Losing Faith

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Posted December 31, 2008 in Feature Story

We have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand.

–Economist John Maynard Keynes at the start of the Great Depression  

The Enron scandal discovered in 2001 should have changed our thinking. It didn’t. Likewise the accounting fraud at communications giant World Com, and the theft of $600 million by the chairman and CEO of manufacturing giant Tyco International. When hundreds of thousands of jobs were outsourced overseas only the unions and NAFTA-hating hippies noticed. The annual announcements that middle-class wages were stagnate or falling while CEO pay was 200, 300 and now over 400 times the amount received by their employees met with yawns. Even the savings and loan scandal of the late 1980s in which hundreds of thousands of people lost their life savings was forgotten so soon and well that one of its principal enablers was allowed to run for president with barely a mention of his involvement.

But now in the face of millions of mortgage foreclosures, massive oil company profits,  frauds and bank failures, startling unemployment, extravagant CEO pay and gargantuan bailouts for, as columnist Timothy Egan puts it, “the very bankers, insurance companies and other tassel-loafed failures who got us into the economic meltdown,” we the people, the working class, the common folk, seem to be realizing that the thing claimed to make America great—free and unfettered capitalism—is just another bill of goods we’ve been sold. Never mind the drama of corporate executives flying to Washington in private jets with their hands out like common panhandlers. More and more Americans aren’t buying the line that free market capitalism is an engine of perpetual growth and that transparency and regulation—any regulation—only hinder it.

For decades we’ve been fed the same lines: The marketplace knows best. Privatization will save the taxpayers money. Deregulation will lead to better accessibility and cheaper prices. Wealth trickles down. Any one who pointed out the obvious—the unemployment, inequality and injustice—or asked for the slightest common sense oversight and regulation was labeled a Socialist, Marxist, Communist or worse. In America, capitalism is equal to God: to question the wisdom or perfection of either is heresy. Even the meekest words against wealth inequality and the super rich are met with cries of “class warfare!” “There’s class warfare, all right,” billionaire investor Warren Buffett has proclaimed. “It’s my class, the rich class, that’s making war and we’re winning.”

As if to absolve any individuals from what amounts to criminal blame (where are you now, Alan Greenspan?), the mainstream media and the public at large have settled on a single cause: greed. University of Redlands economics professor Lorenzo Garbo says it is not greed per se but unregulated greed that is at the core of our current financial problems.

“Greed is a human trait and can be graduated in various degrees. A certain amount of it can be good, it can be helpful and progressive to pursue it. But if it’s unchecked, if there is no awareness of it, that’s when problems arise.”

Garbo, who teaches a class on greed as an assumption of modern economic theory and policy says it’s not just the CEOs but the public as well that have fallen under its spell.

“I think everybody has been following her/his self interest, including the public. In its own myopic way, the public has been taking advantage of whatever greed was happening at every level of the financial markets. It was short-sighted of the public not to see what was going on, to trust the financial industry and not see it for what it was: a bubble. And bubbles are meant to burst. Hopefully now, that blind trust is gone.”

That loss of trust in unregulated capitalism is giving birth to a new American revolution, a rebirth of democratic ideals and the reestablishment of public and individual interests over corporate profit. Recently, workers at a suddenly shuttered Chicago factory occupied it for some for six days until they were given the benefits and severance pay they were promised. A bloody 15-year struggle came to an end last month when workers at the world’s largest hog slaughtering facility in North Carolina won the right to unionize. And the Securities and Exchange Commission’s lack of oversight in the face of multiple warnings is being called an accessory to the swindle of some $50 billion by a financier whose name is pronounced “Made-Off.”

Indeed, the outgoing Administration’s disregard for financial protection and sane regulation policy contributed to a climate in which greed grew unchecked. As the famously quoted line says, Washington didn’t cross the Delaware to save capitalism. But you wouldn’t know that now as Congress and the Administration offers billions without strings to the captains of finance while stiffing those facing foreclosure or the loss of their jobs. The blurring of boundaries between the pursuit of happiness and the pursuit of profit has seen the latter overpowering the former. Suddenly, thanks to a crisis created by unbridled greed, all that is changing.

