There are several questions about the proposed bail-out of the once most powerful capitalist institutions on Wall Street that have been quite bothersome. These questions are quite basic; they are shaped less by scholarly work or influence, than by a most basic perception of inconsistency, contradiction, double-standards and ideological bias on the part of the liberal capitalist elites of the world. They’re quite clever, these people, you see. They have for years condemned any direct intervention in “the economy” (I use quotation marks around “the economy” because I believe it to be an abstraction. I am more convinced of the fact that there are people, transactions between people, markets where ownership of goods are transferred, and there is money). Liberal capitalists usually condemn socialists for “planning,” for state ownership of corporations and/or for state trading, they usually also swear complete obeisance, an almost fundamentalist loyalty, to “laws” and “mechanisms” – and any resistance or objections to such laws and mechanisms is tantamount to apostasy.
The Christian Bible says in Deuteronomy 17:13, apostates should be stoned to death; those who detract from liberal capitalist orthodoxy are othered as “dangerous,” or authoritarian or dictatorial. Sometimes these apostates, those who dissent to capitalist orthodoxy or who dare consider alternative approaches to social organisation, die or are killed under mysterious circumstances and are replaced by dictatorships who are friendly to the West – to the United States, in particular. This is not an exaggerration; it is what happened, for instance, to Patrice Lumumba, in the Congo (who was replaced by General Mobutu Sese Seko), and to Salvado Allende, in Chile (who was replaced by General Augusto Pinochet).
Anyway, when all else fails, these capitalist fundamentalists – surely it is not incorrect to call them that? – like to tell us (ordinary people) that we simply don’t understand economics, how “an economy works” or “how markets work” or that we should learn mathematics – (seriously). As if these “markets” and market transactions are devoid of any human agency … As if we, humans, were atomistic things locked in step in a reified “economy”.
The Ignorance of Uneducated People, and of Those Who Don’t do Mathematics
A few years ago, one of the West’s most respected capitalist economists, Paul Krugman, a darling of liberals in the United States, suggested that people who objected to cheap labour were simply ill-informed, or lacking in intellectual depth (implying that even child labour may be acceptable). As part of his fundamentalism, Krugman also hails the use of mathematics and algebra as the only way to explain economics or “the economy”.
When taken together – from the substance of his columns in Slate magazine, his book Pop Internationalism (see a review here – I refuse to direct the reader to book sellers because I am opposed to wilful product placement) and his praise for the use of mathematics to explain everything, or formalism, there is the suggestion that discussions or concerns about poverty, globalisation and even “the economy” are best addressed through a type exclusivism. This exclusivism is apparently homologous with the Christian variant, in terms of which there is only one way towards eternal life – through Jesus Christ. For liberal capitalists there is only one way to organise humanity – in all its complexity; the economic rationalist way as expressed in mathematical and/or algebraic formulation. Every other way of thinking is “unscientific” or lacking in rigour and should, therefore, not be taken seriously.
One recent project led by economists and published by the United Nations Development placed even human dignity and moonlight in the context of liberal capitalist discourse on social organisation! This total commodification of the natural and social world seems to be an objective of liberal capitalists. For instance, at the end of the documentary The Corporation, one of the avatars of liberal capitalism, suggests that the world would be a better place if every aspect of our world and our life – from the air that we breathe, to the water that runs in our rivers and streams – is privatised. Interviewed in the documentary, Michael Walker, president of the Fraser Institute (one of their slogans is “sound economics”) was asked whether he advocated “private ownership of every square inch of” he (Walker) replied “Absolutely”.
What all this suggests is that a) there is only one way to organise the world, through liberal capitalist orthodoxy b) there is only one way to understand/explain this world, through the rational economics logic that underpins this orthodoxy and c) anyone who differs from this orthodoxy is simply wrong (possibly even an enemy who needs to be eliminated), and d) anyone who criticises this orthodoxy and does so without hiding behind thickets of algebra is, well, uneducated. So, as an ordinary person, one who does not ascribe to any of these fundamentalist principles, I am guilty of dissent and apostasy, I find as morally repugnant the suggestion that people can be paid ten cents an hour for their labour (which economists like Walker and Krugman have defended and/or justified) – I find capitalist elite intervention to save the super-rich from their own screwing and doings on Wall Street to be repugnant. This “rescue package” also seems quite cruel, callous and hypocritical when one considers that actual or intended interventionist policies to roll back the poverty and inequality bequeathed by apartheid in South Africa, Soviet Communism in Russia or laissez faire capitalism in the United States are dismissed as unworkable, or as some type of evil conduct.
