach its apex.
Interestingly, one online dictionary gives a two-fold definition of triumphalism:

triumphalism (plural triumphalisms)
1. The attitude or belief that a particular doctrine, culture, or social system, particularly a religious or political one, is superior and that it will or should triumph over all others.
2. Excessive expression or demonstration of glee at the defeat or failure of a rival; brazen gloating.

On definition one, anybody who has developed political opinions is ipso facto a ‘triumphalist’; we all think the world would be a better place if it conformed to our own outlook. It is definition two that is rather more telling. For the bourgeois triumphalists, the credit crunch has brought the days of ‘brazen gloating’ are at an end.

Two articles from well-known intelligent free market commentators this morning make that plain. Samuel Brittan writes in the Financial Times;

What does the great credit crunch do to the case for competitive capitalism? Many revisionist left-of-centre politicians not only have risked their careers to make the case for market forces, but have also had to jettison their deepest lifetime convictions. Are they now to stand on their heads and say they have been wrong all along? And if they did so, where would they turn?

Even if in the end we suffer no more than an average post-second-world-war recession it will still look like a narrow escape owing to the readiness of leaders such as Hank Paulson, the US Treasury secretary, not merely to jettison free-market principles but to take risks with prudence to bail out US corporate bodies. There will be no “glad confident morning” for free-market principles for a long time to come.

Even more explicit is Anatole Kaletsky in The Times, writing under a standfirst that maintains that 'an historic turning point has been reached: the West is ditching its faith in free markets and private enterprise'.

He goes on to consider the nationalisation of Fannie Mae and Freddie Mac and argues that it is astonishing that the US Government could simply announce itself as the owner of these giant companies, wiping out overnight some $20 billion of shareholder wealth. But what is even more significant is that nobody in American politics or business objected to this anti-capitalist coup.

A number of qualifications need to be made to that point, of course. The takeover of Freddie and Fannie was not in any sense an anti-capitalist measure; it was a pro-capitalist necessity. But it underlines the case that public ownership is sometimes socially essentially.

Any ‘turning point’ is so far confined to the policymaking elite and has not been generalised in terms of popular consciousness. And rejecting free markets is a different thing altogether from turning towards social democracy or democratic socialism.

But a softening of the intellectual climate will be welcome, in that it should make it easier for the left to get a hearing and perhaps more prominent platforms.

Besides which, anything that weakens the self-confidence of world's ruling classes is good news for those who want to put their rule to an end. It's just simply nice to see the smug smiles knocked off the arrogant bastards’ faces.

Men who are by personality type essentially business school dweebs half believe the propaganda, as if the ability to concoct ever more complex derivatives is comparable to being a science fiction death machine or starring in a porno flick.

After the collapse of Lehman Brothers and Bear Stearns, the close call for Merrill Lynch, and the de facto nationalisation of Fannie Mae and Freddie Mac, they may this morning be feeling rather more humble. Not so big and swinging now, guys, right?

In orthodox economic theory, financial markets are supposed to act as the brain of the financial system, acting as an efficient mechanism for the allocation of resources. But because they are allowed to operate as subsidised casinos, they are failing in that function.

By paying huge bonuses on the basis of short-term performance, with no penalties for screwing up, banks create massive incentives for their employees to take stupid risks, which so long as they work out can then spuriously be dressed up as ‘value creation’.

And they fail not just themselves. They fail those of us who are buying our home on a mortgage or contributing to a pension scheme, and those who remain unemployed when they could be in work if a viable business had been able to secure funding.

Banking has somehow seen to it that while its gains remain privatised, major losses - when they occur - are effectively socialised. As the only business that can potentially destroy entire economies, it has governments by the short and curlies. Controls on their activities are a matter of legitimate public interest.

Despite my political past, it is comparatively rare for me to quote Trotsky approvingly these days. But the Old Man makes some pertinent points on this score in no less a work than the Transitional Programme, when he writes:

The banks concentrate in their hands the actual command over the economy. In their structure the banks express in a concentrated form the entire structure of modern capital …

[I]t is necessary to merge all the banks into a single national institution, he writes, and goes on to call for the expropriation of the private banks and the concentration of the entire credit system in the hands of the state

A single national bank in state hands would obviously be unworkable. It would be unnecessarily bureaucratic and open to political abuse. But a substantial degree of social ownership in financial services has always struck me as a good idea.

In the current climate, it is now happening. The nationalisation of Northern Rock, for example, must mark the first nationalisation of a major bank in an advanced capitalist country since the 1981-83 Mitterand government in France.

As I argue below, the ‘conservatorship’ of Freddie and was not in any sense an anti-capitalist measure; it was a pro-capitalist necessity. But the free market fundamentalist administration of Dubya has effectively implemented the form, if not the content, of a key Trotskyist policy. These are the times in which we live.

The value of the derivatives market in 2006 was estimated at half a quadrillion dollars. That’s a five with 14 zeros on the end of it, or more than ten times the value of the output of every real economy in the world combined.

The usual explanation for its existence is that derivatives are primarily instruments for legitimate hedging. But there is no reason for anybody to hedge more than once. In short, the derivates market is at least 90% explicable by wanton speculation without any semblance of rational economic justification.

Now perhaps hundreds of billions of dollars worth of derivatives have, in the jargon, ‘gone toxic’; nobody knows what – if indeed anything – is the worth of the underlying assets on which they are based. That, at bottom, is what did for Lehman Brothers and Merrill Lynch and may yet fell AIG.

If those institutions had simply been forced to take the hit, that would have been bad enough, but they might have survived. However, these pieces of paper – not least those backed by subprime mortgages - were often put up as collateral for further borrowing. And so we are where we are now, staring world recession in the face.

