Financial markets are the idol of our times

I have been amazed and not a little disturbed to see the narrative shift leading up to the G8 and G20 meetings that the time for stimulus is past and the time for government cuts has arrived. Among other pieces, this recent Macleans story is reflective of this trend. It forecasts a V-shaped economic recovery, for which it blames growing government debt and prescribes greater government austerity. However, at least it acknowledges the heavy socio-economic impact to be paid by cutting stimulus spending: high unemployment combined with the loss of valuable social programs.

The problem with this analysis, according to Paul Krugman, the US economist, is that cutting spending now will barely make a dent in the debt, while simultaneously increasing unemployment. (I highly, highly recommend reading this Krugman piece for yourself). Cutting spending and driving up unemployment will also reduce government revenues, meaning little advantage is gained for paying down the debt.

So why the push for fiscal austerity? According to Krugman:

The answer is, to reassure the markets — because the markets supposedly won’t believe in the willingness of governments to engage in long-run fiscal reform unless they inflict pointless pain right now. To repeat: the whole argument rests on the presumption that markets will turn on us unless we demonstrate a willingness to suffer, even though that suffering serves no purpose.

And the basis for this belief that this is what markets demand is … well, actually there’s no sign that markets are demanding any such thing. There’s Greece — but the Greek situation is very different from that of the US or the UK. And at the moment everyone except the overvalued euro-periphery nations is able to borrow at very low interest rates.

So wise policy, as defined by the G20 and like-minded others, consists of destroying economic recovery in order to satisfy hypothetical irrational demands from the markets — demands that economies suffer pointless pain to show their determination, demands that markets aren’t actually making, but which serious people, in their wisdom, believe that the markets will make one of these days.

This sacrifice on the altar of the financial markets reminds me of Bob Goudzwaard’s analysis of the economic crisis. Money, Goudzwaard argues, has become one of the idols of our times. Idols demand our worship, but they also create fear – fear that our idol will become angry and not deliver our happiness. So we cede ever-increasing control to our idol, willing to make painful sacrifices in order to pacify our idol.

In principle, of course, money itself is no more than a good and serviceable instrument for facilitating transactions in our real economy—as it should be. But we should never forget that this humanly-made medium can be enthroned and followed as a decisive compass for all economic actions. From that point forward, it begins to show traits of terror. In the end, it will also fundamentally betray its servants.

The essence of idolatry is elevated, self-centred expectations mixed with fear. On the one side the adoration of money tends to narrow current perceptions of reality, as if the law of financial dynamics is the ultimate rule. But on the other side, people delegate their power and influence to their god. They authorize their new god to take the lead, and in so doing they can force an entire society into patterns of obedience.

In this manner, the financial markets easily gained control over the real economy. Even now some financial experts insist that we must put our energy into completely restoring the money-markets, for they alone can save our real economies.

If we allow our fear of the markets to control our actions and decisions now, then we have learned nothing from the crisis. Goudzwaard argues, “The lesson is clear for all those who are willing to listen: money needs to be our servant; never again should it become our master.”