Rescue Wall Street--and the Rest of Us

By: United States Senator Bernie Sanders

[Note: Bernie Sanders from Vermont is the only socialist in the United States Senate.]


For years, as a member of the House Banking Committee and now as a member of the Senate Budget Committee, I have heard the Bush administration tell us how "robust" our economy was and how strong the "fundamentals" were. That was until a few days ago. Now, we are being told that if Congress does not act immediately and approve the $700 billion Wall Street bailout proposal these "free marketers" have just written up, there will be an unprecedented economic meltdown in the United States and an unraveling of the global economy.

This proposal as presented is an unacceptable attempt to force middle-income families (and our children) to pick up the cost of fixing the horrendous economic mess that is the product of the Bush administration's deregulatory fever and Wall Street's insatiable greed. If the potential danger to our economy was not so dire, this blatant effort to essentially transfer $700 billion up the income ladder to those at the top would be laughable.

Let us be clear. If the economy is on the edge of collapse we need to act. But rescuing the economy does not mean we have to just give away $700 billion of taxpayer money to the banks. (In truth, it could be much more than $700 billion. The bill only says the government is limited to having $700 billion outstanding at any time. By selling the mortgage-backed assets it acquires--even at staggering losses--the government will be able to buy even more resulting is a virtually limitless financial exposure on the part of taxpayers.) Any proposal must protect middle-income and working families from bearing the burden of this bailout.

I have proposed a four-part plan to accomplish that goal that includes a five-year, 10 percent surtax on the income of individuals above $500,000 a year, and $1 million a year for couples; a requirement that the price the government pays for any mortgage assets are discounted appropriately so that government can recover the amount it paid for them; and, finally, the government should receive equity in the companies it bails out so that when the stock of these companies rises after the bailout, taxpayers also have the opportunity to share in the resulting windfall. Taken together, these measures would provide the best guarantee that at the end of five years, the government will have gotten back the money it put out.

Second, in addition to protecting the average American from being saddled with the cost, any serious proposal has to include reforms so that we end the type of behavior that led to this crisis in the first place. Much of this activity can be traced to specific legislation that broke down regulatory safety walls in the financial sector and allowed banks and others to engage in new types of risky transactions that are at the heart of this crisis. That deregulation needs to be repealed. Wall Street has shown it cannot be trusted to police itself. We need to reinstate a strong regulatory system that protects our economy.

Third, we need to address the needs of working families in this country who are today facing very difficult times. If we can bail out Wall Street, we need to respond with equal vigor to their plight. That means, for example, creating millions of jobs through major investments in rebuilding our crumbling infrastructure and creating a new renewable energy system. We must also make certain that the most vulnerable Americans don't freeze in the winter or die because they lack access to primary healthcare.

Finally, we need to protect ourselves from being at the mercy of giant companies that are "too big to fail," that is, companies who are so large that their failure would cause systemic harm to the economy. We need to assess which companies fall into this category and insist they are broken up. Otherwise, the American taxpayer will continue to be on the financial hook for the risky behavior, the mismanagement and even the illegal conduct of these companies' executives.

These are the last days of the Bush administration, the most dishonest and incompetent in modern American history. It is imperative that, at this important moment, Congress stand up for the middle class and for fiscal integrity. The future of our country is at stake.

Capitalism reaches a crossroads

By: Carl Bloice


“Even now, someone somewhere is penning a book with a snappy title The End of Capitalism,” columnist Philip Stephens, associate editor of the Financial Times wrote recently. Not to worry, he continued, that’s not about to happen. However, eight days earlier Martin Wolf, associate editor and chief economics commentator at the same paper observed that what was “until recently, the brave new financial system is melting away before our eyes.” On the night of September 18 members of Congress were summoned to a Capitol Hill conference room where they were told that if they did not act quickly to approve a radical revamp of how the government deals with the economy, capitalism might indeed collapse. That’s before President George W. Bush said, “If money isn’t loosened up, this sucker could go down.”

Not to worry, cautioned the editor of the conservative German newspaper Die Weit. “These are all trials and crises, but they will not spell the end of America’s distinctiveness.”

“The country will never convert to socialism, nor will it become a mega-state. Faced with similar circumstances, that might be the response of the pessimistic Europeans. America’s culture of optimism - which all too often gets on the Europeans’ nerves because they consider it to be naïve and superficial - also has the power to identify a setback as exactly that and not the end of the world,” the paper editorialized. That was a few days before the U.S. Treasury took responsibility for the well-being of distressed financial institutions all over the world.

No, the U.S. is not about to become socialist any time too soon. That alternative has not been placed before the public in a way that could be considered preferable to what we’ve got. Besides, a system ceases to be when it is replaced by something else. But with each passing day, as the crisis has deepened, it has become more and more obvious that “unfettered” capitalism and “market fundamentalism” and the neo-liberal policies they produce are discredited. Indeed, most of the world had rejected them before the current crisis began.


“The globalization agenda has been closely linked with the market fundamentalists - the ideology of free markets and financial liberalization,” economist Joseph Stiglitz told Nathan Gardels on the Huffington Post recently. “In this crisis, we see the most market-oriented institutions in the most market-oriented economy failing and running to the government for help.” Everyone in the world will say now that this is the end of market fundamentalism.

“In this sense, the fall of Wall Street is for market fundamentalism what the fall of the Berlin Wall was for communism - it tells the world that this way of economic organization turns out not to be sustainable,” said Stiglitz. “In the end, everyone says, that model doesn’t work. This moment is a marker that the claims of financial market liberalization were bogus.”

Conservative commentator and political operative, Newt Gingrich, has come up with the terms “crony capitalism” and “bureaucratic capitalism,” both of which he says will be the outcome of the Bush Administration’s bailout scheme. The former will mean “a welfare state for rich investors,” he says, the latter “salary caps and other government regulatory requirements which would drive the ‘private’ out of ‘private enterprise’.”

There’s a lot of talk out there about the bailout being “socialism for the rich.” That’s all so much seemingly clever rhetoric designed to make a political point, but of no substance. Nothing the Bush Administration is pushing (with the help of a Democratic Congress) bears any resemblance to anything that could remotely be called socialism. In fact, it looks far more like Italy under Mussolini than the USSR under Brezhnev. As truthdig.com columnist Robert Sheer noted last week, “what is proposed is not the nationalization of private corporations but rather a corporate takeover of government. The marriage of highly concentrated corporate power with an authoritarian state that services the politico-economic elite at the expense of the people is more accurately referred to as ‘financial fascism’.”

The new Treasury Department fund “will share many characteristics of the expanding government-sponsored pools known as sovereign funds,” wrote Landon Thomas, Jr. in the New York Times September 23.

“The new fund, assuming it is approved by Congress, could pull the United States deeper into a form of capitalism in which the most powerful financial entities are not risk-happy investment banks, but more cautious state-sponsored entities,” wrote Thomas. “While not necessarily a third economic way, this general approach presumes that the government - in addition to the private sector - plays a crucial role in deciding how best to deploy a nation’s investment capital.”

“This gets to the point of state capitalism and defining what the role of the government is in a free-market economy,” Douglas Rediker, a former investment banker at the New America Foundation in Washington, told Thomas.

“The result of the bailout would be that the government would virtually control many of the largest financial institutions in the country,” wrote Dan La Botz in Monthly Review online. “The U.S. government and the banks of the country would suddenly be fused - or perhaps entangled would be a better word - into one extremely powerful political-economic entity. While the proposal does not envision state control of the economy as a long-term proposition, merely long enough to save the bankers, still the impact of the current proposals now being debated in Congress will be far-reaching. The American government and the people have suddenly found themselves at a turning point which was not foreseen and for which no one was prepared.”

“If you wanted to devise a name for this approach, you might pick the phrase economist Arnold Kling has used: Progressive Corporatism.,” wrote Times columnist David Brooks the same day. “We’re not entering a phase in which government stands back and lets the chips fall. We’re not entering an era when the government pounds the powerful on behalf of the people. We’re entering an era of the educated establishment, in which government acts to create a stable - and often oligarchic - framework for capitalist endeavor.”

“After a liberal era and then a conservative era, we’re getting a glimpse of what comes next,” wrote Brooks

I can hardy wait.

An inevitable consequence of globalization is that many of the critical problems facing the planet today can only be solved through international cooperation and coordination. These include: climate change and other threats to the biosphere, aids and other infectious diseases, human migration and international finance.

