In a lazy summer moment of stasis between ending work at the New York State Attorney General’s office and starting toward my PhD in political science at Johns Hopkins University, it seems like a good time to put some thoughts about the current state of capitalism (the organizing principle/axiomatic of our society) down on paper. The hand-wringing panic and plummeting stock market of the summer of 2008 have passed us by, along with the government bailout of large financial institutions and the collective sigh of relief as markets stabilized and started gaining ground. However, a sinister and sickening malaise has set in across the developed world; all is not well in the kingdom.
Notably in the United States, high unemployment continues to be the stick in the eye of the Obama administration, and of course the enormous number of Americans who still find themselves out of work. While many companies, including many of the bailed out banks, have returned to profitability, none of this wealth has trickled down to the average worker. Even G.M. and Chrysler, which were teetering on the edge of bankruptcy, have returned to profitability after slashing their workforces, cutting pensions and benefits, and installing new management. Companies are sitting on record piles of cash, using it to insulate them from potential risks, pad their stock prices, and pay large bonuses to their executives, many of whom had a hand in the corporate behavior that led our economy to the brink of collapse.
What these companies are not doing is hiring new employees, investing in new ventures that could lead to sustainable growth, or moving out-sourced jobs back to America in order to take advantage of the surplus labor. The private sector, left to its own “free-market” devices, is proving that what is good for big business is resoundingly not good for society at large, at least the vast majority of it.
The other major engine of the economy, indeed, its integral component, the State, is sitting in neutral. After enacting a rescue of investment banks and insurance companies (and their stock and bond holders), and a half-hearted stimulus plan, which consisted mainly of tax cuts, those in the U.S. government seems to have lost the will and the urgency to improve the economy. Over the past three years, the government has been long on rhetoric, excuses, political infighting, and half-measures, and short on effective policies that actually produce results. Keynesians like Paul Krugman have continued to argue that the proposed stimulus was always too small, and that the Obama administration must confront Republican opposition, in spite of the potential for filibuster or gridlock. This did not happen. Instead, Democrats, with Obama taking the lead as conciliator in chief, have capitulated to Republican blackmail on a host of issues, from the healthcare bill to Bush-era tax cuts for the wealthy to new financial regulation of derivatives to cutting the deficit and now raising the debt ceiling.
The Obama team has effectively been out-strategized by Republicans, losing any bargaining position and leverage they once held, and handing the terms of the debate to the Republicans. This means that political-economic decisions and policies that will affect all Americans in the years to come have been largely ceded to the handmaidens of neoliberal capitalist ideology, who are only too happy to take this opportunity to enact brutal structural adjustment on the American populace.
As anyone can surmise from picking up a newspaper, this brutal “adjustment” has already commenced on a global scale. Under the cover of mounting sovereign debts, the consequence of the 2008 financial crash, many politicians have attempted to enact “austerity measures,” which have included full-frontal attacks on unions in states like Wisconsin and Ohio, cuts to all manner of social programs including threats to Medicare and Social Security in the U.S., tax increases, freezes and cuts to hiring, wages and benefits for State employees, mass layoffs, and the privatization of State assets in the recent case of Greece. In all these cases, which include countries such as Ireland, Portugal, Greece, the U.K. and the U.S., the people bearing the brunt of this pain are working and middle class, with especially hellish consequences reserved for the poor and unemployed, who are watching what meager safety nets they had be slashed in the name of fiscal responsibility.
On the other side of the equation, as I already touched on, those responsible for the crisis have largely avoided being held accountable, with much of the blame having been shifted to the working class via the Right-Wing propaganda machine (Fox News, the Wall Street Journal, the Tea Party, lobbyists, and politicians). Everyone (read everyone but the rich) is being asked to tighten his or her belt and pitch in for the benefit of future generations. The banks that have been most implicated in multiple aspects of the crisis, such as Goldman Sachs (which was actively betting against and facilitating massive hedge fund shorts of the housing market in 2007) and J.P. Morgan Chase have returned to enormous profitability, with J.P. Morgan recently announcing a 13% Quarterly profit of $5.4 Billion. These banks, after looting the real economy and then extracting ransom from the government to keep the system from collapsing, are now able to earn trading profits by deploying this capital to make bets or investing it in places like China. In addition, bankruptcies have engendered less competition and new monopolies in many sectors, giving big players less incentive to give in to the demands of the consumer or laborer. What this means is that the rich are still getting ever richer while the poor get poorer. Those who depend on the jobs and wages created by a truly healthy and growing economy are out of luck.
