Corporatist Boom, Democratic Bust

Rule by a corporate elite requires war, corruption, and a cowed populace; democracy requires an educated population loudly demanding transparent, responsive government. Make no mistake: this is war. Guess who is winning?

Corporate elites (i.e., CEOs, CFOs, VPs, board members) of top corporations want four things: freedom from regulation, rock-bottom wages for American workers, a stock market bubble, and political control. To be clear, “top corporations” means the major Wall St investment firms that pretend to be banks, the major energy and mining corporations, and the major arms manufacturers – i.e., the firms whose CEOs have been making a personal killing from both the trashing of Iraq by the US military and the Great Recession of 2008. Needless to say, they are getting exactly what they want despite the lessons of both the Iraq occupation and 2008 recession scandals. It is they who run the economy, not representatives of the social good. These key CEOs also pretty much run the government, sending their representatives to Washington to write the laws and, more importantly in many cases, the implementing guidelines. Corporatism is probably the best name for this system we have in the U.S.; it is certainly not capitalism (i.e., free competition), a method reserved for Mom and Pop, who are perfectly free to go bankrupt whenever they wish.

This exclusive band of the corporate elite does not see a problem with declining wages, disappearing benefits, millions giving up the search for work, millions of home foreclosures (a great investment opportunity!), endless war, and brutal treatment of whistle-blowers to repress dissent. The corporate elite is achieving exactly what it has been trying for much of the last generation to achieve: the abolition of the New Deal compromise to facilitate a wholesale transfer of national wealth and political power into their private hands. All the public lamenting by Obama and Bernanke about “remaining problems” in the economy is just so much fluff. The problems of the U.S. economy are not “bad luck;” they are the intended outcome. The U.S. is being transformed into a third world economy of people too busy looking for work to make trouble by sticking their noses into politics (the proper business of the elite) and too poor to risk striking for higher wages. Obama and Bernanke (and Geithner) have been supporting this process with meticulous care by avoiding any hint that any actual live corporate individual was in any way morally or legally responsible for the harm their corporations have caused the American people. 

Meek workers and meek citizens grateful for their Walmarts and the right to vote for either of two corporate candidates every few years is what the corporate elite wants. And they are getting exactly what they want. Remember how the protests in Wisconsin were shut down? Did you notice how fast the patriotic popular Occupy Movement disappeared? Are you watching how every whistle-blower gets bullied while the message they are trying to bring to the American public gets ignored? Snowden is at least the fourth NSA whistle-blower who has tried to alert Americans to the dangers of domestic spying over the last decade! Have we seen any official condemnations of NSA behavior, any independent investigatory commissions, any arrests or even admissions of guilt by senior officials?

The corporate elite and the citizenry have diametrically opposed interests. The corporate elite benefits from a stock market bubble, a main street depression, constant war, and discouraged citizens. In contrast, economic prosperity for the person, a vibrant democracy of involved citizens, transparency in government, regulation of corporations, and a foreign policy based on negotiated positive-sum cooperation are the components of a healthy society. Think of the things benefiting the corporate elite as food items in the corporate elite’s picnic basket and the starkly different items benefiting the population as foods in your picnic basket. You can’t mix items. Foreign war, domestic corruption, and an intimidated public are the legs on which corporatism towers over a democracy. In the long run, we the people really only have this simple choice: pick the basket you want…and if you want the democracy-peace-prosperity basket, hold on to it with both fists.


An Elite Culture of Hostility


An elite culture of hostility toward the people is rising in the U.S. This elite is not just a plutocracy but, increasingly, an insecure and vengeful plutocracy that views popular participation in the democratic process, at home or abroad, as the primary enemy. This paranoid elite mindset is laying the foundations for dictatorship.

From the Patriot Act, Abu Ghraib, Guantanamo pre-trial torture, wars for profit, destroying the careers of honest Federal officials who oppose contract fraud, and drone attacks on unidentified civilians to bailouts of billionaires and “stay out of jail” cards for Wall St. CEOs despite prima facie evidence of fraudulent behavior to the vicious pre-trial torture of individual Americans guilty of embarrassing top officials, we are witnessing the rise of an elite culture based on self-defense against the people. The members of the elite who buy into this culture all agree that it is in their common private interest to treat the people as the enemy. Whether the president or Wall St. banker or arms corporation CEO happens to label himself Republican. Democrat, or apolitical businessman is becoming increasingly irrelevant: the elite is adopting a garrison state perspective that labels all debate, all independent thought as proof of treachery.

This culture of dictatorship rests on a foundation of private wealth used for public power: a few CEOs from the arenas of finance, energy, and war profiteering who specialize in transferring social wealth into their own hands for subsequent transfer to their political lackeys. Once bought and paid, the political lackeys pass the laws required for the protection of the CEOs’ wealth transfer scam. Do independent commissions write the implementing rules governing how Wall St. is regulated? No, bureaucrats supported by representatives from Wall St. write those critical implementing rules. Do independent commissions decide if NSA should be permitted to engage in domestic spying? No, a highly secretive internal government body does. Class war by the rich, immunity from prosecution for the powerful, and secrecy are the legs on which dictatorship stands.