The current economic crisis is an international one yet the recourse chosen by Washington to deal with it globally is to “press” other countries to adopt measures similar to those adopted in the U.S. Under such circumstances the chance of a collective effort to restructure world capitalism would seem remote, if possible. But the demand for such is out there and how our country responds will go a long way in determining the contours of international affairs for decades to come. One has only to grasp the nature of the remarks at the recent opening of the United National General Assembly to appreciate the seriousness of the challenge.

Last week in New York, one after another, heads-of-state rose to the Assembly rostrum to drive home the message: the “credit crunch” in the U.S. is much more than a crisis in U.S. banking; it reflects a problem threatening economic devastation across the globe. It requires an international cooperative effort in which diktat, posing as “leadership”, cannot be tolerated. Don’t even think about handing the problem to the World Bank or the International Monetary Fund. The UN itself should be the arena for countries to discuss a solution for the global financial crisis, said Brazil’s President, Luiz Inacio Lula da Silva: “The global nature of this crisis means that the solutions we adopt must also be global, and decided upon within legitimate, trusted multilateral forum, with no impositions.”

Arguably some of the strongest remarks to the UN came from the leaders of Latin American countries but the most fundamental challenges came from traditional U.S. allies such as France and Germany. These are capitalist countries and for the foreseeable future will remain so. But they have a strikingly different view of how the international economy should function.

German chancellor, Angela Merkel, even revealed that an attempt had been made to enlist Washington in a collective effort to head off the crisis. At last year’s meeting of the major industrial powers, she said, she had - in the world of the New York Times - “strongly urged both the United States and Britain to be more rigorous in supervising financial activities, and even offered specific proposals to be applied to banks and other institutions.” But the U.S. was unresponsive, she said, while seeming “to express a certain exasperation that the United States was now asking Europe for help, after inflicting damage on the rest of the world that could have been avoided.”

“At the moment, I don’t think Japan needs to launch a program similar to that of the United States,” Japanese Vice Finance Minister Kazuyuki Sugimoto told reporters in Tokyo, while the European Union let it be known that its members would not be putting up money to rescue banks. “This crisis originated in the

US and is mainly hitting the US,” German Finance Minister Steinbeck said last week. In Europe and Germany, such a package would be “neither sensible nor necessary.”

The U.S. “has not only turned away from decades of rhetoric about the virtues of the free market and the dangers of government intervention, but it has also probably undercut future American efforts to promote such policies abroad,” wrote the New York Times’ Nelson Schwartz from Paris September 18. And most of the other governments are none to happy about it. Japanese commentators were quick to note that the Treasury bailout is precisely what Washington told them not to try when that country faced an economic crisis only a few years ago. (A condition of help for South Korea when it faced an economic crisis in the 90s was that Seoul not bail out banks and other failing enterprises.)

Last Friday, editors of the center-right German newspaper Allegemeine Zeitung compared the U.S. financial crisis to 911 saying “this time, the attack on all-American doctrines is not the work of some foreign enemy. It comes from within, from the depths of the system. Largely unobstructed by its own state controls, American capitalism has created its own suicide bomber whose explosives - derivatives - have had an even greater effect than the flying bombs of the jihadists. The whole world - and not just New York - has a new ground zero now - Wall Street.”

French political leaders immediately seized on the latest bailout moves to trumpet their own version of “economic patriotism.” “We’re not going to accept to pay for the broken dishes of a failed regulation” and a “corruption of capitalism,” said French Prime Minister Francois Fillon. Nicolas Sarkozy has called for a world to “learn the lessons of the worst financial crisis since the 1930s.” He proposed to “moralize” capitalism, freeing it from speculators whom he labeled “the new terrorists.” Last week, as President Bush went on television to admit the crisis is grave, Sarkozy stoutly defended capitalism but observed that “A certain idea of globalization is drawing to a close with the end of a financial capitalism that had imposed its logic on the whole economy and contributed to perverting it.”

“The crisis is not a crisis of capitalism,” said Sarkozy. “It is the crisis of a system that is far from the values of capitalism and betrayed capitalism.”

In 2006, long before there was any acknowledgement of the chaos to come (I put it that way because working people in the U.S. were already facing home foreclosures),when the world’s elite gathered at Davos, Switzerland, chancellor Merkel had observed that “What we have is a completely new balance of power in the world today.”

That too was evident in the General Assembly debate. In prior years no one would have expected Latin American governments to openly challenge Washington and Wall Street’s conduct in the international economy. However, over a brief recent period, left-leaning political forces have taken power electorally in a number of countries, having in common a rejection of the exploitative policies of the World Bank and IMF, and the influence of the same “market fundamentalists” that the Asians are repulsing and who have led the U.S., itself, into the present economic cul-de-sac.

No one was surprised that Cuban first vice-president Jose Ramon Machado Ventura would tell the UN that the drive for profits was increasing poverty and that the current crisis threatened the “existence of mankind.” “Fabulous fortunes cannot be wasted while millions are starving and dying of curable diseases,” he said. “For a large part of the non-aligned nations, the situation is becoming unsustainable. Our nations have paid and will continue to pay the cost and consequences of the irrationality, wastefulness and speculation of a few countries in the...north.”

“The prevailing world order, unjust and uncontained, must be replaced,” Machado Ventura said.

“We don’t want to conceive of the idea that the rescue of the dignity of the world’s poor does not have the same priority or the same urgency of saving the institutions that operate the most powerful financial centre in the world,” said Dominican Republic president Leonel Fernandez. “We need an international financial plan that is as urgent and as bold as the one to save Freddie Mac, Fannie Mae, Bear Stearns, Merrill Lynch and American International Group.” Fernandez added that while $700 billion is being set aside to rescue U.S. financial institutions, for something like $50 billion millions around the world could be spared a miserable existence.

“We’re not going to accept to pay for the broken dishes of a failed regulation” and a “corruption of capitalism,” said French Prime Minister Francois Fillon. Sarkozy called for a world to “learn the lessons of the worst financial crisis since the 1930s.” “Let’s create a regulated capitalism,” he said.

On September 24 in Berlin, German Finance Steinbruck repeated Merkel’s charge that Washington had, last year, resisted specific calls for regulations in the financial marketplace. “Crisis management alone will not rebuild the lost confidence,” he said. “We must civilize financial markets, and not just through moral appeals against excess and speculation. Self-regulation is no longer sufficient.” The US belief in “laisser-faire capitalism; the notion that markets should be as free as possible from regulation; these arguments were wrong and dangerous,” he said. “This largely under-regulated system is collapsing today.”

Steinbeck went on to propose new regulations and said that amid the current economic crisis the US is poised to lose its role as a global financial “superpower.” The new world will become “multipolar” with the emergence of stronger, better capitalized centers in Asia and Europe, he said.

Meanwhile, Oskar Lafontaine, leader of Germany’s fast growing and increasingly influential Left Party, said the world is confronted with more than a banking or economic crisis and – in the words of Der Spiegel – “but rather one of the entire intellectual and moral direction of Western society.” “We no longer have a social market economy because of the regimes of the international financial markets,” Lafontaine said the consequence of which is increased privatization of the social services and a threat to the retirement security of millions of people. Lafontaine said the Left party wants the re-creation of a Bretton Woods-style system of foreign exchange controls with fixed trading bands, controls on international capital flows and on financial products.

“We believe that financial products should be forced to get official stamps of approval just like pharmaceutical products,” Lafontaine, the former head of the country’s Social Democratic Party, said. “Because the bitter truth is that many extremely greedy bankers don’t even understand themselves what they’ve done. These are people who started something without knowing what they were doing and it’s ended in disaster.”

“When enough banks have been nationalized or gone bust, when the last reputations have been properly shredded, and when prices of Fifth Avenue apartments and Mayfair town houses have fallen finally to earth, politicians are going to have to think hard about the lessons of the financial crash of 2008,” wrote Stephens of the Financial Times. “Even now, someone somewhere is penning The End of Capitalism. Experience tells us snappy book titles should be treated with caution. The global financial system will never be the same again. But just as history survived the collapse of communism, so the market economy will weather the demise of Bear Stearns, Lehman, Merrill Lynch and HBOS.”

”The credit crunch and the financial firestorm have also provided a neat metaphor for the big shift in economic power in the world,” writes Stephens. He goes on to endorse the call for “more global governance: credible international rules.”