How is it that this has come to pass? And why do the vast majority allow this scandalous injustice to continue un-checked? Indeed, to quote philosophers Gilles Deleuze and Félix Guattari, who in turn point out the fundamental problem posed by Spinoza and Reich, “Why do men fight for their servitude as stubbornly as though it were their salvation?’ How can people possibly reach the point of shouting: ‘More taxes! Less bread!’?” The sweeping wins by the “Tea Party” Republicans in the 2010 mid-term elections prove, at least in my mind, that this phenomenon is still alive and well.
Now these are large and extremely complicated questions to answer; however, I believe that attempting to answer them is more pertinent than ever. Simple formulations that blame one common factor, such as greed, stupidity or “the Media,” are insufficient no matter how convenient they may be. Complex phenomena require concepts that are capable of capturing and conveying the multifarious ways in which they unfold. I’d like to briefly sketch out a few responses to the above two questions, which incorporate insights from some of my recent readings.
In response to the question: “How has this come to pass?,” it isn’t a bad idea to completely disregard what professional economists have to say about the topic, since it was their ideas, “expertise,” “innovation,” and rhetoric that created the status quo. You can also ignore what most politicians have to say on the subject, whether they’re Democrat or Republican, Tory, Labor, or Socialist, because they’re all culpable in one way or another, and they all have vested interests in the public not looking too hard into the functioning of the economy.
One way of thinking about this crisis and its reprehensible consequences is to realize that capitalism operates necessarily by and through crises. As David Harvey, eminent geographer and scholar of Marx and contemporary capitalism argues in his book The Enigma of Capital and the Crises of Capitalism, “crises are, in effect, not only inevitable but also necessary, since this is the only way in which balance can be restored and the internal contradictions of capital accumulation be at least temporarily resolved. Crises are . . . the irrational rationalisers of an always unstable capitalism.” After an enormous amount of debt-fueled growth in the global real estate market, spurred on by the so-called “wall of liquidity” created by financiers through derivatives such as mortgage-backed securities (MBS) and collateralized debt obligations (CDOs), the market hit up against its internal contradictions (people couldn’t continue to make their home payments without real income) and the value of assets plummeted.
If the market had been left to its own devices to correct this contradiction, much more destruction of capital would have occurred, meaning many of the major financial players, as well as large corporations, money market funds, pension funds, insurance companies (think of AIG) would have collapsed or ended up in bankruptcy. But as many of us found out, despite its boosters talking a good game, the market isn’t as free as everyone likes to say it is. As Bernard Harcourt, a professor of law and political science at University of Chicago argues in his new book The Illusion of Free Markets: Punishment and the Myth of Natural Order:
[T]he notion of a ‘free market’ is a fiction. There simply is no such thing as a nonregulated market—a market that operates without legal, social, and professional regulation. […] The question is thus not whether to regulate. Instead the only question is how the existing and prospective kinds of regulation distribute wealth. That is the only important question and it is, tragically, masked by our faith in natural order and efficient markets.
As we know, starting with the failure and facilitated sale of Bear Stearns to JP Morgan Chase in March of 2008, the Treasury, the Federal Reserve, and eventually the U.S. Congress, what David Harvey calls the “State-Finance Nexus,” intervened in a major way to prop up financial institutions that were responsible for and exposed to failures in the mortgage and derivatives markets. As Harcourt rightly points out, the real question wasn’t whether they were going to step it (although the State-Finance Nexus decided to let Lehman Brothers tumble into bankruptcy after working feverishly for days to find a buyer), but what strategies they would use to intervene, and what effect these interventions would have on the distribution of wealth. As Harvey points out:
During a crisis . . . We have always to ask: what is it that is being rationalized here and what directions are the rationalizations taking, since these are what will define not only our manner of exit from the crisis but the future character of capitalism? At times of crisis there are always options. Which one is chosen depends critically on the balance of class forces and the mental conceptions as to what might be possible.
