Only a week ago, the Fed cut its bank rate to a historic low, the new range being — can you imagine? — from 0% to 0.25%, while the credit crunch and pressures on the dollar continue unabated. And this rather significant development followed right after the Madoff debacle and so-called “Ponzi scheme,” allegedly defrauding investors worldwide, including banks, hedge funds and financial institutions, to the tune of $50 billion and counting.
Indeed, hardly a day goes by anymore without some news-shattering event or scandal. One could well devote the rest of one's life to blogging away, today on this subject, tomorrow on that, as there certainly isn’t any lack of new material out there and more of the same – it’s a safe bet! – is likely to be forthcoming almost daily.
Unlike other bloggers, however, I find this constant preoccupation with, and focus on, daily events and news-breaking stories a rather futile if not repetitive exercise — both, perhaps, because they all seem to be indicative of one and the same malady. Consequently, I think my time better spent on identifying and addressing systemic weaknesses and causes of our ailments. And of those, time and again I’m brought to deregulation, and its twin brother, privatization, as the main culprits.
Recently, I spoke on the evils of privatization and the evils it generates to compound our already bankrupt capitalist system. It turns the government into an accomplice as it were, only encouraging the system’s most destructive tendencies rather than serving as a kind of stopgap, or as an impediment at least, so as to prevent total breakdown of our culture, cherished ideas, and way of life. From the handling of our prisons to HUD’s scandalous policies – any area, in fact, you can think of where in the name of efficiency privatization has been employed – only corruption had set in its stead and the damage transcends economics for it well nigh affects our perception of government as the perpetrator of fraud. How discouraging! [See “The Case for Fraud” -- compliments of Catherine Austin Fitts’ memoirs, Dillon, Read & Co. Inc., and the Aristocracy of Stock Profits.]
Well, only a week ago I’d been alerted to another scheme in the making — Mr. Obama’s so-called stimulus plan involving heavy investment in infrastructure, mass transit in particular. It concerns Mr. Obama’s appointments, especially that of Mr. Lawrence Summers as the Director of the National Economic Council. It’s all on the pages of Democracy Now. The panel included Naomi Klein, Robert Kuttner and Michael Hudson, with Amy Goodman serving as a moderator (see references below) You’d do yourself a favor to read through the entire twelve pages of it. (In fact, make it a point to visit the Democracy Now website on a daily basis; you won’t find more penetrating discussion elsewhere.) What follows is a digest.
The idea of a grand scale public works projects has of course been legitimized as one of the major ways to deal with prolonged economic downturns. It’s been an integral part of FDR’s New Deal, for example – in particular, the National Industrial Recovery Act (NIRA) of 1933, whose express purpose was “to regulate banks, and stimulate the United States economy to recover from the Great Depression.” Sounds familiar? Well, listen to Mr. Obama’s own words as to what needs to be done:
We need a recovery plan for both Wall Street and Main Street, a plan that stabilizes our financial system and gets credit flowing again, while at the same time addressing our growing foreclosure crisis, helping our struggling auto industry and creating and saving 2.5 million jobs, jobs rebuilding our infrastructure, our roads, our bridges, modernizing our schools and creating the clean energy infrastructure of the twenty-first century, because at this moment we need to restore both confidence in the markets and restore the confidence of middle-class families who find themselves working harder, earning less and falling further and further behind.
High-sounding words and on the face of it, at least, sound strategy. Many would say that’s precisely what the doctor ordered. Besides, Mr. Obama has Mr. Keynes on his side, who had argued most vehemently for government spending “as a [major] vehicle for recovery,” the piling up of the national debt and arguments for balanced budgets notwithstanding. Coupled with a great many other goodies that had come part and parcel with the NIRA legislation (such as the Social Security Act, for instance, the National Labor Relations Board Act, Civil Conservation Corp, to name but a few) – all recognized by now, except for the few die-hards, as having created a more equitable, humane kind of society – and there’s no question that Mr. Obama has history and tradition to back him up. So where is the beef?
It’s in the details, man! And the appointment of Mr. Summers doesn’t bide well for what on face value looks like a viable solution.
It should be prefaced, I suppose, that Mr. Summers was the last Treasury Secretary under Bill Clinton. This may seem like a recommendation until we realize that Clinton’s legacy, especially as regards economic policies, has by and large been misunderstood. In reality, it’s been a continuation of the Reagan era, with emphasis on deregulation, except for the fine gloss. George Dubya, of course, had taken the program to a whole new level, exposing it for what it truly is in its “pure” and unadulterated form; but that was only to be expected and represents the true measure of the man. The point really is – and on this the entire panel agreed – that Larry Summers, “along with Alan Greenspan and Robert Rubin, were really the key architects of the deregulation that created the crisis that we are living now.”
And those key policies [Naomi Klein continues] … are the killing of Glass-Steagall [Act] that allowed a series of very large bank mergers that created these institutions that are too big and too intermingled to fail, we’re told again and again. The deliberate decision to keep the derivatives out of the rich of financial regulators – that was also a Summers decision; and also allowing the banks to carry these extraordinary levels of debt, thirty-three to one in the case of Bear Stearns.
To add to Mr. Summers’ already “impressive” credentials, he’s also known to have gone on record as having said, “Spread the truth. The laws of economics are like the laws of engineering. One set of laws works everywhere.” And then he laid out those laws a bit later, the so-called three “actions”: privatization, stabilization, and liberalization.