There’s a tale that is spun – it is clearly apocryphal, but amusing and useful, nonetheless – which says that the best thing the devil ever achieved was to convince the world that he does not exist. I want to twist that old canard and say this: The best thing that economists have achieved, in the context of the current rescue of Wall Street, is to link the rescue of rich people’s jobs and money to the destiny of the world. We, ordinary people, are told that if the rich go down in Wall Street – we will all follow….
END OF FIRST DRAFT OF PART 1
“I find capitalist elite intervention to save the super-rich from their own screwing and doings on Wall Street to be repugnant.”
Absolutely – that’s why the bail-out has not happened. And because *shock horror* for the first time, like, ever, the world did not catch a cold when America sneezed, the bail-out may never happen. Those who screwed will have to take responsibility. I like that.
The fact that the lawmakers voted against the bail-out is a victory for capitalism. A bail-out would have been a socialist, collectivist, action, totally against the concepts of capitalism.
I have said it before and I’ll say it again – I am a reborn capitalist. (Reborn ‘coz in my youth I hung around with the ANCYL talking ‘bout revolution over pitas and red wine, and Marx & Engels was as intoxicating as the copious amounts of Vodka I drank. Then I grew up.) The pure laissez faire Capitalist system works. Communism (in all its guises from a soft-edged Socialism to the hard-core Stalinist interpretations) has proven, time and time again, to be unworkable, and the most stable economies sin the world with the highest per-capita income and GDP are those countries with an absolute free-market Capitalist system. Note that this certainly does NOT include America and the UK. However, once you muck around with the capitalist system and put some social checks in place for the sake of conscience, then you start going down a slippery slope of no-man’s land. Again, which is why the vote against the bailout was turned down. I’m interested to see what the new proposed deal will be.
And oh, please do not confuse pure capitalism for greed. Greed, like any self-serving enterprise, will fail.
Viva Capitalism, viva!
*end of too early in the morning to reply draft 1*
Gerry: I agree.
The only problem is there is nothing like a pure free market capitalist system, due to the fact that the system is not devoid of human agency and interference. The mathematical models and theories might very well be correct in a capitalist system devoid of human agency or minimal interference. Alas, it is a very human thing to want to control, protect and at the other extreme make as much money as possible (greedy).
Ismail: According to these super free market capitalist own theories, there should not be a bail out and they should go down. I tend to agree with you as well, that to link their survival with that of the rest of the world might be disingenuous.
But the problem is the social agency dilemma that you correctly point out. People are involved and affected and will therefore want to interfere, panic, protect…especially politicians. Doing nothing might allow the capitalist system to “correct” itself but the problem is the human casualties – which will always be their in any economic system.
So it is not in this sense correct to say that this a failure of the capitalist system per se, as certain lefties are shouting. But it points out that no system is perfect, especially when human agency is involved.
@Gerry
Absolute free market economies? name one.
Is the current crisis really a failure of capitalism? There is a lot of evidence that it was brought about by social interventionism, not only in the form of subsidised loans by Fannie Mae and Freddy Mac, but also the government setting diversity targets for banks. If the government forces private enterprise to to take risks it wouldn’t otherwise contemplate, then surely it is reasonable that they share in the losses as well?
And thus, Gerry basically proves every point made in this article.
Scrap this draft and start again.
Regardless how much we may protest against greedy capitalists being rescued for their indiscretions, congress will go ahead and approve this monsterous rescue package. The consequences of the collapse of the US economy, whether we like it or not, would be catastrophic and none of the US senators and congressmen would wish for the retreat to the 1929 Great Depression. Consumers are already depressed and it would be unthinkable if global economies become equally and more depressed.
