Lining Up for the Wall Street Gravy Train

British economist John Maynard Keynes, believed in capitalism, but he was also sharply critical of its structural flaws. He summed it up succinctly like this:

“Our analysis shows… that long-run development is not inherent in the capitalist economy. Thus, specific ‘development factors’ are required to sustain a long-run upward movement.”

What Keynes was alluding to is the fact that mature capitalist economies tend towards stagnation. What happens, is that the rate of return on investment begins to dwindle as overcapacity builds. That causes declining profits which lead to belt-tightening, rising unemployment and falling demand. As investment drops off further, growth slows correspondingly and the economy dips into a protracted slump. This corrosive stagnation is the challenge that all advanced capitalist economies face. The solution–as Keynes notes–lies in “specific development factors”, which in today’s terms means “financial innovations”.

Financial innovation, like derivatives contracts and securitization, have created vast new opportunities for investment and profitmaking. This complex netherworld of highly-leveraged debt-instruments and off-balance sheet operations, constitutes a shadow economy where the process of capital accumulation persists despite pervasive inertia in the underlying economy. This is why the Fed and the Treasury have been doing their best to stitch the system back together without changing its basic structure. The same is true of Congress, which has gone to great lengths to preserve the profit-generating instruments which brought the global financial system to the brink of disaster. This is from the Wall Street Journal:

“Lobbying by Wall Street has blunted efforts to step up regulation on derivatives trading by carving out exceptions or leaving the status quo in place. Derivatives took blame for some of the worst debacles of the financial crisis. But a year after regulators and critics began calling for an overhaul in the way they are traded, some efforts have been shelved and others have been watered down.

The two main issues concerning regulators were trading and clearing of swaps, which allow investors to bet on or hedge movements in currencies, interest rates and many other things. Swaps generally trade privately, leaving competitors and regulators in the dark about the scope of their risks. In November 2008, the chairman of the Senate Agriculture Committee proposed forcing all derivatives trading onto exchanges, where their prices could be publicly disclosed and margin requirements imposed to insure that participants could make good on their market bets.

But a financial-overhaul bill passed by the House of Representatives on Dec. 11 watered down or eliminated these requirements. The measure still allows for voice brokering and allows dealers to use alternatives to public exchanges.” (“How Overhauling Derivatives Died” Randall Smith and Sarah Lynch, WSJ)

“Voice brokering” is Wall Street parlance for making a deal over the phone. It makes a joke out of the anemic regulations passed into law by congressmen who are essentially agents of Wall Street.

The bottom line is that financial institutions will not be forced to trade trillions of dollars of derivatives on public exchanges where margin requirements would protect taxpayers against potential losses. Instead, Congress has given Wall Street the green light to continue selling products that are insufficiently capitalized so they can keep raking in gigantic profits. That means it’s only a matter of time before another one of the financial giants keels over from its bad bets. It will be AIG all over again.

But derivatives are just part of the problem. The real issue is a financial model that doesn’t really work and offers no tangible benefit to society. In its present form, the system–with its exotic OTC markets, its off-book SIVs and SPEs, and its opaque Dark Pools and High Frequency Trading– is more snake oil than high finance. It does not “efficiently allocate capital to productive activity” as advertised, but–more often than not–diverts it away from production altogether into paper claims on all manner of financial exotica. So called “innovations” have had less to do with increasing the overall vitality of the economy or improving living standards than they do with circumventing regulations to enhance earnings by maximizing leverage. Deregulation has utterly transformed the system; creating a financial Frankenstein that hides its activities off public exchanges, that transfers the risk of losses onto the taxpayer, and that requires explicit government guarantees just to attract investment. It’s a mug’s game where only a small group of high-stakes speculators come up winners.

The same is true of the Fed’s emergency lending programs. They’re just another swindle wrapped in fancy public relations ribbon. Ostensibly, the facilities are supposed to provide cheap capital in exchange for dodgy collateral. But that’s not a loan; it’s a subsidy, and it helps to obscure the true, market price of the assets. As systemic regulator, the Fed has every right to provide liquidity during times of market stress or turbulence. But it does not have the right to help financial institutions conceal their losses by paying exorbitant prices for downgraded junk bonds. That’s picking winners and losers, which is far beyond the Fed’s mandate.

Quantitative easing (QE) is another Fed boondoggle. The program has been hyped as a way to get the banks to increase lending to businesses and consumers by creating over $1 trillion of excess bank reserves. But instead of increasing lending, QE does the exact opposite; it creates generous incentives for not lending. The banks who qualify have been taking the Fed’s zero-rate reserves and exchanging them for safe, 10-year Treasury bonds which yield 3.5%. What a deal! Fed chairman Ben Bernanke has promised to maintain this policy for “an extended period” which means the banks will continue to reap the benefits of this stealth bailout for the foreseeable future.

This is the real reason the banks aren’t lending, because the Fed is paying them not to. It’s not a matter of creditworthy applicants. It’s a matter of hopelessly mangled monetary policy. The ongoing credit contraction can be blamed on one man alone; Ben Bernanke.

Even though QE is mainly a backdoor way to recapitalize the banks; some lending has continued, although not to consumers and businesses. So where has the money gone? Here’s part of the answer from the Wall Street Journal:

“Former Salvadoran finance minister Manuel Hinds points out in the latest issue of International Finance that banks have indeed been shirking on their day job of transforming increased deposits into increased private-sector credit. But they haven’t quit entirely. In fact, they’ve funneled significant new funds into nonbank financial institutions—which have not lent them on. What’s happening is that U.S. banks have been behaving exactly like developing country banks during earlier crises, such as Indonesian banks in the late 1990s—raising lending to their worst borrowers to keep them alive, lest the banks themselves collapse from their borrowers’ defaults.

For U.S. banks, these zombie borrowers are their affiliated financial entities set up to manage so-called off-balance-sheet activities—such as the famous SIVs (structured investment vehicles) created by Citigroup and others during the boom. Thus, the massive fiscal and monetary bailouts of the banks have served to worsen the credit misallocation that led to the general economic collapse in 2008.” (“Prepare for a Keynesian Hangover”, Ben Steill, Wall Street Journal)

So the banks are not only taking depositors money and using it in high-risk derivatives transactions and currency “carry trades”, they’re also propping up the long daisy-chain of insolvent creditors whose default could domino Lehman-like through the entire financial system. Funny how the media skips little tidbits like this when they give their rosy evening roundup.

And then there’s this; on Christmas Eve, the Treasury Dept announced that it would lift existing caps on the mortgage-finance giants Fannie Mae and Freddie Mac. The two GSE’s will no longer be limited to a ceiling of $200 billion in losses each. Although, the Treasury’s action looks like it was designed to support the housing market, the real beneficiaries are the banks whose balance sheets are coming under greater pressure from the relentless uptick in foreclosures. It is widely believed that Treasury is laying the groundwork for a major revision of the Obama’s mortgage modification program which has, so far, been a dismal failure. If the critics are right, the administration is planning to slash the principle on millions of mortgages sometime in 2010, thus shifting the sizable losses onto the US taxpayer. Otherwise, the banks will face potential losses on another 4 million foreclosures in the next year alone. (according to Credit Suisse)

Economist Dean Baker says that the Treasury’s surprise announcement is an indication that Fannie and Freddie may have paid too much for the mortgage-backed securities they bought back in 2008 when the GSE’s were used as a dumping ground for distressed bank assets. Here’s Baker:

“This would mean that they were paying too much for mortgages and mortgage-backed securities bought from banks after the financial meltdown was already in full swing. This was the original purpose of the TARP program. Of course, TARP came with at least some restrictions and disclosure requirements. If Fannie and Freddie are overpaying for mortgages, then there are no conditions whatsoever put on the banks that get the money.” (Fannie Mae and Freddie Mac: Just a four Letter Word, Dean Baker, Huffington Post)

The Treasury’s action is tantamount to another stealth bailout by industry reps working within the Obama administration. All policymaking seems to revolve around two fundamental tenets: Increase the profit potential for the big Wall Street banks, and crimp the flow of credit to the real economy to increase privatization, crush the labor movement, and reduce the population to third world poverty. That’s Neoliberalism in a nutshell and, apparently, Obama’s economic dogma. In fact, as economist L. Randall Wray points out, Obama’s new health care bill is just more of the same; another ginormous handout to Wall Street disguised as public policy. Here’s Wray:

“There is a huge untapped market of some 50 million people who are not paying insurance premiums—and the number grows every year because employers drop coverage and people can’t afford premiums. Solution? Health insurance “reform” that requires everyone to turn over their pay to Wall Street. Can’t afford the premiums? That is OK—Uncle Sam will kick in a few hundred billion to help out the insurers. Of course, do not expect more health care or better health outcomes because that has nothing to do with “reform” … Wall Street’s insurers… see a missed opportunity. They’ll collect the extra premiums and deny the claims. This is just another bailout of the financial system, because the tens of trillions of dollars already committed are not nearly enough.”(Healthcare Diversions Part 3: The Financialization of Health and Everything Else in the Universe” L. Randall Wray)

It’s no wonder that the Obama administration’s appeal to China to “expand its domestic market” focuses exclusively on health care and retirement programs. Wall Street is just lining up for the next gravy train.

‘Anti-Semitism up, Islamophobia down” a New Academic Research Says

One-quarter of Europeans believe that “Jews have too much influence“

31% agree that “Jews in general do not care about anything or anyone but their own kind.”

45.7% of the Europeans somewhat or strongly agree that “Israel is conducting a war of extermination against the Palestinians.”

About 37.4% agree with the following statement: “Considering Israel’s policy, I can understand why people do not like Jews.”

Introduction by Gilad Atzmon

According to new research conducted by Bielefeld University hatred towards Muslims decreased over the past year while hatred of Jews is growing. Israelis must be concerned. The sudden drop in European Islamophobia doesn’t fit into the Zionist global plan in which Muslims are cornered and ostracised as reactionaries while Israel is dropping bombs in the name of democracy and liberalism. According to the leading Israeli paper Ynet, “the level of resentment against most minorities declined – sexism considerably, Islamophobia slightly. There were only two exceptions: homophobia and anti-Semitism.”(1)

Interestingly enough Ynet reports that “the percentage of people who believe ‘that there are too many Muslims’ in their country is especially high in those countries that actually have a low percentage of Muslims living in them.” One possible explanation may that within European countries benefiting from a large Muslim population, the fear of Islam is actually dissipating. This is not at all surprising given the fact that both Islamic and Christian cultures share very similar universal values and ethical precepts. Unlike Jewish ideology that maintains a certain level of tribal, cultural and social segregation and supremacy, Muslim communities seem to collectively merge into the working classes through the work place, education and economy.

Jewish Power

According to the research very many Europeans are concerned with Jewish domination and power. “One-quarter of Europeans (24.5%) believe that “Jews have too much influence“, and nearly one-third (31%) agree that “Jews in general do not care about anything or anyone but their own kind.” Bearing in mind the embarrassing fact that 50% of MPs in Britain’s shadow cabinet are Conservative Friends of Israel we can safely assume that, unlike our politicians, the voters out there are largely waking up to the danger of Zionist infiltration.

Ynet also has some ‘good news’ to report. “61.9% say that Jews “enrich our culture”, especially in the Netherlands, Britain and Germany.” The fact that Jews and ex Jews (in particular) enrich European life is indeed hard to ignore, yet setting aside Lord Cashpoint Levy and Uri ‘Spoon Bending’ Geller, it seems as if, amongst those Jews who contribute to European cultural life, not many openly identify with Israel and its crimes.

As much as Israel uses every possible means to drag us all into an endless war against Islam, the Europeans are coming to terms with the devastating reality of Zionist murderous brutality. Some 45.7% of the Europeans either “somewhat or strongly” agree that “Israel is conducting a war of extermination against the Palestinians.” In case someone fails to understand the meaning of it all, I will say it plainly: almost half of the Europeans accept that Israel employs genocidal tactics. They basically agree that Israelis are the Nazis of our time. According to Ynet, about 37.4% agree with the following statement: “Considering Israel’s policy, I can understand why people do not like Jews.”

Zionism was there to create a civilized loveable Jew. Not only has it failed, thanks to Israel and Zionism, the resentment towards Jews seem to be greater than ever. The meaning of it all is rather obvious. Israel and its supporting lobbies failed to internalise the real universal meaning of the Holocaust: ‘love thy neighbour’. Instead of ethnic cleansing, starving and dropping white phosphorous, Israel should have learned to live amongst others.

If Europe is as democratic as it claims to be, this clear, escalating animosity towards Israel, Zionism and their relentless lobbies will mature eventually into a political shift.