We may differ on which politician is most guilty, we may differ on whether or not any specific official personally desires to institute a dictatorship. Regardless of the answer, the rise of this defensive, anti-popular elite culture is promoting the consolidation of a single elite committed to its own perpetuation and determined to fight to the death against popular participation in the democratic process. Just as dictatorship has a critical core, so does democracy. The legs of democracy are transparency and public accountability. Transparency does not mean the transparency of what you do in your bedroom or write in your emails but what officials do in their offices. Unlike officials who seem suddenly, in our post-9/11 world, to have become addicted to pre-trial torture, for citizens in a democracy, “public accountability” means bringing the powerful to court to defend themselves. [Why do I feel it necessary to spell out something so obvious?!? Did we not all learn this in high school?]

The dynamic powering the transfer from democracy to dictatorship is, in a word, that “power corrupts.” The more power is acquired via ill-gotten and hidden pathways, the harder those abusing power will try to cover up, until they reach the point where they can only protect their personal careers by outright dictatorship…by which point they may well have the power to do so. Whatever lies in the hearts of our current officials, sooner or later this mindset of hostility toward the public (first, the public in a few Muslim states and now only a few years later also the American public) will be exploited by a leader to build what we will all recognize as a dictatorship…unless we change the elite culture of hostility.


On the other hand…

Bipartisan senatorial critique of NSA domestic spying by Leahy, Udall, Frankin, Grassley supports transparency in government.

Senator Leahy statement on NSA domestic spying:

Today, the Judiciary Committee will scrutinize government surveillance programs conducted under the Foreign Intelligence Surveillance Act, or FISA.  In the years since September 11th, Congress has repeatedly expanded the scope of FISA, and given the Government sweeping new powers to collect information on law-abiding Americans – and we must carefully consider now whether those laws have gone too far.

Last month, many Americans learned for the first time that one of these authorities – Section 215 of the USA PATRIOT Act – has for years been secretly interpreted to authorize the collection of Americans’ phone records on an unprecedented scale….

In the wake of these leaks, the President said that this is an opportunity to have an open and thoughtful debate about these issues.  I welcome that statement, because this is a debate that several of us on this Committee have been trying to have for years.  And if we are going to have the debate that the President called for, the executive branch must be a full partner.  We need straightforward answers and I am concerned that we are not getting them….

Just recently, the Director of National Intelligence acknowledged that he provided false testimony about the NSA surveillance programs during a Senate hearing in March….

The patience and trust of the American people is starting to wear thin….

The Government is already collecting data on millions of innocent Americans on a daily basis, based on a secret legal interpretation of a statute that does not on its face appear to authorize this type of bulk collection.  What will be next?  And when is enough, enough?

Congress must carefully consider the powerful surveillance tools that we grant to the Government, and ensure that there is stringent oversight, accountability, and transparency.

Congressional coalition opposes domestic spying –

A stunning bipartisan group of 205 Congressmen voted to slap down the Administration and the Republican House leadership over NSA domestic spying. Advocates of continued nearly unrestrained domestic spying against citizens not accused of any crimes won a narrow victory that cannot but awaken them to the on-going national outrage over the domestic spying scandal by Intel agencies that have traditionally been barred from domestic activities. The Amash-Conyers bill represents a significant response to the post-9/11 trend, symbolized by the grossly mis-named “Patriot Act” toward abuses of power by an Imperial Presidency that shows little concern for Constitutional guarantees of civil liberties. We should all be grateful to Manning for sacrificing his life in the name of real patriotism.

Neo-liberal Crisis Threatens Peru

Crisis threatens Peru, with presumed populist Humala taking a corporatist stand. Rhetoric is hardening on both sides, and no one appears able to define the struggle between the rural poor and international gold mining interests in a positive-sum manner.

When Ollanta Humala, who had presented himself as a populist who would put civil liberties ahead of international corporate interests, won election as Peru’s leader, Peru’s future seemed to be brightening, but his first year in power has left the country facing a text-book neo-liberal challenge: people versus gold. Despite local fears that a new gold mining project will destroy the population’s water supply and strong regional government support for anti-mining demonstrations, Humala has sided with the gold mining corporation and pushed his administration into crisis.

This delightful video shows the natural beauty of the Cajamarca region.

Following two resignations from the cabinet, the Humala administration has shown signs of a new willingness to listen to the people who elected him. Nevertheless, the extension for another month of the state of emergency in Cajamarca on Friday, a slap in the face of the head of the on-going negotiations between the central government and the regional government, suggests a continuing pro-corporate bias on the part of what was supposed to have been a popular, democratizing regime. In protest over Humala’s attitude, Cajamarca regional president Gregorio Santos, who now stands accused of “rebellion” against Humala, is boycotting the negotiations and flatly asserted on August 9 that at this point lifting the state of emergency would not suffice: the mining corporation must step back and the government must look into the deaths of the protesters. Speaking slowly and thoughtfully, Humala called for an “end to hypocrisy” (Dejémonos de hipocresías.) on August 8 and warned Humala not to “hide behind the priests” (ocultarse detras de los sacerdotes) serving as mediators. The Humala Administration, however, is demanding the retreat of the protesters before negotiations—assurances that there will be no more “actos radicals” before lifting the state of emergency, far from Santos’ demand for action by the mining corporation.
Despite the deaths of five protesters and mediation by the Catholic Church, the central government and the regional opposition to the mining project have not even managed to agree on the terms for sitting across the negotiating table from each other. Humala, seen by the elite a year ago as a troublemaker for his outspoken opposition to their policies, now sits in their seat, evidently expecting the same popular obedience the old elite once expected of him. His accomplishments during his first year in office may be overwhelmed by the controversy over gold mining:

Since taking office a year ago, Humala has introduced a minimum monthly pension for the elderly poor and grants for students while augmenting programs for infants and families in poverty. He said the number of the people enrolled in some of the programs would double during his term. Humala’s approval rating fell to a fresh low of 40 percent this month, according to pollster Ipsos, after a crackdown on protesters opposed to Newmont Mining’s $5 billion Conga project in the northern region of Cajamarca that killed five people this month. [Reuters7/28/12.]