From any rational political standpoint, rightwing as much as leftwing, the questions that need to be asked at this juncture are fairly obvious. Most urgently, the task is to come up with immediate policies to mitigate the damage. When eventually there is time for reflection, we will need to consider how this situation has been allowed to develop, and how it can be prevented from happening again.

But it is already apparent that Black Monday is an indictment of the free market orthodoxy that has dominated economic thinking for the last three decades.

A handful of economists – most notably the late Andrew Glyn from within the Marxist tradition and the Keynesians Joseph Stiglitz and Larry Elliott – can be credited for seeing in advance where all this was heading.

Interestingly, the neoclassical right simply didn’t see it coming. That, in retrospect, is hardly suprising; the irrational exuberance boys didn’t foresee the October 1987 crash, or the Asian crisis of 1997, or the Russian debt default and the Long Term Capital Management bail out of 1998, either.

Worryingly, there is currently no dissent from the neoliberal consensus at any point on the spectrum of mainstream British politics. New Labour are as much in hock to this pernicious ideology as the Lib Dems and the Tories. That should provide an opportunity to the socialist left.

In the 1970s and 1980s, the left did have ideas to put forward. Whatever criticisms can be leveled at the Alternative Economic Strategy put forward by the Bennites and the Communist Party in this period, at least it was an internally coherent radical platform.

A quarter of a century on, it is not good enough to cut and paste these proposals and advance them as joined up policy thinking, not least because of the many ways in which world capitalism has changed since then. Platitudes and rehashed transitional demands are not good enough, either.

It would be criminal to allow the right to dominate the debate in the years ahead. But unless we come up with some convincing arguments, that is what will happen.

The Financial Crash of 2008 – or whatever posterity eventually decides to call the events of the last week or so – is potentially an event of era-defining historical significance. It will not fail to have massive long-term political and social consequences, many of which we cannot even guess as yet.

You’d never guess that from the reaction of Britain’s political class, for whom it is pretty much business as usual. Wakey, wakey, guys! That giant sucking sound you might just faintly perceive in the background is the noise major financial institutions generate as they implode, destroying tens of thousands of jobs and making many people homeless in their wake.

To be charitable, the Lib Dems have half an excuse, as it is their conference week. Unfortunate timing or what? Meanwhile, Labour is wrapped up in personality-based internecine squabbling over Brown’s leadership, which is of little import to anyone outside certain somewhat selective coteries.

The Tories are pretty much keeping their mouths firmly shut, perhaps dumbstruck that their entire free market ideological framework is unravelling before their eyes. Then again, many Tory MPs have yet to return from the desirable sunspot in which they spent their summer.

But in the popular consciousness, the quasi-religious veneration of ‘wealth creators’ is right now evaporating, possibly for good. To the extent that the taxpayer picks up the tab for sorting out the mess, a backlash is on the cards. It may even amount to widespread anger. Such a sentiment is something savvy politicians will seek to exploit.

In the past, the Tories – the party chiefly associated by the public with finance capital – could have expected to take a pasting. Labour’s left would have had a field day, with Labour Research pamphlets detailing the links of senior Conservatives to the investment banking sector selling like hot buttered collateralised debt obligations, circa 2006.

It speaks volumes about the erosion of the political space between Britain’s two major parties that this scenario will not happen. Sadly there is currently no Labour left MP of sufficient stature, support base, or intellect to act as a figurehead to promote a twenty-first century equivalent to the AES.

Thus the door is left open to populist politicians. The far right may start dropping devious hints about the rootless cosmopolitan character of the speculators. Many of them are from a certain ethnic background, don’t you know?

What of the far left, traditionally the most trenchant critics of monopoly capitalism? Look at some of the main far left websites and you can already read triumphant claims of the vindication of correct Marxist analysis, even if the correct Marxist analysis in question is in complete contradiction to the correct Marxist analysis advanced by the other sects.

This is difficult to take too seriously. At bottom, the most that such groupings have been saying is that at some point, financial capital would inevitably take a nosedive. Given that the existence of a credit cycle is hardly in doubt, that is not much of a boast.

It could, of course, have been different. A serious socialist party with real labour movement roots could have developed an analysis of where we are now, both in terms of Marxist categories and in more readily understandable outline for agitational purposes.

If such an organisation had worked steadily for years to popularise these ideas, it would surely have been able to gain support in the months to come. But because we don’t have an adequate left in Britain, this cannot happen, either.

If conspiracy theories about 'Jewish money men' do start to gain a wider hearing, the irresponsibility of the left over the last period will have to take some of the blame.

UPDATE: Three wonderfully revealing paragraphs from the Financial Times, discussing the government’s ban on short-selling financial stocks. The quote from shadow chancellor George Osborne deserves widespread repetition:

The development has left the opposition party on the backfoot, as City regulation becomes a new political dividing line. "No one takes pleasure from people making money out of the misery of others but that is a function of capitalist markets," Mr Osborne said.

"The suggestion our thinking is influenced by the origin of party funding is cheap and silly," Mr Duncan told the FT. "Vince Cable talks total tosh about speculators . . . Every buyer has a willing seller and every seller has a willing buyer - that's a market."

But when likes of George Soros toy with that idea, they do so for express symbolic effect. Resort to any notion of a return to the years of Great Depression is the kind of talk purposely designed to shake people up. It is, in effect, the most serious warning it is possible to give.

That decade is deeply entrenched in the collective memory of the free market right as the years in which the wheels nearly came off the capitalist show.

We’ve all seen the black and white newsreel footage; the Jarrow March (pictured), the soup kitchens, the Hoovervilles, the rise of fascism in country after country.

Many of us will augment those pictures with the stories we heard as children from older members of our families who were caught up in the crosscurrents. In my case, educated men were reduced to shining shoes for a living, or ignominiously deported from countries in which they tried to find work without a work permit.