(1) A clarification is needed here: ‘anti-Semitism’ is a misleading notion. When people refer to ‘anti Semitism’ what they really mean is ‘anti Jewish feelings’. The notion of ‘anti-Semitism’ is there to give a false impression that Jews are a racial group. The truth of the matter is obvious, Jews are neither a race nor have they established a racial continuum. In fact no one resents Jews for their racial belonging or ethnicity. Anti Jewish feelings is in most cases a political and ethical reaction to Jewish tribal politics, Zionism, Israel, Israeli lobbying, global Zionist affairs, Jewish ideology, Jewish supremacy, Israeli war crimes and so on.

Europe: Anti-Semitism up, Islamophobia down by Sarah Stricker
Ynetnews 6.12.09

http://www.ynetnews.com/articles/0,7340,L-3815828,00.html

Study on ‘group-focused enmity’ conducted by researchers from University of Bielefeld in Germany finds hatred of Muslims decreased over past year, while hatred of Jews and homosexuals growing. Poland defined as most racist country

Right-wing parties are growing stronger in Europe, and Swiss citizens have even voted in favor of a ban on mosque minarets, yet the fear or hatred of Islam in the continent has dropped over the past year, according to a study conducted in Germany and published Sunday. However, hatred of Jews and homosexuals is on the rise.

For the last eight years, the Institute for Interdisciplinary Research on Conflict and Violence at the University of Bielefeld has been running an annual study called “German Conditions” to learn about “group focused enmity“ such as xenophobia, sexism, racism, anti-Semitism, and prejudices against unemployed, disabled, homeless or homosexual people in Germany.

Due to the financial crisis and the fears of the future, poverty and unemployment that are being stoked by that, the researchers expected a rise this year.

But compared to last year’s results (as well as those of 2002), the level of resentment against most minorities declined – sexism and racism even considerably, Islamophobia slightly. There were only two exceptions: Homophobia and anti-Semitism.

Hatred of both groups is on the rise as they are considered to be found also among people of a high status.

Beate Küpper, one of the study’s main researchers, believes that the financial crisis may in fact be a possible explanation for that. Küpper said that although in comparison to other European countries Germany was on average, it was staggering that in the light of German history, 48% still agreed with anti-Semitic statements.

For the first time, the study also compared xenophobia among European countries like Britain, France, Germany, the Netherlands, Italy, Portugal, Poland, and Hungary. According to their findings, the level of prejudices against minorities in Europe is alarming.

About 50.4% of the population agreed that “there are too many immigrants” in their country, 54.4% believe that “the Islam is a religion of intolerance.” Interestingly enough, the percentage of people who believe “that there are too many Muslims” in their country is especially high in those countries that actually have a low percentage of Muslims living in them.

Nearly one-third (31.3%) of the Europeans somewhat or strongly agree that “there is a natural hierarchy between black and white people”. A majority of 60.2% stick to traditional gender roles, demanding that “women should take their role as wives and mothers more seriously.” Some 42.6% deny equal value of gay men and lesbian women and judge homosexuality as “immoral”.

Hiding behind criticism of Israel

Anti-Semitism is also still widely spread in Europe. The team of scientists from the universities of Amsterdam, Bielefeld, Budapest, Grenoble, Lisbon, Marburg, Oxford, Padua, Paris, and Warsaw found that 41.2% of Europeans believe that “Jews try to take advantage of having been victims during the Nazi era”. The highest degree of affirmation was in Poland – 72%, and the lowest in the Netherlands – 5.6%.

One-quarter of Europeans (24.5%) believe that “Jews have too much influence“, and nearly one-third (31%) agree that “Jews in general do not care about anything or anyone but their own kind. On the other hand, 61.9% say that Jews “enrich our culture”, especially in the Netherlands, Britain and Germany.

They study also measured the degree of anti-Semitism hidden behind a specific criticism of Israel’s policy towards the Palestinians that uses anti-Semitic terms such as “war of persecution” and a generalization to “all Jews”.

Some 45.7% of the Europeans (apart for France, where this facet of anti-Semitism was not measured) somewhat or strongly agree that “Israel is conducting a war of extermination against the Palestinians.” About 37.4% agree with the following statement: “Considering Israel’s policy, I can understand why people do not like Jews.”

Overall, the level of anti-Semitic attitudes varies quite a lot across Europe with comparably lower levels of anti-Semitic attitudes in Britain and the Netherlands and significantly higher levels in Portugal, and especially Poland and Hungary.

Dr King Spanks Obama: Part 4

Some months ago, at the 23rd Annual Dr. Martin Luther King, Jr., Holiday Celebration in San Francisco, attendees were asked to answer the question, “What would Dr. King want to say to Barack Obama?” [1] This article series is an effort to provide Dr. King an opportunity to answer that question for himself from the pages of a book he wrote in 1967 entitled: “Where Do We Go From Here: Chaos or Community?”. But more than a mere contrast between two persons, this article series seeks to compare recent American history with contemporary struggles, and to explore visions of a more desirable future. This is the spirit of Dr. King’s book title and of Obama’s campaign slogan, “Change We Can Believe In”. At this point, we’ve reached chapter 5 of Dr. King’s book, which advances the following centerpiece of his philosophy:

“I am now convinced that the simplest approach will prove to be the most effective — the solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income… This proposal is not a “civil rights” program, in the sense that that term is currently used. The program would benefit all the poor, including the two-thirds of them who are white. I hope that both Negro and white will act in coalition to effect this change, because their combined strength will be necessary to overcome the fierce opposition we must realistically anticipate.” — Dr. Martin Luther King Jr., 1967 [2]

Now termed the “Basic Income Guarantee” (BIG), this measure doesn’t receive quite the discussion or popular acclaim that it did 40-years ago. But it has been advanced by a historic list of prominent supporters, including Thomas Paine, Milton Friedman, John Kenneth Galbraith, and more recently, Richard C. Cook. [3] This essay will argue that higher levels of economic democracy are a prerequisite, not a byproduct, of such a measure. Meanwhile, with a vast body of contemporary support, Barack Obama has recently advanced a similar proposal:

“I happen to be a proponent of a single-payer universal health care plan. I see no reason why the United States of America, the wealthiest country in the history of the world, spending 14-percent — 14-percent of its gross national product — on health care, cannot provide basic health insurance to everybody. And that’s what Jim’s talking about when he says ‘everybody in, nobody out’, a single-payer health care plan, universal health care plan. That’s what I’d like to see. But as all of you know, we may not get there immediately, because first we’ve got to take back the White House, we’ve got to take back the Senate, and we’ve got to take back the House.” — Barack Obama, 2003 [4]

At first glance, Barack Obama and Dr. Martin Luther King Jr. might seem to be on the same page, or at least somewhere in the same ballpark. But now that Democrats have finally taken back the White House and Congress, Rob Kall asks an essential question: “Who would have thought that Obama’s health care plan would enrich big Pharma and raise profits for health insurers while raising taxes on small businesses and threatening to jail people who were uninsured?” [5] As Progressives Democrats of America complain, “the one option that would produce enough savings to include every single American, contain rising costs, and ensure no one ever faces a medical bankruptcy again was never seriously considered despite the fact that 86 members of Congress have co-sponsored HR 676, The Medicare for All Act. Congress has failed to debate the one option that nearly 60% of doctors and nurses support, most Americans want, along with a growing number of unions, cities and towns” — single payer health care. [6]

In my home state of Washington, the Spokesman Review reports: “The 1 in 5 adults lacking insurance stand to sink the financial stability of the state’s health care providers… Many health care providers have softened the losses by charging more for those with insurance… We’re reaching a point where we can’t sustain this system”. [7] Even from a strictly “free market” perspective, this continuing trend is a market failure [8] that the Obama administration now seeks to mandate for every US citizen instead of a more sustainable single payer system that was originally proposed. According to Stephen Lendman: “If Obamacare is enacted, it will cost more, deliver less, leave millions uninsured, millions more underinsured and leave a broken system in place. It will enrich the insurance, drug and large hospital chain cartels at the expense of universal coverage. It will solidify a class-based system delivering the best care money can buy. Others will get sub-standard treatment, and for millions none at all.” [9] Kate Randall adds, “Obama’s health care counterrevolution is of a piece with his entire domestic agenda. It parallels the multi-trillion-dollar bailout of the banks, the imposition of mass layoffs and wage and benefits cuts in the auto industry, and a stepped-up attack on public education and on teachers.” [10]

Nonetheless, public support for Barack Obama and his alleged “centrist” approach appears to remain fairly high, as for some reason he was recently awarded the Nobel Peace Prize. According to the Nobel committee, Obama has created “a new climate in international politics.” But Paul Craig Roberts remands:”Tell that to the 2 million displaced Pakistanis and the unknown numbers of dead ones that Obama has racked up in his few months in office. Tell that to the Afghans where civilian deaths continue to mount as Obama’s “war of necessity” drones on indeterminably. No Bush policy has changed. Iraq is still occupied. The Guantanamo torture prison is still functioning. Rendition and assassinations are still occurring. Spying on Americans without warrants is still the order of the day. Civil liberties are continuing to be violated in the name of Oceania’s ‘war on terror’. Apparently, the Nobel committee is suffering from the delusion that, being a minority, Obama is going to put a stop to Western hegemony over darker-skinned peoples. The non-cynical can say that the Nobel committee is seizing on Obama’s rhetoric to lock him into the pursuit of peace instead of war. We can all hope that it works. But the more likely result is that the award has made ‘War is Peace’ the reality.” [11] So the Nobel committee has essentially discredited themselves and the Peace Prize itself by awarding it to a warmonger like Barack Obama. This should raise serious questions about how they were coerced into doing so, and by whom.

When Martin Luther King was awarded the Nobel Peace Prize in 1964, he responded, “I am mindful that debilitating and grinding poverty afflicts my people and chains them to the lowest rung of the economic ladder. Therefore, I must ask why this prize is awarded to a movement which is beleaguered and committed to unrelenting struggle; to a movement which has not won the very peace and brotherhood which is the essence of the Nobel Prize. After contemplation, I conclude that this award which I receive on behalf of that movement is a profound recognition that nonviolence is the answer to the crucial political and moral question of our time – the need for man to overcome oppression and violence without resorting to violence and oppression. Civilization and violence are antithetical concepts.” [12]

Meanwhile, the violence driven by American imperialism continues to spread throughout the world while most black Americans are still chained to the “lowest rung of the economic ladder” as Dr. King lamented more than 40-years ago. While they are joined by a growing population of whites, Hispanics and other races, it is significant to note that an inordinate proportion of African Americans still find themselves living in poverty. In fact, Professor David Harvey suggests the recent mortgage foreclosure crisis is largely a racial phenomenon, “a financial Katrina”, with its devastation focused mainly in the inner-city of places like Cleveland, Detroit and Baltimore where the concentration of ethnic minorities is typically highest. [13] [14] The Chicago Tribune reports that “deep recession is hitting African-Americans more severely than the overall population”. As the nation’s seasonally adjusted unemployment rate nudged toward 10 percent, the African-American jobless rate was 15.5 percent with Illinois blacks at 18.6 percent in the third quarter, according to estimates by the Economic Policy Institute.

The Tribune goes on to say: “The United States historically has seen higher unemployment rates for minorities, but the gap has widened in this recession, in part because of job losses in the manufacturing and auto sectors. And the jobless growth, coupled with the predatory lending that flourished in segregated neighborhoods during the real estate boom, have led to dramatic spikes in mortgage foreclosures, sending home values into a downward spiral. The bottom line: A silent depression for African-Americans”. [15] According to Larry Pinkney, “the underbelly of this nation is the black underclass. Instead of becoming smaller and moving out of poverty and disenfranchisement, the black underclass has grown much, much larger and become even more impoverished and disenfranchised”.

In chapter 5 of his book, Dr. King implores the American black population to educate themselves and to become more actively involved in politics. [2] While some have successfully heeded this call to action, Pinkney further observes, “The relatively small black elite has shamelessly, in complicity with the elite of its white counterpart, helped spawn an insidious new form of racism and economic apartheid. Moreover, members of the black underclass are themselves chastised and blamed by this insidious black elite and intelligentsia for being the economic and social victims of a callous, avaricious, capitalist system which now finds itself in deep trouble nationally and globally”. [16]

But is it any surprise that a black rise to power under capitalism would be proportionately similar to a white rise to power under the same system? Is it any surprise that the interests of “black power” would closely match and collaborate with the interests of “white power”? Under capitalism, is it any surprise that the interests of power are directly opposed to the interests of the remaining population regardless of skin color? Is it any surprise that a black President would advance an agenda very similar to most of his lily white predecessors?

