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The Failure of Conservatism and the Future of American Economics. Part I

January 8th, 2013 · No Comments · ALEC, Capitalism, Corporations and Industry, Economics, Labor, Lobbying, obstruction, Politics, Populism, Social Security, taxes, The Budget, Wall Street, wars and militarism

In 1946, in the shadow of the carillon tower on the campus of the University of Chicago, an economist by the name of Milton Friedman began teaching economics to some of the brightest students in the country. His particular approach to economics was by and large what might be called neo-classical liberalism. It is a redefining of an economic philosophy called Classical Liberalism.

This economic philosophy proposed that society be supported by an economic system that would be unimpeded from any interference with the free exchange of goods. In other words, an economy uncluttered with obstructive regulations that would slow the interaction of buyers and sellers, of young growing enterprises leading to jobs and prosperity and of corporations that would provide needed products and services on a large scale.

This was basically the approach of Adam Smith in “The Wealth of Nations,” written in 1776, the year of the Declaration of Independence. When Smith wrote his treatise there were no corporations as we know them. There was no means of internally powered locomotion either by land, sea or air, no means of immediate communication and a large segment of the American, British and Latin American workforce was made up of slaves

So this was the era into which Classical Liberalism was introduced, a decade or so after Adam Smith’s demise, around 1800. Today, the world is much changed.

Much had happened between 1800 and 1946 also, when Friedman began teaching at the University of Chicago. Economics had become as complex as the now primarily urban, metropolitan societies it served. Innovations such as electricity, locomotion, aerodynamics…and by 1946, atomic power…dictated different approaches to the idea of “economic freedom.”

By 1946, when Friedman began teaching a classical conservative economic philosophy, New York City was no longer a small seaport made up primarily of British and Dutch settlers but a major metropolis of over 3 million people. Transportation from one place to another was no longer a solitary journey on horseback or with a half-dozen others in a coach-and-four, but a communal journey on a commercial enterprise called a railroad or an airline. The question no longer was whether we could free ourselves from economic serfdom with a free enterprise society but how we could find more free time on weekends.

The basic point of the Conservative point of view is let the markets decide. Wall Street executives, for example, should be free to create any stock they wish and, in a totally free economic condition, sell it to the public. The people, once fleeced apparently, will decide not to be fleeced again. Government merely provides the environment for transactions to take place. Hayak and Friedman would say, yes, this is best. Let the market decide. Others would say that the result of unfettered capitalism is uncontrolled greed, leading to speculation, often fraud and too often economic catastrophe.

That is where we are today, after half a century of Chicago-style economics and after 30 years of one foolish, myopic, politically motivated economic disaster after another by the Conservatives. We have seen the most recent example. It is called the Bush Second Great Depression.

We are still living through it slowly because a group of Conservatives, having followed the Friedman ideas to their logical conclusion have joined with the greedy—the lobbyists, the ultra-rich, the monopolistic corporate CEOs, the Wall Street Financiers, and the military, including contractors–to take over the economic reins of the country for their own benefit.

Obviously, there are little or no controls. Wall Street is Free! Free of the kinds of regulators who would have spotted the danger in trading derivatives based on faulty mortgage documents. (As an intelligent and honest woman by the name of Brooksley Born, head of the Commodity Futures Trading Commission did, and was in fact excoriated by Wall Street, Conservative economists like Larry Summers, Alan Greenspan and Robert Rubin and what seemed like every single Republican in Congress. .) Guess what? She was right and they were wrong…and you paid the price for it.

The results of a doctrine of pretty free markets did not work well for in practice. Alan Greenspan, the famous disciple of Milton Friedman and of Ayn Rand and her wildly erratic philosophy of “hands-off everything,” sat in his own personal shock and awe at Congressional hearings to admit that his entire economic philosophy, the rules that he had lived by…free markets will always seek their own best interests…had become a nightmare.

There were 14 million people unemployed in 1932 and after the Bush Second Great Depression there are about 14 million unemployed now. The only difference is that in the first 50 of the 80 intervening years, we had a common sense approach to banking and finance, not theoretical claptrap. Consequently, the 14 million visibly unemployed today account for less than ten percent of society, not 25% as in 1933. But, don’t give up on Conservatives yet. They are trying to bankrupt everyone, starting at the bottom of the economic scale and working up.

So, in 2005, after years of lax regulation in the Bush Administration, Bush and Cheney appointed Christopher Cox, an avowed enemy of regulation as head of the Securities and Exchange Commission. Cox, who should now be considered Arch Enemy Number 1 by the people if not by the FBI, was the man as personally responsible for the crash as Eichmann was for the concentration camps.

By forcing lax regulation, by discouraging investigation, by laying off aggressive regulators while head of the SEC, he was responsible for the crash. He let the markets decide that the credit default swaps built onto worthless mortgage securities were acceptable when he knew they were not. He knew that there was not enough insurance in all the world to make these worthless pieces of paper secure. Not to mention the fact that the company most responsible for insuring them, AIG, was actually indebted from these same worthless products.