As in all revolutions, the written word stands as weapon. Three recent books—and one over a century old—are calling out the wealthy, the corporations and the financial markets, exposing their ongoing assault against the vast majority of wage-earning Americans and making them targets, rather than saviors, in the struggle for economic survival now being waged in the country and across the globe. Journalist Naomi Klein’s The Shock Doctrine: The Rise of Disaster Capitalism outlines how catastrophes, both natural and man-made, have been used to enforce free-market tyranny on societies from Chile to New Orleans. Herve Kempf, the environmental editor of the French newspaper Le Monde pulls no punches in his ecological-social damnation of extreme wealth How The Rich Are Destroying the Earth. Princeton economist and New York Times columnist Paul Krugman draws historical parallels between the current financial crisis and the 1990’s era crashes in Latin America, Japan and our own Great Depression and says we should have seen it coming. While varying widely in tone and content, these three books taken together destroy the arrogant notion of the capitalism as god; perfect and incapable of wrong.

Possibly the most pertinent book for the times was published in 1899. Norwegian-American sociologist-economist Thorstein Veblen’s The Theory of the Leisure Class examines our need to obtain, finding its roots in “barbaric” times and discussing how the amount of what we gather, regardless of its value, tends to stratify society. A new edition to be released in January from Oxford University Press, edited by UCLA Professor Emeritus  of English Martha Banta, emphasizes Veblen’s influence on American literature—think The Great Gatsb’[y—but is still ultimately valuable for its insight on accumulation and greed.

Though its language can be a bit difficult (once one knows “pecuniary” means “of money,” the book opens like a flower), Veblen’s declaration of  our need to emulate the higher classes explains why Paris Hilton, who produces nothing meaningful, remains so popular despite this worthlessness. In a world ruled by capitalism, Veblen’s contention that it is foolish to expect economies to continuously expand is particularly controversial.

Environmental critic Kempf utilizes Veblen’s insights to explain how the wealthy class exacerbates the current ecological crisis (yes, global warming). It’s our desire to appear wealthy, like those in the class above us, driving us to obtain more luxury goods and live at a level above our means. This “emulation,” as Veblen calls it, not only fuels an expanding economy, it consumes valuable resources for little good.

While Kempf seems too anxious to blame the wealthy for consumption sins, he does a good job of connecting the ecological crisis to social issues. He cites the now familiar statistics of the growing gap between the rich and the rest of us, both here and in Europe (that gap, though atrocious across the Atlantic, is wider here). His radical call-to-arms comes both from a social and environmental position.

“The ecological crisis and the social crisis are two faces of the same disaster,” he says. “And this disaster is implemented by a system of power that has no other objective than to maintain the privileges of the ruling classes.”

Kempf faults both the environmental movement and the left for acting without regard for the other. “Consequently, we find simpleminded ecologists—ecology with no social consequence—alongside a left stuck in the old days—social conscience with no ecology . . . ”  If we are to be saved—and Kempf leaves no doubt of the catastrophe awaiting us—he demands the left be reborn in the causes of inequality and the environment, “or unfit, it will disappear in general disorder that will sweep it and everything else away.”

The kind of chaos Kempf predicts is the mechanism extremist capitalists use to achieve their economic goals according to journalist Klein. Her Shock Doctrine created a small sensation when it was released last year. The release of the paperback edition, which coincided with the autumn shocks of the financial crisis, has created a tidal wave of interest in her thesis; namely that governments and business interests have used catastrophes to impose their economic goals on a shocked population. Klein does not state her case lightly. Opening with chapters on electro-shock therapy and CIA torture techniques designed to erase the mind and leave a “blank slate” ready for manipulation, she shows how this process can be applied at the cultural and national level to bring “pure” capitalism to an unsuspecting population.

The evil scientist behind these shock treatments is the late economist Milton Friedman, the free market, anti-government-regulation theorist who has been the darling of the pro-business, right-wing since the days of Ronald Reagan (ironically, Friedman was employed at the same university as Veblen: Chicago). Klein documents Friedman’s trip to Chile in 1975 not long after General Augusto Pinochet took over the freely elected government of Salvador Allende in a bloody coup. Friedman urged Pinochet to apply “the only medicine,” in Freidman’s words, “shock treatment” to achieve “complete free trade.” The result was super inflation, loss of hundreds of thousands of jobs and extreme poverty. The political repression that accompanied these efforts equated to mass murder. While free-market economists still herald the “Chilean miracle” to prove that Friedman’s pure capitalism works, Klein shows otherwise. The net effect of the Friedman and Pinochet policies was to “hoover wealth up to the top and shock the middle class out of existence.”

To prove her thesis Klein cites a number of examples: political repression, death squads and war in Argentina to enforce total free market capitalism, the Indonesian tsunami that provided the excuse to clear local populations from the coast and establish elite resorts and hotels, even the introduction of charter schools in New Orleans after Hurricane Katrina (Friedman’s final push before his death). Though Klein doesn’t produce more than circumstantial evidence of a conspiracy by “corporatist” elements to impose the chaos-capitalist model, she definitely establishes the link.