“So he has been preaching the doctrine,” says Ms Klein. “He is by no means sort of an innocent bystander. He is a dyed-in-the-wool privatizer, free trader.” A true ideologue, I might add.
Ms Klein reminds us of the context:
It was 1992, and it was when he was making World Bank economic policy as it related to Russia in the midst of a financial crisis . . . . Along with Tim Geithner, his deputy, he played [a] key role during very economic crises in other countries . . . , during the Asian financial crisis, during the Mexican peso crisis. And when these countries were suffering a profound economic crisis created by deregulation, they preached more deregulation, more privatization and – the key is – they preached economic austerity to disastrous results. So I think this is really troubling.
One result, Ms. Klein continues, was to create “a kleptocratic class of billionaires who will be ruling Russia for the next hundred years. And they key was to use public expenditure that would increase private wealth.” Again, sounds familiar? And what does it say for Mr. Obama’s campaign promise to level the playing field, to eliminate, to the extent possible, the growing gap between the rich and the poor?
There was another point of consensus: the rebuilding of infrastructure is not going to take the form of refurbishing our freeways and highways. True to the sentiments of the day – relinquishing our dependence of foreign oil, “going green,” et cetera – the emphasis is going to be on mass transit. Fair enough, but there is the catch.
Most infrastructure is built by states and localities. "And I don’t think," says Mr. Hudson, "there will be a privatization of this new infrastructure, because right now the states and localities are broke. Here in New York City, they’ve already announced they’re cutting back the Second Avenue subway, they’re raising transport fares. All over United States, municipalities are broke. The idea of bringing in Summers is to do this from the very beginning with private funds that will be provided largely by the government itself…"
So there is going to be an enormous squeeze on labor, a squeeze on the kind of labor that was employed in states and municipalities, public unions for infrastructure, to essentially privatize it from the beginning with government guarantees, government funds. And it will be a bonanza for the banks. And that’s how they’re going to earn their way out of debt, by lending for the private funds instead of government funds for this.
Whether before or after, it’s a moot point as far as I’m concerned. So there again, there’ll be more graft, more corruption at all levels of government, more bidding and awarding of contracts at sub-market prices. And just as before, it’s going to be done in the name of what on face value at least promises to be a cogent and palatable idea — mass transit in the present case.
There’s a hidden reason, of course, why this is the most likely scenario. And in this connection, once again, Mr. Hudson’s analysis is most illuminating:
Mass transit in almost every country creates an increase in real estate values along the routes that could actually – the rental increase that’s created by this transportation could actually finance the entire transport system. For instance, in London, when they built the Tube extension to their financial district, they created thirteen billion pounds worth of increased real estate values, and the Tube itself cost only eight billion dollars [sic]. But they left this thirteen billion in the hands of the private landlords.
Same thing in Chicago . . . There can be a very heavy investment in mass transportation here. This is going to create enormous real estate value. The tax system will leave these in private hands. And I think all of the tax proposals that Mr. Obama has spoken about have to do with income tax, primarily. The rich people prefer not to earn income, because you have to pay taxes on them. They prefer to make capital gains. So the intention of the economic team that Mr. Obama brought in is really to create a huge capital gains economy and even more disparity of wealth, while leaving in place the one thing that should have been addressed in the last year, and that’s the enormous debt overhead. Nothing is happening at all on that. He’s [only] adding to debt, not reducing it.
One could easily take off from here in a wholly different direction, as to why, for example, the entire tax structure is being left intact. We learn, for instance, that “the kind of returns that Wall Street gets … are not subject to taxation at all … [or that] the giveaways that the Treasury put into the bank bailout law says that because the banks have bought affiliates that have cash loss carryforwards, they’re not going to even be subject to income taxation,” which leaves us with what’s surely common knowledge by now that “only the little people pay taxes.” So nothing had changed! But from our singular perspective, those are peripheral issues. The point of concern is there’s another bubble in the making. And from the vantage point of the architects of the plan, apparently it’s the only thing that matters.
So once again, it looks as though we’re about to embark on the same ol’ pattern of going for quick fixes and easy solutions. Public perception, as always, takes precedence over reality.
In closing, the panel focused on some valid points of comparison as regards the dynamics surrounding the New Deal legislation and those in the present. In FDR’s times at least, there were pressures and counter-pressures from both sides — big business and the elites on one side, and “from the bottom,” as it were, on the other. Oddly enough, this kind of push ‘n’ pull is conspicuously absent in the present instance — in no small measure, no doubt, because of the enormous popularity of our President-elect, I might add — and it’s not a good thing.
Naomi Klein had put it most succinctly in a disheartening conclusion:
Well, you know, the issue is that Obama is coming to these decisions [as regards his appointments, for one] because he is under enormous pressure from above, from Wall Street elite pressure. And the question is, how do you transition from sort of a pro-Obama campaign movement to an independent social movement that puts real counter-pressure on him from below? And those are the conditions under which Roosevelt sold the New Deal as a compromise to the elites. And we don’t have those dynamics right now. What we have are, you know, people who are sort of super fans for Obama, constantly apologizing for every decision that he makes, versus gloves-off elites who are putting real pressure on him from behind the scenes. And we’re seeing the results.
Time will tell, I suppose, whether these predictions will come true. Meanwhile, I suggest that we stay vigilant and wary of even the slightest sign of trouble. Nothing short of collective action – “from below,” as it were, as Ms Klein had put it – may be required in order to offset the interests of Wall Street and let the people have its way.
Haven’t we had enough?