In chapter 2 entitled, “Black Power”, Dr. King argues, “The problem of transforming the ghetto is, therefore a problem of power — a confrontation between the forces of power demanding change and the forces of power dedicated to preserving the status quo.” With this, Dr. King obviously understands that opposing interests are involved. But until this antagonism is dissolved, any personal transition from one pole to the other merely erases one’s sympathetic relationship with the opposing pole. There is no incentive for any President of the United States to “transform the ghetto”, as his position of power is contingent upon the powerlessness of others. So the goal of “equality”, which Dr. King so fervently pursued, is not for any individual or group to rise to power over others, but to dismiss the existing power structure as much as possible in all human activity in order to maximize democracy and to minimize opposing interests. “Are we seeking power for power’s sake? Or are we seeking to make the world and our nation better places to live? If we seek the latter, violence can never provide the answer. The ultimate weakness of violence is that it is a descending spiral, begetting the very thing it seeks to destroy. Instead of diminishing evil, it multiplies it.” In chapter 2, Dr. King goes on to say:

“Power, properly understood, is the ability to achieve purpose. It is the strength required to bring about social, political or economic changes. In this sense power is not only desirable but necessary in order to implement the demands of love and justice… There is nothing essentially wrong with power. The problem is that in America power is unequally distributed. This has led Negro Americans in the past to seek their goals through love and moral suasion devoid of power and white Americans to seek their goals through power devoid of love and conscience. It is leading a few extremists today to advocate for Negroes the same destructive and conscienceless power that they have justly abhorred in white. It is precisely this collision of immoral power with powerless morality which constitutes the major crisis of our times.” [17]

Many argue that one year is not nearly long enough for any President to effect “change” in these regards. And granted, President Obama probably didn’t intend “Change We Can Believe In” to suggest he could solve all the world’s problems overnight. But it does seem entirely reasonable for us to expect him to at least initiate a “change” of direction in the most damaging trends. Instead, Barack Obama continues to deliberately fortify those trends in the same direction they have been headed for the past 40-years since Martin Luther King Jr. was assassinated by his own government. [18] “For the first time in humanity, over 1 billion people are chronically hungry”, says a United Nations World Food Programme online video. The US Department of Agriculture reports recently that in 2008, one in six US households were “food insecure”, the highest number since the figures were first gathered in 1995. [19] Once again, these aren’t static snapshots, they are dynamic and growing economic trends.

How is it that citizens of the wealthiest nation in human history increasingly find themselves living in tents and under bridges and without adequate nourishment? At the same time, how is it that 75-percent of all American youth aged 17-24 are too fat and stupid to pass a military entrance exam? [20] [21] Is all this due to irresponsibility amongst the lower classes, or is it because of upper class greed? The best answer is probably that our class-based socioeconomic system is inherently is designed to channel economic wealth and political power away from producers and into the hands of non-producers. Whether we are aware of the fact or not, each of us consent to this antagonistic relationship and actively contribute to its predominance through daily participation.

One argument against this conclusion is that increasing numbers of workers, involuntarily displaced by technological advancement and other economic developments, qualify as “non-producers” who have no share in the wealth and power generated by production. But the result of their displacement is increased competition for jobs at the individual level, which tends to drive aggregate wages down. So the active role of rising unemployment and a growing “underclass” is to reduce and discipline the remaining workforce, to increase its productive output and to drive wages down, thereby delivering more wealth and power into the hands of a shrinking upper class. While some analysts might refer to this as “economic efficiency”, Dr. Martin Luther King Jr. presents another view:

“Now we realize that dislocations in the market operation of our economy and the prevalence of discrimination thrust people into idleness and bind them in constant or frequent unemployment against their will… We have come to the point where we must make the non-producer a consumer or we will find ourselves drowning in a sea of consumer goods. We have so energetically mastered production that we now must give attention to distribution… The problem indicates that our emphasis must be two-fold. We must create full employment or we must create incomes. People must be made consumers by one method or the other… The contemporary tendency in our society is to base our distribution on scarcity, which has vanished, and to compress our abundance into the overfed mouths of the middle and upper classes until they gag with superfluity. If democracy is to have breadth of meaning, it is necessary to adjust this inequity. It is not only moral, but it is also intelligent. We are wasting and degrading human life by clinging to archaic thinking. The curse of poverty has no justification in our age. It is socially as cruel and blind as the practice of cannibalism at the dawn of civilization, when men ate each other because they had not yet learned to take food from the soil or to consume the abundant animal life around them. The time has come for us to civilize ourselves by the total, direct and immediate abolition of poverty.” [2]

While Dr. King’s vision is both admirable and perhaps attainable, he also anticipates “fierce opposition”. Moreover, he seems to realize his suggested measures are impossible without “deep structural change” implemented through “some form of constructive coercive power”. [22] For example, in chapter 5 of his book, King states: “It was not the marching alone that brought about integration of public facilities in 1963. The downtown business establishments suffered for weeks under our almost unbelievably effective boycott. The significant percentage of their sales that vanished, the 98 percent of their Negro customers who stayed home, educated them forcefully to the dignity of the Negro as a consumer.” [2]

It might be surmised from this that Dr. King merely advocates consumer activism whereby people “vote with their dollars.” But consumers can’t vote with dollars they don’t possess. Moreover, unemployment and poverty are structural features of the predominant economic system, not a mistake or an aberration that can be corrected through some kind of reform. So effective withdrawal of mass consent for the existing wage-based system involves more than a mere “boycott” or failure to participate. Structural transformation of the decision-making process involves the construction of an entirely new socioeconomic system where human beings are no longer enslaved by either masters or wages. Further study indicates that Dr. King not only understood the severe limitations of his prior campaigns but that he also had much higher goals in mind:

“We must frankly acknowledge that in past years our creativity and imagination were not employed in learning how to develop power. We found a method in nonviolent protest that worked, and we employed it enthusiastically. We did not have leisure to probe for a deeper understanding of its laws and lines of development. Although our actions were bold and crowned successes, they were substantially improvised and spontaneous. They attained the goals set for them but carried the blemishes of our inexperience… The future of the deep structural changes we seek will not be found in the decaying political machines. It lies in new alliances of Negroes, Puerto Ricans, labor, liberals, certain church and middle-class elements.” [2]

Here, Dr. King describes what David Harvey has more recently termed The Right To The City: “The question of what kind of city we want cannot be divorced from the question of what kind of people we want to be, what kinds of social relations we seek, what relations to nature we cherish, what style of daily life we desire, what kinds of technologies we deem appropriate, what aesthetic values we hold. The right to the city is, therefore, far more than a right of individual access to the resources that the city embodies: it is a right to change ourselves by changing the city more after our heart’s desire. It is, moreover, a collective rather than an individual right since changing the city inevitably depends upon the exercise of a collective power over the processes of urbanization. The freedom to make and remake ourselves and our cities is, I want to argue, one of the most precious yet most neglected of our human rights.” [23]

Both Dr. King and Professor Harvey go on to suggest that transforming our social relations to effect deep structural change involves far more than mere labor movements or consumer uprisings or civil rights activism or ecological arguments or mournful cries from the unemployed, homeless and starving. Instead, a unified cooperative alliance amongst all these common interests is essential to effect the needed transition from capitalism toward a more equitable and sustainable socioeconomic system. David Harvey insists that democratic control of productive surplus is imperative, and Dr. King is very explicit in defining his view of cooperative alliance:

“A true alliance is based upon some self-interest of each component group and a common interest into which they merge. For an alliance to have permanence and loyal commitment from its various elements, each of them must have a goal from which it benefits and none must have an outlook in basic conflict with the others.” [2]

So a truly cooperative “alliance” involves a set of “common interests” with no “basic conflict”. There is nothing complicated about this, as most human interests are generally held in common and are best managed democratically. The most obvious exceptions are any sort of personal drive for financial independence or political power, derived through private accumulation and exclusive individual control of capital surplus. These pursuits tend to promote hostile relations with others and establish opposing sets of interests. Everyone wants control of capital surplus — and everyone should have it — democratically. For the very essence of capital is social improvement, and there is no justification for that power to be concentrated in the hands of an exclusively entitled minority. Economic democracy and political service are collaborative, not individual, pursuits, and the wreckage of our dying system is potentially fuel for more universal and sustainable levels of human cooperation. Unemployed capital and unemployed labor living side-by-side is always an opportunity to transform the system. So there is no reason Dr. King’s dream of racial equality through the abolition of poverty can’t materialize. But there is also no reason to expect such blessings to be delivered from the President of the United States or his floundering Congress. As Dr. King further suggests:

“When a people are mired in oppression, they realize deliverance when they have accumulated the power to enforce change. When they have amassed such strength, the writing of a program becomes almost an administrative detail. It is immaterial who presents the program; what is material is the presence of an ability to make things happen. The powerful never lose opportunities — they remain available to them. The powerless, on the other hand, never experience opportunity — it is always arriving at a later time. The deeper truth is that the call to prepare programs distracts us excessively from our basic and primary tasks… Our nettlesome task is to discover how to organize our strength into compelling power so that government cannot elude our demands. We must develop, from strength, a situation in which the government finds it wise and prudent to collaborate with us. It would be the height of naiveté to wait passively until the administration had somehow been infused with such blessings of goodwill that it implored us for our programs. The first course is grounded in mature realism; the other is childish fantasy.” [2]

The abolition of poverty will begin here and now — in the United States of America — with a deliberate and aggressive expansion of the cooperative business sector supported by a network of publicly owned banks. [24] For higher levels of economic democracy are a prerequisite, not a byproduct, of programs like Basic Income Guarantee and Single Payer Health Care. To demand progressive programs from a conservative government is “the height of naiveté”. To expect a conservative government to magically become progressive with the election of a black man to the Presidency is “childish fantasy”. The challenge and the responsibility for the pursuit of progressive measures belongs to individuals and firms at the community level who already understand the root of the problem and the potential solutions. Lots of people simply “don’t get it”, and that’s okay. The responsibility of those who do understand is not to persuade or convince those who stubbornly object, but to transform social relations at the community level by providing a superior living example of economic democracy [25] to others who are more receptive.

Michael Moore recently distributed a list of “15 Things Every American Can Do Right Now” in these regards. [26] But as stated above, the most urgent measures on that list involve democratizing the workplace and capital investment: 1) Fire your boss and reorganize the workplace cooperatively. 2) Close your bank account and deposit your money in a credit union or some other form of publicly owned bank. That is, any kind of system that does not feed back into the currently predominant debt-based monetary system. The combination of both measures is a large-scale dismissal of the current socioeconomic system. Instead of money being loaned into circulation at interest from a fractional reserve and exclusively controlled by a handful of private bankers, cooperative firms will pool some portion of their productive surplus into an investment fund which is democratically ploughed back into the economy in the form of grants, specifically for the purpose of expanding the cooperative business sector.

Thus, money is earned, not loaned, into circulation, and economic growth for the sake of political power is no longer an imperative. The newborn economy will deliberately operate parallel to — and in direct competition with — the existing system, and it will steadily grow from within it. The main criteria for success is a transfer of popular consent from the old system to the new. So transition will most likely be slow and painful, and the new system must constantly innovate to develop and maintain competitive advantage without compromising the basic principles of the democratic local cooperative. Laws and customs will eventually change. But until they do, the challenging cooperative economy must be led voluntarily by a growing body of individuals and organizations who already understand the urgent need for deep systemic transformation. Without this fundamental understanding in mind, any movement against capitalism will certainly fail.

