Markets Are Killing Us

Noam Chomsky did more of the backstory than he usually does in a Riverside Church lecture that Amy Goodman played on July 3rd. What's nice here is his emphasis on how much better things would be if the broad public were actually in charge of economic and social decisions, in contrast to the narrow elites who are still piling their plates unimaginably high as the crisis deepens.

I've been sparing you my recent reading about Roman history, but I'll just note one pattern in the midst of the decline-and-decay analogies with a lumbering dumbbell US elite that is currently demanding that its new president serve himself with his very own Bush and LBJ-like quagmire - "AfPak" - and bailout out the biggest banking screw-ups in world history, letting them keep all their companies and money and rules and therefore insuring they will do it again as soon as possible. Rome: things would go badly with the barbarians on the margins - for decades at a time. Someone from these borderlands would rise in the imperial system and figure out how to replace war with negotiation, trade, assimilation, population flows of various kinds -a whole bunch of unorthodox things that worked. They would succeed enormously. Stilicho, for example, "was himself from a barbarian family," and mixed "negotiation and strategy" with the Visigoths to keep things relatively peaceful (no big reformer here, just a lot of military non-dumbness)- until the junior emperor Honorius had him killed in 408.

Obama may still turn out to be Honorius, appointing diehard attack dogs in the Afghan theater (I can't believe I'm writing these words and it's not 1855). Chomsky started by establishing the sheer irrationality of established leadership's commonsense, quoting the Bagladeshi "New Nation" noting,

It’s very telling that trillions have already been spent to patch up leading world financial institutions, while out of the comparatively small sum of $12 billion pledged in Rome earlier this year, to offset the food crisis, only $1 billion has been delivered. The hope that at least extreme poverty can be eradicated by the end of 2015, as stipulated in the UN’s Millennium Development Goals, seems as unrealistic as ever, not due to lack of resources but to a lack of true concern for the world’s poor.

Chomsky then went on to describe two undemocratic pillars of the American system: the "aristocratic" Constitution, deliberately established to limit popular democracy, and idealized markets, citing Adam Smith on the way that markets serve the interests of those who control them, rather than the general progress of society. I would note how enormous the tension between social development and market signals actually are, with citations from economic history, but am distracted by the thought of how our economic debates are still shaped by quotations from 18th century philosophers. There is something medieval here about the suspension of mental time.

Chomsky pointed it out though, with a searing description of the case of Haiti, where poverty is directly tied to the US-assisted destruction of popular democracy, and then a historical passage on Bretton Woods that makes the direct link between financialization and social decline:

In substantial measure, the food crisis plaguing much of the South and the financial crisis of the North have common roots, namely the shift towards neoliberalism since the 1970s. That brought to an end the postwar, post-Second World War, Bretton Woods system that was instituted by the United States and Britain right after World War II. It had two architects: John Maynard Keynes of Britain and Harry Dexter White in the United States. And they anticipated that its core principles, which included capital controls and regulated currencies—they anticipated that these principles would lead to relatively balanced economic growth and would also free governments to institute the social democratic programs, welfare state programs, that had enormous public support around the world.

And to a large extent, they were vindicated on both counts. In fact, many economists call the years that followed, until the 1970s, the “Golden Age of Capitalism.” That Golden Age led not only to unprecedented and relatively egalitarian growth, but also the introduction of welfare state measures. Keynes and White were perfectly well aware that free capital movement and speculation inhibit these options. Professional economics literature points out what should be obvious, that the free flow of capital creates what is sometimes called a “virtual senate” of lenders and investors who carry out a moment-by-moment referendum on government policies, and if they find that they’re irrational, meaning they help people instead of profits, then they vote against them, by capital flight, by tax on the country, and so on. So the democratic governments have a dual constituency, their own population and the virtual senate, who typically prevail. And for the poor, that means regular disaster.

In fact, one of the differences—one of the reasons for the radical difference between Latin America and East Asia in the last half-century is that Latin America didn’t control capital flight.

Though there are obviously other differences, I don't know how Chomsky's argument can be countered. In the US, the advent of low-services and high capital mobility has coincided with three decades of stagnant wages for 80% of the public, increased poverty, degraded transportation, public health services, schools, universities, you name it - including easy mass layoffs in any industry, chasing of tax deals from one state to the next, and one country to the next, inducing a situation where now American industry can't afford Mexican wages, so it goes to China, which is getting so expensive!, so on to Vietnam.

Another example are trains, which are amazing in Europe and grossly reduce Europe's carbon footprint per euro produced. Chomsky offered a homely example:

Let me just add a personal note on that. I came down here this afternoon by the Acela, you know, the jewel in the crown of new high-speed railroad technology. The first time I came from Boston to New York was sixty years ago. And there was improvement since then: it was five minutes faster today than it was sixty years ago.

The climate crisis is being made worse by the underfunding of public systems in the US for the past 30-40 years. Car-based sprawl didn't slow down after 1980 in places like inland Southern California and North Carolina - it accelerated. How are we supposed to back of an expensive infrastructure that is locked into the mid-20th century and is both brand-new and out of date?

In a popular democracy the answer would be obvious, and Chomsky provides it:

Spain and other European countries are hoping to get US taxpayer funding for high-speed rail and related infrastructure. And at the very same time, Washington is busy dismantling leading sectors of US industry, ruining the lives of workers and communities who could easily do it themselves. It’s pretty hard to conjure up a more damning indictment of the economic system that’s been constructed by state-corporate managers. Surely, the auto industry could be reconstructed to produce what the country needs using its highly skilled workforce. But that’s not even on the agenda. It’s not even being discussed. Rather, we’ll go to Spain, and we’ll give them taxpayer money for them to do it, while we destroy the capacity to do it here.

so we have from Chomsky:
1. narrow elite self-interest underdevelops - even destroys- societies
2. "global managers" will let this financial crisis damage societies rather than themselves - as they are doing in various countries, but also to their own people in the U.S.
3. multiple crises are intensifying each other - climate, hunger, poverty, Western economies, finance
4. popular democracy and mass innovation is our only hope.

The U.S. was supposed to be the great democratic model that could use the powers of the multitude to transcend crises and leap ahead. At the moment it's looking more like latter-day Rome.

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For the conservative confirmation of market failure, see this FT piece by one of my Euro-Capitalist Pals, Wolfgang Münchau. Here's how it's looking to him:

The European Central Bank has recently pumped €442bn ($620bn, £380bn) in one-year liquidity into the system, but the money is not reaching the real economy. Japanese-style stagnation is no longer possible – it is already here. The only question is how long it will last. Even in an optimistic scenario, global economic growth will be weighed down by a combination of credit squeeze, rising unemployment, rising bankruptcies, rising default rates, and balance sheet adjustment in the household and financial sectors.

I would expect the US to have something approaching a genuine recovery at some point in the next decade, but probably not in 2010 or 2011.

Have I mentioned Herbert Hoover enough? Muchaü seems him in his nightly dreams.

Muchaü doesn't blame banks, but blames the lack of creditworthiness of their formerly excellent customers, who no longer deserve loans. It would be more accurate to blame markets, which overshoot, move like sheep, and couldn't care less about systemic needs, social or economic.

This also comes back to the banks, since markets are structured by policies that are at the moment utterly dominated by the financial needs & desires of big banks - by the desire not to be nationalized and run by Pitchfork Bob and Surgical Nurse Jane, though these two with their broader visions could do a much better job.