Sunday, March 30, 2008

When socialists take Wall Street

The socialist takeover of Wall Street was never really in doubt from the 1987 stock market crash onward. But the bailout of investment banker Bear Stearns has provided a long-awaited bookend to that story.

Wall Street, which historically has been a bastion of vehement opposition to government intervention in the so-called free market, now takes it as a matter of right that the U. S. government and its central bank (as well as the central banks of other countries) will come to its rescue. The principle invoked--if it can be called that--is that Wall Street's institutions are too big to fail without causing a worldwide financial panic. This is an interesting form of extortion: "We'll bring down the world economy unless you bail us out. Never mind that we paid ourselves huge bonuses using other people's money while creating this mess."

There was a time when America's financial elite could be imagined to agree with U. S. Treasury Secretary Andrew Mellon (1921-1931) when he observed that the damage of the emerging economic downturn (soon to become The Great Depression) would be short-lived if only the government would allow events to take their natural course. "Liquidate labor, liquidate stocks, liquidate the farms, liquidate real estate," he is reported to have said. Mellon's reasoning was thus: "It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people."

But, no longer do financial elites believe in punishment for past financial misdeeds. Now everyone must be backstopped by the very "nanny state" which many Wall Streeters have been fighting to destroy since the days of the American Liberty League during the Great Depression. (So contentious was the role of the Liberty League that even today the Wikipedia article linked above is bannered with the warning "disputed.")

It may seem like sweet irony that so many who have badmouthed government regulation and handouts to the downtrodden should now find themselves holding a tin cup (gold-plated though it may be) waiting for Uncle Sam to fill it with large checks drawn on the Federal Reserve and guarantees signed by the U. S. Treasury.

The irony is double since the very government which expanded its role in the 1930s to alleviate the suffering of the masses now seems organized to top off the bank accounts of the privileged few. But, it is the colossal incompetence of this same government, most notably during Hurricane Katrina, which ought to make us wonder whether the emergency measures it is now undertaking on Wall Street will forestall a wider financial catastrophe. So far repeated large-scale financial interventions have done little but break the fall. The unfolding spectacle of the American central government's impotence in the face of disaster ought to make us ponder whether solutions for any of our problems can actually come from above.

Author and scholar Chalmers Johnson has been laying out his case for how militarism and financial bankruptcy are hurtling the American republic toward its ruin, perhaps toward military dictatorship or revolution. (To see a video interview with Johnson discussing this thesis, click here.) Is such a government worth lobbying for legislation that will reduce greenhouse gases, increase funding for renewable energy, promote sustainable agriculture, regulate energy efficiency or even require the smallest steps to help avert the ecological catastrophes we face?

All those who do such lobbying deserve our admiration and our gratitude for what now seems a Sisyphean labor. (I admit we must hope for a breakthrough on sharply curtailing greenhouse gas emissions at the national and international level. I see no other way.) But perhaps the model of social democracy introduced by Franklin Roosevelt and the New Deal, that is, centralized assistance to a striken nation, may no longer be workable.

At the very moment when the most reticent and reactionary elements of American and world society are giving a thoroughgoing embrace to the socialization of risk (even as they continue to covet the privatization of reward), the immense centralized bureaucracies of the West which have given rise to its welfare states may no longer be up to tasks we face.

If Hurricane Katrina signaled to the American public that "you're on your own," perhaps it was not so much because of the insensitivity of the current American administration as the inability of the federal government to address problems that call out for local solutions and grassroots efforts.

(No doubt some will say that disaster relief must be the province of the central government everywhere since it alone can pull resources from other parts of the country to meet the needs of those afflicted. First, the evidence suggests that this reasoning is not entirely correct. Many nonprofit and volunteer organizations did a superior job to that of the U. S. government in organizing relief efforts. Second, if New Orleans and the other municipalities in the path of the hurricane had been solely dependent on local resources and planning for the decades prior to Katrina, they might never have ventured to expand their towns and cities in ways that would ultimately endanger so many people.)

This brings me to the argument I am having with many in the peak oil and sustainability movements. Should we focus on trying to get central governments everywhere to embrace policies that address sustainability and a low-energy future at the expense of local initiatives? No doubt many will say we should do both. But, the question is whether both are possible given the urgency of the tasks. Time grows short, and the moment to begin a kind of political triage may already be upon us. We may need to determine which governmental functions at which levels can and need to be saved and which cannot or should not be saved.

Surely, we do not want to be lulled into a sense of complacency like those new socialists on Wall Street who are now convinced of the wonders of a government safety net. In fact, when the wealthiest of the wealthy are screaming from New York skyscraper rooftops about the wisdom of government bailouts, it makes me wonder whether I should be running in the other direction. It makes me wonder whether I ought instead to be focusing on making my own community and all its institutions, both public and private, more resilient for the great storm ahead...and simply watch with informed resignation as the centers of power fall into ruin for reasons of bankruptcy, incompetence and impotence borne of organizational obsolescence.


Anonymous said...

Nah! everything's fine...
They make a desolation and call it peace

Anonymous said...

There is no cabal. Long live the cabal!

Anonymous said...

No question about it, we should be running the other direction FAST.

Great post, Kurt.

John Q said...

Let's get one thing straight; this is not Socialism! Socialism means governance by and for the people not the Oligarchs. The correct name for the scene in the U. S. is FASCISM or as Mussolini put it, CORPORATISM: A joining of the state and the corporation(s). Socialism should not be smeared with the bloody fingerprints of Fascism. We can argue about the merits or lack thereof of properly defined socialism on its own rights.

Anonymous said...

For me, the question isn't to bail out or not to bailout, but "what are we getting for our work and money?"

For example, I have no problem bailing out Bear Stearns if it saves working people's pensions and other investments with an international reach. The question is not whether risks ought to be socialized -- as you said Kurt, the public acquiesed to that reality long ago -- it's whether the benefits of capitalism ought to be privatized to the current extent.

This is the better side of the argument for socialist-leaning people. And, in times like these, this is the argument we need to make because it can be made persuasively. We can say, "real shareholder democracy and accountability happens when we actually own the corporations. Bear Sterns happens when corporate elitists on Wall Street take control."

Plain and simple.