In summary, British philosopher James Allen (1864 – 1912) wrote a short volume called “As A Man Thinketh” during the turbulent Industrial Revolution of late nineteenth-century England. In that small book he presents the following overview of human cooperation: “It has been usual for men to think and to say, ‘Many men are slaves because one is an oppressor; let us hate the oppressor.’ Now, however, there is among an increasing few a tendency to reverse this judgment to say, ‘One man is an oppressor because many are slaves; let us despise the slaves.’ The truth is that oppressor and slave are cooperators in ignorance, and, while seeming to afflict each other, are in reality afflicting themselves. A perfect Knowledge perceives the action of law in the weakness of the oppressed and the misapplied power of the oppressor; a perfect Love, seeing the suffering which both states entail, condemns neither, a perfect Compassion embraces both oppressor and oppressed.” [27]

Notes:

[1] Staff. (February 02, 2009). “What would Dr. King want to say to Barack Obama?”. The Martin Luther King, Jr. Research and Education Institute. http://mlk-kpp01.stanford.edu/index.php/news/article/what_would_dr_king_want_to_say_to_barack_obama/

[2] King, Dr. Martin Luther (1968). “Where Do We Go From Here: Chaos Or Community?”. New York, NY: Beacon Press. Excerpts from chapter 5. ISBN 0807005711

[3] Wikipedia. (11-23-2009). “Economic democracy: National dividend”. Wikipedia.org. http://en.wikipedia.org/wiki/Economic_democracy#National_dividend

[4] Obama, Barack. (2003). “Obama on single payer health insurance”, speech to the AFL-CIO. YouTube. http://www.youtube.com/watch?v=fpAyan1fXCE

[5] Kall, Rob. (11-10-2009). “Top-down blowback; The GOP Discovers that the Grassroots Bites Back”. OpEd News. http://www.opednews.com/articles/Top-down-blowback-The-GOP-by-Rob-Kall-091110-686.html

[6] Progressive Democrats of America. (07-23-2009). “The Mad as Hell Doctors Road Tour”. PDA Web site. http://www.pdamerica.org/articles/alliances/2009-07-23-09-33-18-alliances.php

[7] Stucke, John. (11-20-2009). “Ranks of uninsured swell in state”. Spokesman Review. Spokane, WA. pg 1. http://www.spokesman.com/stories/2009/nov/20/ranks-of-uninsured-swell-in-state/

[8] Kendall, David. (09-03-2009). “Health Care and the Free Market”. OpEd News. http://www.opednews.com/articles/Health-Care-and-the-Free-M-by-David-Kendall-090830-360.html

[9] Lendman, Stephen. (11-18-2009). “Universal Single Payer Health Care Coverage: An Economic Stimulus Plan”. Countercurrents. http://www.countercurrents.org/lendman181109.htm

[10] Randall, Kate. (07-28-2009). “Obama’s health care counterrevolution”. World Socialist Web Site http://wsws.org/articles/2009/jul2009/pers-j28.shtml

[11] Roberts, Paul Craig. (10-10-2009). “Warmonger Wins Peace Prize “. Countercurrents. http://www.countercurrents.org/roberts101009.htm

[12] King, Dr. Martin Luther. (12-10-1964). “Nobel Peace Prize Acceptance Speech”. Nobelprize.org. http://nobelprize.org/nobel_prizes/peace/laureates/1964/king-acceptance.html

[13] Harvey, David. (11-21-2009). “Race and the Mortgage Crisis”. WordPress. http://rortybomb.wordpress.com/2009/05/19/race-and-the-mortgage-crisis/

[14] Harvey, David. (10-29-2008). “A Financial Katrina – Remarks on the Crisis”. City University of New York Graduate Center: Reading Marx’s Capital with David Harvey. http://davidharvey.org/2008/12/a-financial-katrina-remarks-on-the-crisis/

[15] Bergen, Kathy. (11-06-2009). “African-Americans hit inordinately hard by recession”. Chicago Tribune. Chicago, IL. http://www.chicagotribune.com/business/chi-fri-black-jobs-nov06,0,2759566.story

[16] Pinkney, Larry. (11-05-2009). “And What of the Black Underclass?”. The Black Commentator. http://www.blackcommentator.com/349/349_kir_black_underclass_printer_friendly.html

[17] King, Dr. Martin Luther (1968). “Where Do We Go From Here: Chaos Or Community?”. New York, NY: Beacon Press. Excerpts from chapter 2. ISBN 0807005711

[18] Douglass, James W. (March 15. 2000). “The King Assassination: After Three Decades, Another Verdict”. Christian Century. http://www.precaution.org/lib/09/prn_king_assassination_another_verdict.000315.htm

[19] Goodman, Amy. (11-19-2009). “Hungering for a True Thanksgiving”. Information Clearinghouse. http://www.informationclearinghouse.info/article24016.htm

[20] Wallace, William S. (06-01-2009). “Most young people don’t meet standards for military service”. Spokesman Review. Spokane, WA. pg 1. http://www.spokesman.com/stories/2008/jun/01/most-young-people-dont-meet-standards-for/?print-friendly

[21] Davenport, Christian, and Emma Brown. (11-06-2009). “Most young unfit for military”. Washington Post-ABC News poll reported in the Spokesman Review. Spokane, WA. pg 1. http://www.spokesman.com/stories/2009/nov/06/most-young-unfit-for-military/

[22] King, Dr. Martin Luther (1968). “Where Do We Go From Here: Chaos Or Community?”. New York, NY: Beacon Press. Excerpts from chapter 4. ISBN 0807005711

[23] Harvey, David. (2008). “The Right To The City”. Text: http://davidharvey.org/media/righttothecity.pdf. Video Lecture: http://www.a0n.com/medellin/righttothecity.htm

[24] Dorrien, Gary. (05-15-2009). “A Case For Economic Democracy”. OpEd News. http://www.opednews.com/populum/print_friendly.php?p=A-Case-for-Economic-Democr-by-Gary-Dorrien-090513-750.html

[25] Wikipedia. (11-23-2009). “Economic democracy”. Wikipedia.org. http://en.wikipedia.org/wiki/Economic_democracy

[26] Moore, Michael. (10-22-2009). “Michael Moore’s Action Plan: 15 Things Every American Can Do Right Now. MichaelMoore.com. http://www.michaelmoore.com/words/mikes-letter/michael-moores-action-plan-15-things-every-american-can-do-right-now

[27] Allen, James. (B 1864 – D 1912) (published 1992). “As A Man Thinketh”. Barnes & Noble. pg 37

The Great Stimulus Debate of ’09

“Crybabies need not apply”

Barack Obama has decided to push the economy back into recession, and no one can figure out why. Perhaps the impressionable Obama has come under the spell of the deficit hawks and crystal gazers who see Armageddon around every corner. Or maybe he’s thrown-in with the snappish Marc Faber whose dire predictions of hyperinflation are about as cheery as Hieronymus Bosch’s vision of Hell. Whatever the reason, the President has done a hasty volte-face and decided that trimming the deficits in the middle of a severe economic downturn is the way to go. Here’s what Obama said just days ago on his Asia tour:

“I think it is important to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession.”

Obama is either getting some very bad advice or he’s simply determined to drive a stake into the flickering economy. All plans for deficit-pruning should be postponed until the economy steadies itself and the jobs picture improves. Raising taxes or slashing spending while the economy is still contracting is crazy. It shows that Obama is being influenced by the half-baked theories of amateur economists on the Internet who think that mass liquidation and years of bitter retrenchment are the best medicine. They’re wrong. Sensible people look for solutions that don’t involve hair shirts, moving to underground bunkers or living off root-crops for the next mellenia.

Obama’s metamorphosis into Ludwig von Mises sends a disturbing message to working people as well as to foreign creditors. It suggests that the commander-in-chief is in the thrall of careworn Jeremiahs, ideologues, survivalists and other assorted screwballs who dominate blog-world and preach Resurrection Day from every soapbox available. If that’s the case, things could get ugly fast. With the Democrats backing-down on a second round of stimulus, the Fed signaling an end to quantitative easing, and Obama moaning about rising deficits; there’s a good chance that the ailing economy could take another dunk down the elevator chute.

Deficits are not the problem. Deflation is. Bank lending is shrinking, consumer spending is down, housing prices are falling, unemployment is soaring and the wholesale credit markets are in a shambles. Which one of these problems is deficit related? None. This isn’t the time to slash government support in the name of “fiscal responsibility”. Obama needs to ignore the alarmists and deficit-psychos and pay attention to the Nobel laureates like Stiglitz and Krugman. These are the guys you want at the tiller when the water gets rough.

Has Obama perused the jobless figures lately? Has he noticed the Fed shoving more than a $1 trillion under the collapsing housing market with no sign of improvement? Has anyone told our strapping sagamore that the entire financial system is resting on a crumbling foundation of garbage mortgages, toxic paper, and non-performing loans?

Cutting the deficits now–when we should be expanding them–will lead to a cycle of debt deflation that will push-down asset prices, increase defaults, force more layoffs, slow consumer spending, lower earnings and put the economy into a long-term funk. It’s a suicidal policy that will end in catastrophe.

If Obama wants more proof that the economy is still tanking, he should read Fed chair Ben Bernanke’s speech to the Economic Club of New York delivered earlier this week. The presentation is a sobering snapshot of lingering stagnation with precious few glimmers of light. Here’s an excerpt:

“The flow of credit remains constrained, economic activity weak, and unemployment much too high. Future setbacks are possible….How the economy will evolve in 2010 and beyond is less certain….

Access to credit remains strained for borrowers who are particularly dependent on banks, such as households and small businesses. Bank lending has contracted sharply this year, and the Federal Reserve’s Senior Loan Officers Opinion Survey shows that banks continue to tighten the terms on which they extend credit for most kinds of loans…

Household debt has declined in recent quarters for the first time since 1951. For their part, many small businesses have seen their bank credit lines reduced or eliminated, or they have been able to obtain credit only on significantly more restrictive terms. The fraction of small businesses reporting difficulty in obtaining credit is near a record high, and many of these businesses expect credit conditions to tighten further.

The demand for credit also has fallen significantly….Because of weakened balance sheets, fewer potential borrowers are creditworthy, even if they are willing to take on more debt. Also, write-downs of bad debt show up on bank balance sheets as reductions in credit outstanding. Nevertheless, it appears that, since the outbreak of the financial crisis, banks have tightened lending standards by more than would have been predicted by the decline in economic activity alone….. Unfortunately, reduced bank lending may well slow the recovery by damping consumer spending, especially on durable goods, and by restricting the ability of some firms to finance their operations.

The best thing we can say about the labor market right now is that it may be getting worse more slowly. (Fed Chairman Ben Bernanke Speech Before Economic Club of New York)

Is this really Bernanke speaking, or is the Fed chief channeling Nouriel Roubini?

To summarize, credit is tight. Consumers aren’t borrowing and the banks aren’t lending. Unemployment is soaring and deflation is pushing down asset prices while the burden of personal debt is rising in real terms. It’s a very bleak report. The only sign of improvement is that “things are getting worse more slowly”. Now that’s encouraging.

But there is a remedy, and it doesn’t involve decades of cave-dwelling and a steady diet of canned meat and lentils. Stimulus works. It speeds up recovery, minimizes unemployment and stops asset prices from overshooting on the downside. Here’s an excerpt from “The effectiveness of fiscal and monetary stimulus in depressions” a scholarly analysis of stimulus by economist-authors Miguel Almunia, Agustin S. Benetrix, Barry eichengreen, Kevin O’ Rourke, and Gisela Rua:

“Where tried, fiscal policy was effective in the 1930s….The details of the results differ, but the overall conclusions do not. They show that where fiscal policy was tried, it was effective.

Our estimates of its short-run effects are at the upper end of those estimated recently with modern data….This is, in fact, what one should expect if one believes that the effectiveness of fiscal policy is greatest when interest rates are at the zero bound, leading to little crowding out of private spending. It is what one should expect when households are credit constrained by a dysfunctional banking system. Given similar circumstances in 2008, this underscores the advantages of using 1930s data as a source of evidence on the effects of current policy.” (The effectiveness of fiscal and monetary stimulus in depressions” by Miguel Almunia, Agustin S. Benetrix, Barry Eichengreen, Kevin O’ Rourke, and Gisela Rua, 18 November 2009, VOX)

Stimulus works in multiple ways. It also helps increase inflation expectations which is necessary to get people spending again. In a deflationary environment, consumers stop spending and the economy grinds to a halt. The Fed tries to spur economic activity by convincing people that the dollars they hold today will be worth less tomorrow. That’s why Bernanke keeps pointing out that the Fed will keep rates at zero indefinitely. It’s a way of managing perceptions to spark spending. Regrettably, the goldbugs are the only folks who have taken the Fed chairman seriously, which is why gold prices have zoomed to the stratosphere. Personal savings rates are still rising. There’s been a sharp drop-off in consumption. All the signs indicate that Bernanke’s psychological experiment has flopped. The masses still believe we’re in a recession, so they’re clinging to their cash like grim death.

The economy is headed for another slowdown that could drag on for a decade or more. The choices are stark; either policymakers take emergency action to reverse the trend or the economy will slip into a Japan-type slump.

What’s needed now, is a gargantuan blast of stimulus to jolt the economy out of its lethargy and put the mighty wheels of industry back in motion. That will require public mobilization and a massive commitment of resources. $1 trillion, $2 trillion, even $3 trillion–whatever it takes–should be pumped into the jet-stream so the dollars fall to earth like a spring rain from sea to shining sea. That will get people spending again. That will put people back to work. We’ll worry about the red ink later.

No more excuses. No more crybaby blabber about deficits. Just do it.

Obama’s China Junket

“We’re Opening Doors for Wall Street and Nothing More”

Barack Obama took Hu Jintao to task this morning, scolding the dejected-looking Chinese leader at a press conference held in Beijing. Obama delivered one ferocious jab after another, claiming that China’s dollar-peg has cost the US millions of high-paying manufacturing jobs while creating gigantic trade imbalances which have destabilized the global economy and thrust the world into severe economic contraction. Obama demanded that the Chinese government convert to market-oriented exchange rates immediately to preserve jobs in America and to end the de facto tariff that China applies to US goods through its persistent currency manipulation. Obama’s sharply-worded prepared statement left the Chinese President gasping for air while the assembled members of the western media snapped to their feet in raucous applause.