The $700 billion bailout has been criticised as a mild move towards temporary socialism; that nationalisation of these reckless institutions sends the wrong message; and that I agree with on the basis of moral hazard. But the US government will be acquiring these assets at considerable discount; and logic dictates that price level would at some point surge, allowing the government to dispose of these assets at a significatn premium.
Already the US government has spent over this $700 billion in the war in Iraq and Afghanistan, although I cannot quantify the set-off effect on the US economy from the booming defence industry; yet no one is questionign this spending. US government stands to benefit in the medium to long-term from this bailout. House prices would not remain depressed for a prolonged period without improving.
mallencolly, because we are a diverse world there is no country/entity with pure free market economics.
A better excercise would be to list countries in order of free market economies, suggest top would be Switzerland (followed by say most EU countries, the US comes far down the list) but this is personel preference and could be fun. Then give each country a score on freedom as scored by the freedom to accociate policically/by religion/by any means and see how interestingly the ones at the top of the free market economies come mostly at the top of the freedom list also. Is this by luck or design??
Brent
@Gerry
Last time I checked the countries with the worlds highest GDP per capita are the Scandinavian countries such as Sweden, Norway and Finland. While I’m not 100% sure of the other two but if you’re going to to call Sweden a 100% pure laissez faire market drive economy I would promptly ask you want drugs are you on and where I can get hold of them.
You’ve all missed the sweet irony of this crash…
First of all, our current financial woes bears NO resemblance to 1927-1930 (You may not know that the Depression arrived in SA a year earlier when we went off the gold Standard. It probably started in Germany in 1923 and slowly unfolded to affect the rest of the world). Today’s free flow of goods, money and information all mean we’ll never have another 1929. We may have vastly bigger crashes but they will all be dramatically different to the “Depression”. They will happen faster but the recovery is likely to be quicker. All economies will feel the pain at the same time. Just call it “Progress and Change”.
Second – The Democrats have traditionally been the party for the US working class, spending money on social issues and thus raising taxes. Clinton however, displayed such good fiscal discipline that the economy was extremely strong and taxes low when Bush took over. Republicans have always been the party of the rich, spurning social issues so they could reduce taxes. The Bush Government decided though to encourage banks to lend money to marginal borrowers (mainly blue collar working class) so they could buy houses. He also started an expensive war and raised taxes to pay for it.
Third – The Republican House of Representatives were keen on keeping the loans flowing because they pushed up property prices and Republicans are traditionally property owners.
Sooner or later, these pack of card house loans had to come tumbling down. What fascinates me is that so few banks have failed as a result.
And now – The US people are about to vote in a Democrat as President to fix the economy and then try to limit the tax impact on Mr and Mrs average American – a job traditionally done by Republican Presidents. I think Obama is probably the better of the two candidates. Unfortunately, he will be able to do little else during his first term because of the immense financial legacy Mnr Bossies has left him. (The Afrikaans translation of the adjective bush can mean someone who has gone mad – this is an apt description for a president with Bush’s record)
Oh and we thought South African Politics was fun!!!
Ismail, do yourself a favour, seeing as you live in a society that is reasonably open try and get some balance, check the other opinion/side of the equation and then make a decision.
Go into lewrockwell.com (the Austrian school) ad on the left hand column click on columnists and check out Gary Noth’s latest; Blaming the Victum: The Free Market. When done with that you might like to read what Bill Anderson says or William Grigg, both writing well marshalled arguements and suggested solutions. Obviously you don’t need to believe them but balance makes a better person.
Brent
Ismail,
I think we came up with fundamentalist capitalism in an earlier thought leader of yours!
If Liberal Capitalism is the only way and the fundamentalists are absolutely sure, then surely they can explain exactly what will happen when they inject 700 Billion US dollars into the market,
which they most definitely cant. Nobody knows what will really happen and maybe it aint even enough.
Either the US law-makers are stupid or else all the best minds (Hopefully) in the US cannot
answer the question. Did the best Economists advise the world that the present predicament would happen? I dont believe they did so, because they did not see it coming 2 years ago.
This would indicate that it is an unstable system and not very well understood.