It’s worth noting that this still is 2008 and not 1931; some sections of the left have at times given the impression that they would relish a slump of Great Depression proportions, on account of the effect they imagine this would have in radicalising popular political consciousness.

Given the sheer extent of the human misery this would entail, that is unforgivable. It also seems to forget that – at the level of government, at least - the principle beneficiary of hard times is all too often the reactionary right.

Little wonder, then, that the ‘1930s in slow motion’ perspective developed by Tony Cliff at the start of the 1990s proved to be wishful thinking during a period which saw the start of sustained capitalist expansion, disastrously wrong-footing the Socialist Workers’ Party for an entire period.

What conclusions can we draw? At the very least, the financial markets crisis of 2008 is likely to mark an important political turning point. When governments of the ideological stripe of George W Bush are forced to resort to state intervention on a titanic scale, it cannot fail but to bolster case for tighter regulation of the free market.

It suddenly turns out that the very things that globalisation supposedly rendered impossible for nation states in this day and age – the nationalisation of major financial institutions, or a ban on short selling, for example – can be done in no time flat if need be.

Deregulation has been an integral component of neoliberalism as it has emerged in the west over the last 30 years. One of the first actions of the Thatcher administration was to scrap wage, price and exchange controls, and it followed through with the Big Bang in 1986.

The climate is all of a sudden very different, and could expand the political space available to modern social democracy, and perhaps revive a current that has sometimes seemed at death’s door in recent years.

But what if the pessimists are right? Such a possibility must be at least measurable. In that case, the basic underlying question of all economics – which class gets what – is back on the agenda in a way it has not been for a long time.

That will mean an audience for radical answers to that question. Perhaps it’s not for nothing that the Archbishop of Canterbury has suddenly taken to favourably mentioning of Karl Marx.

Yet it is precisely this fallacy that is doing the rounds in the wake of the Paulson/Bernanke Wall Street bail-out package, expected to secure congressional approval today. Take some recent comments by Texas congressman Jeb Hensarling, for instance.

This rising conservative Republican star - an economics major, astonishingly - argues with apparent seriousness that the plan puts America on ‘the slippery slope to socialism’. Come again?

The US hasn’t even got as far as universal healthcare provision yet, so I sadly suspect common ownership of the means of production, distribution and exchange is still some way down the agenda.

Meanwhile, for senator Jim Bunning, another Republican, what we are witnessing is nothing short of ‘financial socialism’. Such is the intellectual level of the mainstream right on the other side of the pond these days, it seems.

I guess it has been so long since we’ve witnessed a full-on red revolution anywhere on the planet that the US ruling class has quite forgotten what self-respecting Bolshevism actually looks like.

But here’s a hint, guys; Marxist theory does not usually regard handing over suitcase after suitcase of high denomination dollar bills to investment bankers as the hallmark of authentic proletarian power.

Sorry to have to break it to you, but what generally happens in these cases is that workers get to expropriate bosses. The process is quite the reverse of what Paulson and Bernanke - pictured - are trying to do, it seems to me.

But more laughable still, if only on account of her closer geographical proximity, is this nonsense from dear old Janet Daley, a 1960s leftie herself, in today’s Daily Telegraph:

The next election - both here and in the US - is shaping up to be a referendum on free market economics. All those old anti-capitalist diatribes are being resuscitated with triumphal delight by the side that definitively lost the great political argument of the last century.

The Tories will not just be running against Labour and its current leadership. They will be running against a reinvigorated soft Marxist ideology which will infect the news coverage and analysis.

Hang on a minute. If the great political argument of the last century was indeed ‘definitively’ lost, how come the question is still being debated? It can only be that the settlement was not so definitive after all. Capitalism remains open to critique.

And if the next general election is to be ‘a referendum on free market economics’, where exactly are those of us all in favour of ‘reinvigorated soft Marxist ideology’ supposed to put our Xs?

New Labour certainly offers no alternative; Gordon Brown’s conference speech last week went out of its way to stress the party’s pro-market stance, for instance. So much for any referendum element when Britain next goes to the polls.

For clarification, it needs to be stressed that all of the actions so far in this crisis - emanating either from Washington or London, or the other European administrations that are now being sucked in - have ultimately been carried out in the interests of the capitalist ruling classes of the countries concerned.

In saying that, I am not maintaining that any given measure was wrong, or that better alternatives were readily at hand. It is true that the economic consequences of doing nothing would be dreadful for ordinary people.

But socialism this isn't. People such as Hensarling, Bunning and Daley should have the courage to acknowledge that it is the system in which they are part of the privileged minority that has brought this situation about. They could at least say 'thank you' to the rest of us, who are being forced to foot the bill.

UPDATE: The US right is serious on this one; they have put the world at risk of prolonged recession, on a point of doctrine. And I thought that conservatives were supposed to be pragmatic.

PLANET Vulcan is obviously blessed with an advanced Hayekian economy, in which self-clearing markets guarantee perpetual capitalist stability, with the sole proviso that supply and demand are always allowed to find their own equilibrium. So banks wouldn’t get into trouble in the first place, and if for any reason they did, that would be their tough luck.

That is the kind of mental universe inhabited by a certain hard right Tory called John Redwood. Remember him? The guy who once fancied himself as leader of the Conservative Party?

Although I gather he is, formally speaking, onside with the current leadership, it is fair to say he isn’t really a public figurehead for Team Cameron. With opinions like his, that probably isn’t surprising. Take this argument, published on Redwood’s blog today:

There is no case whatsoever to nationalise more banks, let alone for taxpayers to be made to take equity stakes in all the banks. There is a new kind of madness stalking the government world, as the governments lurch from one inappropriate response to another in response to a fast moving banking crisis. Governments helped create the crisis, by keeping interest rates too low and looking the other way as the banks and Shadow banks heaped debts on debts. Then governments helped bring the crisis on by keeping interest rates too high and refusing sensible help in the early stages of the crunch.

