CNBC business analyst Rick Santelli's televised tirade earlier this year ago against the idea of "loser" homeowners receiving government assistance turned the cable analyst into an overnight folk hero, no small feat for this voice of oppressed bond traders everywhere.
The Fox News/Republican right has high hopes the ensuing "tea party" protests inspired by Santelli's rhetoric will serve as a rallying cry for rousing the right-wing faithful against President Obama's economic recovery plan. Unfortunately for them, the public protests against "taxes and spending" turned mostly into a transparent exhibition of the Republican Party's desperation.
Indeed, there is legitimate public unease over the President's recovery plan. But what are the Republicans going to do about it? Predictably, the "free-market" fetishists of the right remain broken records when it comes to their own recovery proposals. Which are? Basically, just more of the same Bush-era version of deregulated Reaganomics. In other words, endless sops to the financial interests of the rich and powerful while everyone else gets to breathe more stale air about better days to come. That's why the "Tea Party" protests amount to little more than a manipulated exercise in fake populism.
But as long as we're shedding illusions, what about also divesting ourselves of some equally archaic liberal notions? Most Democrats now assume that the economy will eventually right itself if only we somewhat re-regulate the financial sector, temporarily pump more public money into troubled companies, and provide market incentives to private capital.
Accordingly, Treasury Secretary Tim Geithner wants to provide low-cost loans and guarantees to private investors to buy a minimum $500 billion (maybe up to $1 trillion) in toxic mortgage and other bank assets. The plan is based on the dubious proposition that the road to economic salvation winds through the same hedge-fund investors and private equity firms already responsible for speculating the economy into disaster. Even worse, the terms of the plan guarantee that it is only the risk-not the profit-that will be minimized for private investors. As the New York Times noted in a March 24 editorial, the Treasury plan represents "a near complete socialization of losses, with little value flowing to taxpayers."
True to form, some on the right now decry Obama's stimulus package as nothing less than the triumph of socialism in America. "Lenin and Stalin would love this stuff," former Arkansas Governor Mike Huckabee told a recent meeting of the Conservative Political Action Conference. Not that the huckster Huckabee has any serious ideas about how to solve the run of mortgage foreclosures or rising unemployment. Or, for that matter, the crisis of capitalism itself.
The Decline of the Empire
Speaking of which, the real trouble with the Geithner plan is its assumption that the banking system is basically sound. In fact, the current crisis reflects contradictions in "free market" economics decades in the making.
As Walden Bello, a senior analyst for Focus on the Global South, noted last fall, "The Wall Street meltdown is not only due to greed and to the lack of government regulation of a hyperactive sector. The Wall Street collapse stems ultimately from the crisis of overproduction that has plagued global capitalism since the mid-seventies."
He's right. The current economic crisis is a product of the long goodbye of the postwar American empire. The prosperity that followed the end of World War II was largely driven by rebuilding war-torn Europe and Japan, along with the introduction of permanent, large-scale military spending. But inevitably the rebuilt foreign economies came to represent not just new markets and investment opportunities, but increased global competition. With the rise also of newly industrializing economies in such countries as Brazil, Taiwan, and South Korea, the competitiveness of the U.S. economy had by the 1970s begun to undergo serious decline.
Until this time, relatively high wages served not only to stimulate U.S. consumer spending, but also to pacify the labor movement. The Keynesian regulatory controls put in place in the 1930s acted at least partly to temper the natural "boom or bust" cycle of the market. But there was always a limit to how far the wondrous world of postwar productivity could go. That's because even the most affluent "free market" societies are characterized by social inequality and poverty, which represent serious brakes on the public's buying power. Hence, overproduction.
With declining profit rates, Reaganomics had by the early 1980s become the ideological clearinghouse to justify trashing "outdated" government restrictions on capital growth. Supposedly, dismantling "burdensome" restrictions on trade and commerce would prompt the wealthy, inspired by their growing good fortune, to invest with renewed vigor in new jobs and capital growth. A rising tide of popular affluence would thus be the result.