“Capitalism will survive these financial shocks,” said Stephens. Probably it will; in any case it’s good to have faith.

On Monday, the House of Representatives voted down the final draft of the bailout plan hurriedly crafted by the Administration and Congressional leaders from the two major parties. This set the stage for what was certain to be desperate attempts to put together a compromise that could win legislative approval. This takes place against a backdrop of widespread public opposition to the original plan and ever greater turmoil in the foreign money markets and on Wall Street.

Meanwhile, the dangers and challenges over the next few weeks and months are enormous. On the world scene, the U.S. could join in an international – and more democratic - effort at reconstructing capitalism in an effort to save it, or the White House – whoever lives there – and the Congress could lead us along a path of international isolation in which the rest of the world goes about its business, leaving us in economic mire. On the home front, the policymakers could enshrine a new form of corporate and more authoritarian capitalism or enact policies bent toward greater equality, solidarity and social and economic justice (things real socialists have never ceased advocating). The latter is what we should be insisting.

BlackCommentator.com Editorial Board member Carl Bloice is a writer in San Francisco, a member of the National Coordinating Committee of the Committees of Correspondence for Democracy and Socialism and formerly worked for a healthcare union.

`1979 Moment' for Casino Capitalism

By John Monks

Financial Times
October 2, 2008

http://www.ft.com/cms/s/0/255b23b2-909e-11dd-8abb-0000779fd18c.html

At its congress in Seville in 2007, the European Trade
Union Confederation resolved to expose 'casino
capitalism' and short-termism and press for them to be
fought by taxation, regulation and worker involvement.
Now, as the subprime crisis unravels around the world,
casino capitalism has exposed itself. Everyone is
learning that a powerful financial sector has crowded
out other industries and made the economy dependent on
short-term, fast buck-making deals that are rarely in
the interest of sustainable business or improved long-
term growth.

Today's dark economic reality has exposed the financial
world's claims to have increased world liquidity and
reduced investment risk. Decision-making has centred on
personal enrichment and even now, with honourable
exceptions, most of those responsible have ensured that
they will not be the ones to suffer the consequences.

There is absolutely no evidence that these huge
fortunes have been linked to record levels of company
or business performance. Top business leaders have
grabbed a larger share of the cake themselves. The
'trickle down' effect peters out very quickly as you
descend the income ladder. The share of wages and
salaries in national income in many countries has
fallen sharply in the past 30 years while the already
affluent are taking larger shares of the slice that
goes to wages and salaries.

This is not a story of trade union success. We have not
been able to prevent this transfer of money from the
ordinary to the very affluent. We have, in Europe at
least (but not in the US), generally improved average
living standards. But we are losing the equality
battle. Now is the time to expose the titans of the
world based in New York, London and other major
financial centres, who have patronised us with the
message that there is no alternative to a world run by
Goldman Sachs and the others.

To express even mild doubts about the way the system
was developing was to invite, from City of London
financiers and leading UK ministers alike, the
accusation of being incorrigibly Old Labour. To
question executive pay in Wall Street and the City
invited the accusation of stirring the politics of
envy. An excellent Trades Union Congress paper answers
these points and exposes the Bourbon-style carelessness
about others that was on display in City boardrooms and
trading floors.

But make no mistake, just as 1979 was a turning point
for British trade unions when the accusations of over-
mighty unions stuck in the public mind to devastating
political effect, so will 2008 be seen as a turning
point for those in the banking system who have
contributed to the present mess.

In the London declaration on the crisis, issued by
European trade union leaders last weekend, we are
urging that publicly funded bail-outs should carry with
them public influence and, if necessary, control. We
want banks to have higher capital requirements and we
must end the 'off balance sheet practices' that
developed to avoid regulation and tax. How was that
allowed to happen by the authorities? We are calling,
too, for a European-level response to be developed
urgently before national rescue plans such as the one
announced in Ireland become 'beggar thy neighbour'
schemes.

From a trade union point of view, we know the risks of
inflation as much as anyone else. We have been
experiencing cuts in purchasing power due to the rising
prices of energy and food. But real wage growth in
Europe has been moderate and limited, often lagging
behind prices, economic growth and productivity.
Germany has been a striking example since 2000.

This is why we will not be deterred by present
circumstances from looking for a better deal for the
working people of Europe. In the 1930s, wages were cut
and reinforced deflation with disastrous consequences.
We are now looking for a boost to growth through lower
interest rates and public investment. We cannot
tolerate rising levels of poverty and inequality.

The golden age for the rich should end. Those who have
led us into this mess must pay heavily towards the
price of recovery. At the moment, to take one example,
the bill for each UK taxpayer for bank rescues is
around £5,500 and rising. The message to those
taxpayers and those in other countries affected must be
'never again'. Our system must be rebalanced towards
financial institutions providing capital for productive
investments in sustainable development and towards
greater equality.

The writer is general secretary of the European Trade
Union Confederation

Copyright The Financial Times Limited 2008

Ten Sacrifices We, and the Next President, Will Face

By Greg Colvin

October 8th, 2008 - 6:44pm ET


At Tuesday night’s debate, the presidential candidates were asked a question that I believe deserves much more attention.

"BROKAW: Sen. McCain, for you, we have our first question from the Internet tonight. A child of the Depression, 78-year-old Fiora from Chicago.
Since World War II, we have never been asked to sacrifice anything to help our country, except the blood of our heroic men and women. As president, what sacrifices -- sacrifices will you ask every American to make to help restore the American dream and to get out of the economic morass that we're now in?"

In my 2006 essay The Progressive Trinity http://www.washingtonmonthly.com/features/2006/0606.colvin.html, I wrote:

"Because Public Service is fundamentally based upon unselfish efforts for the benefit of all of us, that quality must be embodied in the public leader. Especially so for political leaders because we have no choice but to be ruled by them until they leave office.

We have seen people become leaders because they are master manipulators, or sheer opportunists, or charismatic salesmen, or anointed by the oligarchy of wealth and influence that works behind the scenes. We try, as best we can, to project our desires for statesmanship and compassion and wisdom onto the presidents and governors we elect, but we are too often severely disappointed by their behavior.

The paramount criterion for candidates to the highest offices in Public Service should be: is this person able, by their own example, to inspire sacrifices for the common good? "

How did Senators McCain and Obama answer?

John McCain fumbled around with a riff on eliminating government programs, earmarks, an across-the-board freeze on spending except for defense, veterans, and “other vital programs.” He didn’t say exactly which programs would be cut, but I suppose bailing out Wall Street is a vital program now, and so is continuing the Bush tax cuts for the wealthy, because he didn’t offer to give them up.

Disappointing for a man who brought his acceptance speech to a climax by saying:

"My friends, if you find faults with our country, make it a better one. If you're disappointed with the mistakes of government, join its ranks and work to correct them. Enlist in our armed forces. Become a teacher. Enter the ministry. Run for public office. Feed a hungry child. Teach an illiterate adult to read. Comfort the afflicted. Defend the rights of the oppressed. Our country will be the better, and you will be the happier. Because nothing brings greater happiness in life than to serve a cause greater than yourself."

Barack Obama gave a better answer, but it seemed like he still does not recognize the tremendous potential that a fully honest and prophetic answer could have. He said:

"I think the American people are hungry for the kind of leadership that is going to tackle these problems not just in government, but outside of government. … There is going to be the need for each and every one of us to start thinking about how we use energy. … [E]ach and every one of us can start thinking about how can we save energy in our homes, in our buildings….

I think the young people of America are especially interested in how they can serve, and that's one of the reasons why I'm interested in doubling the Peace Corps, making sure that we are creating a volunteer corps all across this country that can be involved in their community, involved in military service, so that military families and our troops are not the only ones bearing the burden of renewing America."

A truly great leader, with the leadership character of a Lincoln or a Kennedy, would have to look into the next decade and call out those challenges that can only be met by inspiring Americans to set aside their personal comforts and make deep sacrifices for the common good.

This is the essence of progressive political philosophy: We are all in this together. “Every man for himself” and “do what you can get away with” has led us into this mess. We can only pull together to solve the enormous problems that face our country if we can trust and respect each other. And we can only do that if we have an unselfish leader who deserves our trust and respect.

Is there any doubt that universal health care, for those who need it most, will need to be paid for by the young and healthy?

Is there any doubt that we will not stop the polar ice caps from melting and the oceans from rising unless we can stop burning fossil fuels at the rate we have been?