One could argue then that, based on the direction taken by the rationalizations implemented by the Treasury and the Fed, what occurred was indeed a bailout; one that retained value for financiers, bondholders, and investors writ large. This isn’t to say that by saving banks from collapse, the government didn’t also rescue thousands of jobs from being lost, as well as the 401Ks and retirement savings of middle class Americans. However, the “balance of class forces” and “mental conceptions” dictated that nationalization was never on the table, no changes in management or compensation practices were enacted, and troubled institutions were literally given massive infusions of cash and an even larger extension of credit through the Fed’s discount window with almost no strings attached. It is not surprising that the balance of interventions by the Treasury and the Fed so heavily favored the capitalist class, considering the close ties between both institutions and the financial class. The Treasury Secretary Hank Paulsen and his inner circle were almost all former investment bankers; a majority were Goldman Sachs alumni.
What’s more, the rationalization of this crisis continues today, moving on a different timeline than the one dictated by pundits, mainstream economists, and politicians. Indeed, it is now evident that the “future character of capitalism,” that Harvey speaks of, is one that seeks to raid the majority’s tax dollars, benefits, wages, and public assets to plug the hole created by the crisis and the “necessary” bailout of a small group of the rich and powerful. We have only to look at how the situation is now playing out in the U.S., the U.K., Ireland, Greece, and elsewhere, where austerity for the majority is being offered up as a solution to solve the debt crisis created by that speculation that fattened the wallets of financiers and corporate executives.
Now back to my question of why the majority, “Main Street,” people who lost their jobs and didn’t get a bailout, have to date mostly accepted this outcome. How are these actions being sold? As William E. Connolly, professor of political theory at Johns Hopkins University puts it in a recent blog post entitled The Republican Pincer Machine:
[Republicans] had to convince a large section of the electorate that the party of profligate military spending, economic meltdown, and tax cuts for the rich when in power was actually, now that it was out of power, the guardian of a self-sustaining market economy that only needed the state to get out of the way. This vision was attached to a simple idea of entrepreneurial, consumer and worker freedom in an unfettered market economy, a vision that deflects attention from the draconian disciplines they are actually willing to impose on regular people in the name of a small state.
How could people come to accept this vision, when, if you had been paying one iota of attention, it was this very vision and the policies it spawned that created so much debt for consumers, pain for workers of all stripes, and massive losses for many investors? Connolly maps it out based on different constituencies. He argues that young people have a vested interest in the stability of the economic system in which they hope to forge professional careers. Less worried about systemic instability, young people carry on with the simple notion that this is how the system works, so we all better get used to it.
The rich and super-rich, he believes, benefit greatly from the myth of a self-sustaining market economy, and thus they see our greatest problems as regulation, taxes, and state expenditures on entitlement programs that, being super-rich, they have no need for. He also argues that all the bluster about small government masks their fundamental “class entitlement” to a “corporate economy that allows them to wrangle an ever increasing share of the income and wealth from it, even while other classes tread water, or worse.”
As for the working class, and more specifically, white working class males, Connolly argues, as he did in Capitalism and Christianity, American Style, that they seek “alpha models of masculinity with which to identify in a world of declining manufacturing jobs, perceived pressure from multiple minorities, and growing economic uncertainty.” In opposition to the professorial and African-American President Obama, the white working class is drawn to “corporate elites, sports heroes, financial wizards” and the like who project the clearly American image of “freedom as independence, mastery and virility,” which, with help from media outlets like Fox News and CNBC, can be “nudged toward idealizing unregulated markets within which virile masters work their miracles.”
Connolly argues that this dynamic is part of the “evangelical-capitalist resonance machine,” an assemblage of capitalist and Christian Right elements that resonate together in American society and “engage the spiritual dimension” of many Americans lives. This assemblage, he argues, foments a cultural ethos of existential resentment, of which some aspects include “cultural induction into the idea of a vengeful God; . . . compensatory drives for special economic entitlement in this world; ugly campaigns to vilify those whose differences throws the self-certainty of your faith into doubt; . . . a tendency to disparage human responsibility for the future of the earth.” Connolly believes that this evangelical-capitalist assemblage “weaves these dispositions into habitual patterns of perception, identity, interest, and judgment of earthly entitlement.” Through this conception of an evangelical-capitalist resonance machine or assemblage, we may better understand why many voters—whose economic and political interests are not being served by “free-market”, “small government”, or “Tea Party” politicians—continue to vote them into office.
My thoughts on the how and why of our current economic and political situation are by no means exhaustive, and indeed are only the tip of a giant iceberg, or, more appropriately, one strand of a tangled web of roots and branches. Hopefully these ideas and questions have sparked new ones in your mind and can lead to fruitful discussions and new paths of inquiry. More to come soon!
Great work!!
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