Hard to believe, isn’t it? Hard to believe that an American president would stand up for his own people and act in the national interest.

The aforementioned press conference never took place. It’s a fairy tale. Barack Obama made a few innocuous comments about repricing the renimbi, but it was all just meaningless blather concocted for the American audience. US policymakers have no intention of rocking-the-boat and upsetting their Chinese benefactors. The system works just fine as it is…for the Big money guys, that is.

Do you know the real reason that Obama is in China?

Obama is carrying on the work of George W. Bush and Henry Paulson. He’s trying to pry open Chinese markets to US financial services. That’s right, the lavish executive junket doesn’t have anything to do with human rights, climate change, or dollar/yuan rebalancing. That’s all just public relations mumbo-jumbo. 100% bunkum.

True, China’s dollar-peg creates an unfair advantage for China’s manufactured goods, but so what? The Congress could change that in a minute by applying trade sanctions. But they won’t. Because Congress is owned by Wall Street, and Wall Street thrives on the current system. Here’s how it works: China sells the US cheap lead-based widgets, and then recycles the dollars into US Treasurys and “complex and utterly worthless” financial products. This provides the gargantuan investment banks with an endless flow of cheap capital to goose stocks and fatten the bottom line. Of course, the process does have it’s shortcomings, like the fact that it crushes the domestic work-force, but that’s how it was designed to work anyway. What economists call “unsustainable imbalances” are praised at the big brokerage houses as “windfall profits”. The total destruction of the US labor movement is just an added perk for these well-heeled, flag-waving, uber-patriots.

And here’s another item that might be of interest curious readers. This is an excerpt from an interview with Morgan Stanley’s Stephen Roach:

Question: How big are China-based multinational corporations now and how do they factor into this issue of global imbalances?

Stephen Roach: “They’re a big deal. Over 60 percent of export growth over the past twelve years has come from growth by Chinese subsidiaries of Western multinationals, but again the problem I have is that too many in the United States, especially the Congress but also Washington, focus on the bilateral trade imbalance between the United States and China. That’s just a fundamental economic mistake that’s being made.” http://www.cfr.org/publication/20486/avoiding_a_uschina_trade_showdown.html
peter Roach

Hmmm. So, a large portion of China’s industrial capacity is actually “China-based multinational corporations”. Now that’s interesting. So US workers are actually competing with US industries that are using sweatshop labor to enrich themselves while savaging the American middle class. Great. I wonder how many of these “industry leaders” affix the stars-n-stripes to their lapel each morning before they trundle off to work?

This just proves that the outsourcing of jobs, the off-shoring of businesses, and the “free trade” laws are mainly the work of cutthroat American corporatists not the “rascally Chinese” as the media would like everyone to believe. China is not destroying America; blue-blooded, brandy-guzzling, Harvard-educated Americans are. It’s just good-old-fashioned class warfare….and our class is losing.

For those who want to know what Obama’s trip is really all about; ignore Obama altogether and read Treasury Secretary Timothy Geithner’s article in the Wall Street Journal, “The Road Ahead for Asia’s Economies.” It tells the whole story. Geithner candidly admits that US markets will remain stagnant for years to come and that other emerging nations (ie China) will have to develop their own domestic markets so that Wall Street speculators can attach themselves parasitically to a more succulent host.

Timothy Geithner: “As U.S. households save more and the U.S. reduces its fiscal deficit, others must spur greater growth of private demand in their own economies……We also must keep our sights on maximizing the potential of global markets. Both exports and imports remain critical stimulate the flow of knowledge and innovation that is enabling emerging economies to catch up with developed-world living standards….To achieve durable growth, all of our economies must have flexible labor markets.”

In other words, more lowering of trade barriers, more lost jobs at home, more unemployment.

Geithner again: “Each of us has recognized the importance of strong financial regulation and fiscal balance, and is pursuing these goals in ways that reflect our own circumstances but complement each others’ efforts.”

Check.

The article concludes with a spirited appeal from Geithner to China to open its markets to the gaggle of financial pirates and bank-vermin who just blew up the global system and are looking for new prey.

Geithner again: “Among other things, emerging economies must strengthen their social safety nets through sustainable health and retirement-benefit schemes,(re: Wall Street) thus reducing the need for high precautionary saving that contributes to global imbalances. Regulatory frameworks conducive to competitive markets will support private enterprise, investment and innovation. (re: MBS, CDOs, CDS and other debt-backed exotica) In the emerging economies, deeper and more efficient financial markets will enable better intermediation of savings and enhance investment productivity.(re: “Please, let G-Sax and JPM hang their shingles in Tienanmen Square. We promise we won’t blow up your financial system like we did ours.”)

Reforms are also necessary to promote cross-border private investments, while ensuring an institutional capacity and prudent regulatory framework to enable markets to absorb capital flows … finance ministers of our respective countries, we are keenly aware that our future prosperity will be founded on a continued commitment to globalization.” (Timothy Geithner, Wall Street Journal, “The Road Ahead for Asia’s Economies”)

Blah, blah, blah.

Summary: Geithner and Co. see the US economy languishing in a low-grade Depression for the foreseeable future, therefore, Wall Street must progressively move its base-of-operations eastward.

This is the real reason behind Obama’s trip to China. There’s no truth to the rumor that US policymakers care about “currency manipulation” or the ongoing looting of the American middle class. That’s rubbish. China’s “dollar-peg” essentially serves the interests of the giant multinational corporations and Wall Street speculators who own the media, the courts, the congress, the White House and most of the country.

The Coming U.S. Budget Attack

The United States is moving backwards…fast. State budget cuts are decimating essential health and social services; public education is being destroyed; the social safety net is in tatters. To make matters worse, all of this is occurring when the loss of jobs stands at a twenty-six year high with no end in sight.

But this is only phase one. The federal government intends to balance its books too, at the expense of society’s neediest. Instead of governors presiding over painful cuts, the President will be doing the gutting. And although his proposed budget isn’t due until February, the President’s spokespeople are priming the media to play a major propaganda role in what will be a colossal blow against working and poor people.

Obama’s Treasury Secretary, Timothy Geithner, has been particularly busy promoting the future cutbacks, repeating that “the country must live within its mean;” “deficits must be brought down dramatically” — something that will “require very hard choices.”

What are these hard choices? One possible option is no longer available. The biggest annual deficit producer is the U.S. military, which Obama will not radically reduce. Instead, he will increase it; Taxpayers will pay $660 billion (!) in 2010 toward the military. And maybe more — military commanders see more fighting in the future, not less; consequently, they want more money. The New York Times reports:

“…Admiral. Mike Mullen, the chairman of the Joint Chiefs of Staff, did not say how much additional money would be needed, but one figure in circulation within the Pentagon and among outside defense budget analysts is $50 billion.” (November 4, 2009).

Senate Democrat John Murtha thinks only $40 billion extra will do the trick, making the military budget an even $700 billion for 2010.

A different “hard choice” that could fix the deficit is to drastically raise taxes on the very wealthy. To this end, Obama has made the wholly-inadequate pledge to “roll back the Bush tax cuts.” Taxing the super-rich an extra 4 percent isn’t going to do the trick; not even close. At bare minimum, their taxes should be raised an additional 35 percent, to the pre-Regan level. But Obama would never propose such an idea.

The solutions Obama has proposed are the ones that Geithner is actually referring to when he says “very hard choices.” Last January, Obama told the conservative Washington Post that, to lower deficits, he would “reform entitlement programs” — social security, Medicare, etc. Reform in this case means to eliminate, or drastically reduce. The Washington Post reports:

“President-elect Barack Obama pledged yesterday to shape a new Social Security and Medicare “bargain” with the American people, saying that the nation’s long-term economic recovery cannot be attained unless the government finally gets control over its most costly entitlement programs.”

When will this happen? The Post answers: “[the] administration will begin confronting the issues of entitlement reform and long-term budget deficits soon after it jump-starts job growth and the stock market.” (January 16, 2009). The upward swing in the stock market gave Geithner the green light to begin his anti-entitlement public relations campaign.

By choosing not to drastically reduce military spending and not to greatly increase taxes for the super rich and corporations, Obama will have few other options: the federal deficit is too high, especially after the Bush/Obama bank bailouts.

These bailouts, combined with decades of reduced taxes for the very wealthy, created the conditions that led to our “deficit crisis.” The solution that Obama is proposing will further devastate millions already suffering from unemployment, unlivable wages, and little hope for the future.

It can be further presumed that, while Obama is getting the U.S. “financial house in order,” the Federal Reserve will assist by increasing interest rates — something demanded by U.S. foreign creditors — thereby significantly risking cutting into Wall Street’s most recent profits and opening up the possibility of transforming our Great Recession into another full-blown depression.

This is not a matter of “if,” but “when.” The imbalances in the U.S. economy are too massive; a giant “restructuring” must take place. The bank bailouts merely intensified the already enormous economic contradictions. Who pays for this restructuring will shape the future for years to come. As Obama implements his anti-worker plan, he will encounter tremendous resistance. The once-loved President will leave office more hated than Bush.

Once the Obama illusion is completely shattered, workers can begin to act independently. We must demand that the corporate elite pay for the crisis they created. Their efforts to push this crisis onto us must be fought at every step. This can be done by clearly articulating our solutions to the crisis — taxing the super-rich and the corporations, a massive public works campaign, and ending foreign wars (for starters) — and promoting these ideas through local and national coalitions of labor unions, community groups, students, the unemployed, etc. If we are united and fighting for a clear vision of the future, we will win. If we rely on the Democrats to solve this problem our fate is sealed.

Minsky to Bernanke: “Size Matters!”

Size matters. And it particularly matters when the size of the financial system grossly exceeds the productive capacity of the underlying economy. Then problems arise. Surplus capital flows into paper assets triggering a boom. Then speculators pile in driving asset prices higher. Margins grow, debts balloon, and bubbles emerge. The frenzy finally ends when the debts can no longer be serviced and the bubble begins to unwind, sometimes violently. As gas escapes; credit tightens, businesses are forced to cut back, asset prices plunge and unemployment soars. Deflation spreads to every sector. Eventually, the government steps in to rescue the financial system while the broader economy slumps into a coma.

The crisis that started two years ago, followed this same pattern. A meltdown in subprime mortgages sent the dominoes tumbling; the secondary market collapsed, and stock markets went into freefall. When Lehman Bros flopped, a sharp correction turned into a full-blown panic. Lehman tipped-off investors that that the entire multi-trillion dollar market for securitized loans was built on sand. Without price discovery, via conventional market transactions, no one knew what mortgage-backed securities (MBS) and other exotic debt-instruments were really worth. That sparked a global sell-off. Markets crashed. For a while, it looked like the whole system might collapse.

The Fed’s emergency intervention pulled the system back from the brink, but at great cost. Even now, the true value of the so-called toxic assets remains unknown. The Fed and Treasury have derailed attempts to create a public auction facility–like the Resolution Trust Corporation (RTC)–where prices can be determined and assets can be sold. Billions in toxic waste now clog the Fed’s balance sheet. Ultimately, the losses will be passed on to the taxpayer.

Now that the economy is no longer on steroids, the financial system needs to be downsized. The housing/equities bubble was generated by over-consumption that required high levels of debt-spending. That model requires cheap money and easy access to credit, conditions no longer exist. The economy has reset at a lower level of economic activity, so changes need to be made. The financial system needs to shrink.

The problem is, the Fed’s “lending facilities” have removed any incentive for financial institutions to deleverage. Asset prices are propped up by low interest, rotating loans on dodgy collateral. While household’s have suffered humongous losses (of nearly $14 trillion) in home equity and retirement savings; the financial behemoths have muddled through largely unscathed. The Fed handed Wall Street a golden parachute while ordinary working stiffs were kicked to the curb. That’s why household spending has plunged while the big brokerage houses are gearing up. Here’s an excerpt from an article by former Morgan Stanley analyst Andy Xie which explains what’s really going on:

“First, let’s look at the most basic objective of deleveraging the financial sector. Top executives on Wall Street talk about having cut leverage by half. That is actually due to an expanding equity capital base rather than shrinking assets. According to the Federal Reserve, total debt for the financial sector was US$ 16.5 trillion in the second quarter 2009 — about the same as the US$ 16.6 trillion reported one year earlier. After the Lehman collapse, financial sector leverage increased due to Fed support. It has come down as the Fed pulled back some support, creating the perception of deleveraging. The basic conclusion is that financial sector debt is the same as it was a year ago, and the reduction in leverage is due to equity base expansion, partly due to government funding.” (Andy Xie, “Why One Good Bubble Deserves Another”, Caijing.com)

See? The financial Goliaths are still leveraged to their eyeballs.

