A Free Market Anti-Capitalist Writes...

Sometimes the gap between rhetoric and reality is unbridgeable ie 1956 Soviet tanks move into Hungary to save the people from themselves...

When the Chinese Communist leader Chou Enlai was asked in the late 1960s what he thought of the impact of the French Revolution, he said “It is too early to say.” Looking at the current economic crisis which has enveloped the capitalist world in recent weeks, most notably the so-called ‘Anglo-Saxon’ ones (although anyone who has actually perused the history of Anglo-Saxon England would surmise that the pre-1066 equivalents of ‘short-sellers’, ‘hedge-funders’ and other speculators would have been strung up from the nearest tree ages ago), no-one can with certainty predict the future. All that can be said with certainty is that something of world-historical proportions has occurred.

With $700bn promised by the Bush Administration, Treasury, Federal Reserve and Congress to prop up the US financial system, it might be surmised that the economic system we have lived under since the 1980s has been saved. However, as no one outside the most far-out Marxist sects expected a crisis of this magnitude to occur, no one really knows if this (to sound Churchillian) is the end of the beginning, or the beginning of the end.

What I would say, putting my head on the proverbial chopping bloc, is that I think the current ‘Anglo- Saxon’ economic world-view has been discredited in the same way that the events of 1956 discredited Communism. Although Soviet tanks were sent eventually into Hungary to crush the ‘national Communist’ regime of Imre Nagy, in the same way all that money has been sent in to bail the US financial system out, no-one can pretend that the current system of finance capital can survive without the backing of the state, whatever economists, politicians and assorted big business apologists may say to try to convince us otherwise. To argue that we now live under a free market system that does not really need state handouts is to employ the same rhetorical devices, and capacity for intellectual self-delusion, as those so-called Marxists after 1956 who claimed that the Eastern Bloc was run for the benefit of the working classes.

As a free-market anti-capitalist, it would be good to think that the current crisis will make enough people realise that Big Business and Big Government are (occasionally unruly) twins who adopt ‘planning’ or ‘the market’ as an ideological ruse for pursuing extra profits and power when they need it. Although I think the use of the phrase ‘Bolshevik’ in this context is hilarious, I am encouraged by the increasing numbers of people in the US (including members of Congress) who realise that the Bush/Paulson bail-out to the banks is a form of ‘socialism’, albeit one for the rich rather than the majority. I would like to think something similar might happen on Airstrip One, but apparently we always lag behind the Americans in economic and political matters…

Free Market Anti-Capitalist Notes

Ayn Rand For Beginners:



For your perusal,this one from Chris Dillow:

Public vs private: what's the difference?, July 17th, 2008

For years, we’ve been told by left and right alike that the state is a vehicle for socialism whilst the private sector embodies free enterprise and self-reliance. It looks like this is pure bull.

Exhibit one. Cath Elliott describes the class conflict in the public sector:

It's pretty hard to remain objective when you see your work colleagues being shafted, year-in and year-out, by politicians and chief executives who haven't got the faintest idea of what it's like trying to survive on close to minimum wage incomes.

Exhibit two. Vanni Treves, chairman of Equitable Life, tells us that the fund management industry was nationalized years ago. The Equitable’s management, he says, was only “in part” responsible for the company’s collapse.

It was the job of the regulator to supervise what the [Equitable] management was doing…the government must pay the bills for its own failings.


In other words, fund managers were really just civil servants working under government supervision. And like civil servants, they expect the tax-payer to pick up the bill for their own failings. At least Fannie and Freddie had the honesty to admit they were government-sponsored firms.

So, the state is capitalistic in the sense that bosses and their hangers-on rip off workers, whilst what we all thought was the market sector was really a branch of government.

Confused? You will be if you think left=state=socialism and right=market=self-reliance.

But as I said, the real divide isn’t between “left” and “right” but between those who believe in spontaneous, undirected order and those who believe in top-down management, be it in government or business.

And what these two instances show us is that management (as distinct from administration), in the state or “private” sector, is much the same - an inherently corrupt activity aimed at ripping off workers, customers or tax-payers.

Also this about State Subsidies For the Pointlessly Rich from Our Future:

Wall Street Socialism, By Robert Borosage
July 16th, 2008


This weekend, Treasury Secretary Henry Paulson, former head of the Goldman Sachs investment house, provided us with a perfect demonstration of Wall Street socialism.

