Were the Leftists Right? The Crisis of Capitalism

Presidential candidate Ron Paul recently stated that we
should eliminate, as a costly waste, the Federal Emergency Management Agency, a
completely inane pronouncement that underscores the extremes to which the
libertarian and small government types are willing to go.  Libertarian ideas certainly resonate with
those of us who oppose the nanny state and government attempts to determine
citizen behavior, but there is a limit, especially regarding the economy.  Back in the eighties I met the Libertarian
presidential  candidate and suggested
that without government regulation the Seven Sisters (big oil) would control
the country within 48 hours.  His reply
was that the consumers would refuse to buy their product until they acted
reasonably, which struck me as naive to point of stupidity.  How do consumers go without oil or power or

And now Republicans and Tea
Party types are adopting these extremist views, suggesting, it seems, that the
only legitimate functions of the federal government are fighting wars, keeping
close watch on the citizenry and prohibiting recreational drugs.  These people appear to inhabit a world where
poverty is always the result of personal failure and the market forces really
do work to solve all problems, where only good Christians are truly virtuous
and science is always suspect.  This is a
dream America,
one that has never existed, even in those halcyon days of the nineteenth
century when a (white Christian) man was a man and businessmen were free to
build America
unencumbered by silly government regulations.

With 312
million people and the largest economy on an increasingly interconnected planet
the United States
is a very complicated place, a social and economic structure of a complexity
that is seemingly beyond the intellectual capabilities of many on the
right.  This is no longer a nation of
small farmers and a predominantly white Protestant citizenry, and we have long
since moved beyond the village economy where the forces of supply and demand
operated more or less freely.  Yes, the
free marketplace has traditionally regulated itself, but in the long run
and with complete disregard for the welfare of the humans involved.  American growth in the nineteenth century was
spectacular, but it was paid for with the emergence of an economically
marginalized class of industrial workers and an endless cycle of boom and
bust.  And now the evolution of the
financial markets in the twenty-first century is threatening capitalism’s
ability to right itself even in the long run.

capitalism, whatever its touted dynamism, has historically produced a number of
effects deleterious to society as a whole.
First, and most obvious from American history since the Industrial
Revolution, there is the inevitable emergence of monopolistic practices, which
skew the marketplace and deprive the consumers of the basic benefits of
competition: lower prices and innovation.
This development is most dramatically displayed by the Robber Barons of
the nineteenth century, but despite more than a century of anti-trust
legislation the problem remains, particularly in the energy, banking and
information industries.

Second, and
plain to see around the planet, untrammeled capitalism has no regard for the
environment, no matter what industry public relations say.  There are of course those who feel that
economic growth justifies a little smog and the odd patch of scarred terrain,
but now in the twenty-first century the potential magnitude of such pollution
undercuts the growth excuse.  It is no
longer just a question of unsightly landscapes or a few people poisoned by
toxins in the earth or water; rather it is oil spills that injure the lives of
millions and destroy huge habitats and air pollution so serious that we are
actually affecting the climate and threatening a global catastrophe.

Finally, the
market place is dumb.  Even if supply
actually freely followed demand, which is unlikely on the large scale, the
market would be responding to the short-term desires of the consumer and the
typically short-term profit motives of the producer.  Such is generally conducive to neither the
most efficient use of resources nor the best long-term interests of the society.  An auto company would, for example, have
absolutely no reason to market a more efficient engine if consumers were
content with the current price of fuel, even if it was perfectly clear that
fuel was disappearing.  The market spurs
innovation for immediate profit not to solve future problems or for the
betterment of society.  It can in fact
injure the interests of society: if more money can be made by growing sugar
cane for ethanol instead of grain for food, concerns about hunger are not
likely to prevent the switch.  To put it
another way: the proper purpose of business is to make money, not to
demonstrate any regard for humanity.

The history
of deregulation in America
during the last 30 years would appear to underscore these concerns.  Deregulating the airlines has in fact
generated some lower prices, but has also sent the industry into such chaos
that airline companies come and go with depressing regularity and it is
increasingly unclear who actually owns the plane you are flying on.  Deregulating the savings and loan industry of
course led to a spectacular collapse and cost the taxpayers almost $90 billion.  When allowed to, states that chose to opt out
of regulating their power companies have seen the price of electricity rise and
service and reliability drop.  Check your
cable bill for the impact of “free competition” in that market.  The free market and human greed are a toxic
mix, less likely to create jobs, as the free marketeers  claim, and more likely to create misery.

All this,
however, pales before the threat of a non-regulated financial sector in the
twenty-first century, as the recent economic collapse makes very clear.  A relative handful of greedy men brought the
global economy to the brink and thereby threatened the lives of virtually
everyone on the planet.  Hedge funds and
private equity firms did not even exist when the banking industry was brought
under control in the 1930s, and their arcane workings have helped shield them
from government attention.  As late as
1985, when serious deregulation began, profits made by socially useless
financial institutions were at most 16% of the profits of all American
companies; they now constitute more than 40%.
These are not “job-creators,” to use the new Republican term
for the wealthy; they create absolutely nothing, essentially using the economy
as a giant casino.  For all that they
treated their workers like chattel, the Robber Barons actually produced goods
and services and helped build the country and economy.  The new lords of Wall Street do nothing but
injure the economy, all the while enriching themselves to a degree that would
impress even the Morgans and Rockefellers.