The 78-year-old caller from Chicago no doubt remembers, as fewer and fewer of us alive today do, that World War Two required incredible sacrifices. Detroit was ordered to stop making cars and build only tanks and airplanes. Gasoline was rationed. You couldn’t buy sliced bread because steel was needed for the war effort. Does any conscientious person truly doubt that the same level of sacrifice will be needed to stop global warming? Perhaps the Greatest Generation is yet to come.

So, let’s start a list of the sacrifices that the candidates should share with us:

1. Energy conservation. By every reasonable voluntary and mandatory means, we will need to curtail our wasteful use of fossil fuels and conserve our oil resources. Now. Not after we have converted to electric cars and hydrogen fuel cells and the other technological breakthroughs we hope for. We need to keep our remaining offshore oil and Alaskan oil in the ground if our grandchildren will be able to fly on airplanes and have an Air Force to protect them. Come to think of it, climate change also means conserving other resources, too, like water and fisheries.

2. Paying for the war in real time. We cannot keep fighting the war on terror in Iraq and Afghanistan and elsewhere without paying for it now. To pay for the war in Vietnam at the time it was happening, the rich in America paid an income tax surcharge and Lyndon Johnson sold off Fannie Mae. George Bush, incredibly, has reduced taxes for the wealthy and paid for the war with deficit spending.

3. The rich will be called upon to sacrifice. Obama should highlight that he is asking those who make over $250,000 a year to pay more in taxes. They can afford it, and should be contributing more to the common good, especially in hard times. If the tax burden paid by the wealthy during the Reagan years can be restored, that will go a long way toward paying for the war on terror, the Wall Street bailout, the cost of taking care of our veterans, health care and educational reform, and the cost of new green technology.

4. We all will need to keep supporting our government with our taxes. Bill Clinton, when he was running for president in 1992, promised middle-class tax relief. He couldn’t deliver, because economic realities required him to reduce the federal deficit. After Obama proposed a tax reduction for 95% of households, the government committed us to a $700 billion expenditure to rescue the financial system. Hello? It should surprise no one if Obama’s middle-class tax cut were to be reduced or delayed.

5. Delaying retirement. All signs point to the fact that my generation, born after 1945, will have to keep working longer and retire later, due to the drop in value of our 401(k) and other retirement plans. There are too many of us to stop being productive and live off of Social Security, diminishing home equity and investments. Things will get worse before they get better, and it may take another 10 years for the country to pull out of this financial crisis.

6. No more easy money. Wealth did not trickle down during the years of Republican administration, but lots of credit did—subprime mortgages, credit cards, companies issuing junk bonds, states and counties borrowing, bizarre unregulated derivatives and hedge funds. A house of cards, collapsing on us now. We will have to spend less and save more, and the financial self-discipline will be a painful adjustment.

7. Yes, there will be more government regulation. Isn’t that the lesson of the financial meltdown? There won’t be as many ways to get rich quick on Wall Street. If Obama is elected, unions may have more rights to organize, companies may be forced to pay women equally, fuel efficiency standards for automobiles may be raised. Maybe even price controls on prescription drugs. The business world will be called upon to sacrifice for the common good. About time.

8. Social Security and Medicare reforms. Of course, the rich should pay a greater share of the payroll taxes. As Obama has proposed, those making over $250,000, who don’t pay a dime more right now, can afford it. That’s progressive taxation, long overdue. If that were done as a first step, then it might be reasonable to ask others to sacrifice by making other small adjustments, to the eligible retirement age, for example.

9. Civil preparedness. After September 11th, the most visible change in our daily lives was the increase in airport security measures. In the seven years since then, many other steps that could protect us have been neglected. A suitcase nuclear device could be driven or walked into almost any office building in America. As a society, we don’t practice emergency procedures for earthquakes, floods, fires, or terrorist attacks. And at no level of government do we have well-organized, practical ways to enlist ordinary citizens in rescue, recovery, and cleanup operations. A flotilla of small boats could have saved many lives in Louisiana during Hurricane Katrina, but we just left those poor people on their rooftops.

10. The Ugly American, revisited. In 1960, John F. Kennedy inspired a new generation of Americans to care about our relationship with the rest of the world by joining the Peace Corps. He spoke German in Berlin and Jackie spoke French in Paris. Senator Obama wants to double the Peace Corps and has lamented Americans’ lack of fluency in foreign languages. Recently, a group of former Secretaries of State convened and agreed that our most serious international problem is the low level of respect for America in the rest of the world. We could set aside a bit of our arrogance about being “the best country in the world,” take the time and trouble to understand other people’s cultures, religions, and problem, and win back our allies and friends.

Our presidential candidates have sought to win this election by telling their personal stories, by trying to relate to the average person’s needs, by attacking the failures and lies of their adversaries, by mobilizing thousands of grassroots supporters, and by offering new policies and benefits. They have tried to outdo each other with the promise of better government service at no additional cost.

When JFK, in his inaugural speech, said “ask not what your country can do for you, ask what you can do for your country,” he prepared an entire nation, the G.I. Generation and the Baby Boomers alike, to do amazing things for the benefit of all humanity, from sending a man to the moon to overcoming racial inequalities at home.

There is no other appeal to the voter that is more powerful, more courageous, more uplifting, than the bare-headed image of an American president who is able, by his or her own example, to inspire sacrifices for the common good.

Finances and the current crisis: How did we get here and what is the way out?

By: Sam Webb, Chair, Communist Party USA

"In the longer term, what is required is a new model of economic governance at the state and corporate level. By that I mean a reconfiguring of the role and functions of government and corporations so that they favor working people, the racially and nationally oppressed, women, youth and other social groupings. This will not only require the election of Democratic Party nominee Barack Obama, but also a sustained struggle by a labor-led people’s coalition in concert with its allies in the nation’s capital on what will be new political terrain."

In a vote that was heard around the world, reactionary Republicans along with some progressive Democrats in the House torpedoed a bill to stabilize financial markets. The compromise deal was better than what was initially proposed by Bush and Paulson, but did little to stimulate the economy or attend to the crisis of everyday living experienced by millions of ordinary Americans — who, it should be said, played by the rules. In fact, the plan goes in the opposite direction — it asks the American people to pony up to the tune of $700,000,000,000 even though they had no hand in causing this crisis.

As this point it is unclear whether some form of the existing deal will manage to finally squeak through. One thing is clear though — the American people are furious at Wall Street, the Bush administration and congressional leaders of both parties.

We should see this struggle over the bailout package as a skirmish, an eventful and seismic one, but a skirmish nonetheless, in a protracted struggle that labor and its allies can win.

One immediate line of action is to fight for a moratorium on foreclosures, debt forgiveness, and renegotiation of mortgage terms going forward. As long as the housing slump continues, the overall economy will slide downward and markets will churn.

Another is to demand the passage of a stimulus bill of a half trillion dollars, paid for by repealing the Bush tax cuts and by a special tax on financial transactions and institutions.

Still another is to impose a new regulatory environment on financial markets.

A fourth is to rapidly end the Iraq war and initiate a peace process in Afghanistan that helps the people of that country.

Finally, a debate over the merits of public takeover of our financial and energy complex is in order. Can our country, given the challenges we face now and through this century, afford to allow these industries to remain in the hands of profiteers?


Defeat for U.S. capitalism

The prevailing ideologies and practices that have driven U.S. capitalism for the past three decades have run up against their own contradictions and conjured up new and old oppositional forces both domestically and internationally. Notwithstanding the agreement on a bailout package, what we are seeing is a massive defeat for U.S. capitalism.

Financialization, financial-led globalization and neoliberalism are not yet corpses. But their future is very problematic, although I would add that history tells us that discredited ideologies and practices never exit from the stage voluntarily. They have to be pushed, and pushed by a new political coalition that commands broad-based support, is united in action and possesses the skills to construct a people’s alternative. But isn’t such a coalition, of which we are a part, forming before our very eyes?

Moreover, this coalition is ready to strike the first and absolutely necessary blow in a few weeks, that is, to elect Barack Obama and bigger majorities in the House and Senate by a landslide.

If people haven’t enough reasons to join this effort, the current implosion on Wall Street and the new constraints it will place on the federal budget should give them reason to roll up their sleeves and get the job done on Election Day.

