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Thursday, February 5, 2009

A Hollow Debate

It is almost unimaginable, but less than six months ago there were few discussions of the “big” issues facing the world economy. Today, facing an economic disaster, the media-noise on the economy is almost unbearable. “Experts” spew theories from every print and electronic faucet, with most of it polluted with bad economics and inflexible thinking. One can draw an easy line between two schools that now look back upon The Great Depression and draw two contrary, intellectually lazy, and wrong headed conclusions. On one side are Republicans and some Democrats who maintain that Roosevelt’s New Deal worsened the 1929 collapse, an illness that would have cured itself with just a bit of monetary tinkering. These hard-core adherents to laissez faire capitalism stretch credulity with their semi-religious faith in economic orthodoxy.

Arrayed against them are other Democrats and allied soft-left progressives who worshipfully proclaim the New Deal as the savior of capitalism and the harbinger of a humane economy. This group finds a blue print for economic recovery in the myriad acts, agencies, and programs associated with the Roosevelt tenure.

To the extent that these two options exhaust all but a tiny segment of the public discussion, we are enslaved by a field of battle chosen by the partisans of our two ossified political parties. To the extent that these views are merely two branches of the same theoretical tree, we are starved for fresh, daring solutions. As the debate goes along, both sides are discredited by one fact, conceded by all credible, serious students of The Great Depression: A vigorous recovery only came with the military build-up preceding and continuing through the Second World War.

Why is it so hard for our experts to face this fact squarely?

Accepting this conclusion calls into question the shared fundamental beliefs of all those wedded to a purely capitalist solution. The Second World War economy challenged private employment, market-driven production and distribution, hyper-consumerism, waste, private research and development, and a host of other sacred tenets of the for-profit economy. Unfortunately, huge profits remained a feature of the war-time economy. Millions of US citizens were organized into government employment (military service), millions more were drawn into a centrally planned economy driven by government production goals free from market forces. Consumption was substantially leveled. This economy raised the living standards of the vast majority of the poor and destitute while creating a collective consciousness and a spirit of common sacrifice. The world viewed this great economic engine as the arsenal of democracy with huge government funded and selflessly motivated advances in technology, engineering, and creative thought. Unfortunately, this was all directed to death and destruction; capitalism only turned to these quasi-socialist measures in a moment of desperation. Yet no respectable public figure would dare concede these truths.

Perhaps even more embarrassing to those entrusted with rescuing the economy, the recovery from The Great Depression only came with a cataclysm of unmatched suffering and brutality. Unwilling to unleash this powerful, rational economic organization for peaceful purposes, the ruling class readily retained the war economy as a regular feature of the capitalist economy from the Cold War until today. Over the years, the socially advanced aspects of the World War II economic engine have been corrupted and “profitized” beyond recognition. Today, the huge military economy stands as a cesspool of waste, cronyism, and excessive profits and a bulwark of US imperial design on the rest of the world.

As we face a frightening world crisis of capitalism, we must begin to recognize the enormous human cost of our surrender to the self-proclaimed “masters of the universe” occupying the boardrooms of the corporate world. The class pillage of the people’s wealth by these arrogant, privileged lords engineered by their political minions under the guise of “rescue” goes beyond shame. As with the soon to be instituted stimulus plan, the financial bail-out was a product of rigid, dogmatic thinking, policies hatched by those who could never imagine a course of action that put the people’s interest ahead of profits and the fate of the “masters”. In only a few short months, a policy hailed as necessary and universally beneficial by most of our political and intellectual leadership has been exposed as an unparalleled give-away to arrogant white guys in business suits who smugly scorn those “beneath” their elevated status. Many of the same politicians who hastily shoveled a trillion dollars at the feet of the “masters of the universe” just as hastily strangled welfare, universal health care, affirmative action, veterans benefits, public education and other so-called “entitlements”. The very word, “entitlement”, reflects an Orwellian view of our class society - the lofty deserve and need support, the rest of us must establish our claims.

