Understanding the New Era of Corporate Socialism -- Page Three
It was for this reason – and not because it harbored socialist designs on the economy – that the new Obama Administration decided it had no choice but to preserve GM and Chrysler and most of their dealers. Fortunately, Ford, the other surviving American auto company, was able to survive without government assistance. It has now returned to profitability, and has assumed a position as the Number One American car maker in terms of its market share for the first time since the 1920s.
The program of Federal bailouts for big businesses – begun by the Bush Administration and continued by Obama – has fundamentally transformed the relationship between business and government. While our country still has the appearance of free market capitalism in many respects, in truth we are already living in a new hybrid form of social organization first called corporate socialism by Ralph Nader in 2002.
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This trend has almost nothing to do with Barack Obama. The Bush Administration had already decided to bail out the largest banks in America, and AIG, the largest insurance company in America. They did this not because they were a bunch of socialists, but because they had no other choice.
After assuming office, Obama DID decide to bail out GM and Chrysler. His rationale? There was no other choice. Allowing the bankruptcy of GM or Chrysler would have thrown an additional 1,000,000 Americans out of work, his economists believed, adding to an already vicious deflationary spiral and guaranteeing a Great Depression 2.0. Like Bush and the banks, Obama had no choice with the carmakers. Capitalism had failed, and something had to be done to preserve the American economy. Like Bush before him, Obama did what he had to do, not what he wanted to do. Sixty three percent of Republicans believe that Obama is a socialist, but in my view he is no more a socialist than George Bush or Henry Paulson.
Bush, Paulson, Bernanke, Obama, and Geithner ushered in the new era of corporate socialism unwillingly. None of them is a socialist by inclination. All of them believed in free markets prior to the Great Meltdown. It is a testament to the inherent pragmatism of Americans and American leaders that they were able to reorient their thinking as quickly as they did when they had to. They acted to bail out megacorporations only because capitalism had failed -- hugely, fundamentally, irrevocably.
Congress has clearly established the principle that it will save large banks like Morgan Stanley, Goldman Sachs, Bank of America, Citi, and Wells Fargo. It will bail out large insurance companies like AIG. It will bail out large automakers like GM and Chrysler. And their can be no doubt that Congress would act to save a company like Boeing should it encounter financial distress, or Exxon-Mobil, or Chevron, or Walmart or Caterpillar or any company large enough to be among the DOW 30. Few of these firms are distressed at the moment, but over time anything can happen. Every one of these companies is Too Big to Fail.
Many Americans despise this arrangement between the state and private firms. Politicians of both parties – from New York to Alabama – vow that we will end “Too Big to Fail.” Both Conservatives and Progressives rail against “bail-out nation,” and Americans across the political spectrum absolutely loathe our new hybrid form of economic organization. Many believe that, as a result of the massive bailouts in 2008, our country will end up as a Stalinist dystopia or at the very least a lazy, incompetent slacker nation like fucking France.
These fears are utterly delusional. There is no chance of anything like Stalinism in the U.S., or Nazism, or any other –ism except Americanism. There is no chance Americans will suddenly start wearing berets or making the good croissants.
We have accidently invented a new form of social organization, and now we must live with it.
Hoping for Financial Armageddon
The only way to have avoided the sudden phase shift to corporate socialism might have been to let the Great Meltdown happen. Most Americans would have let all the big banks fail in 2008. Senator Richard Shelby of Alabama, for example, the ranking minority member of the Senate Finance Committee, has repeatedly said that the largest banks in the U.S. should have been allowed to collapse. The Great Bailout and the TARP legislation, in his view, were enormous mistakes. Polls show many Americans agree.
This is only because most people do not understand the true consequences of a massive financial meltdown involving many of the biggest banks in the country. It would have been the closest thing to financial Armageddon the world had ever seen.
The FDIC has no authority to protect deposits in excess of $250,000 per person or entity. While this would have been enough to protect more 99% of all individual depositors, it would have left trillions of dollars unprotected in accounts owned by corporations, non-profits, and government agencies. All these unprotected dollars would have been vaporized as soon as the banks failed.
As a consequence, thousands of firms would have been wiped out. Hospitals would have gone broke overnight – through no fault of their own. School districts would have been unable to pay their teachers or their janitors for months, until the next year’s property taxes were collected. States might have been forced to default on their public debts, setting off a panic in state and municipal bond markets, further demolishing what was left of the economy. It would have been, in a nutshell, worse than any financial panic we have ever seen in all of history. Few individuals would have survived unscathed, and hundreds of thousands would have actually died as a consequence of the stress caused by losing their jobs and their assets.
The consequences of such an unchecked financial meltdown – the wholesale destruction of much of the liquidity that existed in our banking system -- would have been worse – much worse – than a nuclear attack by terrorists. The deflationary spiral would have continued unchecked for years, as it did during the Great Depression. Eventually, normalcy would have returned, but only after a prolonged period of extreme economic dislocation, social conflict, terrorism, and violence.
There was, therefore no choice but for the Federal government to intervene to save these huge financial corporations. Absolutely no choice. No matter how much it cost, the price had to be paid. Treasury Secretaries Henry Paulson and Tim Geithner understood this, as did Federal Reserve Chairman Ben Bernanke, and that is why they acted as they did.
None of these men is a socialist. Paulson is a centi-millionaire who made his fortune working for Goldman Sachs – not exactly the prototypical background of a socialist revolutionary. All of America’s top policy-makers acted pragmatically, violating their own principles, because that was the best way to protect the American people and the American economy.
They did what they had to do, like it or not. In the absence of such pragmatists in key positions of power, the entire edifice of our post-war economy would have collapsed.
The sudden phase shift to corporate socialism was therefore unavoidable in the fall of 2008. We never really had a choice.
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