KEY POINTS:
With unabashed glee, many commentators have again predicted the end of capitalism, some even suggesting a worldwide depression.
Yet none can point to a single example anywhere in the world as a model. They have no success stories to report.
The last few weeks have seen billions of dollars written off as many of the financial instruments in the US, and now elsewhere, have been caught out. Overstretched bad loans and reckless lending has been exposed due to the collapse of the US housing market.
When I was briefly Prime Minister, we bailed out the Bank of New Zealand. Some 'crazies' suggested this would reward bad managers, let the show fall over - that would teach them. Sure.
In the meantime, hundreds of thousands of mom and dad accounts, football clubs, school committees, and businesses would fall. We lent the BNZ the money, charged interest, and got all the money back. A success. However, that was not the perception.
Why will this not be like the Great Depression? The biggest difference is what policy-makers have learned. The President of the US Federal Reserve Bank, Ben Bernanke, did his economic thesis on the Great Depression.
Maybe a trillion has already been spent worldwide to hold the system together. At the time of the Great Depression, there were few effective Government-owned central banks, there was little global economic co-ordination. Indeed, international trade collapsed by 50 per cent in a few years as Governments put up tariffs to try and insulate themselves, and indulged in a destructive cycle of competitive devaluations to vainly try to control global market share.
This deepened and prolonged the Great Depression from which the twin tyrannies of Fascism and Communism emerged.
No nation is talking of jettisoning its trade obligations under the World Trade Organisation - the system is holding firm, lesson learned. Democracy responds, it's that flexibility that is its genius.
In the 1930s Franklin Roosevelt emerged with a new deal. A powerful central bank, new organisation to pick up mortgages, now Freddie Mac and Fannie Mae, the twin mortgage giants that were recently rescued.
Central banks everywhere have pumped more money, liquidity, into the system to avoid panic. As Roosevelt said in the US's most darkest economic times, "All we have to fear is fear itself." It is about confidence.
Roosevelt would have been impeached as a socialist for less than what the Bush Administration has done. His Administration is guilty of inactivity despite warnings that there was a fault line in the financial sector that has cracked.
Talk of transparency sounds glib and a cliche. But it's real. Out of this destructive chaos will come creative chaos as new entities emerge picking up some good, low cost, high-value assets.
It's cold comfort for thousands who are losing their homes and jobs. A recession is when your neighbour loses his job, a depression is when you lose yours.
The last 10 years have been most successful in economic history, lifting millions out of extreme poverty worldwide. Economic gains made from liberalised capital flows now equal or exceed those from liberalised trade.
Few jobs are lost and many gained because of open trade and financial markets, yet even in the US, more people think trade costs jobs, despite all the evidence to the contrary.
The lesson of the Great Depression was that government needed to intervene to protect the virtues of the market, to ensure there was prudent disclosure, proper competition and that global markets needed regulating through agreements and the WTO.
Central banks were necessary to even economic cycles and police adventurers who took, as they always will, advantage of existing conditions. Government has a role to ensure social security in times of stress and uncertainty, and to invest in common goods such as skills and infrastructure.
Rebuilding must be done in a way that produces economic and social confidence. Political economist Albert Hirschman once likened attitudes towards widening income inequalities during economic change to the response of drivers in a traffic jam.
After a wait, one lane typically begins to move forward and even drivers still stuck in other lanes are usually relieved. They assume their own lane will begin to move.
But if they remain stuck while the other lane moves, frustration becomes more intense if there is no practical way to change lanes. That's when politics can get nasty.
If the stunning greed and bad judgment of some chief executives and corporations means the most responsible walk out with few scars and big payouts, workers who lose homes and jobs will be enraged, creating a populist opportunity for politicians to feast off. This was the biggest political failure of the Lange/Douglas days, which led to the rise of Jim Bolger and his promises; Winston Peters and Jim Anderton, all who promised a better past.
* Mike Moore is a former Prime Minister of New Zealand and Director-General of the World Trade Organisation.