Humala plans a $30 billion expansion of gold and copper mining over the next five years in Peru; how that will address the quality of life of Peru’s rural poor remains unclear.
Rhetoric on both sides is hardening, and protesters have called for a strikeon August 21 and 22.

Humala’s Theoretical Error: Screwing the Lid on Tight Makes the Pot Boil Over

As a man of the people, Humala must know better, but once in office, he began to think he was, if not above the law, at least above the people. He has, as a result, discovered that top-down decision-making imposed upon the people, without gaining their buy-in generates exactly the chaos leaders want to avoid. By failing to show that residents would benefit from a new gold mine in their backyard, by failing to ensure that they would retain clean water, and most importantly of all by avoiding the short-term inefficiencies of democratic decision-making, he has provoked a deepening national crisis reminiscent of the decade-old Cochabamba water war against Bechtel Corporation and a Bolivian leader who made the same mistake…and turned Evo Morales into a national hero. More, he has thereby contracted a severe case of instability plus long-term counter-productivity, weakening himself both domestically and internationally while undermining his policy of befriending international mining corporations to boost Peru’s economic prospects. Political processes are not linear: what works for a day may be the cause of failure by the weekend.

Humala had to play a two-level game (to simplify his reality), dealing with the international gold mining corporation and dealing with his countrymen. On the foreign policy side, he negotiated; in terms of domestic governance, he attempted a centralized decision-making process…thus landing, for this policy, solidly in the tricky blue arena where behavior toward domestic partners clashes with behavior toward international partners. Playing tough guy in the red arena of force might make a leader feared; playing nice guy in the green arena of conciliation might win a leader moral stature. Playing in the internally inconsistent blue arena makes a leader look like a push-over to foreigners and like a sell-out to those who voted for him.


The Enemy of Society

U.S. society remains, despite war and recession, sufficiently comfortable and deluded so that it refuses to face up to the harm it is suffering from allowing its pro-business/anti-people system to continue to exist. It is not necessary to eliminate business, which is a useful tool, but when that tool is transformed by a misguided elite into an idol existing not to benefit society but for its own sake, then the fundamental shape and values of society are warped, and the tool becomes a weapon employed by rich CEOs to plunder the wealth of everyone else. The solution is to create institutions that serve, not exploit.

The campaign by the super-rich to profit by stealing from the poor and using the funds for financial manipulations (rather than investment in productive enterprises) is the worst of all possible worlds for the long-term economic health of the country. Wisconsin Governor Walker’s union-busting campaign and the Supreme Court’s replacement of “one man, one vote” with “one dollar, one vote” are symptomatic. Whatever his sins, at least Stalin did concentrate funds on industrial growth; Wall St. today is worse – using the funds it takes from society for leveraged gambling that destroys lives quite as effectively as Stalin did but without building anything in return. The Obama Administration has wasted four years carefully refusing to face the need to punish financial crime, so the behavior that caused the Financial Crisis of 2008 remains unchanged, as illustrated by the libor scandal and mess at Morgan. As for the millions who lost jobs and homes, they are being defined as “superfluous,” like the Neo-Liberal victims of Pinochet and the Argentine junta’s “dirty war.” More precisely, if the populations of Chile and Argentina were suppressed with tanks and torture by a capitalist elite while the U.S. population faces little worse than mass unemployment combined with bank-plotted and court-supported foreclosures, in a capital-first, people-second society, that preferential treatment is no more than a momentary privilege for the oppressed. Either the U.S. population must demand a new system that puts people first or Chile’s past will be our future.

In the U.S., as is now commonly observed, we do indeed face a major economic challenge, but that challenge is not the cause of our troubles; it is the result. The cause, i.e., the real challenge facing the U.S., is socio-political: the social contract we call the New Deal essentially allowed the super-rich to remain super-rich as long as they accepted sufficient controls (regulation) so that the pie would continue to grow and the rest of society would also get steadily larger pieces. The class war is the decision by the super-rich over the last generation to break that agreement and ignore the size of the pie (long-term economic growth) in order to focus on increasing the size of their pieces by seizing slices from the vastly smaller but more numerous pieces in the hands of everyone else (short-term consumption of the seed corn). Roubini’s enumeration of our economic problems focuses only on second-order effects caused by our first-order socio-political challenge: we are under attack by the super-rich.

Like matches in the hands of a two-year-old, a corporation in the hands of a CEO whose primary value is self-enrichment is a dangerous misuse of a good tool. Wall St. would have burned the house down if its financial conflagration had not been doused by a flood of cash from the poor taxpayers it was fleecing. Corporations, whether financial firms or oil companies, constitute far too powerful a tool to be allowed to exist without the strictest oversight and the firmest sanctions for corruption. In practice, neither of those two forms of “social security” will function in the absence of a solid bolt locking the revolving door. We need a value system that makes it crystal clear that corporations may be useful institutions that society may choose to permit, but that they have no inherent moral or legal “right” to exist any more than a road or a red light or a sewer system has a “right” to exist. Sewer systems are not people; sewer systems are tools. Society constructs and uses sewer systems and red lights and, if it is wise, corporations to the degree that they appear to constitute the best tools available at the moment to achieve social goals. It should be perfectly clear that I am describing a fundamentally restructured political and economic system, with a fundamentally distinct moral foundation in comparison with that currently in place in the U.S. 