From another angle, the implosion of U.S. financial markets has delivered a debilitating body blow to the hopes of U.S. imperialism for unrivaled hegemony in the 21st century. When combined with the Iraq disaster, the worldwide anger over global neoliberalism and structural adjustment policies, and the emergence of new global powers in nearly every region of the world — China in the first place, it signals a new stage in the hegemonic crisis of U.S. imperialism and the final chapter of a unipolar world. Giovanni Arrighi, a world systems theorist, says that at the end of what he calls a systemic cycle of capitalist accumulation, leading hegemonic states invariably pursue a path of financial expansion, and its aim is to re-inflate its declining powers. The Dutch pursued this path in the 17th century, followed by the British in the 19th and early 20th century — successfully for a while, but in the end to no avail. Both eventually lost their leading position in the world capitalist economy and were replaced by another hegemonic state that established the rules, conditions and institutional framework for capital accumulation and system-wide governance.

Much the same fate, according to Arrighi, now awaits U.S. imperialism. The only question that Arrighi doesn’t answer is: will U.S. imperialism adapt peacefully to new world realities or will it engage in, to use his words, a policy of “exploitative domination” to maintain its standing in the world? Bush tried the latter, but failed and will leave the White House in January completely discredited.


Longer-term processes

While the present turbulence was triggered by mountains of borrowing on thin capital reserves, predatory lending, risky financial instruments, deregulation and bubble economics, it is also the outgrowth of longer-term processes that go back to the mid-’70s.

At that time, the U.S. economy was stumbling along, battered by the combination of inflation, high unemployment, slow economic growth and a declining rate of profit across U.S. industries. The confluence of these conditions prompted Paul Volcker, then chairman of the Federal Reserve Bank, to drive up interest rates to nearly 20 percent. Not surprisingly, this spike in interest rates reined in inflation, restored confidence in the dollar, and attracted mobile capital around the globe to U.S. financial and real estate markets.

It also generated an unprecedented shift of wealth in favor of the very wealthiest families and financial institutions, and set off an explosion in the financial sector in terms of its size, scope of activities, debt obligations and players.

At the same time, rising interest rates slowed down the economy, big swathes of industry shut their doors, union jobs were lost, wages stagnated, the social safety net was hollowed out, entire communities nearly collapsed and the labor movement was thrown on the defensive. Not since the Great Depression has productive capital been destroyed, living standards driven down and the relative strengths of competing financial and non-financial corporations reshuffled so fast and so broadly.

Much the same was occurring in the global South. In these countries finance-led globalization was responsible for massive drops in living standards, astronomical indebtedness to U.S. banks, privatization of industries and services, currency devaluations and unconscionable poverty. It was the convergence of these conditions that set into motion the eruption of political movements in Latin America that are either winning or contesting for state power.

Of course, it took more than shock therapy in the form of high interests rates to effect changes of this magnitude. If Volcker struck the first blow, it was the Reagan administration entering the White House less than a year later that was the main political agent of this upheaval.


The Reagan counterrevolution

At the ideological level, the Reaganites said that government is best that governs least; that markets are self-correcting; that income inequality is a good thing; that deregulation and privatization are the best fix for what ails the economy; that we live in a post-civil-rights era where affirmative action has no place; and that tax cuts for the rich trickle down to working people, thereby lifting all boats.

At the political level, the Reaganites framed the agenda of struggle and employed state power in its varied forms with a ruthlessness seldom seen. Remember PATCO.

Finally, at the economic level, the Reaganites dismantled much of the old Keynesian model of economic governance at the state and corporate level — a model that had its origins in the New Deal and was expanded by successive administrations in the next three decades. It rested on a measure of class compromise, societal obligations, formal equality and expansive macro-economic policies that favored broadly shared prosperity.

In its place, they constructed a new model of economic governance, popularly called neoliberalism. Its main features included flexible production networks on a global scale, union-busting, deregulation, low-wage labor, low inflation, free flow of goods, services and capital, shrinkage of the public sector, re-embedding of racist and sexist practices into political, economic and social life, restructuring of the state’s role and functions, and reassertion of finance.

The turmoil in financial markets and the bailout to the tune of $700 billion has turned the public eye and wrath on Wall Street and Washington. While millions are aware of the triggering causes, ranging from predatory lending to deregulation to insatiable greed, what isn’t so obvious is the longer-term process that brought our financial system and economy to the edge of the abyss.

I call this process financialization. According to economist Gerald Epstein, financialization is a process in which “financial motives, financial markets, financial actors, and financial institutions come to play an increasing role in the operation of domestic and international economies.” (“Financialization and the World Economy,” 2005, introduction)

It started in the 1970s

In its present form, financialization goes back to the mid-1970s. At that time U.S. capitalism was beset by seemingly intractable and contradictory problems — high inflation and unemployment, declining confidence in the dollar, faltering competitiveness, slow growth, and a falling profit rate.

Faced with this unraveling of the economy and weakening of the position of U.S. imperialism on a global level, then-chairman of the Federal Reserve Paul Volcker stepped into the breech and pushed up interest rates to record levels. This wrung inflation out of the economy, but it also sent unemployment rates to the highest level since the Great Depression, forced the closing of scores of manufacturing plants and many more family farms, brought incredible hardship to the working class and especially the African American, Latino and other communities, and negatively impacted the global economy, particularly the developing countries in Asia, Africa and Latin America.

At the same time, the spike in interest rates to record levels redirected domestic and foreign capital abruptly and massively into financial channels where returns to capital were now extremely high. Volcker, as an experienced banker, knew that the capitalists’ problem wasn’t too little money capital, but rather too few opportunities to profitably invest a surplus of capital — a crisis of over-accumulation of capital.

Moreover, once in financial channels, money capital remained there, but not idly. Driven by its own nature to constantly expand and reinforced by competitive pressures of competing capitals (grow or die) in a permissive regulatory environment, the financial agents of capital (banks, investment houses, hedge funds, private equity firms and so on) raced at breakneck speed into a massive buying and selling and borrowing and spending spree for the next three decades — all of which led to an explosion of the financial sector in terms of employment, transactions, instruments, players and profits. In other words, financialization proceeded at a feverish pace and with a broad sweep.

Capital that produces little, destroys much

Unlike productive capital that reproduces and expands itself by extracting surplus value and profits from labor power in the production process, money capital is much more footloose and impatient. Its time frame is short term. It travels the globe in an instant thanks to computerization and the web. Sinking itself into longer-term investments in plants, equipment and new technologies that create jobs and grow the economy is something that financial capital does, but this is not its favorite cup of tea, especially in recent years. In fact, money capital is as likely to destroy plants and equipment as invest in them — witness our Rust Belt and the structural adjustment policies imposed on developing and former socialist countries.

Where possible, money capital hides in the shadows beyond the eyes of weakened regulatory authorities. Like a good entrepreneur, it invents new “products” (options, swaps, futures, derivatives), but highly risky ones, and then sells, buys and profits from them. When turmoil seizes the financial markets as is happening now, money capital cashes out and runs to safety until the storm blows over. In the event that it doesn’t reach a safe haven and absorbs huge losses, it is relieved in the knowledge that the federal government and Federal Reserve stand ready to bail out massive failures of big financial institutions, as we are seeing.

The lubricant of financialization is the production and reproduction of staggering amounts of debt — corporate, consumer and government. Debt is as old as capitalism, but what is different in this era of financialization is that the production of debt, speculative excesses and bubbles are now essential to the functioning of U.S. capitalism.

A two-edged sword

As it gained strength and scope in the late 1980s and ’90s, financialization grew to the point where it became the main determinant shaping the contours, structure, interrelations and evolution of the national and world economy. While financialization was an outgrowth of the systemic weaknesses and contradictions of U.S. capitalism, it was also the leading edge of a neoliberal model of capital accumulation and governance, designed to restore U.S. capitalism’s momentum, profitability and dominant position in domestic and world affairs.

But as we are painfully learning, financialization is a two-edged sword, not all peaches and cream. Indeed, its very successes opened up new fault lines in the U.S. and global economy, making it, as we so graphically see, unsustainable.

While it stimulated the domestic and global economy, it also left our nation with an astronomical pileup of household, government and corporate debt which can’t be unwound overnight.

While it gave an impulse to economic growth, it also introduced enormous instability into the arteries of the U.S. and world economy, evidenced by the frequent financial contagions at home and globally over the past two decades.

While it prolonged the upward cyclical movements of capitalism, it has also set the stage for a hard economic landing and a much deeper crisis eventually, which is what we are experiencing now.

