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I have by now become very familiar with the economic history of financial crises and the financial instability hypothesis of Hyman Minksy. In an essay that I had wrote a few years ago I had argued that the financial crash and the subsequent great recession was a POLITICAL crisis as much as it was an ECONOMIC crisis.

This had got me thinking about the history of financial crises, or better still the historiography of financial crises. These have largely been written by economic historians, but surely the political causes of the current crisis should make us think about the development of a political history of financial crises.

What happens in the political sphere before, during and after a financial crisis? One could do a study with this research question in mind from the South Sea Bubble to today.

Paul Krugman is heading in this direction, at least in so far as the 2008 crisis is concerned, judging by the following quotation that appears in an article just published at The New York Review of Books that Krugman co-authored with Robin Wells

…The proximate answer, clearly, is the abdication of regulatory oversight. From junk bonds to derivatives to sub-prime mortgages, regulators either turned a blind eye or were impeded by business interests and politicians—Democrat as well as Republican…

Krugman and Wells are looking for a political explanation. They go on

…Yet if the problem was lack of oversight, that leads to another question: Why did the regulators abdicate—and keep abdicating despite repeated financial disasters?…

Krugman in his columns for The New York Times has devoted a lot of his column space lately to chronicling the contemporary “conservative” movement in the US. So it is only natural that Krugman sees a deep causal link between the rise of the conservative movement and the current crisis, however his (and Wells’) explanation for this rise I don’t think rings true

…We have argued elsewhere (and are not unique in doing so) that white backlash—especially Southern white backlash—against the civil rights movement transformed American politics, creating the opportunity for a major push to undermine the New Deal…

Krugman and Wells are right to focus on the transformation of “American politics” but Southern white backlash is too superficial.

I am interested in this “transformation” not only because of the connection with the financialisation of many of the economies of the advanced industrial states, since the mid-to-late 1970s and onwards, but because of the obvious link between this transformation and the end of détente and the rise of Cold War Two.

I have taken the view that to understand not only the current economic crisis but also the foreign policy of the US during the “unipolar moment” it is necessary to study hard that period in American political history that straddles the rise and fall of détente.

I would agree that there was a “backlash” but that backlash was much deeper than Krugman and Wells would have it. In essence, the backlash was not amongst relatively poor Southern whites but amongst what C. Wright Mills called “the power elite.”

They surely were horrified by the social movements of the 1960s, by revolutionary third world movements, by Soviet strategic parity, and by the end of the era of easy economic growth.

Jeremi Suri had written a book on the rise of détente that rings true with me. Détente was a conservative response, not just in the US but also in the USSR, China and Europe, to the upheavals of the 1960s.; it was a type of managed world order developed in response to the turmoil of the late 1960s and early 1970s.

But the Reaganites wanted to go further and to reassert US power, which is a bit different to a system of world order based on a Metternichian conservative concert of powers. At home the desire was to reassert the power elite through what a previous president of the United Auto Workers called a “one-sided class war.”

Neoliberalism and financialisation are tied in with all of this.

This is a sort of neat little thesis for it ties in the financial crash with the international relations of the unipolar moment; in my view the two are closely linked.

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