A long time ago Milton Friedman asked Richard Nixon why he never took his economic advice to which Tricky Dick replied “We are all Keynesians now”. Less than ten years later Ronald Reagan would declare “Government is not the solution to our problem. Government is the problem.”, and we were all Reaganomists now. At least until last week.
What makes this economic downturn different from the other recessions post-1980 is not so much the size, but the reaction of the powers that be. While Treasury Secretary Lex Luther wanted a 700 billion dollar blank check that “may not be reviewed by any court of law or any administrative agency.” (a plan referred to as an economic PATRIOT ACT), the usually spineless Democrats have actually said no. They have plans of their own. The most likely of these to pass is Chris Dodd’s (D-CT) which would cap CEO pay, include foreclosure relief, and give the government a share in the profits the bailed out firms. Peter DeFazio (D-OR) is floating an idea to put a tax on stock transactions. Getting a lot of ink on the Internet is Debbsian socialist Bernie Sanders’ (I-VT) four point plan which includes a wealth surtax, increased regulation, increased social spending, and busting up the big financial firms. None of this is really socialism, but everything’s been laissez-faire so long it looks like the Paris Commune in comparison. While this kind of faux-populism is to be expected during an election year crisis other less than expected critics are questioning the status quo.
From a Yahoo article entitled Many economists skeptical of bailout comes this quote from University of Chicago professor Luigi Zingales:
“For somebody like me who believes strongly in the free market system, the most serious risk of the current situation is that the interest of a few financiers will undermine the fundamental workings of the capitalist system. The time has come to save capitalism from the capitalists.”
A capitalism without capitalists if you will. Eric D. Hovde, the CEO of Hovde Capital and Hovde Acquisitions, writing in an op-ed praises government regulation, and decries Wall Street’s influence on government. Actually most of the op-ed is a concise and well written history of this mess that blames everyone who deserves it. For example:
In an attempt to protect his legacy after the Internet-bubble collapse, [former Fed chairmen Alan] Greenspan provided unprecedented stimulus to re-inflate the economy and maintain his popularity with Wall Street. (Remember the “Greenspan put”?) But in doing so, he spawned the largest debt and asset bubble in U.S. history.
In case you couldn’t tell Greenspan was a close personal friend of Ayn Rand. In putting the blame where it’s due Hovde also gives what I think is the definition of capitalism:
And in my view, there’s no need to look beyond Wall Street — and the halls of power in Washington. The former has created the nightmare by chasing obscene profits, and the latter have allowed it to spread by not practicing the oversight that is the federal government’s responsibility.
What was the great fraud of Reaganomics was the belief that the government and the free market are two totally different and opposing forces. The government was either well intentioned (or evil) but incompetent, and only interfered with the perfect, all wise free market. The events of the last week have shown that’s to be bullshit. There is no such thing as a “free” market. During the good times the state is there to put a veneer of respectability on fraud and extortion. During the bad times it’s the knife that cuts off a finger to save the hand, but it is always capitalism’s co-conspirator. This current down turn will lead to the state taking a greater role in the economy, and we might even get some increase in social spending (a la the New Deal). Capitalism will be saved from itself, and inevitably when the economy gets better and we’ve all forgotten (remember the Glass-Steagall Act? Me neither) these reforms will be repealed; we’ll be right back here. The bad times is also when we should push for a real change that scraps capitalism and it’s good buddy: the state, not just make them nicer. -JM
-From the Marx and Coca Cola blog