While it created wealth on a substantial scale, it also successfully engineered the biggest transfer of wealth in our nation’s history from wealth creators — the world’s working people — to wealth appropriators, the upper crust of U.S. finance capital.

While attracting mobile capital to our financial markets, it also has made us dependent on the willingness of foreign investors to absorb massive amounts of debt, something that they are increasingly less inclined to do, as the dollar drops in value on international currency markets and our markets collapse.

While the debt-driven purchasing power of American consumers bolstered global demand, it also tied the world’s economy to our heavily financialized, indebted, and unstable economy.

New model of economic governance needed

And yet, despite this incredible wreckage, this almost incomprehensible corruption, this reckless speculation, these merchants of plunder, debt and hardship are still attempting to resolve this financial crisis in a way that continues to leave them in charge of the main levers of power and their wealth intact.

This is not “socialism,” as we hear from the extreme right. It is parasitic state monopoly-finance capitalism. Or, in more colorful language, out-of-control cowboy/casino capitalism.

The American people and their friends in Congress are faced with a first-class challenge. In the near term, some immediate measures must be taken to restore the orderly functioning of financial markets, to recharge the economy, and, above all, to improve living conditions for the American people.

In the longer term, what is required is a new model of economic governance at the state and corporate level. By that I mean a reconfiguring of the role and functions of government and corporations so that they favor working people, the racially and nationally oppressed, women, youth and other social groupings. This will not only require the election of Democratic Party nominee Barack Obama, but also a sustained struggle by a labor-led people’s coalition in concert with its allies in the nation’s capital on what will be new political terrain.

Recent events have undermined the legitimacy of the neoliberal model of governance and accumulation so eagerly embraced by the Bush administration and Republicans in Congress. (No wonder they say they don’t want to play the “blame game.”)

But a substitute is not in place. Instead, we have a political vacuum into which various contending forces will try to impose their model of governance as we go forward.

In my view, such a model should draw from the New Deal experience, but in the end it has to be shaped in the first place by today’s conditions and requirements for political and economic advance for our nation’s working people and oppressed people, broadly defined. It won’t be socialist, but it would challenge the power and practices of the agents of capitalism, insist on peace and equality, consider public takeover of our energy and financial complex, and de-militarize and green our economy and society.

Depression conditions prompted Franklin Delano Roosevelt and his advisers — albeit with a mighty assist from a powerful all-people’s coalition led by the industrial unions and the multiracial working class — to reconfigure the role and functions of the state to the advantage of the ordinary people. We should draw inspiration and energy from this and set a similar course.

Sam Webb is chairperson of the Communist Party USA.

swebb@cpusa.org

Naomi Klein

Naomi Klein, author of The Shock Doctrine: The Rise of Disaster Capitalism.


(Naomi Klein spoke at the University of Chicago last week, invited by a group of faculty opposed to the creation of an economic research center called the Milton Friedman Institute. It has a $200 million endowment and is named after the University’s most famous economist, the leader of the neoliberal Chicago School of Economics.)


NAOMI KLEIN: When Milton Friedman turned ninety, the Bush White House held a birthday party for him to honor him, to honor his legacy, in 2002, and everyone made speeches, including George Bush, but there was a really good speech that was given by Donald Rumsfeld. I have it on my website. My favorite quote in that speech from Rumsfeld is this: he said, “Milton is the embodiment of the truth that ideas have consequences.”


So, what I want to argue here is that, among other things, the economic chaos that we’re seeing right now on Wall Street and on Main Street and in Washington stems from many factors, of course, but among them are the ideas of Milton Friedman and many of his colleagues and students from this school. Ideas have consequences.


More than that, what we are seeing with the crash on Wall Street, I believe, should be for Friedmanism what the fall of the Berlin Wall was for authoritarian communism: an indictment of ideology. It cannot simply be written off as corruption or greed, because what we have been living, since Reagan, is a policy of liberating the forces of greed to discard the idea of the government as regulator, of protecting citizens and consumers from the detrimental impact of greed, ideas that, of course, gained great currency after the market crash of 1929, but that really what we have been living is a liberation movement, indeed the most successful liberation movement of our time, which is the movement by capital to liberate itself from all constraints on its accumulation.


So, as we say that this ideology is failing, I beg to differ. I actually believe it has been enormously successful, enormously successful, just not on the terms that we learn about in University of Chicago textbooks, that I don’t think the project actually has been the development of the world and the elimination of poverty. I think this has been a class war waged by the rich against the poor, and I think that they won. And I think the poor are fighting back. This should be an indictment of an ideology. Ideas have consequences.


Now, people are enormously loyal to Milton Friedman, for a variety of reasons and from a variety of sectors. You know, in my cynical moments, I say Milton Friedman had a knack for thinking profitable thoughts. He did. His thoughts were enormously profitable. And he was rewarded. His work was rewarded. I don’t mean personally greedy. I mean that his work was supported at the university, at think tanks, in the production of a ten-part documentary series called Freedom to Choose, sponsored by FedEx and Pepsi; that the corporate world has been good to Milton Friedman, because his ideas were good for them.


But he also was clearly a tremendously inspiring teacher, and he had a gift, like all great teachers do, to help his students fall in love with the material. But he also had a gift that many ideologues have, many staunch ideologues have—and I would even use the word “fundamentalists” have—which is the ability to help people fall in love with a perfect imagined system, a system that seems perfect, utopian, in the classroom, in the basement workshop, when all the numbers work out. And he was, of course, a brilliant mathematician, which made that all the more seductive, which made those models all the more seductive, this perfect, elegant, all-encompassing system, the dream of the perfect utopian market.


Now, one of the things that comes up again and again in the writings of University of Chicago economists of the Friedman tradition, people like Arnold Harberger, is this appeal to nature, to a state of nature, this idea that economics is not a political science or not a social science, but a hard science on par with physics and chemistry. So, as we look at the University of Chicago tradition, it isn’t just about a set of political and economic goals, like privatization, deregulation, free trade, cuts to government spending; it’s a transformation of the field of economics from being a hybrid science that was in dialogue with politics, with psychology, and turning it into a hard science that you could not argue with, which is why you would never talk to a journalist, right? Because that’s, you know, the messy, imperfect real world. It is beneath those who are appealing to the laws of nature.


Now, these ideas in the 1950s and ’60s at this school were largely in the realm of theory. They were academic ideas, and it was easy to fall in love with them, because they hadn’t actually been tested in the real world, where mixed economies were the rule.


Now, I admit to being a journalist. I admit to being an investigative journalist, a researcher, and I’m not here to argue theory. I’m here to discuss what happens in the messy real world when Milton Friedman’s ideas are put into practice, what happens to freedom, what happens to democracy, what happens to the size of government, what happens to the social structure, what happens to the relationship between politicians and big corporate players, because I think we do see patterns.


Now, the Friedmanites in this room will object to my methodology, I assure you, and I look forward to that. They will tell you, when I speak of Chile under Pinochet, Russia under Yeltsin and the Chicago Boys, China under Deng Xiaoping, or America under George W. Bush, or Iraq under Paul Bremer, that these were all distortions of Milton Friedman’s theories, that none of these actually count, when you talk about the repression and the surveillance and the expanding size of government and the intervention in the system, which is really much more like crony capitalism or corporatism than the elegant, perfectly balanced free market that came to life in those basement workshops. We’ll hear that Milton Friedman hated government interventions, that he stood up for human rights, that he was against all wars. And some of these claims, though not all of them, will be true.


But here’s the thing. Ideas have consequences. And when you leave the safety of academia and start actually issuing policy prescriptions, which was Milton Friedman’s other life—he wasn’t just an academic. He was a popular writer. He met with world leaders around the world—China, Chile, everywhere, the United States. His memoirs are a “who’s who.” So, when you leave that safety and you start issuing policy prescriptions, when you start advising heads of state, you no longer have the luxury of only being judged on how you think your ideas will affect the world. You begin having to contend with how they actually affect the world, even when that reality contradicts all of your utopian theories. So, to quote Friedman’s great intellectual nemesis, John Kenneth Galbraith, “Milton Friedman’s misfortune is that his policies have been tried.”