It should
now be perfectly clear to all but the densest conservatives that these masters
of financial manipulation and legerdemain with their arcane and opaque
instruments are far more serious a threat to our country than any group of
traditional terrorists.  Anybody can blow
up a building; blowing up a national economy, now that’s something.  Yet even in the wake of the collapse of 2008 nothing
effective has been done to bring these clever greedy people under control, and America’s
new flirtation with the extreme right and our fervent embrace of stupidity
fairly guarantees that nothing will be done.

realization that serious money can be made from economic downturns leads
inevitably – as it has – to the emergence of a coterie of
“businessmen” who have zero interest in the state of the economy,
because money can be made regardless of that state.  This is incredibly novel since traditional
industrialists and businessmen always preferred a prospering economy; you made
more money by selling more stuff and expanding your business.  If, on the other hand, you will make huge
profits through bond manipulation if the Greek economy completely tanks, you
will obviously hope for such an Hellenic bankruptcy, regardless of the economic
devastation that could result.  You in
fact will help bring it about: as the markets learn serious investors are
betting on Greek insolvency, Greek credit ratings will suffer further and
reluctance to extend more bailout money will grow.

But why stop
at hurting single countries when it is actually possible to hurt everyone on
earth?  The hedgers have discovered there
are huge profits to be made in playing with commodities on a global scale, and
one of those commodities is food.  This
is unbelievably pernicious.  A recent UN
study reveals that while speculation in food stocks has nothing to do with
actually producing and delivering goods, it does indeed impact the real world
by creating prices that have nothing at all to do with supply and demand.  And those artificial prices are inevitably
higher than real market forces would determine.
In a one year period running from 2010 to 2011 world food costs rose
39%, two critical commodities, grain and cooking oil/fats, rising by some 70%,
and virtually all this increase was due to trading in agricultural securities
rather than shortages.  There is plenty
of food in the world, yet millions are starving.  Some miniscule part of the problem is due to
inefficient distribution, but for the most part it is because prices are too
high, all because people who have nothing whatsoever to do with the food
industry are making billions manipulating it.

with this global outrage, Alan Knuckman, one of the new stars of commodity
investment, replied: “The age of cheap food is over,” seemingly
oblivious to what that bald statement means to most of the people around the
globe.  Or perhaps he does: he added
“Most Americans eat too much, anyway.”  Well, there are in fact some Americans who do
not get enough to eat, but more important, there are several billion poor souls
around the world who must spend an average of three quarters of their income on
food.  For them the higher prices generated
by Knuckman and friends are not an inconvenience but a matter of life and
death.  And meanwhile this loathsome
creature is making millions, essentially by making life more miserable for

These people
are hurting humanity in a way that sundry terrorists can only dream of, and
they have it in their power to bring the global economy to collapse.  Yet little is being done to protect us from
these predators, who make BP and Exxon Mobil look like socially responsible
companies.  The European Union and United
States are aware of the threat but finding
it difficult to produce regulations that are effective, especially since the
financial industry is globally interconnected and to a degree can dodge the
restrictions of any single country.  The US
has prohibited banks from engaging in dangerous speculation, but the
speculators simply left the banks for other venues.  A measure of the lack of progress: in the US
the “shadow banks,” as the hedge funds and private equity
institutions are known, hold $16 trillion in debt, while traditional commercial
banks hold only $13 trillion.  This is a
financial weapon of mass destruction just waiting to go off.

And while we
all wait helplessly for the next crisis, a novel question is now being debated,
at least in Europe:
Were the leftists right about capitalism after all?  With the economic failure of the Soviet
Union and the emergence of capitalist enterprise in China
collectivism as an economic system seemed to be finally and utterly discredited
and the free market economy triumphant, but now it seems that some of the
traditional cracks in the capitalist edifice are becoming fissures that could
bring the whole structure down.
Ironically, however, collapse of the system will not arise from oppression
of the working class by industrial magnates, as predicted, but from something
that Marx and Lenin could hardly have foreseen.
It will not be brigades of angry workers in the streets but clever young
men surrounded by computer screens in dark rooms.



2 comments on “Were the Leftists Right? The Crisis of Capitalism

  1. Amen. Capitalism and for that matter economic systems in general need growth in order to function. One would wonder how this need for never ending growth can be accommodated in a planet with finite boundaries and resources. There is a need for an economic system that can sustain human activity and a dignity without the need for infinite growth. .

    • qqduckus says:

      Yes, this is another problem – all the economic models involve constant growth and that is simply unsustainable. Further, the constant spending necessary for a successful consumer economy at the national level is increasingly at odds with the economic well-being of the individual. Marketing pushes instant gratification ( a reason anti-drug adds are pointless) and the credit system makes it easy, and the consumer is in trouble. Or the consumer is clever enough to save money, and the economy suffers. Sometmies there is an up side to being old.

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