That’s right, folks. All our present little local difficulties are entirely the fault of state intervention. Boo! Hiss! That stupid risk taking on the part of bankers, which occurred in precisely the sort of deregulated adventure playground for the Fat Cats advocated by Redwood’s creed had nothing to do with it. But never mind; luckily, John has the solution all worked out.

Some of the world’s banks should be put through administration because their balance sheets are blown to pieces by the changed climate.

I am the only one to find this attitude frighteningly complacent, given that most major UK banks are currently insolvent and could go bust in short order, taking down a wide swathe of High Street retailers with them?

The subsequent collapse of the financial system would plunge the British economy into a deep and lasting depression, costing millions of workers their jobs and hundreds of thousands of people their homes.

All that might be a matter for so much blithe nonchalance on the part of the blowhard Friedmanite Tory hardcore; even the experience of the 1930 has not disabused them of naïve notion that such a situation would eventually self-equilibriate if pay packets were cut back far enough. But here on Earth, the prospect scares many of us witless.

Meanwhile, Alistair Darling – according to some sources, an alumni of the International Marxist Group – cannot afford to be so squeamish about state intervention. All those cadre schools with Ernest Mandel were evidently not entirely wasted; the likelihood is that several leading banks will be at least partially nationalise.

As is widely reported, a delegation of bank bosses - including the heads of Royal Bank of Scotland, Barclays, and Lloyds TSB – met Darling last night, urging him to press ahead with a proposal for the government to take substantial equity stakes in their businesses in return for an injection of fresh capital. The bill to the taxpayer could come to anything up to £50bn.

Officially, the government is refusing to be drawn on its plans. But after some stunning falls in the share prices of the outfits at that particular confab, few commentators other than Redwood can see any realistic alternative.

Of course there are huge risks with this course of action. The liabilities of the banking system probably run to trillions of pounds. It may ultimately be beyond the capacity of the British state to guarantee them.

But when New Labour is being forced to implement key planks of the Transitional Programme, it is abundantly plain that we are living in remarkable times.

And the $64,000 dollar question– if such a trifling sum can stand metaphorical duty in this context – is whether the government’s bank rescue plan is going to work.

At one level, it bloody well better do; ‘failure is not an option’ may be one of the worst clichés of modern management-speak, but just for once, this assertion is unquestionably true.

Moreover, I still have yet to see any obviously superior or even radically different ideas coming from commentators linked to the Conservatives, the Liberal Democrats or the even the hard left. So this is what we are going to get.

Most of the analysis I have seen this morning seems to suggest the plan is in with a shout of achieving its immediate aims. The collapse of a major British bank is unlikely in the short term, and as a result, credit markets will not freeze up entirely. Some form of lending to both businesses and consumers will continue.

In terms of the wider impact outside the Square Mile, the main political question becomes the one highlight by the Daily Mail, with its finely-honed deft populism, in its leader this morning: ‘What do WE get for our blank cheque?’

That’s a good question, especially as the blank cheque works out at around £2,000 per taxpayer. Let’s start by looking at how good this deal is for those forced to contribute to the whipround.

Essentially, the state will receive minority preference shareholdings in seven banks and one building society, in return for the £50bn needed to prop them up.

Doing things this way is a presentational plus point; Labour will be able to make the argument to the electorate that this isn’t a ‘something for nothing’ deal, because the government is getting an equity stake in the banks it assists.

But preference shares have both pros and cons. They are safer than ordinary shares, in that they earn a set dividend which must be paid before any other shareholders get a dividend. Hence the name.

If for any reason this dividend is not paid, then it is carried forward to the next year, again taking preference over dividends on ordinary shares.

Yet their very safeness precludes their holders from benefiting from the increasing dividends that ordinary shareholders typically enjoy as profits rise.

In other words, precisely because they minimise risks, they therefore do not maximise income. Accordingly, the guess has to be that low risk is part of the attraction here.

Preference shares do not carry voting rights, either. Labour will sell this point as a guarantee that there will be no ‘political interference’ in what will remain private sector concerns, thereby averting charges of wilful Old Labourism.

This is regrettable, on point of democratic principle alone. If public money is being forced to pick up the pieces, then the public should surely get a say in the way the beneficiaries operate in future.

Part of the problem over the last period has been the way in which bank bosses have concentrated on trousering bonuses, while disregarding any obligation to act in the wider social interest.

Taking and using a voting stake in the major financial institutions would be one way of ensuring this does not happen again. At the very least, it would enable the government to enforce responsible remuneration, rather than simply urge virtue from the sidelines.

It’s also worth noting that some preference shares are ‘convertible preference’ share, which can ultimately be converted to ordinary shares; astonishingly, it is not yet clear if this is the case in the Darling deal.

The argument for convertibles is that once the years of downturn that stretch out ahead of us are over, share prices could start to rise rapidly once again; converting the preference shares would then allow the state to share in the upside. If it turns out this option is not open, there had better be a good explanation as to why.

In short, this is not a deal that is going to make anybody fall in love with it; the free market right will find much that is offensive, and the social market left will find it unnecessarily timid.

Partial socialisation of the banking system is not a bad thing in itself. It’s just that it could have been handled so much better if the idea had been developed as part of a carefully considered strategy for greater economic democracy, rather than a hastily put together panic measure with a number of obvious drawbacks.

Nationalisation of the banking system is not quite the Sovietisation of Britain, avers Simon Heffer in the Daily Telegraph this morning. But it is, he concedes, a start. And - get this! - he manages to say that like it’s a bad thing.