This process of measuring an elegant perfect, beautiful, inspiring ideology against a messy reality is a painful process, and it’s a process that anyone who has tried to free themselves from the confines of fundamentalist thinking, from ideological constraints, has faced. My grandparents, for instance, were pretty hardcore Marxists. In the ’30s and ’40s, they believed fervently in the dream of egalitarianism that the Soviet Union represented. They had their illusions shattered by the reality of gulags, of extreme repression, hypocrisy, Stalin’s pact with Hitler.


I bring this up, because the left has been held accountable for the crimes committed in the name of its extreme ideologies, and I believe that it’s actually been a very healthy process for the left, one that isn’t over, that is continuing. But I think that the process of having to examine the unacceptable compromises that were made in the name of hard ideology, that they are paying off in the way the left today is being reborn and re-imagined.


You know, the most left-wing place on the planet at the moment is, interestingly enough, the first place where Chicago School ideology made that leap from the textbook into the real world, and that’s Latin America. And that happened for a very specific reason, as you know. This—in the 1950s, there was great concern at the State Department about the fact that Latin America, then as now, as it seems to do, was moving to the left. There was concern about what they called the “pink economists,” the rise of developmentalism, import substitution, and, of course, socialism. And, of course, this was a concern because it greatly affected American and European interests, because the crux of the argument of import substitution was that countries like Chile and Argentina, Guatemala, should stop exporting their raw natural resources to the north and then importing expensive processed goods to the south, that it didn’t make economic sense, that they should use the same tools of protectionism, of state supports, that built the economies of Europe and North America. That was that crazy radical idea, and it was unacceptable.


So, this plan was cooked up—it was between the head of USAID’s Chile office and the head of the University of Chicago’s Economics Department—to try to change the debate in Latin America, starting in Chile, because that’s where developmentalism had gained its deepest roots. And the idea was to bring a group of Chilean students to the University of Chicago to study under a group of economists who were considered so extreme that they were on the margins of the discussion in the United States, which, of course, at the time, in the 1950s, was fully in the grips of Keynesianism. But the idea was that there would be—this would be a battle to the—a counterbalance to the emergence of left-wing ideas in Latin America, that they would go home and counterbalance the pink economists.


And so, the Chicago Boys were born. And it was considered a success, and the Ford Foundation got in on the funding. And hundreds and hundreds of Latin American students, on full scholarships, came to the University of Chicago in the 1950s and ’60s to study here to try to engage in what Juan Gabriel Valdes, Chile’s foreign minister after the dictatorship finally ended, described as a project of deliberate ideological transfer, taking these extreme-right ideas, that were seen as marginal even in the United States, and transplanting them to Latin America. That was his phrase—that is his phrase.


But today, we see that these ideas are reemerging in Latin America. They were suppressed with force, overthrown with military coups, and then Chile and Argentina, Uruguay and Brazil all became, to varying degrees, laboratories for the ideas that were taught in the classrooms of the University of Chicago. But now, because there was never a democratic consent for this, the ideas are reemerging.


But one of the things that’s interesting about the new left in Latin America is that democracy is at the very center. And, you know, the first thing that Rafael Correa did when he was elected president of Ecuador, for instance—well, the first thing he did was give an interview. They said, “What can we expect of your economic program?” He said, “Well, let’s put it this way: I’m no fan of Milton Friedman’s.” And then he called a constituent assembly. He created an incredibly open political process to rewrite the country’s constitution. And that’s what happened in Bolivia, and that’s what’s happened in many Latin American countries, because democracy is being put at the center of these projects, because there has been a learning process of looking at the mistakes that the left has made in the past, the ends-justify-the-means mistakes.


So, I think all ideologies should be held accountable for the crimes committed in their names. I think it makes us better. Now, of course, there are still those on the far left who will insist that all of those crimes were just an aberration—Mao, Stalin, Pol Pot; reality is annoying—and they retreat into their sacred texts. We all know who I’m talking about.


But lately, particularly just in the past few months, I have noticed something similar happening on the far libertarian right, at places like the Cato Institute and the Reason Foundation. It’s a kind of a panic, and it comes from the fact that the Bush administration adapted—adopted so much of their rhetoric, the fusing of free markets and free people, the championing of so many of their pet policies. But, of course, Bush is the worst thing that has ever happened to believers in this ideology, because while parroting the talking points of Friedmanism, he has overseen an explosion of crony capitalism, that they treat governing as a conveyor belt or an ATM machine, where private corporations make withdrawals of the government in the form of no-bid contracts and then pay back government in the form of campaign contributions. And we’re seeing this more and more. The Bush administration is a nightmare for these guys—the explosion of the debt and now, of course, these massive bailouts.


So, what we see from the ideologues of the far right—by far right, I mean the far economic right—frantically distancing themselves and retreating to their sacred texts: The Road to Serfdom, Capitalism and Freedom, Free to Choose. So that’s why I’ve taken to calling them right-wing Trotskyists, because they have this—and mostly because it annoys them, but also because they have the same sort of frozen-in-time quality. You know, it’s not, you know, 1917, but it’s definitely 1982. Now, the left-wing Trots don’t have very much money, as you know. They make their money selling newspapers outside of events like this. The right-wing Trots have a lot of money. They build think tanks in Washington, D.C., and they want to build a $200 million Milton Friedman Institute at the University of Chicago.


Now, this brings up an interesting point. It’s an interesting point about the think tanks, in general, which has to do with the fact that it does seem to take so much corporate welfare to keep these ideas alive, which would seem to be a contradiction of the core principle of free market ideology—I mean, and particularly now, in the context of the Milton Friedman Institute. I mean, I could see it in the ’90s, but now, is the world really clamoring for this? Is there really a demand that you are supplying here? Really?


I think this points to a larger issue, and this comes up—has come up for me again and again in talking about this ideology, this ideological campaign. You know, is it—is it really fueled by true belief, and—or is it just fueled by greed? Because it’s not—the thoughts are so very profitable. So they are distinctive in that way, distinctive from other ideologies. And, of course, you know, certainly we know that religion has been a great economic partner in imperialism. I mean, this isn’t an entirely new phenomenon. But this is a question that comes up a lot. And I think it’s very difficult to answer, and it’s clear, certainly at this school, that much of it is fueled by belief, by true belief, by falling in love with those elegant systems.


But I think we also need to look particularly at this moment, who this ideology benefits directly economically, keeping it alive in this moment, and how, even in this moment, when everybody is saying, you know, this is the end of market fundamentalism, because we’re seeing this betrayal of the basic tenets of the non-interventionist government by the Bush administration—you know, I believe this is a myth and that the ideology has just gone dormant, because it’s ceased to be useful. But it will come roaring back, and I’ll talk a little bit more about that.


But, you know, I was interested that yesterday the Heritage Foundation, which has always been a staunch Friedmanite think tank, that they came out in favor of the bailout. They came out in favor of the bailout; they said it was vital. And what’s interesting about that is, of course, the bailout is creating a crisis in the economic—in the public sphere. It’s taking a private crisis, a crisis on Wall Street, which of course isn’t restricted to Wall Street, and it will affect everyone, but it is moving it, moving those bad debts, onto the public books.


And now the Bush administration has already left the next administration, whoever it is, with an economic crisis on their hands, but with this proposed transfer, they’re dramatically increasing that crisis. So, we can count, I would argue, on the Heritage Foundation refinding their faith, refinding their faith when it becomes necessary and useful to once again argue that the way to revive the American economy is to cut taxes, cut regulation, to stimulate the economy—and, by the way, we can’t afford Social Security; we’re going to have to privatize it, because we’ve got this terrible debt and deficit on our hands. So, the ideology is far from dead, and what we are, I think, seeing with this proposed monument to Friedmanism is really a way of entrenching it and making sure that it is always available to come back, to come roaring back.


So, I said I would talk a little bit about Friedmanism and the links to the current crisis. And, you know, it’s pretty direct. Milton Friedman is pretty much accepted as the godfather of deregulation. And this was—this ideology was the rationale for turning the financial sector into the casino that we see today. You know, Milton Friedman was clear about this. He believed that “history took a wrong turn,” and that’s a quote; it’s a quote from a letter he wrote to Augusto Pinochet. He said, “History took a wrong turn in your country, as well as mine.” And he was referring to the responses to the Great Depression. In Chile, it was the rise of import substitution and developmentalism. But in the United States, he was of course referring to the New Deal.