That meant that trillions of dollars of worthless paper had been sold world wide to organizations that were now poorer by the amounts that they had purchased. And so, flying freely in the breeze, the markets collapsed under the weight of simple failure to control its appetite for more….more of what no one knew until it was too late. It was, we discovered, simply uncomplicated greed, the urge for more, more, more.

Uber-conservative Fed Reserve Chairman Alan Greenspan’s world had been turned upside down. But his was the world of the multi-millionaire who could afford to dabble in economic theory. His was not the world of the factory worker whose home had lost all its equity overnight or the restaurant manager whose business closed leaving him unemployed, or the auto salesman out of a job with no savings and no future.

Greenspan’s logic had said that no institution would willingly and knowledgeably be so greedy and so stupid as to risk bankruptcy merely for temporary gain. He was wrong. The Conservatives were wrong. Friedman was wrong.

Milton Friedman’s philosophy was basically that of Frederic Hayak. Create a society and then let that society be free to create its own economic conditions, markets, products, services that the people decide they want through sales and purchases in free markets. There will be winners and losers. Government’s responsibility is not to sort this out. It is to get out of the way. One must remember that in a capitalist society the owners of capital will be hugely more highly compensated than those who benefit from that capital as workers. They earn more because they risk more, putting their own capital at risk…theoretically.

Somehow the idea of an unfettered economy does seem to be better for the working of the economy. That is, businesses seem to do better if no one interferes to slow them down. If I want to sell you an old junker of a car and I can get away with it, without anyone stepping in, I can make a lot of money fast. But it also means that what goes up faster may come down harder. So what happens to a totally unregulated, free economy when the model is brought to maturity? What is the logical end of the system as it progresses?

After all, an unregulated system allows corporations to grow so large that, while they are the most efficient in a win-or die system, they can then also control the markets that they serve. That is good for the corporations, but ask anyone who has waited on line for a half-hour to hear a foreign voice say, “Your business is important to us” and then get no satisfaction and no alternative supplier to whom one can turn.

When you are the only corporation selling a service or only one of two or three, doing the same thing, at the same price in the same way…this is monopolistic competition, totally monopolistic capitalism. In many areas of the country today, choices in key services for consumers are left in the hands of only one or two suppliers and those suppliers of basic services are left without regulation for a variety of reasons. Almost all those reasons, by the way, have to do with political power. More on that later.

In some communities there is only one supplier of cable television or one Internet provider. As over-the-air television has all but disappeared as a result of digital technology, a small group of massive cable companies dominate the industry. Consumers are basically left without viable options. That is conservative economics, not in theory, but in practice.

If monopolistic competition results from totally unregulated economic conditions, then what does conservative economics hold for the average worker? We know the answer to that now, too. It means limiting the opportunities for workers to organize to improve their conditions and their wages. It means limited choices in the market place, limited choices and higher prices for goods and services. It means organizations of large corporations against the popular will. We have examples of all of these today. Limited choices in energy, in communications, in media, in food, clothing, travel, and medical care.

A large number of giant American corporations, household names like Coca Cola, Kraft, WalMart and Cigna, have for some time been members of an organization called ALEC. It has tentacles in all 50 state legislatures. Its key followers are the 30 Republican governors across the country, and the Right Wing state legislators that ALEC pays off with trips each year to fashionable resorts. They spend all their time lobbying for anti-pollution, anti-liability, anti-suffrage movements, always trying to create legislation without making it obvious that this long-secret organization was behind these anti-Populist laws.

And that is the direct result of unlimited, unregulated political action in support of a goal, which is each businesses goal, if not regulated. That goal is total market domination and to hell with the People. There is no debate about it. Follow this logic. Huge corporations, free of serious regulation since 2001 have grown massive by buying up smaller corporations (no anti-trust regulation enforcement). Then they make huge profits and often pay no taxes.(no regulation against keeping profits and workers off-shore where there is no regulation,e.g., no taxes.)

With some of those huge monopolistic profits, they organize into groups like ALEC (no regulation against it) to increase profits by…paying off legislators (no regulations against it the way they do it) to write legislation against labor (28 primarily Republican states now have Right to Work laws) and against popular issues, like clean air and water. So we have passed theory. We now have a working laboratory called the American economy that demonstrates what Conservatism can do. We know what it can do because we know what it has done and will do again. Conservatism is what is what is happening now.

And what is that? Since Ronald Reagan, two serious economic crises, one of which was and is devastating to our society and possibly our future. One very damaging unnecessary war (not only for us but for innocent citizens of Iraq…and we wonder why Arabs hate us), tax cuts primarily for the wealthiest Americans that have dropped our annual revenues to approximately 15% of GDP from 20% under Clinton and Carter, causing massive deficits and a national debt of $16 trillion.

So we know what to expect from Conservatism. Promises of gold in the hills, promises that tax cuts will create a more vibrant economy, promises that all will be well, until…things don’t work out. And now what is their solution, those Conservatives working for huge corporations and billionaires…the Conservative solution is to blame the average person for wanting the “entitlements” we all paid for over 40 years or more of a working life. Conservatives want to cut Social Security and Medicare.

And, believe it or not, that is just the beginning.

(Part II continued in next post.)

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