Of course, it didn't quite work out that way. The "trickle-down" economics of the Reagan era instead turned into a form of economic waterboarding for the average American. Income circulated only one-way, upward from the middle class and poor to the already well-off on their way to becoming the super well-off. Good paying union jobs were exported overseas where wages were cheap and work standards low, while at home wages and benefits stagnated and union growth stalled. Two decades later 40 to 50 percent of all U.S. corporate profits come from operations and sales abroad, while wages have remained mostly flat. Tellingly, the income gap between the haves and everyone else is greater now than any time in the nation's history.
A World on Edge
If laissez faire economics is dead, as French President Sarkozy recently declared, so also is the era of American global economic power. Today, the financial sector constitutes about 22 percent of all U.S. economic activity, notes former Republican strategist Kevin Phillips in "Bad Money." As for manufacturing, it is down to about 12 percent of the economy. These facts reflect less the dynamic character of American capitalism than its underlying instability and weakness. Why? Because the financial sector creates nothing of real value. It is, as Bello notes, "tantamount to squeezing value out of already created value." It should be an ABC of economics that only industry, agriculture and their accompanying trade and services introduce real value into the economy.
It should also be ABC that the current crisis is the result of bipartisan policies. It was the Clinton Administration and Congress that engineered passage of the Financial Services Modernization Act of 1999, leading to repeal of decades-old regulations restricting banks from offering investment or insurance services. The runway was thus cleared for an already burgeoning investor economy to soar into the speculative stratosphere. After all, why invest in actual economic growth when the real money is to be made buying and selling other people's mortgages?
Unfortunately, the Obama Administration proceeds as if the crisis is a serious temporary problem that money and some regulatory tinkering to the economic engine can repair. Meanwhile, the Republican right-wing sinks further into ludicrous irrelevancy, their jabs at Obama's "socialist" policies appearing increasingly grotesque and out of touch.
But since they've brought up the topic of socialism, why not talk about the real thing? The essence of the socialist idea is that the economy can and should be planned, both to make best use of resources and to serve not private profit but the majority's human needs. In other words, socialism represents the extension of democracy into the economy. In its absence we instead witness the current havoc wreaked on our economy by a relatively small number of super-rich, who use their economic and political power to twist the levers of the economy to serve their own narrow interests.
Some liberal economists such as Nobel Prize winner Paul Krugman have recently begun to sound the alarm on Obama's recovery plan. Expecting those who caused the crisis to solve the crisis just won't work, says Krugman, even if you reward them beyond their wildest dreams. Krugman favors more extensive measures such as nationalizing the largest banks. Still, his perspective is limited. In the long run he'd like to keep the banks in private hands. Bank nationalization should be just a temporary solution.
Why? Why, indeed, should private ownership of major economic institutions be considered sacrosanct, especially when those who've had their chance to run things have instead run things into the ground? In a rational society the banking system would exist as an arm of the public good, a regulated system subject to democratic management. It might be even easier to grasp the capitalist folly in health care. We need private health insurance companies as much we need private fire departments that serve only their own paid-up enrollees.
Is this just inflated left-wing rhetoric? Then ask yourself how democratic it is for the richest 1 percent of Americans to own 43 percent of all stock? Or for this same 1 percent to account for 33 percent of total household wealth, according to the Federal Reserve Bulletin? Is it far-fetched to suggest that class inequality and economic insecurity are permanent hallmarks of life under capitalism?
If the economic crisis is the result of bipartisan policy, it's solution now lies in mass partisan action by an organized public. All the hopeful chatter from the Wall Street types in the Treasury Department who now command the President's ear will only go so far. A mobilized, grass-roots labor movement fighting for the right to organize the unorganized and for more jobs and better working conditions and economic relief for distressed homeowners would do far more to move the country forward to the better future we all deserve.