To put it briefly, economics and politics can be structured for capital (profit) or social well-being. In practice, the two are obviously not mutually exclusive: economic crumbs may trickle down to the masses and a decent, moral, caring society can–given tight regulation, harsh punishment for financial corruption, and firm oversight by an educated population–permit a degree of individual wealth. (Despite a half century of vigorous effort in that direction, it is now clear that the U.S. population lacks both the level of education and the will to exercise sufficient oversight to create such a society.) 

To the degree that capital accumulation is preferred over creating a good society, then that is exactly what will happen. Over the last decade, Wall St. has become a marvelous machine for short-term capital accumulation (except for those, like Lehman, that Wall St.’s political lackeys decide to sacrifice). The only problem is that society is being sacrificed. Wall St. need not be, but in its hubris has defined itself to be, the enemy of society.

The Meaning of Being ‘Pro-Business’

Words, these days, lack straightforward meanings, but the meanings are nevertheless there, and you can understand the meanings if you try. Consider the loaded phrase “pro-business.”

When a politician claims to be “pro-business,” it means “anti-worker.” Do you work? If so, why would you vote for a politician who opposes your welfare? “Pro-business” means:

  • supporting millionaire CEOs;
  • using government to slant the bargaining table to the advantage of corporations rather than employees;
  • defending corporate profits overseas at the expense of the welfare of the societies they may be either serving or pillaging (incidental details of business tactics and no concern of American voters).

It follows that if you design a government to support CEOs who become wealthy, you are unlikely to jail those CEOs when they defraud their workers or stockholders or customers. Most corporations, unlike the famously far-sighted Henry Ford, focus on hiring low-cost labor rather than stimulating the growth of a wealthy customer base, so the politicians they support financially will be those who break unions and give away the nation’s resources. When the corporations decide that setting up shop overseas is more profitable than breaking unions at home, they do not do so in order to help the new host country develop its economy but to bled that economy dry for corporate profit; a pro-business regime in Washington will assist that pillage rather than helping a friendly country to become a well-to-do and stable democracy. If people are superfluous in the eyes of corporate leaders, why not countries?

American voters need to understand a couple fundamental things about all this. First, there is nothing “American” or “un-American” about any of these policy choices. After the 1980s S&L scandal, hundreds of corporate criminals were jailed in a pro-society policy (under Reagan!!). After the 2008 financial scandal, essentially no high-level corporate criminal suspects were even brought into court and given the opportunity to clear their names, in a pro-millionaire policy (under Obama).

Second, a “pro-business” policy is a logical (if selfish) and coherent program with very real and serious consequences for every citizen…everywhere. A given corporation may choose to focus domestically or internationally. If popular demands for reining in particularly egregious corruption, say murdering too many foreigners or giving dirty drinking water or defective armored vehicles to “our boys in uniform,” makes things a little hot for a corporation and it decides to change its name or move its headquarters overseas, that is simply a tactical decision. If a corporation wants domestic natural resources badly enough to buy an election, that is another tactical decision. Corporate patriotism is a contradiction in terms. Corporations are in no sense people; they do not have feelings. Corporations are organizations, and as we know them today, they are organizations designed to serve their leaders and only their leaders. Whatever else they do is only a momentary tactical step in pursuit of service to their corporate officers or in response to force majeure from government or an otherwise organized public. None of this should surprise anyone. Millionaires and wanna-be millionaires do not form corporations to help society or support democracy; they form corporations for wealth and power.

It follows, then, that it is impossible to be “pro-business” and “pro-society” simultaneously. A government that supports the emergence of a healthy society will no doubt see the emergence of healthy businesses, but a government that is “pro-business” is necessarily “anti-society.” If the emphasis is on helping millionaires, everyone else will be harmed. Being “pro-business” inevitably means slicing the pie so that CEOs get bigger pieces by making everyone else’s pieces smaller. Being “pro-society” means slicing the pie evenly, which forces businesses to bake a bigger pie in order to get a bigger piece. Baking a bigger pie means developing the economy and creating a comfortable, secure society…which is a society composed of individuals who are good customers, thus producing profitable businesses over the long term, and that is why corrupt corporate leaders who defraud mortgage-holders or stock owners or employees or customers to become millionaires are, over the long term, the enemies of capitalism.

Everybody obviously includes businessmen; they can and should get a bigger slice right along with all their neighbors–as long as they are compelled to design their businesses to serve society rather than pillage it–but never, ever first because once a corporate leader gains the advantage of a bigger slice up front, he will inevitably let some crumbs trickle down…not to the people but to the politicians he wants to buy, and they will inevitably smile as they nibble. That leads to what I trust is an obvious reinforcing feedback loop that undermines the welfare of the population and transforms democracy into rule by the elite with elections as gladiatorial games.

Superfluous People

Washington is run by and for rich businessmen. When politicians brag about being “pro-business,” they really mean favoring rich executives, not the millions of workers who form the productive core of business. From this attitude flows an essentially predatory foreign policy; what we should all have learned from the Financial Crisis of 2008 and the reaction of Washington (under both major parties) to that crisis is that a business-friendly elite of the rich will, in the end, have the same attitude toward the people of U.S. society as it does toward the struggling poor everywhere else.