I suggest that the current problems stem directly from Greed and Stupidity:
The Money men looking for fatter profits and conning the less witting into larger and larger debt.
Did they all forget that the UK housing market crashed in 1992?
Did they really think that there is infinite economic boom times and it will never come down.
In the US in particular – Do you really have to have 2 x SUV parked in your over-large driveway and 3 x 100 inch LCD televsions in your home.
Can you not live with what you have and save for a better tomorrow.
People have let the Hidden Persuaders (Advertising industry) get the better of them and allowed the TV
to make them feel 2nd rate without the trappings of massive debt.
If they had lived within their means instead of remortgaging the remortgaged home, mostly they would be fine.
Why do we have to have continuous economic growth, except to support debt payments interest charges?
Can we not have a sustainable economics system?
Surely this is what we would like to bequeath to future generations, not 10.5 Trillion dollars of debt as in the US?
What I also find interesting is how many times, the leadership of the US is willing to confuse the terms Democracy / Free market / Liberal capitalism.
Read through George Bush’s statements and you will see it regularly.
We could have a democratic communist state, though they will never admit that.
We can have a democratically elected Hamas in Palestine or democratically leaders elected in South America, though this is not good enough, and it is preferable to directly overthrow these democratic governments to ensure client capitalist states, willing to borrow from the US and friends and pay money into Washington and New York.
As per HS and Mallencolly, the US is not a free market economy with its huge subsidies to its farmers / oil and steel industries
among others, it is anything but free market (Though these subsidies are forbidden to any poorer nations who want to trade with the mighty US). Witness the consistent 3rd world call for their subsidies to be scrapped to enable African and other 3rd world farmers to be competitive in a Free Market as espoused by the US and their puppets in the IMF and World Bank.
WRT Privatisation, look what happened in Bolivia when the IMF forced their government to charge people for water falling on their roofs – massive social unrest and riots.
Recently a British water company has been kicked out of Tanzania for ridiculous overcharging to poor people and poor service provision.
The same is happening in South Africa:
How can we sell some of our water services to some UK company?
Why did we sell our steel industry so we can get ripped off at home with extreme Monopolistic prices.
We have seen 100 years of domination by the US and the fat cats and hopefully this is the beginning of the end. It is unsustainable and unacceptable for the majority of people on the planet.
If China and Saudi Arabia were to call in their debts from the US now, it would surely collapse this monster, though very scary for all.
Hopefully this current crises will accelarate the changes needed, because their is no possible way that the world will be saved by Liberal capitalist or that we can all end up driving SUVs – there is not enough to go around.
The sooner the better, as the pain will be harder, the longer we delay it.
For sure there will be pain – no gain, no pain.
As suggested, perhaps some of the Scandanavian models offer an alternative way forward.
Aluta Continua!
Well, Ismail, I think that this is (surprise, surprise) somewhat of a simplification ( I know, what isn’t?). Certainly economics (just like politics, more recently) aspires to be a “science”, and most academics think that the key to being a “science” is the use of mathematics. It accords a sort of false precision, a method of measurement that creates an aura of correctness through specificity, accuracy through precision.
But this is simply the result of the efforts of a group (economists) who are trying to make the club they are members of more prestigious. they are trying to dress up what they do and make it seem more important so that they will come to be seen as close to physicists within the academy–really, almost a form of mass spectrometer envy if you will.
Of course, this is being undone by the rise of a new paradigm within economics, which has the perverse ability to make economics both more and less of a science–I am refering to behavioral economics, which states that you really can’t predict what individuals will do because they are fundamentally not rational (and thus, the entire edifice of the Chicago School, the idea of homo economicus, falls down)
So I think that your point that there is only one road, one way, in economics really doesn’t stand–there are certainly periods where there are dominant paradigms (to borrow from Thomas Kuhn) and you have identified (correctly, I think) what was the most recent dominant paradigm within economics, but one that is increasingly seen as no longer as unassailable as it once was.
Peter
Except that capitalism has nothing to do with it. Capitalism is the use of capital to finance production with the use of workers eg a factory which makes goods to sell at a profit.
This has been about speculation, and financing people who can’t pay back. No production of goods or workers involved at all!