And I think that the Chicago School of Economics is properly understood as a counterrevolution against the New Deal, against regulations like Glass-Steagall, that was put in place in 1934 after having seen people lose their life savings to the market crash, and it was a firewall, a very simple, sensible law that said if you want to be an investment bank, if you want to gamble, gamble with your investors’ money, but the government isn’t going to help you because it’s your own risk. You can fail. And if you want to be a commercial bank, then we will help you. We will offer insurance to make sure that those savings are safe, but you have to restrict the risks that you take. You cannot gamble. You cannot be an investment bank. And a firewall was put up between investment banks and consumer banks.


And now we look at the way in which this crisis is supposedly being solved, and what we see, actually, is a wave of mergers in the banking sector, a wave of mergers with the banks getting bigger and bigger until ultimately—you know, the Financial Times was predicting today that eventually the United States will have three big banks, just like Japan does. That’s where it’s heading. And, of course, all of those banks will be too big to fail. So they all have this implicit guarantee; it’s not just Fannie and Freddie. It’s any function that is too important to fail has this implicit guarantee.


Phil Gramm is the person, you know, on the legislative side who did the most to create the legislative context for what we’re seeing right now in the financial sector. You know, I think everyone knows that Phil Gramm, most famously, recently is the one who said that America was in a mental recession and a bunch of whiners and all of that. And so, he’s not officially an adviser to McCain, but there is talk that if he were to win the elections, he would be Treasury Secretary. You know, I point—I bring him up because Phil Gramm was a Milton Friedman fanatic. I think you know this. In 1999, the same year that he led the charge to strike down Glass-Steagall, he also—Phil Gramm—pressed Congress to get the Medal of Honor for Friedman. When he ran in the—when he made his 1996 presidential run, McCain was the co-chair of his campaign. Phil Gramm was asked, “If you had to rely on a single person as your foremost economic policy adviser, who would it be?” And he replied, “Dr. Milton Friedman.” So we see the connections between deregulation and Friedmanism.


I also think there’s something else at play in the kind of politicians that are attracted to this particular ideology. You know, Reagan was the first really to embrace it, and Nixon was the great disappointment to Friedman. I’m sure you all know that. You know, he writes in his memoir that when Nixon was elected, he was euphoric. I mean, he couldn’t imagine an American president more closely aligned ideologically than Richard Nixon. But Richard Nixon insisted on governing, and he wanted to win elections, and he imposed wage and price controls. And Milton Friedman sort of had a bit of a temper tantrum and declared him the most socialist president in modern American history. But, you know, it was—so it was really Reagan who campaigned, you know, with his copy of Capitalism and Freedom on the campaign trail, who was the first person to really put Friedmanism into practice.


And I raise this because, you know, one of the things that we hear about McCain is that he doesn’t really know about economics, and so I think that makes us inclined not to take his economic ideas seriously, not to think he would be a really serious economic force. I think just the opposite. And I think if you look at his campaign platform, you see just the opposite. He wants to privatize Social Security. He is saying that in the first 100 days they’ll look at every single government program, and they will either reform it or shut it down if it is not serving taxpayers. I mean, they are talking about a sort of hundred-day economic shock therapy period. And I think it’s the fact that he doesn’t know about economics, and that Sarah Palin, I suspect, knows a little less, that actually makes them so dangerous.


And I don’t—you know, I don’t think it is—not to be too flippant—I’m sure that I’ve, you know, offended everyone, so I may as well just say bad things about Ronald Reagan—but I do think that, you know, that it isn’t a coincidence that, you know, a movie star president champions these ideas, or a body-builder governor, you know, who says, “Dr. Friedman changed my life”—I don’t know if you’ve seen Arnold Schwarzenegger’s introductions to Freedom to Choose, but they’re good. You should. YouTube them. But the appeal of these ideas, I think, to politicians who are actually in over their head on economics—and, by the way, this goes for military dictators, too, like Pinochet—who get control over a country and are totally clueless about how to run an economy, is that it lets them off the hook completely. It says government is the problem, not the solution. Leave it to the market. Laissez-faire. Don’t do anything. Just undo. Get out of the way. Leave it to us.

Trade Unions Demand Effective Responses from the IMF and World Bank to Worsening Financial and Food Crises

From the International Trade Union Confederation---


Trade Unions Demand Effective Responses from the IMF and World Bank to Worsening Financial and Food Crises

Brussels, 05 October 2008 (ITUC OnLine): With the spreading financial crisis likely to take centre stage at the upcoming annual meetings of the World Bank and IMF in Washington on 11-13 October, the global trade union movement is urging the international financial institutions (IFIs) not to overlook the millions of low-income workers whose buying power has declined drastically because of food and fuel price hikes. By the World Bank’s estimate, the price surges will add 100 million to the number of extreme poor in the world, which the Bank recently adjusted upward to 1.4 billion before the food and financial crises.

“If vigorous action is not taken, the Millennium Development Goals such as halving global poverty by 2015 will not be attained. The IMF and World Bank must increase and expedite aid to the developing countries suffering the consequences of the food, fuel, and now, the financial crisis,” said ITUC general secretary Guy Ryder. “Global Unions are pleased that the IFIs are responding to the crises with emergency aid, but they should reconsider previous IFI policies that have contributed to food security problems, for example, and change them accordingly.”

Ryder added, “The IFIs must ensure that none of those suffering from food price hikes suffer even more because of certain policy measures they put forward.” In its statement for the IFIs’ meetings , the ITUC and other Global Unions organizations point out that the elimination of subsidies to reduce prices of basic foodstuffs in favour of greater “targeting” of aid, which the IFIs have proposed, can result in many of the needy losing access to assistance. The statement also recommends that the IFIs support increased minimum wages and the protection of freedom of association so that workers can seek to prevent further deterioration of their real incomes through collective bargaining.

Need for adequate regulation, not more reckless deregulation

Although Global Unions have long called for the IMF to promote greater regulation of the global financial system, it was only this past month that IMF managing director Dominique Strauss-Kahn seemed to echo the international trade union movement’s demands for better regulation. “This crisis is the result of regulatory failure… We must ensure it does not happen again,” he wrote in an article published in September.

Global Unions’ statement urges the IFIs’ member-country governments gathering in Washington next weekend to mandate the IMF to develop appropriate international regulatory frameworks of the financial sector and coordinate national regulatory reforms. The process must include consultations of organizations such as the ITUC, whose members are sustaining heavy job losses because of the financial debacle. Said the ITUC’s Guy Ryder: “It would be unacceptable that the private financial sector, which put the world economy into the current mess, would have greater influence over the design of new regulations than those who are suffering the consequences of the inadequate regulation that the private institutions lobbied for.”

Global Unions have also demanded that the World Bank cease to use its Doing Business publication to encourage developing countries to deregulate their economies, citing its abuse in IFI country reports and by many outside the IFIs eager to do away with any and all labour market regulation. “It is ironic that in the past four weeks the World Bank has been heavily promoting the 2009 edition of its bible of across-the-board deregulation, Doing Business, at the same time that the financial sector is collapsing in the US and other countries because of inadequate regulation,” said Ryder.

The ITUC has frequently noted that Doing Business (DB), which is the World Bank’s highest circulation publication, falsely claims that the deregulation it promotes results in higher economic growth and increased job creation. Last June, the Bank’s own Independent Evaluation Group agreed with this assessment when it “found no statistically significant relationships between the … DB indicators and growth rates” and that, “no significant association emerged between … [the DB indicator on] employing workers and employment”. By giving the highest ratings to countries with the least labour regulations, DB has been used to pressure developing countries to do away with provisions such as minimum wages, recourse against unjust dismissal and mandated contributions to health care or old-age pensions, thus adding to the difficult situation already faced by many workers in these countries.

Observing that the IFIs will face exceptional global challenges at this year’s annual meetings, Global Unions are asking the IFIs to respond more fully to the needs and priorities of all of their member countries. Said Ryder, “The food and financial crises and other challenges like climate change will have stronger adverse effects on poorer countries. The IFIs must reform their governance structures so that developing countries have an equal voice in determining how to confront these problems.”

Commenting on the discussion on governance reform expected to take place at the World Bank during the meetings, Ryder added, “Nothing short of voting parity for developing countries is acceptable. The lender-borrower relationship that has defined decision-making in the IFIs is no longer appropriate given the global scale of these challenges.”

The ITUC represents 168 million workers in 155 countries and territories and has 311 national affiliates. http://www.ituc-csi.org http://www.youtube.com/ITUCCSI

For more information please contact the ITUC Press Department on +32 2 224 0204 or +32 476 621 018.