In 1992 Noam Chomsky, perhaps the most brilliant living U.S. world affairs thinker, in What Uncle Sam Really Wants, offered the key to understanding the Financial Crisis of 2008. Back in 1992, Chomsky was thinking about U.S. foreign policy. Unfortunately for Americans, what Washington does to other societies paves the way for how the U.S. elite treats the American people. According to Chomsky:

According to US intelligence, the Soviet Union poured about 80 billion dollars into Eastern Europe in the 1970s. The situation has been quite different in Latin America. Between 1982 and 1987, about $150 billion were transferred from Latin America to the West. The New York Times cites estimates that “hidden transactions” (including drug money, illegal profits, etc.) might be in the $700 billion range….

In a global economy designed for the interests and needs of international corporations and finance, and sectors that serve them, most people become superfluous. They will be cast aside if the institutional structures of power and privilege function without popular challenge or control. [Noam Chomsky, How the World Works (Soft Skull Press, 2011), 54-55.]

Later, Chomsky explains the idea of superfluous people as follows:

Since they’re superfluous for wealth production (meaning profit production), and since the basic ideology is that a person’s human rights depend on what they can get for themselves in the market system, they have no human value. [154.] 

Virtually no U.S. citizen cared that Washington viewed the people of Copper Country…ah, Chile, or Brazil or Argentina or Nicaragua as superfluous. If U.S. citizens thought about the citizens of Latin states at all, they certainly did not see their neighbors’ lack of democracy or lack of economic security as in any way predictive of the future that U.S. citizens might soon face. Even when the rampage of Wall St. and mortgage firms through the U.S. population came to light and the Washington elite promptly covered the billionaires’ losses by handing over trillions of tax dollars, virtually no one made the connection between the attitude of the U.S. ruling elite toward Third World societies and its attitude toward the 99% at home. Yet, when you think about it, how can a ruling class that puts a Pinochet in power or destroys a society battling to free itself from a banana company-backed thugocracy (Nicaragua, El Salvador, Guatemala) logically be expected to refrain from robbing the poor at home?

Educated Americans (a small minority) in the 1990s knew that the global economy was “designed for the interests and needs of international corporations and finance.” They also calculated that they would personally benefit forever from this situation. Then, the super-rich decided to rip off American homeowners and Washington responded by bailing out its business friends, ignoring whatever crimes they might have committed along the way, and leaving an odd ten million U.S. citizens unemployed. As the brave survivors of Chile, Argentina, and Nicaragua will understand all too well, these 10 million U.S. citizens have become the latest superfluous group. Perhaps a few more U.S. citizens are now educated in how the world works. The demonstrations by tens of thousands of Wisconsinites against Republican union-breakers last winter and the Occupy Movement offer supportive evidence. On the other hand, Republicans retained the governorship of Wisconsin and the real alternative to continued pro-business, anti-people rule by the rich–the Green Party–remains virtually invisible to the average voter.

The Financial Crisis of 2008 and Washington’s response to it show that an elite that will provoke wars, launch coups, overthrow democracies, and impoverish populations around the globe to enrich itself will, sooner or later, treat the U.S. population exactly the same. The lesson of 2008, one cannot but conclude, has yet to be learned by the 99%. But despair not! They will have further opportunities to open their eyes.

Enemies of Capitalism

Does our capitalism system have enemies? You bet it does…but they are not who you think.

A new report from the Bank of International Settlements, which one might think of as the apex of the global financial system, has slammed the system it coordinates in no uncertain terms. But the system is very good at ignoring criticism, even when it criticizes itself. The report asks, “like a person who eats too much, does a bloated financial system become a drag on the rest of the economy?” Then it answers its own question with a resounding yes:

First, as is the case with many things in life, with finance you can have too much of a good thing. That is, at low levels, a larger financial system goes hand in
hand with higher productivity growth. But there comes a point – one that many advanced economies passed long ago – where more banking and more credit are associated with lower growth.

Our second result comes from looking at the impact of growth in the financial system – measured as growth in either employment or value added – on real productivity growth. Here we find evidence that is unambiguous: faster growth in finance is bad for aggregate real growth.

The report notes that in theory “a more developed financial system is supposed to reduce transaction costs, raising investment directly, as well as improving the distribution of capital and risk across the economy.” But everyone has long since learned in the five sorry years since the financial elite from AIG to Bank of America to Countrywide ripped us off (in a striking analogy to the war profiteer scam simultaneously being played by the likes of Halliburton and Blackwater) that the U.S. financial system has not “developed” in that direction over the last several decades. Rather, it has “developed” toward multiplying transaction costs, replacing investment with gambling, evading distribution of capital, and focusing risk away from the elite. Officials of Countrywide and their competitors throughout the mortgage and banking system enriched themselves precisely by raising transaction costs – sell junk mortgages and transfer them elsewhere ASAP while charging a few dollars more for each mortgage’s transaction fees, which they pocketed: the higher the fees, the lower the responsibility. The objective of finance was shifted from supporting corporate investment in the means of production (enrichment of the business sector for the benefit of the whole society) to supporting financial manipulation by the financial sector (enrichment of the financial sector for the exclusive benefit of that financial sector). Meanwhile, capital was not distributed to productive businesses but concentrated in the hands of CEOs where it was squandered on idiotically lavish lifestyles. And the whole scam was run with the exchange of a smirk and a wink between corrupt finance CEOs and corrupt politicians, an unstated but clearly understood deal by which the politicians would use taxpayer funds to cover all risk incurred by the CEOs.
All of this sorry story could easily be used as evidence that the U.S.capitalist system needs to be replaced, but in fact this scam does not represent the U.S.capitalist system. The U.S.capitalist system is a compromise between the piracy of the super-rich, whose appetites otherwise give both them and everyone else financial artereoschlerosis, and pure socialism, which risks both inefficiency and abuse by micro-managing bureaucrats. The scams of the S&L crisis and the 2008 recession represent the failure of a system under attack from the inside, by the very people who profited the most: the kings of capitalism.