Hence his astonishingly misguided article, published under the headline ‘we’re all socialists now, comrade’. Just so that readers get the message, it is accompanied by a picture of Gordon Brown, photoshopped to make it look as if he wearing a Red Army general’s uniform.

Let’s assume that this patently puerile nonsense is intended to make a serious political point. That being the case, it would be churlish not to welcome our newfound if involuntary fellow traveller to the workers’ state in which we have this morning woken up.

By the way Simon, we will eventually need to have a word with you about the ‘re-education facility’ we have set up for the free market right. It is in a most pleasant location, in an expropriated former public school in the agreeable London suburb of Harrow, and is just the first of many such establishments that will become objectively necessary as we proceed to construct the dictatorship of the proletariat.

Attendance is voluntary, of course. But let’s just say you would be well advised to report there at the specified time. I mean, we wouldn’t want anything untoward to happen to your family, would we? And we certainly don't want to have to knock on your door at midnight or anything. That's jolly bad form.

Admittedly, the diet might prove somewhat austere for your refined tastes. But from the look of your picture byline, a few months of cabbage soup could prove beneficial to your overall corporeal health and wellbeing. Trust me, comrade, the state knows better in these matters.

And the 14 hours a day of intensive dehayekianisation lectures, repetitively barked out over the tannoy system, will soon have our real life Rubashovs au fait with Ernest Mandel’s take on Kondratiev long wave theory.

OK, this isn‘t going to happen, of course; but then neither is the quasi-1984 dystopia that Heffer describes pour épater les lecteurs du Torygraph. That’s because Britain stands no closer to socialism this morning than it did when the free market triumphalism that Heffer nostalgically advocates was in full swing.

As I have argued before, socialism is not about giving a no strings £500bn to Britain’s bankers; this measure has emphatically not been carried out, as a febrile Heffer imagines, as a result of ‘the instinctively socialistic leanings of our prime minister’.

No, the reason this decision has been taken is because the ruling class has no alternative but to make the rest of society foot the bill for its continued rule. This is a bail-out, comrade Heffer; the clue’s in the name. Don’t worry, you’ll learn about it in the camp.

Unless I’m missing something, the social relations of production in Britain have been left very much unchanged by this development. Every sphere of society remains shot through with the spirit of extraordinary class privilege, even as much disparaged immigrant cleaning workers, ordinary Joes in call centres and local government officers, teachers, traffic wardens and low-paid white collar workers are forced to pick up the tab to maintain the parasitic rentier bourgeoisie of Bishop’s Avenue in the gold-tapped bathroom bling-bling to which they have become accustomed.

Heffer goes on to quote Ayn Rand - one of the intellectual gurus of free market fundamentalism - as arguing that the difference between the welfare state and the totalitarian state is only a matter of time. Presumably he does not see the irony of this statement, just 24 hours after the class he represents has collectively received a handout equivalent to one-third of Britain’s GDP. A word of thanks wouldn’t go amiss, mate.

At the apex of the delusional fantasies Heffer peddles is this little gem:

[S]ocialism requires the suspension of the iron laws of economics, including those of supply and demand. What that achieves, of course, is the distortion of the economy, grotesque inefficiency in the use of scarce resources, the limiting of growth and of the extension of prosperity.

Read that again, slowly. Socialism distorts the economy? No, it is Thatcherite capitalism that transformed Britain from a country that actually made things into an Alice in Wonderland nation, in which all major parties confidently preached that prosperity could be assure by slicing, dicing and repackaging the surplus value extracted from the global working class. It is precisely the economic course of the last three decades that stands in the dock.

Put simply, Simon, cut out this infantile wingnut right scaremongering, if only for the sake of your amour propre. What Brown and Darling have done perhaps invites parallels with the 1930s America of FDR. But comparisons with the USSR not only demonstrate grotesque historical illiteracy for an educated man; it stands as a gratuitous insult to the many million victims of Stalinism.

And finally, ponder this; if capitalism is so great, how come we are where we are now?

ICELAND has – to use the technical term employed by trained economists – gone tits up, and such staid bodies as Tonbridge and Malling Borough Council and West Yorkshire Police Authority are suffering the collateral damage.

Incredibly, Gordon Brown has responded by invoking anti-terrorism legislation, although rumours that he has asked his friend Dubya to add the Reykjavik pariah regime to the Axis of Evil remain unconfirmed.

Perhaps the prime minister is simply a bit spooked that his Icelandic counterpart is called Geir Haarde; when you think about it, that is probably pronounced not dissimilarly to Keir Hardie, and names just don’t get any more Old Labour than that.

Strange, too, that the government feels able to guarantee the deposits of individual British savers exposed by the Icelandic banking crisis, yet cannot extend such largesse when public sector money is at stake.

After all, the total sum at risk is less than a measly billion quid. To put it another way, that represents less than one quarter of one percent of potential expenditure on this week’s bank bailout.

For some reason, this morning’s newspapers are full of outcry about what UK councils are doing investing in Iceland anyway. The answer to that seems quite simple; they were seeking the best returns for the council tax payer, which is exactly what they should be doing. Remember, Iceland’s leading banks offered high rates of interest and enjoyed AAA credit ratings. Sounds fair enough to me.

Are the critics seriously maintaining that those good folk who cheerfully pay whatever shocking sum Ceredigion demands for a Band D semi would have been better off if their dosh had been in the safekeeping of Northern Rock or Bradford & Bingley?

Is the argument here that if a local authority is going to put its nest egg in a bank that is fated to go bust, it might as well patronise a British bank that is fated to go bust, if only on patriotic grounds?

Mind you, I suppose it’s a good job that Town Halls are nowadays largely populated by apolitical drongos rather than the much more ideologically-driven men and women that held such office once upon a time.