While the book does not address the current financial crisis per se, it is easy to see the principles at work: massive unregulated bailouts to financial interests, attacks against unions and minority home owners in the face of the failures due to unregulated financial schemes, predatory lending and further decline of the working class. Klein has addressed the issue in a host of recent interviews, posts on her website and articles she’s written for The Nation and Rolling Stone among others (Klein, through her publicist, declined to be interviewed for this article).  She recently told Amy Goodman of Democracy Now! that the Wall Street bailout is “borderline criminal” in its lack of transparency and oversight. Indeed, the Washington Post reports this month that a single-sentence loop hole inserted into the bailout provision by the Bush administration cancels out any pay limits on the “eye-popping” salaries of Wall Street executives whose firms will receive the money. Somehow, even in the midst of failure, the robber barons keep on robbing.

But Klein also sees reason for optimism. Noting that countries where the economic thinking remained largely unchanged, she says that polls track “eroding faith in democracy (and a) rise in religious fundamentalism,” trends frighteningly apparent in the U.S. But she also cites a reaction she calls “shock resistance,” a learning and remembering of history (remember Enron?) that results in “shock resistance.”  “This tactic has been so overused around the world,” she says, “that we are becoming more resistant to the tactic – we are on to them.” Let’s hope she’s right.

Someone who’s long been on to the ways of free market capitalists is recent Nobel Prize winner Krugman. In his 2003 collection of columns The Great Unraveling Krugman cautioned against the rise of unregulated markets and the drive to privatize, among other things, during the early years of the Bush administration. In a recent New York Times column he had the nerve to compare the $50 billion Bernie Madoff swindle to the operations of the investment industry as a whole.

Krugman’s political leanings are blatantly obvious. His previous book The Conscience of a Liberal, traces the loss of economic policy under Franklin D. Roosevelt and the rise of the middle class that accompanied the ascension of union membership. His new book¸ The Return of Depression Economics and the Crisis of 2008, is a rewrite of his 1999 study of that decade’s Japanese and Latin American financial crisis with a new slant towards today’s predicaments. Krugman’s theme is again one of memory. Those that thought that similar financial turmoil couldn’t happen here weren’t paying attention. The removal of Depression era protection and regulations of the financial industry under the banner of pure capitalism were short sighted. “I’m tempted to say that the crisis (we now face) is like nothing we’ve ever seen before,” Krugman writes. “But it might be more accurate to say that it’s like everything we’ve seen before, all at once . . . ”

Krugman calls for a rescue operation that includes establishing the flow of credit and massive stimulus. To prevent the muddle from reoccurring, he says we must “relearn the lessons our grandfathers were taught by the Great Depression . . . anything that has to be rescued during a financial crisis . . . should be regulated when there isn’t a crisis.” The resistance to this kind of thinking from free market champions, again the very people who got us into this mess, is frighteningly apparent. The lack of controls on the financial bailout package is only one example. The refusal by some Southern senators to save millions of autoworker and related jobs in an attempt to cripple unionization in the country is another. The ideologues of capitalism, those who can’t see that some regulation is necessary to limit the forces of greed, can send this country into a second great depression with their obstructions. As Krugman says, “Nothing could be worse than failing to do what’s necessary out of fear that acting to save the financial system is somehow ‘socialist’.”

Economics professor Garbo, ever the instructor, sees a chance for us to learn from the current situation.

“Every recession somehow has a positive effect, a silver lining. Destruction can be creative. In our current situation, something clearly had to happen, the wave of myopic optimism had to be broken for people to realize what the system was doing, and what they were doing within a the system. Now we can gain a new understanding of how the system works and protections can be put in place to avoid a reoccurrence of the same situation. I have a positive attitude towards what can come out of it, even though we need to watch out, because greed and delusion have not ceased to be fundamental human traits.”

The Theory of the Leisure Class by Thorstein Veblen, edited by Martha Banta; Oxford University Press, paperback, 304 pages, $15.95

How the Rich Are Destroying the Earth by Herve Kempf; Chelsea Green Publishing, paperback, 124 pages, $12.95

The Shock Doctrine: The Rise of Disaster Capitalism by Naomi Klein; Picador, paperback, 701 pages, $16

The Return of Depression Economics and the Crisis of 2008 by Paul Krugman; W.W. Norton & Co., hardback, 191 pages, $24.95  


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