While there are rumblings of discontent and anger, most of the US remains captive to the world-view shared by the governing elite. We are trapped into a narrow view of the crisis that depicts the explosive growth of the financial sector and its subsequent implosion as a real phenomena and not an other-worldly fantasy football game with virtual wealth and virtual profits. We speak misleadingly of all of the wealth and profits created and lost by the Gordon Gekko’s of our time. Instead, we should look at the Clinton/Bush years as a delusional, fantasy deviation from the flat trajectory of a struggling, wounded capitalism limping through the post-Vietnam War years with stagnant incomes and wealth, unemployment and a tattered social net. The economic crisis is a return to that trajectory, with the economy shorn of the fictitious value and profit of the now tarnished golden era of “free” market euphoria. The fact is that the entire financial structure was built upon blurring the lines between real assets and accumulated debt, where debt is merely some kind of promissory note against future income or assets. As debt – counted as an asset – circulated faster and wider in the world economy, as the promissory costs and conditions loosened and loosened, as income and profit projections supported greater and greater debt acquisition, the future redemption of debt grew dimmer and dimmer. Bourgeois economists metaphorically call these events “bubbles”, though the metaphor hides the fictitious substance of such behavior. Some warned that debt acquisition could not go on interminably, yet history gave no answer to where those limits were. Like most fantasy games, the financial game might have continued forever if the game were never disturbed by unwelcome, unexpected intrusions – in this case, a decline in housing values. Imagine the even more obscene disparities of wealth generated if all the assumed debt were remitted.

As the fictitious value disappears, the giants of the financial sector are revealed as complicit in disguised Ponzi schemes. Daily reports of new Ponzi schemes - The Wall Street Journal (1-28-09) reports at least seven exposed in January – demonstrate that the difference between what the media calls a Ponzi and regular financial dealings is merely one of degree. When financial institutions commonly carry debt twenty-fives greater than their cash assets the possibility of a failure of redemption teeters on a razor’s edge. The only difference between a Madoff and an AIG rests on the government’s willingness to re-capitalize AIG for another round of financial fantasy football. With a generous injection of capital, Madoff and the other Ponzi-artists could still keep up the ruse, at least as well as Citigroup or Bank of America.

It is time to stop the bleeding. Rescuing the monopoly banks is not rescuing the economy. Nor does it move us any closer to rescuing the millions of working people facing misery and desperation. Nobel laureate Joseph Stiglitz recognizes this fact when he recently, and belatedly, advocates that “the government take… over those banks that cannot assemble enough capital through private sources to survive without government assistance” (“How to Rescue the Bank Bailout” Unfortunately, Stiglitz’s call for nationalization is far too timid – he would privatize these banks when the financial sector stabilizes. He offers no reason to privatize other than his blind faith in markets. Nor could he do so. Returning the banks to private ownership is like giving a weapon back to a murderer.

Stiglitz’s slavish dedication to private ownership also blinds him to the opportunity and necessity of preemptively nationalizing the entire monopoly financial sector, including the insurance and mortgage giants. Their nationalization would stabilize the smaller regional and local financial institutions that are constantly endangered by unfair competition and the threat of absorption by the giants. Roosevelt passed on this opportunity in the New Deal era, hastening the monopolization of the financial sector that we have inherited. The opportunity should not be lost again.

Very soon we will face the mortal decline of the auto industry, an industry experiencing dramatic drops in sales and exploding unsold inventories. As with the financial sector, we will be asked to mount a further rescue, engaging billions more of public funds on top of the billions already granted. Hopefully, Stiglitz and other influential thinkers will urge the nationalization option over further bail-outs for monopoly capital. Until we popularize the idea of public ownership, we are engaged in a class war with only one side fighting.

The Obama victory has brought a break with the relentlessly reactionary policies of the Bush administration. But on the economic front, his advisors show little stomach for policies that will directly benefit those victimized by capitalist folly. Instead, they continue to foster the discredited view that the people’s fate is inseparably linked with the survival of the “masters of the universe”.

Zoltan Zigedy

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