Circa 1983, Lambeth would have converted whatever cash it was able to get its hands on into Banco de Nicaragua Solidarity Campaign high income bonds, and try to pass this off as being in the best interest of its impoverished electorate.

Westminster and Wandsworth would likewise have opened up secret police supersaver accounts in Santiago, in a concrete expression of solidarity with the monetarist torture merchants that were running the show in Chile back then.

Come to think of it, when Militant Tendency was running Liverpool City Council back in the 1980s, didn’t it cook up some half-arsed scheme that ransomed every parking meter in Scouseland to Union Bank of Switzerland, in exchange for a £30m loan at an extortionate rate of interest? Still, if I remember rightly, at least Team Degsie repaired council houses with the money.

The question – then as now – is what degree of risk local authorities should be allowed to take. On balance, I think it is preferable that they should be permitted to act responsibly, both when investing and when borrowing, rather than forced to stick everything in a piggy bank.

Even seemingly responsible actions can blow up in people’s faces, of course. But at least councillors can be replaced at the ballot box if the voters decide that they are incompetent pillocks. That’s more than can be said about investment bankers.

DOES Marxist economics provide an understanding of capitalist crisis superior to that offered by its mainstream counterpart? Are those of us who have mastered its basic texts about to emerge as infallible pundits in 24/7 media demand, thanks to a command of Gnostic wisdom denied to the Harvard MBAs at Goldman Sachs and Lehman Brothers?

I’m asking myself these questions after spending summer ploughing through volume one of Capital for a second time, guided by a brilliant series of online lectures from the estimable David Harvey.

The conclusion has to be that – unsurprisingly – there are limits to what any book published in 1867 can tell us about the reality of 2008. If the far left did indeed have any actionable special insight into the real workings of the capitalist system, ex-Trots would be ten a penny on Wall Street.

The standard jibe from leading Keynesian Paul Samuelson is that Marx – considered as an economist - constitutes at best a ‘minor post-Ricardian’. As the critics point out, the man was a philosopher with no formal training in other disciplines.

Moreover, it is impossible to carry out serious empirical economic research within Marxist categories. Given the way that data is collected, one cannot even calculate the organic composition of capital or the rate of exploitation in anything other than approximate terms.

Thus the in house theoretician of the largest British far left group clings to the line that capitalism has been stagnating since the 1970s, insisting that the rate of profit has continued to fall. From observation alone, such propositions looks crazy; but they cannot readily be refuted by statistics.

It is rather better to understand Capital not as a body of operational economic theory, then, but as a substantial philosophical critique of capitalism unchecked. Marx’s project was very much to take the ideological presuppositions of the classical political economists, and take them to their logical conclusion.

But capitalism was not unchecked. It wasn’t in 1867, and is far less so today. Even Britain’s emasculated trade unions can provide millions of workers with elementary protection against capitalist excesses, within a legal framework designed to provide just that, developed by governments of all stripes.

At the theoretical level, even capitalists know they need effective consumer demand, although that doesn’t stop them imposing de facto pay cuts on their own workforces where they can get away with it.

The result has been that working class standards of living have indubitably risen, decade on decade. When I was growing up in 1960s, wall-to-wall carpets, telephones, colour televisions, and central heating did not come as standard in working class homes. Mind you, the Oslers were posher than some on our street; we had an inside lav.

In these days of 42” plasma screens, broadband internet and two week package holidays in Thailand, we have clearly not been enduring the immiserisation of the core section of the employed proletariat.

You can of course argue that these levels of consumption have been bolstered by credit or superexploitation of the third world, or flow from the lessening of socially necessary labour time inherent in technological advance. Such observations are true in as far as they go, but how the trick has been pulled off is a secondary point.

There is also a critique – rooted in Marx’s earlier writings, but clearly present in a more developed form in Capital - based on alienation; this is the notion that capital, the very product of the collective worker’s labour, comes to loom large over the collective worker.

But then, few people in unstimulating employment need to have the concept ‘work sucks’ spelled out to them in terminology ultimately derived from the tradition German idealist philosophy.

So within our intellectual framework, what can we add to the debate that is now starting? Perhaps the most important argument the far left can hammer home is our insistence on the cyclical nature of capitalism. Gordon Brown really thought he had abolished boom and bust; it looks like he is just about to find out that he was badly wrong on that one.

Sadly for us, Marx died before he got round to drawing up a definitive account of his theories on these matters. Anything we say on this score has to be constructed indirectly. But the millions that will find themselves out of work across the advanced capitalist countries in the years ahead will make the case more eloquently then words ever will.

There is a surprisingly deep ecological vein to be found in Capital, too. Marx very much sees the way in which humanity reproduces itself as based on the interaction of human labour on nature. Much of it is pertinent at a time when the future of the planet is at stake.

Finally, we can show how the market cannot deliver public goods. There is no country in the world in which universal education or healthcare is provided without the substantial intervention of the state. We have to transcend the logic of the market and impose the political economy of the working class in its place, crisis or no crisis.

THE Wall Street Journal, Time and the Daily Mail are all agreed; the financial markets crash of 2008 has somehow – in their words - ‘changed everything’. Indeed, such is the breadth of agreement on this point, it wouldn’t surprise me if NME, Heat, British Chess Monthly, Loaded, FHM, Grazia, Zoo and Angling Times have taken to endlessly reiterating the mantra.

And, the pundits chorus as one, the nature of the change is largely in a leftist direction. Brown’s banking bail-out has infused the rhetoric of the Tory press with febrile talk of 'the sovietisation of Britain' and 'bonanzas of socialist indulgence'. Were that so, it would certainly warm the cockles of this old Fourth Internationalist heart of mine.

