Neoliberalism and the global financial crisis

The new right advocated policies that aided the accumulation of profits and wealth in fewer hands with the argument that it would promote investment, thereby creating more jobs and more prosperity for all. However financial markets provide opportunities for investment without creating jobs and, as the global financial crisis has revealed, speculative investment feeds an ephemeral prosperity that can be wiped out in a short time period. Inequities resulting from new right policies – including the deregulation of labour markets and the reduction of government spending – reduced consumer demand which had to be propped up with consumer credit and mortgage debt. Financial deregulation, also promoted by the new right, enabled financial institutions to dictate government policy and enabled wealth to be channelled into speculative investments exacerbating the volatility of share and housing markets. The combination of household debt and unregulated speculative investment led to the collapse of the subprime mortgage market followed by the bankruptcy of major financial institutions and the collapse of share markets around the world. Yet the Rudd government continues to place its faith in markets as a way out of the crisis.