He announced that the Bush administration would seek congressional approval to bail out Fannie Mae and Freddie Mac, the government created but privately owned, profit-making housing finance companies that hold or guarantee nearly half of the U.S. mortgage market—some $5 trillion in debt. Paulson seeks and will get an unlimited line of credit to guarantee their debt, as well as authority to purchase their shares to supplement their capital base. The Federal Reserve announced it was ready to provide lending while waiting for Congress to act. Paulson said the new subsidies were designed to sustain the two institutions in "their current form."

Perfect. The two institutions have always been more fowl than fish. Created by the government in the 1930s to help lubricate the U.S. mortgage market by buying mortgages from the banks so they would have the cash to make more mortgages, Fannie and Freddie were able to borrow money at a discount because of a widely shared assumption that the government would stand behind their debts if push came to shove. Their operations were regulated, limited by laws detailing what mortgages they could assume. (They were essentially prohibited from diving directly into the subprime muck.)

But as they grew and profited, their executives pocketed lavish salaries and bonuses—giving them an incentive to grow even more (and as we discovered earlier this decade, to cook the books). Last year, for example, the Chair of Freddie Mac took home a cool $18,289,575. Fannie Mae CEO Daniel Mudd reaped a 7 percent rise in pay to $13.4 million in 2007 while the company lost $2.1 billion and its shares fell 33 percent. Nice work if you can get it.

Now with the bursting of the housing bubble, push surely has come to shove. Foreclosures are soaring, the two institutions have sustained billions in losses, their shares have plummeted, and, according to former St. Louis Federal Reserve President William Poole, one and possibly both would be bankrupt if their assets were marked down to their current market value.

So now the Bush administration proposes to make the federal guarantee explicit and even to offer taxpayer money to help recapitalize the two banks if needed. Everything has been nationalized—except the profits and the pay scales of the bank's executives.

That's right. If the guarantees work, private speculators, having driven the stock down, will clean up on the upside. And the bank's CEOs will continue to pocket the multimillion dollar salaries that are de rigueur on Wall Street. Call it Wall Street socialism. Their losses are socialized; their profits are pocketed. You and I will pay for their failures. And if conservatives have their way, their families will pocket their successes, without even having to pay a tax for the transfer of the estates we've helped to create.

These enterprises are operating on our tab now—completely. Why not just nationalize them, as even that font of economic convention, Sabastian Mallaby suggested yesterday in The Washington Post? Sure, we'd have to add the $5 trillion in debt to the federal balance sheet, but we could add the assets also. And after Paulson's announcement, global investors are already toting up their debts onto the federal balance sheet.

Why pay dividends to shareholders when they are essentially playing with our money? Why pay managers of public enterprises the bloated pay packages of Wall Street speculators? Why allow them to finance lobbyists to shield them from accountability? The fiction of their separate existence has been exploded; let's save the dough and run them efficiently.

The bailout of Fannie Mae and Freddie Mac is only the most recent and extreme version of Wall Street socialism. The Bush administration has done essentially the same for private providers of college loans. The Federal Reserve has made taxpayers the guarantor not simply of the banks that it regulates, but the shadow banking system of hedge funds and investment houses that it doesn't regulate. After the bailout of Bear Sterns, they basically are gambling with our money. The Federal Reserve has now traded more than $500 billion in federal bonds for the toxic paper of private banks and investment houses, some $200 billion of it in mortgage-backed securities, worth dimes on the dollar. This massive subsidy—justified as necessary to keep the banking system afloat—is not accompanied by limits on what gambles the speculators can make, how much debt they can take on, what rewards they can pocket. They are playing with house money—not exactly an incentive for prudence.

Republicans seem ideologically committed to these kinds of arrangements. In Medicare for example, conservatives have demanded that the government subsidize private insurance companies to compete with public Medicare, even though Medicare provides health care much less expensively. When Bush and the Tom DeLay Congress drove through the prescription drug bill, they included a provision that prohibits Medicare from negotiating cheaper prices for drugs, effectively turning the bill from a benefit to seniors to a multibillion-dollar subsidy to private drug companies (not surprisingly, after Wall Street, the drug companies finance one of the most lavish and powerful lobbies in Washington).

Now it makes sense to me for the government to subsidize housing mortgages and college loans. Encouraging home ownership and higher education are central to sustaining the broad middle class that is America's triumph. But I can't imagine why we need to let bankers and investors pocket the upside, when they are playing with our money and we're covering their losses. Public enterprise may be staid and bureaucratic, but it's a lot cheaper and more efficient than the perils of Wall Street socialism.