Fed chair Ben Bernanke has bent-over-backwards to preserve the system in its present form. That’s why the lending facilities should be viewed with a degree of skepticism. They weren’t set up merely to rescue the system from disaster, but to keep asset prices artificially high so institutions could continue to maximize profits via risky investments. And, it’s worked, too. The S&P 500 is up over 60 percent since March 9. Still, even though Bernanke has succeeded in resuscitating the flagging financial sector, investors remain pessimistic. According to Bloomberg News:

“An eight-month, 68 percent rally in global stocks failed to convince investors and analysts that it’s time to take on more risk or dispel their concerns about U.S. economic policies and its banking system.

Only 31 percent of respondents to a poll of investors and analysts who are Bloomberg subscribers in the U.S., Europe and Asia see investment opportunities, down from 35 percent in the previous survey in July. Almost 40 percent in the latest quarterly survey, the Bloomberg Global Poll, say they are still hunkering down. U.S. investors are even more cautious, with more than 50 percent saying they are in a defensive crouch.

“The doubt and the pessimism just won’t go away,” says James Paulsen, who helps oversee $375 billion as chief investment strategist at Wells Capital Management in Minneapolis.” (Bloomberg News)

Few people seem to believe in the much-ballyhooed economic recovery. And even though the media triumphantly announced the “end of the recession” last week (when GDP came in at 3.5 percent) a closer look at the data, leaves room for doubt. Goldman Sachs analysts put it like this:

“How much of the rebound in real GDP was due to the fiscal stimulus, and where do we stand in terms of the effects of stimulus thus far? Although precise answers are impossible at this juncture, several aspects of the report are consistent with our estimates that the fiscal package enacted in mid-February as the American Recovery and Reinvestment Act (ARRA) would have accounted for virtually all of the growth reported for the third quarter.” ( http://www.zerohedge.com/article/hedging-their-bets )

Positive growth is an illusion created by government spending. In fact, the economy is still flat on its back. Consumer spending and credit are in sharp decline. Unemployment is steadily rising (although at a slower pace) and wages are flatlining with a chance of falling for the first time in 30 years. Deflationary pressures are building. The talk of a “jobless recovery” is intentionally misleading. Jobs ARE recovery; therefore a jobless recovery merely points to asset-inflation brought on by erratic monetary policy. Surging stocks shouldn’t be confused with a real recovery.

Bernanke is a scholar of the Great Depression. He is familiar with Hyman Minsky and Minsky’s “Financial Instability Hypothesis” (FIH), which states that, “A fundamental characteristic of our economy is that the financial system swings between robustness and fragility and these swings are an integral part of the process that generates business cycles.”

Boston Globe Correspondent, Stephen Mihm, summarized Minsky’s theory in his article “When Capitalism Fails”:

“In the wake of a depression, he noted, financial institutions are extraordinarily conservative, as are businesses. With the borrowers and the lenders who fuel the economy all steering clear of high-risk deals, things go smoothly: loans are almost always paid on time, businesses generally succeed, and everyone does well. That success, however, inevitably encourages borrowers and lenders to take on more risk in the reasonable hope of making more money. As Minsky observed, “Success breeds a disregard of the possibility of failure.”

As people forget that failure is a possibility, a “euphoric economy” eventually develops, fueled by the rise of far riskier borrowers – what he called speculative borrowers, those whose income would cover interest payments but not the principal; and those he called “Ponzi borrowers,” those whose income could cover neither, and could only pay their bills by borrowing still further. As these latter categories grew, the overall economy would shift from a conservative but profitable environment to a much more freewheeling system dominated by players whose survival depended not on sound business plans, but on borrowed money and freely available credit.

Once that kind of economy had developed, any panic could wreck the market. The failure of a single firm, for example, or the revelation of a staggering fraud could trigger fear and a sudden, economy-wide attempt to shed debt. This watershed moment – what was later dubbed the “Minsky moment” – would create an environment deeply inhospitable to all borrowers.

The speculators and Ponzi borrowers would collapse first, as they lost access to the credit they needed to survive. Even the more stable players might find themselves unable to pay their debt without selling off assets; their forced sales would send asset prices spiraling downward, and inevitably, the entire rickety financial edifice would start to collapse. Businesses would falter, and the crisis would spill over to the “real” economy that depended on the now-collapsing financial system.” (When Capitailsm Fails, Stephen Mihn, Boston Globe)

Stability leads to instability. By zeroing in on capitalism’s genetic flaws, Minsky countered the prevailing orthodoxy that markets are fundamentally efficient and rational. He not only showed that capitalism was inherently crisis-prone, but also, that it was most vulnerable during those periods which seemed to be most stable. (like during Greenspan’s “Great Moderation”) Stability invites speculation and risk-taking. Investors are buoyed by market euphoria and fat returns; borrowing to purchase dodgy equities turns into a mania which distorts prices and leads to massive credit bubbles. Eventually, the foundation cracks and debts cannot be rolled over. Then markets tumble.

The point is, Bernanke knows that a bloated financial system poses unnecessary risks to the economy; just as he knows he should wind-down existing lending programs (which just encourage more speculation) and focus on rebuilding household balance sheets. The only way to put the economy back on a solid foundation is by helping struggling workers get back on their feet so they can create more demand. The objective should be full employment and broad, sustained wage growth, which is precisely what Minsky’s recommended.

Stephen Mihm again: “The government – or what Minsky liked to call ‘Big Government’ – should become the ‘employer of last resort,’ he said, offering a job to anyone who wanted one at a set minimum wage. It would be paid to workers who would supply child care, clean streets, and provide services that would give taxpayers a visible return on their dollars. In being available to everyone, it would be even more ambitious than the New Deal, sharply reducing the welfare rolls by guaranteeing a job for anyone who was able to work. Such a program would not only help the poor and unskilled, he believed, but would put a floor beneath everyone else’s wages too, preventing salaries of more skilled workers from falling too precipitously, and sending benefits up the socioeconomic ladder.” (“Why Capitalism Fails, by Stephen Mihm, Boston Globe)

Minsky’s analysis not only sheds light on the causes of the current crisis, but also provides a practical way to fix the system. Too bad Bernanke’s not paying attention.

Obama Goes Wobbly Over More Stimulus

The recession is over. Yesterday’s report from the Commerce Dept. confirmed that the economy expanded in the third quarter by 3.5 percent, better than most economists estimates. GDP had contracted in the four previous quarters in the longest and deepest recession since the Great Depression. Massive government stimulus, cash for clunkers, and inventory restocking accounted for most of the surge in economic activity. Consumer spending grew at 2.36 percent while consumer credit continued to contract at a near-record pace of 4.5 percent. Unemployment swelled to 9.8 percent, “with nearly nearly 26 million workers—17 percent of the workforce—unemployed or underemployed,” according to economist Mark Zandi. The economy remains extremely weak and is expected to lapse back into recession if the Obama administration fails to provide a second-round of stimulus.

But President Barack Obama hasn’t requested more stimulus and recent polls indicate that a majority of people are against more deficit spending. The administration has done a poor job of explaining the advantages of reducing the output-gap or–for that matter–the overall objectives of Obama’s economic recovery plan. Many people heap the bank bailouts (TARP) with the fiscal stimulus. This is a mistake that’s easy to make. But the point needs to be clarified so more people don’t needlessly suffer. It’s up to Obama to articulate the differences in policy so the country can muddle through the tough days ahead. The problem is, Obama is afraid to use his skills as a communicator, because he thinks his message will offend financial industry constituents who wield tremendous power at the White House and on Capital Hill. The bankers and brokerage mandarins are more than happy with the present arrangement, which means that the conveyor-belt connecting the US Treasury to Wall Street will continue to operate at full-throttle diverting ungodly sums of money to broken banks and financial institutions rather than for unemployment benefits, work programs, and state aid.

Obama supporters who think that the president is right to treat the banks with kid gloves, should consider how Franklin Roosevelt dealt with the same situation 70 years ago. His first Inaugural Address, March 4, 1933, sums it up pretty well:

“Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men….Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.” (Source: Franklin D. Roosevelt, Inaugural Address, March 4, 1933)

Or, this from FDR:

“Appraising the situation in the bitter dawn of a cold morning after, what do we find? We find two-thirds of American industry concentrated in a few hundred corporations…We find more than half of the savings of the country invested in corporate stocks and bonds, and made the sport of the American stock market. We find fewer than three dozen private banking houses, and stock-selling adjuncts of commercial banks, directing the flow of American capital. In other words, we find concentrated economic power in a few hands…We find a great part of our working population with no chance of earning a living except by grace of this concentrated industrial machine; and we find that millions and millions of Americans are out of work, throwing upon the already burdened Government the necessity of relief…We find the Republican leaders proposing no solution except more debts, more conferences under the same bewildered leadership, more Government money in business but no Government attempt to wrestle with basic problems…I believe that our industrial and economic system is made for individual men and women, and not individual men and women for the benefit of the system.” (Thanks to counterpunch contributor Pam Marten for FDR quote http://www.counterpunch.org/martens10312008.html)

Clearly, FDR understood type of people he was dealing with.

Obama needs to stop pussyfooting and toughen-up. This isn’t the time for grandiloquent oratory or Utopian claptrap. People have lost their jobs, their homes, their savings. The shelters are bulging, the food banks are maxed out, and the unemployment lines are stretched from one coast to the other. Here’s a clip from the New York Times making the case for more stimulus:

“The economy is going to need more government support, or it is bound to be very weak for a very long time — and vulnerable to a relapse into recession. Unemployment is expected to worsen well into next year, exceeding 10 percent. Foreclosures are expected to rise, which will push home values down further. Hundreds of small and midsize banks are likely to fail in coming years. State and local governments face budget shortfalls in 2010 that are as bad or worse than this year’s.

Yet Washington is not providing a coherent plan for effective stimulus. The Senate has been hamstrung for nearly a month over the most basic relief-and-recovery boost: an extension of unemployment benefits. … Lawmakers in both parties fret that large budget deficits preclude more stimulus, lest the burden of debt outweigh the benefit of deficit spending. … Deficits are a serious issue, but the immediate need for stimulus trumps the longer-term need for deficit reduction. A self-reinforcing stretch of economic weakness would be far costlier than additional stimulus.” (“The Case for more Stimulus”, New York Times editorial)

Sure, the public is worried about the ballooning deficits; they should be. But that shouldn’t stop Obama from doing the right thing and making the case for another round of stimulus. His job is to strengthen demand and put the country back to work. The rest is just politics.

Propping Up a Broken Capitalism

Five years ago it would be unthinkable that a harsh critique of capitalism would attract a mass audience. But this is exactly what Michael Moore’s new movie — Capitalism: A Love Story — has done. The source of Moore’s success is his willingness to focus on what the media ignores: the human faces behind unemployment, bankruptcy, foreclosures, evictions, etc., and the faces benefiting from this misery — the corporate-elite sitting atop the financial system.

This reality has quickly educated millions of Americans, who now understand that our economic system is dominated by a tiny crust of super-rich individuals, bailing themselves out with taxpayer money while playing deaf to an exploding social crisis.

To combat these truths, the corporate-elite are planning a pro-capitalist media blitz.

The U.S. Chamber of Commerce is an organization where the biggest U.S. corporations come together to chat, organize, and throw money at politicians. Now, they are launching their “dream big” campaign, with the aim of “…preserving and advancing the American free enterprise system [capitalism].”

This $100 million campaign — as explained on the Chamber’s website — will focus on “national advertising,” “grassroots advocacy,” “research and ideas leadership” [think tanks and universities], and “Citizen, Community, and Youth Engagement” — combining “…outreach to governors, mayors, and young audiences…” with “…online social networking” (Facebook).

Aside from saving capitalism, the campaign aims to save “… the 7 million jobs lost to the current recession and create the 13 million new jobs that will be needed over the next decade.”

But as Albert Einstein pointed out, “no problem can be solved from the same level of consciousness that created it.” No serious economist is predicting that the economy is going to start pumping out jobs, let alone 20 million of them.

The Chamber of Commerce isn’t the only entity trying to shore up the profit system. Corporate-oriented pundits and politicians are falling over themselves to sing high praises to our troubled economic system.

Bush gave such a speech shortly after the system crashed, where he admitted that people were beginning to equate the market economy [capitalism] with “…greed, exploitation, and failure.” This was wrong, Bush claimed. Instead, regulation was the culprit, a simple, easy-to-fix problem. The giant banks and other mega-corporations — owned and controlled by tiny groups of ultrarich individuals — could remain in place.