The trouble is, from where I am sitting right now – behind a desk in the City, if you must know – things look pretty much the same as did before all this malarkey started. If there really is music in the cafes at night and revolution in the air, how come the bankers are still unchallenged in their boardrooms with only a few minor personnel changes as casualties, while the rest of us report to work as usual?

Listen to what many free market fundamentalists have to say, and you will be told repeatedly that the boundary between the market and the state has been dramatically rewritten. A new era of regulation is upon us, and will last for decades, it is maintained.

But given the sheer extent of state involvement in advanced capitalist economies, in all countries and at all times, whatever the official ideology of the government in question, the extent of any shift may prove smaller than generally appreciated at the moment. Such alteration as is bound to arise will be quantitative rather than qualitative.

Other pundits go so far as to proclaim the death knell of capitalism, or at least ‘irresponsible’ capitalism. Again, that misses the point. To see capitalism simply as a question of economics is to fall victim to commodity fetishism; capital is first and foremost a social relation, a system of class rule by which the owners of capital dominate other classes.

Everything we have witnessed in recent weeks or days has been expressly designed to reinforce and prop up that system of class rule. Labour remains subservient to capital, exploited in the workplace and oppressed outside it; our democracy still remains stunted in the economic field. That is not one of the things that has changed, clearly.

What has happened is that most of this country’s major financial institutions were pushed to the brink of insolvency, entirely as a result of the very market forces the anti-socialist commentators hail.

Those who seek to identify causes for what has happened should stop fantasising about the non-existent socialistic instincts of Gordon Brown and look no further than the unbalanced cupidity perpetrated by Sir Fred Goodwin and his ilk.

Let me run this one past you again, guys. Britain’s banks have had to be recapitalised at the taxpayers’ expense. Yet New Labour has been desperate to reassure the super-rich that the bankers will still be in charge of the banks. There won’t be workers’ control; there will not even be government direction in any meaningful sense.

True, there has to be some political price to pay for all this, so certain limitations are inevitable. No more bonuses, jollies and jaunts for a couple of years. A few token heads have had to roll, albeit with handsome payoffs.

But remember, while the greed of the City may result in thousands of people losing their home in the coming period, you can rest assured that you won’t be running into Fred the Shred in the queue at your local soup kitchen.

THREE million people on the dole in Britain; symbolically speaking, that figure still represents some kind of benchmark, bringing to mind all those sepia photographs of 1930s hunger marches and memories of the grimmest years of rampant Thatcherism.

Well, dust off those Right to Work Campaign and People’s March for Jobs badges; several leading forecasters are predicting that unemployment is set to return to that level by 2010.

It is my own direct experience of being an unemployed school-leaver that, more than anything else, galvanized me into political involvement and gave me a set of socialist convictions that I have somehow sustained into middle age.

For me, the number one item on the charge sheet against capitalism is that it can – and regularly does – leave so many people out of work. Never mind the criminal waste of human potential; the social cost of the devastation of entire communities is simply beyond the capacity of economists to measure.

Even during the boom years since 1992, unemployment has remained a sinister presence looming in the background. I think I’m right in saying that the official count never fell below one million, a figure that would have been considered politically unsustainable throughout the post-war consensus period. That is what we have been asked to consider as ‘full employment’.

And of course, the official count is virtually meaningless. On some estimates, as many as one in four British men of working age are either unemployed or economically inactive.

Despite all that Blairite guff about flexible labour markets, Britain’s job creation record is among the worst in the EU. Jobs have continually been lost through financially driven mergers and acquisitions, downsizing, low investment, bad training, the pursuit of short term profit goals, high dividend payments and poor management.

To read that an extra £100m is being made available for retraining those made redundant as a result of the impending downturn really sums up the inadequacy of existing plans. That is just one 370th of the money that has been made available for the bank bail-out.

Surely a Labour government can be far more ambitious than that? If public ownership is seen as a panacea for the financial services sector, for instance, why not extend the approach to companies that insist they have no alternative to declaring mass redundancies? Would not such social investment be a better use of resources than funding ever-extending queues outside Britain’s Jobcentres?

Recent weeks have seen the three word mantra ‘whatever it takes’ gain currency as a political soundbite, perhaps designed to flag up a resolute approach to keeping the credit system going.

But if Labour can do whatever it takes for the City, it can and should do whatever it takes to keep people working.

Or is it only Royal Bank of Scotland, Lloyds TSB and HBOS that can expect the British state to provide a rock of stability?

DAVID Cameron’s speech this morning stole the standard social democratic critique of the British economy under Thatcher and Major, recalibrated it in terms of the present government, and then cynically passed it off as what the Tories have been saying for the last decade. Full marks for sheer cheek, if nothing else.

The interesting thing is, this feat of ideological legerdemain almost comes off, largely because New Labourism was always more the continuation of Thatcherism than its negation. Criticise the policies of one outlook and you criticise both, I guess.

Thus the Conservative leader chooses to single out Brown’s assumption that you could build a sustainable economy on a narrow base of housing, public spending and financial services.

Yes, sure. That is very much what Brown assumed. The question is, which government initially reconstructed the British economy on this flimsy basis? The answer – as the Keynesian left has constantly reiterated ever since – is the Tories in the period after 1979.

Thatcherism it was that pushed the notion of property ownership as a combination pension substitute cum unlimited handout cash machine, as well as the idea that anybody who preferred to work in public services when they could have become a Personal Financial Adviser instead was by definition an ambition-free two-bob loser.

Similarly, Cameron insists: We need to reverse the fundamental mistake made a decade ago that meant that the authorities took no view at all over the level of debt in the economy.

Hello? Was that decision made only a decade ago, David? Remind me again, which prime minister was it that scrapped credit controls? Oh yeah, that’s right, the only woman to have held the job so far.

