It’s easy to become apocalyptic contemplating the vast sums of wealth being destroyed in the unfolding financial crisis gripping Wall Street. The economic tsunami unleashed there will soon reach every corner of the nation. Indeed globalization will insure that few in the world will escape suffering.
Every emerging crisis facing both U.S. and world workers, from food to energy to health to retirement to manufacturing decline to declining real incomes, will be aggravated and amplified. Already unemployment stats are rising above 6 percent in many states. The New York, New Jersey and Connecticut region will be hit first and hardest in the U.S. No one knows how far-reaching the damage will be, but nationwide unemployment exceeding 10 percent is now likely. And 2009 may be the worst year since 1981-82, if not since 1929.
A global panic is not yet inevitable, but not unlikely either. All the inequities and conflicts that threaten peace will intensify.
The interventions by the Federal Reserve and the U.S. Treasury Department have been dramatic and unprecedented in many ways. Against hysterical and ignorant criticism from the free-marketers in their own party, Ben Bernanke and Henry Paulson appear to have drawn the correct conclusions, albeit at least eight years after the they were due — that a measure of “socialism” is the only, repeat only, course that can avert global catastrophe. The only question is: will it be enough “socialism” to stay the dragon of worldwide depression and the fires of war that would surely follow in its wake. Obviously I do not mean that the bailout actions amount to real socialism (as some on the far-right will scream), but they do in fact constitute a huge socialization of formerly private wealth, and thereby offer an outstanding platform on which to fully develop a real socialist program of reforms and recovery actions.
Bernanke and Paulson have clearly been reading Hyman Minsky and Charles Kindleberger — latter-day closet Marxians and ‘long wavers’ — and they GET IT: when markets fail, the chaos that follows is NOT self-correcting, and governments MUST act. This is a profound fact that neoclassical economic training — which tends to pay virtually no attention to history — tends to ignore; thus many, but fortunately not all, economists simply cannot believe the scale of the dangers at hand, nor do they have the intellectual or scientific tools to evaluate them. I do not argue that mathematical models are not important, even mandatory in developing economic and social policy. But seeing the big picture requires careful attention to economic history, which gives abundant evidence that raw capitalism is NOT a stable system.
Recent history gives solid examples of how smart socialization is the only corrective. Sweden, for example, confronted financial collapse in the 1990s by nationalizing its banks and absorbing the toxic bubble before selling the institutions back in a more carefully regulated environment. Japan, on the other hand, allowed its real estate market to collapse without intervention 20 years ago, and they have not recovered growth rates since.
When Bernanke subsidized the bailout of Bear Stearns creditors, but not its stockholders, when Paulson effectively took control of Fannie Mae and Freddie Mac WITHOUT compensation to the stockholders, when the Fed seized 80 percent control of AIG — the largest business insurer in the world — at a paltry price of $87 billion (the company earlier this year reported over a trillion dollars in assets), when the government is now considering a new ‘Resolution Trust’ company over 1,000 times bigger than the one that nationalized the savings and loan assets 20 years ago — economically speaking, a new outbreak of socialism and social democracy is on the agenda!
Even within a week Obama’s polling has regained some umph, while Bush is hardly even president anymore! Now is the time for Obama’s much stronger economic platform of sound and smart government intervention in the economy to be the rallying cry. Yet even he must be prepared to change course and be even bolder, for the worst is yet to come. If Paul Krugman’s estimates of $4 trillion-$6 trillion of bubble in the U.S. credit markets alone are correct, we are not even halfway there.
Unfortunately, even a healthy dose of “socialism” is not going to reverse the collapse of the credit/mortgage bubble. Nothing can stop that. But doing everything possible to avert panic and catastrophe for literally billions of people around the world in the process, putting much increased public investments in the right place — the pockets of the people! — and truly enacting the needed transparency reforms in financial markets to forestall disaster — these items are life and death matters.
Less than a year ago, neither Ben Bernanke nor Henry Paulson would have dreamed of seeing themselves say and do the things they have said and done in the past month. (If they had, surely Bush would never have appointed them!). But I applaud both their courage and tenacity in the forceful and essentially correct actions they have taken.
In a few more weeks they might even consider taking the dark glasses off the term “socialism” and putting it back in its correct context: the only remedy to what Marx famously characterized as the contradictions of capitalism.
However, there is, in my opinion, more to this financial crisis than a debate over how much socialism is required. There is a key shift in the world balance of forces taking place, reflected first of all in the global distribution of capital, and the consequent division of world labor. The United States, it is now clear, spent most of the first decade of the 21st century wasting huge sums in fictitious investments, while the Chinese, on the other hand, spent the decade investing in infrastructure and production. The Beijing Olympics — an astounding and splendid success despite efforts of many enemies to demean them — are the most striking counterpoint in the world to the decadent U.S. mortgage ‘security’ market. In a fitting irony, the former CEO and founder of AIG, Hank Greenburg, let it slip that many of AIG’s assets will almost certainly be purchased by Chinese corporate or sovereign wealth funds.
Last, but hardly least, previous major historical shifts in the wealth of nations have always been associated with war. As we exert all efforts in our communities and workplaces to help and defend each other against the certain hardships that immediately face us, it is the challenge of our times to find or build the paths of cooperation, the institutions and strong expressions of working class solidarity that can save us from the peril of another world war. Forty million died in World War II to give the birth of the United Nations the chance of life. Let’s not go there again! Let’s NOT succumb to the temptations of apocalyptic terrors and fear.