Former financial regulator William Black:

…our agency, in the savings and loan crisis, made over 10,000 criminal referrals to the FBI. That same agency, in this crisis, made zero criminal referrals. If you don’t get people pointing the way and pointing to the top of the organization, you don’t get effective prosecutions. So, in the peak of the savings and loan crisis, we had a thousand FBI agents. This crisis has losses 70 times larger than the savings and loan crisis. And the savings and loan crisis, when it happened, was considered the largest financial scandal in U.S. history. So we’re now 70 times worse. And as recently as 2007, we had 120 FBI agents—one-eighth as many FBI agents for a crisis 70 times larger. And they looked not at the big folks, but almost exclusively at the little folks. [William Black on Dangerous Intersection.]

It is true that the scam has been run before, but the last time it was run at anything like the 2008 scale with anything like this level of political cover-up was 1929…and then a reformer took office and put a stop to it. When the S&L industry tried to repeat the scam in the 1980s, a major FBI initiative “resulted in over 1,000 felony convictions” [William Black interview on Financial Sense]. In both 1929 and the 1980’s, the scam was seen in Washingtonas breaking the rules, as an attack on the system, as an attack on America.But the is neither the land of FDRnor the land of Reagan: it has become the battlefield of a class war by the super-rich to overthrow what may be called our “social-capitalist” democratic system. Today, the misbehavior of the super-rich and their political and regulatory allies are assiduously ignored. Stuff happens (but not to those too big to have stuff happen to them); no one is guilty; things come out of the blue. And thus ironically it is the captains of capital who have emerged the true enemies of capitalism and, far more importantly, of democracy.
Capitalism is not a goal but a tool, and a powerful tool it is. Wielded with skill, it is the sharpest economic sword ever invented, but the capitalist sword has two edges and can kill a fool who wields it as easily as enriching the society wise enough to control it. And the key to exercising that social control over the sharp economic sword of capitalism is transparent democratic regulation.

Stellar examples of this transparent democratic regulatory process have emerged over the last decade (e.g., efforts by Brooksley Born at the Commodity Futures Trading Commission in the 1990s to regulate derivatives, reform efforts by Sheila Bair at FDIC, and the 2010 Congressional Oversight Panel investigation under Elizabeth Warren). Unfortunately for the future prospects of both U.S. economic stability and the health of U.S. democracy, such reform efforts have been steamrolled by the momentum of the insider attack on the system. Now, the insider’s insider–the Bank of International Settlements–is joining the reformers, saying, “Hold on a minute! You are killing the goose that lays the golden eggs!” We’ll see if anyone in Washington hears their protest.

Recognizing Class War

After a generation of subtle class war by the rich, a new pattern is emerging in the West: popular anger.

Which is more violenta man who riots because he is starving and is being ignored by the authorities or a bank that sends in armed private thugs to evict a homeowner from a house the bank wants to foreclose on?
Which is more radicalforcing workers into unemployment or nationalizing the bank responsible for that wave of unemployment?
It is time for the West to wake up to socio-economic realities before the class war being provoked by the lust of the superrich returns us all to the grim battle between the extreme left and fascism. Bad as it has become, overall the last 75 years have been far better for Westerners than the bloody 1914-1945 war years. A rising class of educated, comfortable workers, both blue- and white-collar, is the goose that lays the rich banker’s golden eggs, and now these bankers are smashing those eggs out of pure spite – if they can’t have everything, they prefer to destroy society. That is what I call extremism. The total defeat and disappearance of the extreme left after the moderate tide of the New Deal compromise began lifting all boats contained a built-in poison: nothing inherent in that compromise actually prevented the super-rich from taking over, and the complacence of the increasingly comfortable and complacent middle class has permitted exactly that: the moderate middle moderately allowed the extreme right to continue to exist and now it is taking control.
The super-rich have many weapons, from wealth to the revolving door that enables them to control public policy and warp the system to their private advantage, but perhaps the most powerful weapon of the rich is linguistic: the rich define words, and both the complacent middle class and the increasingly angry but confused poor accept those definitions. As long as the 99% use the definitions of the super-rich, they will fail to see what is being done to them.

“Radical” is defined as anything that threatens the privileges of the rich. “Violence” is applied only to violence by the poor, never to violence by the rich. As for moderation, that would be an approach designed to preserve the livelihood that our society is accustomed to, would it not? Is it not self-evident that policies supporting the lives of all are moderate, while policies that steal from society for the benefit of some small group are…extremist?

