End of the revolution

Thanks to the crisis, many of us have at last begun to read up on economics. Who would have said that one day we would open the paper at the economics pages and parse through Krugman and Stiglitz, saving Keynes for summer reading? Ignorance cannot be cured in three years, so we are nearly as ignorant as when the crisis began. But some things we have learned: that economics is almost as close to the occult sciences, including psychology, as to the exact sciences; that, like all intellectual disciplines, it is extraordinarily complex and at the same time simple, so that anyone with a little willpower and common sense should be able to understand some essential points of it. And of course, ignorant though I am, this newspaper pays me to say what I think. So here we go.

What I think - after looking on in perplexity as the recent amendment to the Constitution, setting a limit to public deficit, was cavalierly pushed through parliament - is that we may be confusing essentials with accessories. "If the house is on fire," one writer put it in this newspaper, "you can't demand that the firemen have a judicial order to go in." This may be true. Perhaps the only way to prevent the catastrophe of a bailout and calm the sovereign debt markets in August was to enshrine in the Constitution the promise that we shall always pay our debts. But my impression is that amid the sound and fury, we may forget that constitutional change is not the center of the problem. The center of the problem is who set the house on fire. And the fact that some of those who allowed the fire to start are today's firemen.

And the fact that the arsonists are still at it. One piece of news late in August went more or less unnoticed: the ratings agency Standard & Poor's gave the highest rating (AAA) to a mortgage product called Springfield Mortgage Loan Trust 2011-12, backed 59 percent by mortgages granted to clients of doubtful solvency: that is, three years into the crisis, S&P endorsed exactly the same type of financial operation that caused the crisis, flooding the market with junk bonds. Nobody has prevented this; nobody seems disposed to try. Early in July, when the ratings agencies threw another Molotov cocktail - arbitrarily reducing to junk bonds the sovereign debt of Portugal - EU president Durão Barroso spoke of creating an EU ratings agency, to break the close oligopoly of the three American ones. The European Parliament applauded, and Merkel, and I don't know who else. Everyone was very angry. Have you heard any more of the business? I have: on September 6, Durão Barroso said there were no plans to create such an agency. Did his tantrum subside? Did he receive, from the American agencies, an offer you can't refuse?

I don't know. What I do know is that this is the real problem, and not an amendment to the Constitution which, though ramshackle and enacted with methods worthy of the Three Stooges, is more symbolic than substantial and, in any case, will depend on who interprets it. The real problem is that this crisis was caused by an uncontrolled financial system, and that when we saved it with our money, we did so on the condition that rules would be imposed to prevent a repetition. Three years later no rules are in sight, the crisis is still here, and the arsonists too. This is the real problem.

And rules are the only solution. At the turn of the 1980s, Thatcher and Reagan led a right-wing revolution whose first economic premise was that an unregulated market was a sure ticket to prosperity for everyone. We now know that this is a fantasy. We need rules; we need to go back to Keynes. Even sages like Krugman and Stiglitz are saying so. And if rules come back, the revolution will be over. Perhaps peace will return.