Another rescuer of capitalism is Newsweek Editor and savvy politician, Fareed Zakaria, who wrote a Newsweek article entitled, The Capitalist Manifesto. In it, Zakaria explains, “What we are experiencing is not a crisis of capitalism. It is a crisis of finance, of democracy, of globalization and ultimately of ethics.” To further obscure the problem, he concludes that the banks and corporations are not to blame… everybody is:

“… there is enough blame to go around and many fixes to make…But at heart, there needs to be a deeper fix within all of us, a simple gut check. If it doesn’t feel right, we shouldn’t be doing it.” (June 13, 2009).

Of course not every defense of capitalism is as ridiculous as Bush’s or Zakaria’s. A more nuanced approach can be heard by both Ariana Huffington and Ron Paul, who both share the same perspective: capitalism did not fail because capitalism did not exist — “corporatism” did.

Assuming that Paul and Huffington are defining “corporatism” as an economy dominated by large banks and other corporations, they’re right. They’re wrong to think that “corporatism” and capitalism are mutually exclusive. In fact, capitalism has been dominated by large corporations for over a hundred years, with the advent of the “robber barons” — monopoly corporation owners like Rockefeller, Morgan, Carnegie, Vanderbilt, etc.

At its foundation, however, capitalism hasn’t changed. The system has always produced goods for the purpose of private profit, not people’s need, and the people who profit from capitalism have always been those who own the wealth, machines and buildings that produce these goods, whether they be cars, computers, or loans.

Although capitalism’s essence remains intact, its appearance has morphed over the years. In the early days, small businesses dominated, alongside small banks. But as transportation and technology developed, the world seemed to get smaller, while more and more goods were being produced.

This created the conditions that led to a capitalist free for all; a relentless battle to out-sell the others on the global marketplace. The big dogs ate the little dogs, and became bigger and bigger dogs — super-corporations that now span the globe, with gigantic facilities producing unimaginable amounts of commodities.

This is the world we live in today. These companies wield absolute power over political and social life: their tremendous wealth enables them to purchase politicians and army generals, while keeping certain topics in Congress “off the table.” This is the reality of capitalism as it exists today, a fact that must be acknowledged by anybody offering a credible solution.

We cannot regulate capitalism to meet our needs when we do not control the system; those who own the banks and corporations do. Real social change will require that this dynamic be smashed, so that socially precious institutions are not the property of any individual or small group. Any entity that seriously affects the general public should be run in the interest of the public, and thus owned by no one.

Is Capitalism on the Ropes?

Interview with Michael D. Yates and Fred Magdoff…

1. Mike Whitney—In your new book, “The ABCs of the Economic Crisis: What Working People Need to Know”, you allude to right wing think tanks, like the Heritage Foundation and the American Enterprise Institute, which promote a “free market” ideology. How successful have these organizations been in shaping public attitudes about capitalism? Do you think that attitudes are beginning to change now that people understand the role that Wall Street and the big banks played in creating the crisis? (“The ABCs of the Economic Crisis: What Working People Need to Know” By Fred Magdoff and Michael Yates, Monthly Review Press)

Michael Yates: Corporate America began to wage what turned out to be a one-sided war against working people in the mid-to late-1970s, when it became apparent that the post-World War Two “Golden Age” of U.S. capitalism was over. As profit rates fell, businesses began to develop a strategy for restoring them. This strategy had many prongs, and one of them was ideological, that is, a struggle for “hearts and minds,” to use a military term now being applied to Afghanistan. The presumed failure of Keynesian economics, marked by the simultaneous existence of escalating inflation and unemployment, gave the ideological struggle its foundation. Maybe there had been too many restrictions placed on the market, and these restrictions (minimum wages, health and safety regulations, laws facilitating union organizing in labor markets; public assistance in the form of money grants, housing subsidies, and the like; restrictions on the flow of money internationally) had led to results opposite those that liberal Keynesians had thought most likely. If these complex arguments could be tied to simple cliches, like “get the government off our backs,” “the unions have gotten too powerful” (with always a hint that they are too radical thrown into the argument), and “welfare queens” (with that always popular whiff of racism), they could provide ideological cover for what was really a matter of corporate economics, namely the making of money.

This ideological attack bore fruit quickly. President Carter appointed Paul Volcker to chair the Federal Reserve Board of Governors, and Volcker, under the guise of fighting inflation, immediately began to snuff the life out of working class communities by forcing interest rates up to nearly 20 percent. Today, Volcker is treated like a hero by Democrats and above reproach (though ignored by President Obama’s more right-wing economic advisors), which shows just how far to the right economic discourse has moved. What Carter began, Reagan completed, firing the Air Traffic Controllers and putting the nail in labor’s coffin. Behind the scenes in all of this and growing in strength for the next twenty years (funded by wealthy business leaders) or so were the right-wing think tanks you mention. Just as retired generals go to work for military contractors and defeated politicians become lobbyists, government economic advisors get jobs at Heritage or the American Enterprise Institute or the Cato Institute. The staffs of these ideological centers churn out endless position papers and studies, which find their way into our newspapers and the offices of our congresspersons. A gigantic network of professors, journalists, politicians, lobbyists, and, today, a television network (Fox) bombard us with right-wing propaganda. That all of this has been successful is seen by the fact that the shibboleths of neoliberalism—such as the needs for privatization of public entities, the free reign of markets, the obviousness of the success of welfare reform, the evils of raising the minimum wage—are all commonplaces today.

While the public now knows that something is rotten, I am not sure that neoliberal ideas are so under attack that they will lose their sway. I think that the tenacity of these ideas owes something to the lack of an ideological alternative, which, in turn, is due to the abject failure of organized labor to provide one. For example, we need universal health care. Labor, however, has not consistently argued in favor of this or supported it at all. Now Congress is poised to enact healthcare legislation that might well be worse than the profit-driven system we have all come to hate. Labor should refuse to support this legislation, but I doubt it will. Then, when the new healthcare plans fail to deliver the goods, the right-wing will be lying in wait, ready to pounce and say, “See, we told you so. The government always makes things worse.” In other words, until there is a radical ideology to replace right-wing thinking, the latter is unlikely to lose its drawing power.

Fred Magdoff: Although these institutions were very successful, along with a number of other forces, in shaping public attitudes toward the economy, the reality of the current severe economic conditions are causing many, including some economists, to rethink their views of how “efficiently” markets function in the real world (as opposed to their ideological make-believe world) and that some different approaches may be needed. People seem to understand that the “big players” played a major role in the crisis, but most of the anger has been placed on the outrageous salaries of the top echelon. Of course, this is just “chump change” compared to the massive amounts at that are transferred to the wealthy through the speculative casino that our economy has become.

2. MW—Socialism has a huge public relations problem. Wouldn’t you agree that socialism has been effectively discredited in the U.S. media and that, even now–with unemployment soaring at 10 percent and more than 300,000 foreclosures per month–the average American worker still believes in the virtues of capitalism? How do you explain this phenomenon?

Michael Yates: Part of my answer here can be seen in my response to your first question. Socialism has, indeed, been discredited here, partly due to its rejection by its natural supporter, namely the labor movement. The CIO expelled in the late 1940s and early 1950s the left-wing forces who built the great industrial unions. When it did this, it abandoned the worker-centered ideology that might have laid the basis for support here for at least the kind of social democracy we find in the Scandinavian nations. This left the ideological field to the enemies of social democracy and socialism. Of course, we cannot ignore the long and inglorious history of police-state repression of those persons and organizations that championed socialism. Our government has never hesitated to arrest, imprison, and even kill the enemies of capitalism. So it has been dangerous to be a radical here, though not so much today when radical ideas aren’t taken seriously and there are no powerful radical organizations left. Suppose that after the Second World War, the left in the labor movement had grown, and the left-led unions had continued to successfully organize workers and win good collective bargaining agreements. Suppose that they had built upon their impressive worker education programs, made inroads in the South, and fought hard against U.S. imperialism and the Cold War. We might have a much different political terrain on which to fight today.

Two other factors that must be considered in the attachment of the working class to capitalism are racism and imperialism. In the past, employers routinely pitted white workers against black, and one weapon they used was to associate black workers (and the civil rights movement) with communism (It was interesting to note in this connection the attempts to make Obama out to be a radical socialist). The claim that black union supporters were reds helped to solidify white support for capitalism. By the same token, anti-imperialist struggles in the poor nations of the world (often former colonies of the rich countries) were typically led by political radicals. These could be made out to be anti-American, and then those in the United States who allied themselves with these struggles could also be labeled anti-American, despite the fact that they might also be supportive of policies that would benefit working people. The schools and the media could be counted out not to try to set anyone straight on any of this.

Now, having said this, I must also say that to the extent that left forces in the United States identified themselves uncritically with the former Soviet Union and its extremely undemocratic political system, they sometimes played into the hands of those opposed to socialism. And I must also admit that socialist forces were, at their strongest, never powerful enough here to force their best ideals permanently into the consciousness of the working class majority. Finally, in the past, the success of capitalism in the United States allowed for some sharing of the wealth with workers, and this, too, made people less willing to entertain radical ideas.

Old and deeply ingrained ideas die hard, and unless there are forces at work to develop new ones and unless there is at least widespread experimentation with new ways to organize production and distribution, little is likely to change, even in the face of economic catastrophe, such as so may working men and women are facing right now. Quite the contrary, workers might be persuaded that actions detrimental to their long-term self-
interest need to be taken, such as, for example, draconian measures against immigrants.

Fred Magdoff: There is no question that the term socialism has a public relations problem. But while it’s true that most people don’t fully understand the basic workings of the capitalist system nor what socialism is, there are indications that many people are ready to talk about alternatives—and that includes socialism. The positive public response to Michael Moore’s movie, “Capitalism,” is one indication. But a Rasmussen poll last spring found that only 58% of American’s say that capitalism is better than socialism. For adults under 30, 37% preferred capitalism and 33% preferred socialism. It’s not clear what the poll results really mean. But it does indicate that people are willing to hear about and talk about alternatives to capitalism.

3. MW—In a chapter titled “Neoliberlism” you focus on the disparity of wealth in the US today. Here’s an excerpt:

“By 2006 the top 1 percent of households received close to a quarter of all income and the top 10 percent got 50 percent of the income pie. In 2006, the 400 richest Americans had a collective net wealth of $1.6 trillion, more than the combined wealth of the bottom 150 million people. This degree of income and wealth inequality was last seen just before the beginning of the Great Depression.” (pg 50)

Let’s ignore the moral issue for now, and focus on the supply/demand question. Is it possible for an economy to produce sufficient demand when more and more of the wealth and income goes to the upper 5 or 10 percent of the population? (isn’t this proof that capitalism is inherently crisis-prone?)

Michael d. Yates: If a certain amount of output is produced, an equal amount of income is generated. So, conceptually, there could be enough demand to buy the output, no matter that the incomes generated are getting more unequally distributed. It certainly has been the case that the rich people now getting such a large share of the pie spend gobs of money. And rich foreigners spend a great deal of money in the United States as well. However, the rich also save a lot of money (the more they get, the more they save), and this money does not enter immediately into the spending flow. Working people, on the other hand, can be counted on, by virtue of the limited income that they command, to spend all of their income. Therefore, the more income the rich have, the more savings there will be, and, unless some way is found to convert all this saving into spending on newly-produced goods and services, the more likely it is that there will be a crisis caused by not enough spending (and its corollaries of unsold goods and services and unemployed labor). If we understand that growing inequality is the normal trajectory of capitalist economies, a trajectory only mitigated by the power of organized working people to win a bigger share of the pie for themselves and to compel the government to intervene in the marketplace on their behalf, then it is correct to say that capitalist economies are crisis-prone for this reason alone.

Growing inequality also creates other potential problems for the system. Sometimes it can generate a political crisis, a crisis of legitimacy so to speak. The rich exert tremendous political power, and this power grows as those at the top command a larger and larger share of a society’s income. To the rest of us, the game looks increasingly rigged, with us having little chance to improve our circumstances through individual efforts. More inequality also has harmful social and economic consequences that we don’t normally think of. Recent research has shown that if we compare two entities (two states in the United States, for example) with equal average incomes but different degrees of inequality, then the place with more unequal incomes will also have higher rates of infant mortality, arrest and imprisonment, school dropouts, low infant birth weights, and many other measures of social well-being. Growing inequality actually kills some of us, makes some of us sicker, and puts some of us in jail.