Now, you can argue that Labour could and should have done something to curb the growth of the ‘whack on the plastic’ culture. The Tories can at least point to their notorious ‘inner tosser’ viral advertising campaign of 2006 as evidence of prior concern.

But if Labour had seriously tried to restrict access to free ‘n’ easy 26.7% APR and upwards loan deals, you can bet the Conservatives would have stepped in to defend such socialistic restrain on our financial freedoms as the first step towards a ten-year wait for a Trabant.

But the soundbite that topped every other piece of nonsense in Cameron’s speech was this little gem: Unlike many other countries in Europe, we can’t turn to a strong manufacturing base to provide export-led growth, because manufacturing has shrunk by more than a million jobs over the past decade.

Would that God had struck him dead on the spot for such rank disingenuity! British manufacturing was hung out to dry in the 1980s, thanks to the fixation of successive Conservative chancellors with an over-valued exchange rate.

They knew damn well that this policy was a direct cause of ever-expanding dole queues, but their class-based contempt for manufacturing workers was such that they did nothing whatsoever to save shipyards, steel plants or engineering. And once you wilfully destroy a country’s manufacturing base, you can’t get it back.

I haven’t got my reference books to hand, but I’ll try to dig out the stats for the number of manufacturing jobs lost in Thatcher period. It’s a lot more than one million, David.

And by the way, am I the only one to find the speech frighteningly light on concrete policies, beyond ‘we’ll ask bankers not to be so naughty next time’? I only hope Will Hutton sues for breach of copyright.

We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step - Prime minister James Callaghan, Labour Party conference speech 1976

Britain will boost public spending to help pull the economy through a looming recession, Chancellor Alistair Darling said in an interview published on Sunday - Chancellor Alistair Darling, cited by AFP, October 2008

KEYNESIANISM, we are told, is back for the first time since 'the long boom', the name economists give to the upturn of 1947-1973, in which the capitalist system seemed at last to have overcome its cyclical tendencies.

While national economies still saw their ups and down, major recessions were thought to be a thing of the past, thanks to government mastery of Keynesian demand management techiques. That's what revisionist social democrats wanted us to believe, anyway.

Then came the massive slump of 1974-75. Mainstream accounts of the causation concentrate on the oil shock of 1973 and/or trade union militancy as the chief factors at work. Most Marxists prefer to postulate instead a classic capitalist crisis of overproduction. Either way, what we got was a paradigm shift, resulting in a return to economic theories that were then considered to be comprehensively discredited.

Almost overnight, the political space opened up for the Milton Friedman school of monetarists - the forerunners of today's neoliberals - to blame Keynesianism for the impasse, and thus to overturn the tables. Thatcher and Reagan willingly implemented the space cadet free market blueprints on offer, arguing there was in fact no alternative.

As Marxist economist Ernest Mandel pointed out in his book The Second Slump - which deals with the 1970s period - this transformation was deliberately exploited by the ruling class, as part of their strategy to counter the secular tendency of the rate of profit to fall by weakening the principle organisations of the workers:

For the international bourgeoisie, the 'historic function' of the 1974-75 recession was precisely to put an end to 'full employment' as the 'priority objective of economic, monetary and social policy' and to reintroduce permanent and massive unemployment to weigh on the labour market.

So it was that the mid-1970s recession left a residue of structural unemployment in the main imperialist countries estimated by the OECD at 15.5m people as of the end of 1976. Joblessness on such a scale had not been seen for some four decades. For good measure, trade unions in both the US and Britain were to suffer huge defeats in the years that followed. Mass unemployment has been with us ever since.

It is worth noting that in Britain, the move away from Keynesian ideas of full employment actually occured on the watch of a Labour government. While it took a Tory administration to bring in full-on free market fundamentalism, monetarism was introduced by what was still then the mass party of the working class.

Some 32 years later, another capitalist crisis has forced another Labour government into reinstituting a watered-down version of traditional counter-cyclical policies. Following on from a wave of bank nationalisations - a remedy straight out of the Labour programme of 1973 - Darling now appears to be promising a return to good old fashioned pump priming economics, in a manner of which JMK would have approved.

His comments are likely to generate widespread outrage in the rightwing press this morning. But forget the synthetic outrage and the inevitable accusations of socialist recidivism; this is not a lurch left so much as a lurch back towards what was once the centre.

It's welcome, but it isn't going to be anywhere near enough to turn the clock back, let alone take us forward, unless it is expressly tied to a project that includes both full employment and the restoration of trade union rights.

ANYBODY remember when Gordon Brown avidly sung the praises of something he insisted on calling ‘the New Economics’?

Back in the mid-1990s, the essential premise of his platform as shadow chancellor was that the British economy had long been subject to boom and bust on account of ‘deep structural weaknesses’. Labour in office would - through a partnership between government and business - bring about a thoroughgoing transformation.

Yet the very name chosen for the doctrine du jour offers quite a few clues to its nature. There’s the completely unnecessary resort to initial capitals, for starters. And all references by politicians to the New Anything should automatically be taken as pointing to attempted obfuscation.

Even though I am currently in receipt of university level education in economics, I remain not entirely sure what the New Economics was all about. My suspicion - then and now - is that it was essentially an attempt to soften up Labour supporters for what was to come. A move to the supply side right was dressed up as a little bit of this and a little bit of that, and still containing a smidgeon of Keynesian content.

But the theoretical underpinning of the concept was said to be something called post-neoclassical endogenous growth theory. That was a phrase Brown tried out for size in a couple of speeches, only to attract withering ridicule from the likes of Michael Heseltine. Hence the need for euphemism, presumably.

Because the New Economics was expounded in the years before internet use was widespread, there are relatively few examples to gawp at on line. But I did find this Guardian article from circa 1996, reproduced on the website of academic econo