Once our definitions are made logical, we can begin defending our values. How? Send Jamie Dimon to Hollywood to play the bad guy in a cops-and-robbers flic. Consummate actor that he is, he’d be a star. Then, appoint Elizabeth Warren to dismantle that great casino called J.P. Morgan and replace it with a thousand small-town banks that…do banking.
A pattern is emerging in the West as the class war of the rich slowly slaps people awake. The S&L crisis, today remembered only by William Black, was “unique,” so no lessons needed to be learned. Mexico was just Mexican; we quickly bailed out the Wall St. banks. The Asian Financial Crisis was just “Asian,” even though it exploded into Russia and Brazil, so what did that have to do with “us?” The crisis was amusing. No one was ever guilty, and even if they were, they were foreigners or nerds. Then came 2007 and a few million foreclosures. “Change” put a closet conservative who refused to jail billionaires into the White House, provoking the Occupy Movement; then France returned the Socialists to power; then Greeks said, “Enough!” And now Ireland will have a May 31 referendum on, essentially, the EEC policy of austerity for the poor and a pass for the rich. In the background looms Spain, with 20% unemployment, and over there, the Spanish Civil War is not forgotten.

Big Capital Makes the Case for Socialism

J.P. Morgan and Bank of America just this week illustrated again the need for big, socialist government.

Sometimes government should be small, to allow individual creativity, and sometimes big, to achieve victory over society’s enemies. In just the last few days, two behemoths of capitalism–J.P. Morgan and Bank of America–have made the case, unintentionally, for government not just big but socialist. J.P. Morgan admitted that it was up to all the old Wall St. tricks that created the Financial Crisis of 2008 that stole homes out from under millions of Americans and left millions of others unemployed. Bank of America arrogantly refused stockholders’ calls for it to investigate itself to detect fraudulent foreclosure behavior. A well brought up five-year-old knows enough to think critically about his or her own behavior.

Everyone is of course now having fun at Jamie Dimon’s expense, not that he can’t afford it with his repulsive $25M a year salary, unfortunately eclipsing Bank of America’s sneering attitude toward both stockholders and customers, which may cause even more harm to U.S. society. Unfortunately, the critical rhetoric focuses on the obvious but superficial calls for regulation.

Regulation of the out-of-control financial piracy of Big Capital is a perhaps useful band-aid that may stem the loss of financial blood while we move the U.S. financial system to the hospital, but what the patient needs is either major surgery or to be put out of its misery. Americans need to have a real national debate about the terms of this restructuring but must take care to avoid wasting time; four years have already been wasted, and Romney clearly feels no embarrassment in defending the system that brought us the Financial Crisis, suggesting that he at least feels that enough Americans can be hoodwinked once again to get him into the
White House.

There is perhaps no harm in immediately instituting some obvious regulations:

  • no bank should be permitted to gamble with its own money;
  • derivatives should be regulated with total transparency if not banned entirely; 
  • the revolving door between financial institution management and government positions that facilitates capitalist pirates writing laws to cheat the American people should be slammed shut.

Beyond regulations, new laws would help.

  • Punishments should be made up close and personal for all officials of financial institutions that take government bailouts. All income beyond minimum wage levels obtained (one hardly dares say “earned”) for, say, the five years leading up to any receipt of government welfare or bailouts should be forfeited.
  • The tax code should immediately be reformed to ensure that income tax levels for workers are always lower than capital gains. It is a fundamental moral point that earned income should be taxed less harshly than unearned income: there is a reason it’s called “unearned,” folks!
But all this is just band-aids. The real issue that Americans should be discussing in this election year is how to put the American people back in the driver’s seat and put Big Finance in its place. Our individualist capitalism system may work great on Main Street, but on Wall Street it has become too big to tolerate. In a word, then, to what degree does the U.S. now need to replace capitalism with socialism?

Capitalism or Socialism?

Arguing over “capitalism or socialism, small government or big government” serves only to confuse voters; indeed, that is often the point: when the rich advocate “small” government, they almost always mean “small” for someone else. The banquet of a good lifestyle requires both the salt of capitalism and the pepper of socialism, big government when it helps society, small government otherwise.

