Events move swiftly. The weekend of September 13th marked a turning point in the crisis devastating the US economy and rapidly spreading to the rest of the world. It is not necessary to review the significant events. The collapse of huge financial institutions long viewed as the bedrock of world capitalism has quickly moved from the business pages of the leading newspapers to the headlines. Arcane financial issues have become the subject of ominous conversations around the water cooler and on the shop floor. A fear unseen for many decades has replaced the comforting football results and baseball pennant races. Something unthinkable is happening.
Some eighteen months ago, I offered the considered opinion that the US economy was facing a severe downturn, probably more significant and brutal than the normal business cycle. I noted that, "With no answer to growing inequality, wasteful imperial aggression, and market anarchism, the prospects for avoiding crisis appear bleak." (Tabloid Political Economy: The Coming Depression, April 5, 2007). This proved to be true. But with the events of the last week, a new element has emerged, suggesting an even gloomier outlook.
With nearly a trillion dollars of public funds thrown recklessly at resolving this crisis, failure to backstop this decline has produced a general panic. Where investors were looking for bargains a week ago, they are now withdrawing their funds for safe havens. Unfortunately, there are no safe places any more. Confidence has been shattered. The crisis began with a demand for unrealistic returns, retreated to "reasonable" returns, and now would happily settle for any safe depository. Today we face a panic unseen since the Great Depression.
Where this goes is impossible to predict. Historical parallels fail when emotions – fear – dominate economic life. Even more disturbing, it is clear that the tools of neoliberal economic thought have proven worthless. The consequences for the reigning ideology we will discuss at another, less critical time. The poverty of ideas among US elites of both major political parties has only stoked the crisis. This poverty is clearly shown in the reported comments of progressive Democrat, chairman of the House Financial Services Committee, Barney Frank: "I mean, this is one more affirmation that the lack of regulation has caused serious problems. That the private market screwed itself up, and they need the government to come help them unscrew it." (NY Times, 9-17-08)
No, Representative Frank, they have not screwed themselves up. They have screwed us… and we need the government to stop them and help us. Frank’s comments show the extent that leaders are unable to disconnect the interests of big capital from the interests of the people.
And that’s the fundamental understanding necessary to move beyond this crisis. We need leadership that clearly sees the difference between the fate of finance capital and the economic well-being of the masses. Rather than reassuring the captains of industry, Barney Frank and his elected and prospective elected colleagues should tour the country reassuring workers that they will not face the brunt of the folly of rich white guys in business suits. They need to schedule lunches with labor leaders and community leaders and not Paulson and Bernanke. They aren’t. And they won’t.
A severe crisis such as this one that rocks capitalism is not "solved." Rather, it brings much pain and the opportunity to reshape economic life in its wake. Such was the Great Depression. The questions are simply: Who will bear the burden? Who will suffer? And what will be the shape of the society that emerges afterward? Few are prepared to face these questions.
The first order of business should be to spare no effort or resources to shield the majority of working people from the pain of this debacle. This means an immediate end to the war in Iraq, a radical reduction of the military budget, an end to housing foreclosures, unlimited unemployment insurance, guaranteed, universal health care without the intermediary of parasitic insurance companies, rent control pegged to incomes, income support for distressed families, and host of other measures that would replace fear and impoverishment with security. While much of the funding could come from the bloated, wasteful military treasure chest, there should be no rhetorical humbuggery about balanced budgets
For the future, banks and other financial institutions are ripe for nationalization. The near trillion dollars in bailouts and loans should be sufficient collateral for a buyout of these entities, so many of which are now nearly worthless. With such a move, financial circulation could be restored to reflect value and not insane speculation. Public ownership of the financial system, meaning popular control and genuine accountability to the public, could reach a settlement with investors, fairly balancing their interests with the interests of society. During the Great Depression this opportunity presented itself, but Roosevelt backed away.
Frankly, we are short of the political leadership to press these policies. But we must try. The crisis will be with us for some time.