"Zoo capitalism" and the left wing
It appears left-wingers, of all people, are waking up to the reality of what Bill Bonner calls "zoo capitalism."
In case you're not acquainted with the concept, or you need a refresher…
Think about the New Era that came in the
1980s – thanks to the revolutions wrought by Mrs. Thatcher and Mr.
Reagan. They brought in a fresh idea – that capitalism could be
unleashed…and that it would serve man as obediently as a cocker
spaniel. We don't dispute that there was some truth in it. But it
wasn't quite as true as people came to believe. Especially in its
grotesque new form.
capitalism is the idea that you can spend more than you earn? Where in
the vision of Adam Smith is the idea that foreigners will subsidize
your standard of living – indefinitely? Where in laissez-faire is the
notion that central bankers will prevent corrections by controlling the
price of money? What had happened to the old sturm and drang? Where was
Schumpeter's 'creative destruction?' The new capitalists offered
creation without destruction… resurrection without crucifixion! They
offered not only to hold harmless investors in the face of their own
bad judgment…but to revive booms before they ever expired and to cut
short corrections before anything has been corrected.
was not the old capitalism of our grandfathers. The old-timers had been
wary of it…they knew that the free market was dangerous and
unpredictable. The old capitalism was a jungle…red in tooth and claw.
You had to watch your back. This new capitalism was a zoo; all the
dangerous beasts were supposed to be behind bars. It was almost too
Zoo capitalism may be reaching its zenith as the Fed bails out the investment banks.
More and more lefties are starting to grasp this; they're noticing the "privatization of profit and socialization of risk" as carried out by the metastasizing financial sector of the U.S. economy — ever-more complex derivative instruments fueled by Fed profligacy, with the promise of Fed bailouts if something goes wrong. Kevin Phillips — the ex-Republican strategist who's spent the last several years sounding the alarm about the electoral coalition he had a hand in creating — sees it clearly, giving "zoo capitalism" his own moniker: "Wall Street socialism":
This has been going on for decades — a major reason why finance has
grown and prospered so much compared with most other industries. But
it's only been so boldly and shamelessly embraced in the last few
weeks. The Federal Reserve insists that "inter-connections" require
rescuing large institutions that might knock down other entangled
financial dominoes. However, these would not have been so cocky or so
inter-connected in their web-spinning if the Fed had not allowed so
much greed and gamesmanship for so long. Ex-Fed Chairman Alan Greenspan
is often singled out as a culprit, but most of what he did was what
most of the financial sector wanted. They, too, loved making 4th of
July speeches about the glories of free enterprise and free — market
profits while counting on the government to collectivize the perils of
risk. Big, fat and dumb financial institutions could count on being
big, fat and bailed-out.
And like Bill Bonner, Phillips sees the critical shift to this mindset occurring with the onset of the 1980s, after Paul Volcker's strong medicine had healed a stagflating economy:
The dangers of creative destruction in the marketplace were
rejected. Bail-outs and government intervention became the norm. Big
investors were upheld through everything from foreign currency
bail-outs to the rescue of major banks. In 1998, the Federal Reserve
arranged a bail-out of a well-connected hedge fund and now in 2008 it's
katy-bar-the-door in Washington aid for the financially undeserving.
And hardly anyone stops to figure out that the quarter-century
suspension of anything resembling creative destruction or traditional
market forces is the culprit. The inevitable chimera of economic
collectivization is coming undone.
Will ordinary Americans pay much of the price? Almost certainly.
Should they blame what happens on marketplace forces? No, because the
historical operation of such forces has been stymied and suspended.
Alas, chances are quite high they will blame it on market forces, since they're conditioned to conflate "capitalism" with "big business" with "conservatism." One of the few conservatives to object of late to the bailout brigades is George Will. His relatively free-market position prompts the liberal Dean Baker to remark that Will has "made a giant leap to the Left."
Will argues that as a condition of accepting Fed bailouts, the
banks' executives should agree to restrict their pay to $124,010, the
maximum for federal civil servants. This seems eminently fair. After
all, no one is forcing the banks to accept money from the Fed. If they
think they can do better without it, then they don't have to take it.
It is remarkable that only a right-winger like Will seems upset
about the Fed giving taxpayers' money to the very richest people in the
country with no strings attached. This makes the battles over programs
like the State Children's Health Insurance Program look like silly
charades. If the government can cough up uncounted billions for the
country's richest people when they get themselves in trouble due to
their own stupidity, with no questions asked, isn't absurd that we must
have a huge fight over getting $7 billion a year to extend health
insurance to kids?
Why aren't progressives screaming bloody murder over this?
I'll take a stab at that question.
One answer is longer-term: For decades, progressives in general have bought into the Keynesian monetary policies that got us into this mess in the first place. An honest argument against the bailouts would force them to face up to their own folly.
The other answer is of more immediate impact: Both of the Democratic presidential candidates are utterly bought and paid for by the financial industry, as a search of campaign contributions at a site like Open Secrets will plainly reveal. Goldman, Lehman, Merrill, Morgan Stanley, Bear… they're all near the top of the list.
The sick, sick irony is that if John McCain (equally bought-and-paid-for) is elected and we head into a major financial crisis that makes the present situation look like child's play (imagine what might happen as the Fed likely starts to raise interest rates even as the cost of living continues shooting up), the whole fiasco will be blamed on years of "laissez-faire" economic policies. That will pave the way for a sharp turn to the left in 2012, and a candidate who will usher in a new "New Deal," wielding enormous "wartime" economic powers enabled by Bushian "unitary executive" theory. At least if a Democrat is elected this year, and the combination of Fed helicopter drops and Congressional stimuli bring about a short-term recovery early next year, the Democrat will likely have to shoulder at least part of the blame during the inevitable follow-on crisis… and "capitalism" won't take all of the rap.