Monday, October 13, 2008

Crisis Continued

Two recent pieces on economic goings on from Uncle Noam, neither of course appearing in the mainstream US press, one article from The Irish Times, which includes an interesting discussion of the current US election, the other an interview with Simone Bruno that touches on Obama and McCain as well. He doesn't go into the who-did-what and what-should-the-Tresury-have-done specifics of the meltdown because, I imagine, the broader context is more important. The Cliff Notes stab at it is essentially that the US is a state-capitalist economy (despite the mythology, Ronald Reagan was the most protectionist, anti-free trade US President of the last century), the public subsidizes enormous profit for narrow sectors of society, the financial liberalization that took place around 30 years ago predictably increased the regularity and depth of financial crises, this is largely because financial markets systematically underprice risk (a feature built in to the system), there will inevitably be major reforms of the financial system (including increased regulation), however, the structure underlying the basic institutions will not be changed. As he grimly puts it:
There is no threat to state capitalism. Its core institutions will remain basically unchanged and even unshaken. They may rearrange themselves in various ways with some conglomerates taking over others and some even being semi-nationalized in a weak sense, without infringing much on private monopolization of decision making. Still, as things stand now, property relations and the distribution of power and wealth won't alter much though the era of neoliberalism operative for roughly thirty five years will surely be modified in a significant fashion.
It's not all doom and gloom, however. Chomsky offers some important perspective:

"Politics is the shadow cast on society by big business," concluded America's leading 20th century social philosopher John Dewey, and will remain so as long as power resides in "business for private profit through private control of banking, land, industry, reinforced by command of the press, press agents and other means of publicity and propaganda".

The United States effectively has a one-party system, the business party, with two factions, Republicans and Democrats. There are differences between them. In his study Unequal Democracy: The Political Economy of the New Gilded Age, Larry Bartels shows that during the past six decades "real incomes of middle-class families have grown twice as fast under Democrats as they have under Republicans, while the real incomes of working-poor families have grown six times as fast under Democrats as they have under Republicans".

Differences can be detected in the current election as well. Voters should consider them, but without illusions about the political parties, and with the recognition that consistently over the centuries, progressive legislation and social welfare have been won by popular struggles, not gifts from above.

Those struggles follow a cycle of success and setback. They must be waged every day, not just once every four years, always with the goal of creating a genuinely responsive democratic society, from the voting booth to the workplace.


Renan said...

Fascinating post, especially the Chomsky interview. The larger issue it brings up, I suppose, is how much regulation is necessary and, more importantly, feasible, in order to properly allocate risk in an economy such as ours.

rananda said...

yes strong questions, no easy answers. i think most generally, community (or more pragmatically, state) regulation of private actors' behavior is certainly necessary and morally justified for a wide variety of practices (it dont take immanuel kant to figure out a representative government has a say in deciding what gets dumped in its oceans or shot in the air). to the extent specific financial regulations are a trickier issue, i think they should at least disallow the spread of harm or risk to not only contracting parties but non-parties who may bear the effects of the transactions. externalities should be accounted for. it is the collective's (govt's) job to look after the interests of its members when incentives or opportunities alone would preclude it.

more than mere regulation, effective and just functioning of the financial system requires a fundamental change in societal values and financial incentives. when the end-alll, be-all of our lives is not monetary wealth accumulation, when corporations do not have a legal obligation to maximize profits above all else, when individual actors participate in the economy with a view towards society and the economy itself and not pure self-interest, regulations have a better chance at being successful, not stifling freedoms, and avoiding catastrophe.