Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

When the Magic Wears Off

Hard times continue on the world's financial markets. Every time share prices make a modest gain, analysts breathe a sigh of relief and inform us that the crisis is past. And before long prices start to fall again. After riding that roller coaster for a while, even the professional optimists have become guarded in their forecasts.

So, what's going on? When U.S. markets tanked after a lengthy period of unprecedented growth (accompanied by equally unrestrained optimism on the part of investors and stock-watchers), it was confidently written off as a "correction." But stock prices can't increase indefinitely. Following the Sept. 11, 2001, attacks, market woes were blamed on terrorism, then on revelations of corruption in major American corporations. The explanations change, but depressed stock prices remain.

It bears repeating that the state of financial markets is rather more distressing than the state of Western economies on the whole. Sure, times are tough, but the bottom hasn't fallen out. We have seen no sharp declines in production -- only stagnation or weak growth. We've seen crises a lot worse than this.

To Our Readers

Has something you've read here startled you? Are you angry, excited, puzzled or pleased? Do you have ideas to improve our coverage?
Then please write to us.
All we ask is that you include your full name, the name of the city from which you are writing and a contact telephone number in case we need to get in touch.
We look forward to hearing from you.

Email the Opinion Page Editor

But clearly our troubles cannot be explained simply by the financial bubble irresponsibly pumped up during the 1990s. We're dealing with a much more serious structural crisis. Speculation on financial markets in recent years has had almost nothing to do with the real worth of the companies involved. In the past, people bought stock for the dividends. But over the past decade, stocks have become a sort of fetish, a mystical symbol that has taken on its own significance independent of financial reality. People bought shares in order to resell them. They were drawn in by rising share prices, prestige and political influence.

Then the magic wore off. What's a magic wand worth once it can no longer cast spells? Who knows. Perhaps the wand is made of some rare wood? Or encrusted with jewels? Maybe. But our magicians don't know what to make of all that.

Market speculators didn't just live parasitically off the real sector over the course of a decade -- they systematically bled it dry. The financial market created by today's economic gurus proved to be nothing more than a redistribution mechanism serving the interests of the rich, of those who produce nothing except for new parasitic structures. As the financial markets ballooned to unimaginable dimensions they became a problem, a brake on development. As the proverb goes, "the one with the plow" who works the land ends up feeding "the seven with spoons" who do nothing but eat.

The financial speculators are far from happy with the current state of affairs, yet they can't admit that they are at least partially to blame for bringing it about. If they were to admit that, they'd have to think about how to reform or outlaw their own activities. Financial markets continue to await a deus ex machina -- some good news that will send share prices soaring. Meanwhile business activity is slowing and people are losing their jobs. Corporate execs are reluctant to pump money into expensive new projects during the market slump. So who will deliver the good news?

Several days ago I had occasion to speak with a group of U.S. investors who were trying to sort out the mysteries of Russian reality. I told them about our social problems, the shortage of capital investment and our crumbling infrastructure. "Just like in the United States," they said.

Russia has already endured the transition period that followed the collapse of the old system. But for the United States, the 1990s were a time of unprecedented growth. As it happens, the consequences of their success are in many ways analogous to our failure. And now that the party's over, America has some serious cleaning up to do.

At the end of the day, the same ideas and interests triumphed in the United States and in Russia. The rhetoric of "success" and "national catastrophe" has provided a cover for the financial elite to bolster its position at the expense of everyone else. But that elite proved incapable of drawing society along in its wake, of putting it on the path to development. It merely consumed what others had created in the naive belief that this would lead to a modern and dynamic economy, would stimulate entrepreneurship, and so on.

The bear market will turn bullish sooner or later. But will we have solved the underlying problems that produced it in the first place?

Boris Kagarlitsky is a Moscow-based sociologist.