I want to add an important point. To say that capitalist economies are crisis-prone, because of a tendency toward income inequality or whatever other reason, is not the same as saying that these economies are on their deathbeds, no matter how severe a crisis may be. It is possible for an economy to exist in a crisis or a prolonged period of slow growth (stagnation) without it being ready to collapse. In the end, it is political struggle, that is, class struggle, that truly destabilizes an economy and generates conditions in which it is possible to imagine the birth of a new system.

Fred Magdoff adds: It is one of the many contradictions of the system. If ordinary folk are paid well they can buy a lot of stuff and help keep the system going. So from the point of view of the system as a whole, higher paid workers would help the economy. However, there is only one driving force for individual capitalists–and that’s to make as much money as possible. What might be better for the overall economy can be of no concern to the individual trying to maximize profits. For an analogy, let’s take a look at ocean fishing. Almost every fish species is being fished to the point at which the population crashes. It would make sense for all of the companies operating the large trawlers to cooperate and fish less in order to preserve the resource on which they depend. So what’s good for their long-term future is sacrificed as each individually tries to maximize their catch and therefore profits.

4. MW—Here’s another excerpt from the book: “In 2006, the financial sector employed about 6 percent of the workers but ‘produced’ 40 percent of the profits of all domestic firms.”(pg 56) A few paragraphs later you add that, “Making money without actually making something turned out to be the largest growth sector of the U.S. economy from the early 1980s to the present crisis.”

This seems to imply that as manufacturing and other parts of the “real” economy have become less lucrative, the trading of paper assets has become Wall Street’s new profit-center, the Golden Goose. What impact has the “financialization” of the economy had on ordinary working people?

Michael Yates: I think that an answer here has two parts. First, it was the neoliberal “revolution” begun in the 1970s that did immense harm to working people. For example, unionization rates began to fall dramatically in the 1980s, as Reagan began his “magic of the marketplace” assault on the working class. Real wages (the purchasing power of our paychecks) began to stagnate in the 1970s and are not much higher today than then. Relatively high-wage public employment began to endure a long period of privatization, which also damaged working class living standards. The move toward “free trade” did workers here no good, as manufacturing began to flee our shores for low-wage havens abroad. None of these things had to do with financialization per se.

Second, however, once the neoliberal attack on working class living standards took hold and incomes began to flow upward, those with a great deal more money began to look for ways to put this money to work. The corporations that they owned also had higher profits, and they did the same. The United States has always had a robust financial sector, though in the past, it was not the tail that wagged the dog as far as our system of production and distribution was concerned. Neoliberalism brought with it a deregulation of international movements of money and goods and services. [It is important to note that we see neoliberalism as a political response to capital’s quest for restored profits beginning in the mid-1970s when the post-Second World War two economic boom ended and the slow growth (stagnation) common to mature capitalist economies reasserted itself.] These, in turn, required a certain amount of financial innovation, to reduce, for example, the risks of fluctuations in currency exchange rates and sharp changes in political conditions that could threaten investments. From these innovations came still more, until finance began to take on a life of its own. And while neoliberalism and direct corporate actions inside workplaces did reduce costs and raise profits, they did not create nearly enough capital spending opportunities (investment) to absorb the growing individual savings and business profits. Finance of one kind or another then began to be seen as a place to dispose of surplus and make still more money. Leveraged buyouts, stock market speculations, real estate “investments,” all took off from the 1980s on, absorbing money that could not find enough opportunities in the real economy of production. As these things happened, financial “innovation” exploded, with all of the alphabet soup of financial instruments we describe in our book.

This explosion of finance proved detrimental to working people in a number of ways. Leveraged buyouts inevitably resulted in the hollowing out of what were often perfectly viable businesses. Companies were saddled with debt, assets were stripped and sold, and workers were furloughed by the tens of thousands. The inflation of asset values gave rise to the notion that it was the job of managers to increase the share price of their businesses—in any way possible. Businesses came to be thought of as mere collections of assets rather than entities that produced things. Asset inflation gave rise to asset speculation and the development of ever more complex financial instruments, all leading sooner or later to financial bubbles and the inevitable bursting of the bubbles. As we have seen, the bursting of financial bubbles has had tremendously negative impacts on working people: shuttered workplaces and unemployment to name but the primary ones. The last bubble, in real estate markets, was harmful to workers not only after it burst but also as it was developing. In the aftermath of the dot.com bubble, Alan Greenspan, former Chairman of the Fed Board of Governors, directed Fed policy to pressure interest rates down to very low levels. This helped to push loose money into real estate. As house prices began to rise, banks and brokers started to encourage working people to do two things: borrow money against the appreciated value of their homes and buy homes, either as first-time buyers or as purchasers of more expensive homes (after selling old ones). Working people were eager to do both because they saw houses as sources of cash to compensate for stagnating household incomes and as a form of wealth that could help secure them against the hazards of ill health, lost pensions, or college-age children needing money for school. Working class households began to take on large amounts of debt, making themselves more vulnerable, even as they thought they were making wise financial decisions. Ironically, those who saw their incomes rise so high because of neoliberalism were now, in effect, loaning money to those who didn’t fare so well. As banks accumulated mortgages, farsighted Wall Street swindlers saw golden opportunities to develop a slew of new financial instruments based upon the packaging and repackaging of mortgages into new and exotic instruments. Greenspan played their shill, arguing that they had uncovered the secret of hedging infallibly against risk. From here it was but a short step to the criminal schemes of Countrywide and a host of other financial institutions. The billions of dollars made were used not only to finance a new gilded age of revoltingly lavish consumption but to corral the most tractable politicians money could buy.

Fred Magdoff adds: Financialization of the economy created the possibilities for people to take on more and more debt—credit cards, new cars, 2nd mortgages, etc. It was the selling of a lifestyle way beyond people’s ability to pay for it plus the easy access of loans that created the bind that many people find themselves in today. In essence, it allowed people to live beyond their means. They were encouraged to take on debt as their house values seemed headed up forever, and the great rise in foreclosures and bankruptcies is the unfortunate result of the financialization of the economy. Also, those people who had retirement money in individual accounts or with pension systems and thought that they had become very wealthy, now found themselves with much less to rely upon.

5. MW—In the last couple of decades, consumer debt has skyrocketed, as you note, “doubling from 1975 to 2005, to 127 percent of disposable income.” (pg 60) Have we gone as far as we can without deleveraging and paying down debts? What happens to a credit-dependent economy when the consumer can no longer increase his/her debt-load? Is this just the beginning of a decades-long down-cycle?

Michael Yates: Certainly no entity—not a person, a family, a business, even a government— can take on rising levels of debt (relative to income) indefinitely. Sooner or later, the piper has to be paid. Working-class consumers took on large amounts of debt, to compensate in part for stagnating wages and incomes, and, it is important to note, to pay for health problems and other household traumas. This meant that the burden of the debt rose, since income wasn’t rising as fast as the debt, and also because the interest rates charged on credit cards and subprime mortgages were so high. We at Monthly Review have been decrying the rise of consumer debt for many years, and we said that the debt chickens would come home to roost sooner of later. I must say that I was surprised that debt could be broadened and deepened for so long. The ingenuity of creditors in extending loan periods and devising so many new forms of debt has to be admired for its audacity. Then, the ways in which these debts were packaged and sold so that more debt could be extended was truly breathtaking. Unfortunately, consumers ultimately couldn’t pay and all hell broke loose. Now, with so much unemployment, workers are truly strapped. They will not be borrowing so much or spending so much anytime soon. [One interesting recent development is that, as some households have defaulted on debts or simply stopped making payments, consumer spending has showed a bit of an upward tick!] So the question arises: what spending will fuel a sustained recovery? It won’t likely be consumer spending. Capital spending was stagnating to begin with and was the root cause of the crisis. There are no new “epoch-making” innovations on the horizon that would generate the amounts of investment that were brought forth by the automobile. U.S. exports seem a very unlikely demand support. That leaves the government. In a capitalist economy, especially one like the United States with its lack of a history of generally accepted public spending, it seems very unlikely that public spending will make up for shortfalls in aggregate demand. Already, there are widespread entreaties (and not just from the far right) urging the federal government to wind down in spending programs—well before, I might add, the economy has recovered. As we see it, the United States is, indeed, in for a long period of stagnation, a “down cycle” as you put it.

Fred Magdoff: This is one of the major constraints on the system. The economy is in a process that economists call “deleveraging,” which is just another way of referring to somehow getting rid of debt. Some are able to pay off what they owe, a few are able to renegotiate down some of their debt, many are losing their homes, and some are going bankrupt. Until this works its way out, and a lot of debt is shed one way or another, there will be a drag on the “consumer” portion of the purchases. This is particularly significant to the U.S. economy because it is so dependent on consumer purchases—in 2007, these absorbed approximately 70% of the goods and services produced.

6. MW— “The ABCs of the Economic Crisis: What Working People Need to Know” is as lucid and compelling summary of the financial crisis as any I have read. In the closing chapter you state that capitalism is undergoing a “crisis of legitimacy” and that “the system can never deliver what is needed for us to realize our capacities and enjoy our lives…That “instead of private gain” the purpose of society and the economy is “to serve the needs of people, by providing the necessities of life for all, without promoting excessive consumption (consumerism) while protecting earth’s life support systems.”

All of the things that which kept capitalism in check–progressive taxation, crucial regulations, and the power of unions–have either been reversed, repealed or greatly eroded. More and more people are beginning to see the greed which governs the system, and it scares them. But is the country really ready for structural change or will the vision of an economy which “serves the needs of its people” be dismissed as “pie-in-the-sky” Utopianism?

Michael Yates: Well, first thank you Mike for the kind words. They are much appreciated. Typically, the best we have been able to hope for from the public in the United States has been an amorphous populism; people are willing to say that the system is corrupt and that it is biased in favor of the rich. But proposals for change, much less a radical transformation of the economic system, are rare commodities. I think things would be different, however, if we had a real labor movement, one that was rooted in communities, broad in its composition, and not afraid to have principles and stand by them come hell or high water. This should be the lesson that progressives learned from the right-wing. The talking heads of Fox may seem insane to us, but they and their intellectual gurus almost never deviate from the set of reactionary principles with which they began to transform the “common sense” of the nation. We suggest at the end of our book that we ought to ask ourselves if a return to the pre-economic crisis status quo is what we want. In the best of times, there is plenty of unutilized labor, a degraded environment, poverty, dead-end jobs, and much more that is not so desirable. So we chose a number of alternative outcomes to what we have now that we think have mass appeal, from universal healthcare to basic food guarantees. However, as you say, these might well, and I think will cause people to react with a pie-in-the-sky indifference. What might make working men and women stand up and take notice would be for these goals to have a mass-based advocate, one that would make these goals matters of rigid principle and begin to fight for them through mass actions. We might think that the right-wing ideologues we see on television are insane. Yet, come hell or high water, they stick to their guns. Their political and economic adherents have wielded tremendous power for a long period of time, and even today when they seem to be losing their grip on the national “common sense,” they can still mobilize the faithful. The left needs to take a lesson from this. More particularly, the labor movement must take a firm and rigid stand on issues like national health care, food security, environmental degradation, full employment, good and cheap housing, U.S. war-making and imperialis, racism, and a host of others. Then it must educate members rigorously and constantly about such principles. Most importantly, it must begin to actively fight to achieve them, activating its millions of members and allies, wherever it can find them. It is through action, bold and unafraid, that people’s minds will get changed and a new “common sense” developed.

Having said this, I think it is clear that the labor movement, as currently constituted, is not up to the tasks at hand. Too many unions are moribund, stuck in the failed labor-management cooperation mind set of the past and run by people too old and infirm to do much of anything. So, not only will we have to have a worker-led opposition to the status quo, fighting to change it radically, but this opposition will have to be built on a new basis. There are some hopeful signs, such as the development of community-based worker centers, mainly in immigrant communities. These may be models for the labor movement of the future.

Fred Magdoff: Just getting what should be the most reasonable reforms through Congress is a major effort, which usually fails or is corrupted in the process. Look what’s happening with health care “reform.” Even if a “public option” is finally part of the bill, it will be a bill that helps some people, but is primarily a boon to the health care industry, which will get a lot of new revenue. It’s not a bill designed with the single purpose in mind: how can we supply medical care for everyone at reasonable cost. Rather it’s a bill designed with significant input from the for-profit sector that will end up supplying them with extra profits. It is clear that government-run systems (and there are a variety of ways to do this) are far cheaper and more efficient and can actually cover everyone. SO, it seems as though piecemeal reform is a) very difficult to obtain and b) can be reversed as the power of the wealthy increases. A system is needed that can break the power of the wealthy and create a real political and economic democracy in order to be able to meet the basic needs for all the people.

Michael D. Yates and Fred Magdoff, “The ABCs of the Economic Crisis: What Working People Need to Know” Monthly Review Press, New York

Next Page »