The issue we face is deciding when government should be big, when it should be “small,” to what degree the economic system should be capitalist or socialist.  Given an environment of strict regulation and a well educated citizenry, capitalism in certain sectors of the economy can facilitate rapid development by replacing tedious and inefficient government oversight with self-organized popular creativity. But fraud is inherent in a system that allows some to become grossly more powerful than others, as 99% of us have learned to our sorrow since 2007.
Moreover, even the rich would not like pure capitalism. Who wants to pay a toll on every single road? The West had such a system once – in the Middle Ages, where local noblemen and other robbers interrupted trade and travel to line their pockets. Who, except a dictator, would want a capitalist Internet charging a fee every time you surfed or sent an email? Who would want to buy the air they breathe from a local vendor?
Does that last example sound idiotic? Corporations are already trying to steal the planet’s drinking water and then sell it back to the thirsty. This particular abuse of the commons (drinking water, like air, being a “common” good that should be shared by all) provoked a revolution in Bolivia and a bit of a revolt in Atlantaas well. As extremist fans of extreme capitalism undermine government’s power to regulate while corporations take advantage by polluting the air we breathe, the temptation to buy clean, bottled air can only increase. A better way to go for all breathers (even rich ones) would obviously be to defend the commons by keeping the air clean.
Other examples of situations where capitalism seems pretty clearly inappropriate are legion. Extreme capitalism is not even appropriate in that capital of capitalism, Wall Street – it leads to fraud, distortions of fundamentals, and the chaos that requires emergency Big Government of the most extreme type. Even the purest and richest of pure capitalists, it seems, cannot function efficiently without oversight; just ask the boys at AIG and Lehman.
Education provides another example of an area where small government and unrestrained capitalism (in this case, turning education into a private business) risks real harm to the common good. Conservatives love to advocate private schools, but would they appreciate having to send their kids to a private socialist or Salafi school? Once society grants private schools the right to exist, where is the line to be drawn?
Health care is a second misleading example of conservative knee-jerk hostility to government leading to outcomes harmful to themselves as well as everyone else. Why would anyone want a capitalist health care system, with doctors focused on profit rather than helping the sick? Who wants medicine prescribed on the basis of the profit it returns to the doctor rather than the health value for the patient? On the other hand, Big Government-Big Pharma corruption widespread in government-run health care is equally pernicious. Any system can be abused, but the very purposeof capitalist health care is to make money, and the easiest way to do that is to treat only the affluent and to ignore…the sick! The purpose of socialist health care, in contrast, is for society to decide on some minimum level of health care and then provide it to all. The real argument should center not on the size of government involvement in health care but whether the government role protects the public or acts as a cover for Big Pharma greed.
Morally, there is no contest. Socialist principles are indistinguishable from the Declaration of Independence’s call for government “of the people, by the people, and for the people.”
In practice, the issue is less clear-cut. Even the richest corporate leaders want some socialism: Big Oil happily takes billions in U.S.welfare every year; Big Pharma designs the health care system to maximize profits rather than health care quality; Big Finance warps the U.S. tax code to its private benefit. No billionaire wants pure capitalism.
On the other hand, there is no doubt that social regimes can become both oppressive and inefficient. Moreover, many examples of situations where socialism (i.e., ownership by society) is inappropriate also exist. Public (i.e., socialized) libraries are great as long as the government’s role is restricted to funding and depoliticizing, but who would want the government to decide which books we could read? Public management of the Internet is crucial to its contribution to society, but who would want the government to censor their emails? Government inspectors are critical to a safe food supply, but who would want the government setting their dinner menu?
And then there’s the little matter of physical security. Who wants private armies? The West had that system once, too. It was called feudalism. On the other hand, a state that controls all means of force is an invitation to dictatorship. One possible compromise is to have both central and local powers, with the central government having only those powers explicitly awarded to it. But ultimately security for society must rest on strong government combined with the rule of law, transparency, and popular vigilance…not private enterprise.
It matters little to the victim whether oppression comes at the hands of a corporation or a regime. And yet, a fundamental distinction exists between the worst socialist regime and the worst capitalist system: at least under socialism, the people always have the option of voting. (If a socialist system removes the right to vote or, as in the USSR, rigs the vote, then the system has turned into something else – call it a dictatorship or communism or whatever you want; it is no longer “socialism;” it is no longer rule for society but rule for the rulers.) In a system with a weak regime and powerful, unrestrained corporations, the people have no defense at all. Such a system has surely never existed in modern human history, for the corporations would immediately demand and receive special privileges and transform the system into a Big Government Corporate Welfare System, essentially fascism without brutality, and, indeed, that is precisely the goal of the class war launched by the super-rich in the U.S. Under a Big Government for Corporations system, the people would have no recourse but armed revolt, which would surely provoke a corporate crackdown and the transformation of the system into full-blown fascism.
The problem in the is essentially Big Government that works for Big Capital rather than Society and does so in an atmosphere of unadulterated corporate piracy. There is a fundamental distinction between the corporations of the 1950s that provided lifetime careers at good salaries while they made America rich and the banks that run mortgage mills to make a quick buck off high fees with the intention of selling the mortgage fast enough to avoid responsibility for what happens to the deluded new owner. The rich seem to recognize no common interest between themselves and the society that protects them from foreign aggression or domestic street crime, that paves the roads their limousines use, that buys the product they produce (if, indeed, they still produce anything). Government is indeed “big” and uses its power to hand out corporate welfare on the basis of the size of the corporation rather than the utility of the service that corporation provides to society.
Life is too complicated to be regulated at every point, and people are too vulnerable to be left on their own in a world of enormous institutions. It’s not a matter of capitalism vs. socialism. Rather, the challenge is to balance freedom for individual creativity against the common need for protection. Capitalism with a heavy dose of socialism in sectors critical to the common good works in a strong democracy, enabling economic efficiency to be combined with popular oversight. “Strong democracy,” however, implies the acceptance by all of a social contract that puts government in the hands “of the people.” Room exists for powerful private interests as long as the economic pie is expanding faster than the rate at which power and wealth flow to the most powerful private elements. To the degree that those private power centers seek profit at the expense of the common good, capitalist tendencies need to be curtailed in favor of socialist tendencies; put differently, government power needs to be enhanced for the express purpose of protecting the commons (be it air, water, civil rights, freedom of education, protection against police brutality, clean food, or reliable health care) against abuse by those powerful private interests.
Today in the U.S., conservatives are correct that government is too big: too big when it allows corporate fraud to go unpunished, too big when it allows war profiteers to make billions, too big when it gives welfare to wealthy oil corporations, too big when the police suppress protests against corporate crime). When government tries to regulate and finds itself too weak to control corruption or corporate abuse, then the government is too small. The problem is not the size of the government but in whose interests the government functions. 

Here we go again –