Before the Second Wave of Crisis


The gap between democracy and the financial crisis has its origins in the limitations not only in the present design of the economy, but also the polity and those assumed to offer an alternative to both—“the loyal opposition.”  The fundamentals of any alternative are readily available and resonate with popular will, but the average citizen is unable to secure the representation that they deserve. Instead, we have mass political and economic illiteracy among elites, cults of personality attached to financiers, politicians and even intellectual figures.

If only members of Congress would read John Kenneth Galbraith’s The Great Crash, they would learn how the great depression was linked to the policies they themselves generated: insane belief in destructive financial innovations, “tax reductions with primary effect on the very affluent,” (including those later supported by President Reagan), “the vested interest in euphoria,” leveraging beyond our means, deregulation, etc.  Galbraith suggested in the 1988 introduction to his book, that “there is today, as there was not in the 1930s, a clearly specified government responsibility for maintaining income, employment and a supportable level of economic activity.”  Yet, this responsibility has seriously eroded with rising income inequality, deindustrialization, outsourcing and regressive taxation.

Galbraith’s formula for avoiding depression is ignored across the board.  How can knowledge and power be so easily separated in contemporary society? The answer must have something to do with the decline in “institutional economics,” a decline which can be traced to the ascendancy of Keynesianism with the great depression and the role which economic and political elites, together with the quantitative turn, have had on the economics profession.  Even though Galbraith was a Keynesian, few followed his embrace of Thorstein Veblen, a key critic of the pernicious role financiers played in reducing the scope of innovative and productive activities.

The Economic Failure:  Rewarding Parasites, Retarding Wealth

The financial crisis as we know was triggered immediately by the popping of the housing bubble.  Why can’t citizens pay their mortgages?  Growing inequality and economic depletion of the middle class has rendered large pockets of the U.S. economy a third world country.  A simple transfer of funds to such persons would have to be repeated every decade or so to avoid future failures and end up with the treasury continuing to print money to compensate for an economy that fails to create real wealth. Training programs do not in themselves create good jobs. The problem is the ability of the economy to generate and maintain good jobs that pay rent and mortgages.  If the government simply tightened regulations and did not lend out money to persons desperate for housing, one might see millions more homeless.  Or, one could see overcrowding in housing that is hardly conducive to “productive workers”.

Loan sharks sought a fast buck and placed many in jeopardy. Yet, these loan sharks would lack currency and the predatory pricing of credit cards would be irrelevant if the prices and availability of housing were stabilized, if the supply of good quality jobs were maintained, and if we had proper funding for university students.  The present design of the market has failed to produce such alternatives. The markets have rewarded fictional investments, not long-term productivity and job enhancing activities. Housing could partially be de-commodified, as housing activists have argued, through land banks that bought up land and through cooperatives stabilized housing prices. Thus, one key problem is market failure.

The Political Failure: From the Trojan Horse Society to Extension of the Third World

The political elites will reward themselves even if it means impoverishment of the majority.  A recent CNN/Opinion Research Corporation poll says “a majority think that the bailout package will not prevent the economy from going into a deep and prolonged recession–but they turn thumbs-down to another bailout package if this one does not work. Only one in five would support more assistance beyond Friday’s $700 billion package.”  Citizens lack the power vis-à-vis the state and their views have (in the short term) become irrelevant.  Despite popular opposition, Congress is likely to blunder further because of ideological blinders, financial industry lobbying and campaign donations, and the disciplinary system imposed by both political leaders and mythic belief in the stock market.  They may avoid utter failure by using their equity in the banking system, but this is insufficient to deal with much larger, regenerative problems like predatory militarism, income inequality and financial capital decoupled from U.S.-based industrial production.

As others have noted, the bailout plan is partly about the Chinese government asking the U.S. tax payer to pick up the tab left that was handed him by Uncle Sam. Yet, there is something else at work.  Wall Street and the Military Industrial Complex—both of which co-opt talent, waste resources and are primed by foreign investors—are also among the main beneficiaries of the citizens’ tax pool.  Taxpayers are forced to pay for these twin Trojan Horses in American society.  The twin Trojan Horses are machines that feed off of speculation and war, leaving behind unemployment, debt and death.   The President and Congress are the farmers and citizens, soldiers and consumers the crops.

The state might play a role in a solution to our multiple crises by investing $100 billion in subsidies for college students, $100 billion for public housing to pay for low-rise garden cities, $200 billion in capitalizing land banks that stabilized the value of housing and made non-predatory loans, and $350 billion in an infrastructure and industrial development bank.  This bank could promote a diverse set of activities including electrification of railways and modernization of tracks, R&D in alternative energy, mass transportation and robotics research.   Not all liquidity has the same political impact, but most established financial experts do not understand politics.

As many have now noted the rational solution would be to rally around “Green Collar Jobs,” demilitarization, reindustrialization and infrastructure investments.  This alternative banking system could also lend workers and local communities funds to purchase now-devalued stocks in their corporations (like G.M., Ford and Chrysler) to enhance decision-making power vis-à-vis management.  All could be paid for by taxing the rich and cutting back the multi-billion dollar military machine, but that itself would require not simply unilateral budget cuts, but disarmament plans (to leverage cut backs in multiple countries), changing U.S. foreign policy to embrace peaceful diplomatic engagement, and converting defense firms from their addiction to government spending.  The environmental movement should push for disarmament, but many in the movement have made the Pentagon their ally, thereby becoming patrons of the system which brought us the financial crisis.  Who holds such individuals to account?

Alternative investments, of the Green Collar variety, are hard to realize when the government’s leaders, in concert with a large swath of Wall Street, is burning money and wrecking the currency. As C. Wright Mills noted, The Power Elite joins the military, political leaders and the business class. Instead of supporting citizen wealth, vast swaths of the American public are treated by economy and state like a third world country. Cities like Camden, New Jersey and Detroit, Michigan might qualify for an IMF loan or perhaps they should appeal for aid from Cuban doctors, Venezuelan low cost fuel, or European Union economic development aid.  Will parts of the U.S. become economically aligned with what the far right calls “rogue states” or “Old Europe”?

The deindustrialization of the U.S. and rule of oligarchs has pushed large segments of the population into the Third World camp.  The present financial crisis has produced for the erstwhile home owner a problem akin to a third world debt default. Financial medicine men got a free ride to sell fictitious cures.  Any attempts to create a real economy against the wake of a speculative bailout must confront the fact that the “bailout” amounts to an economic draft.  American taxpayers can propose alternatives, but they are weighed down by the federal tax to support Wall Street. This limits the share of real capital to do something useful, but should have a downside for elites. Unlike the military draft which Bush avoided through the surge, conscripting thousands of immigrants, Iraqization of the war, and the multiple tours of duty for troops, the ability of the Bush regime to displace its failed policies to others finally came to an end. Thus, in addition to market failure, we have a central problem of state failure.

The Loyal Opposition’s Failure: From the Economic Draft to Debating Movement Design

If the military draft was a key engine of the original antiwar movement, why can’t the economic draft serve the current oppositional movements?  After all, according to philosopher Immanuel Kant’s “perpetual peace” thesis, taxes like military service potentially link the citizen to the state and thereby hold it accountable. Can we simply expect a solution to the failures of the market and the state to come from the loyal opposition?  Does that opposition function better than our other institutions?  The present financial crisis, like the blatant election theft in 2000, presents an opportunity for social movements to mobilize millions of disgruntled voters.  There has been wave after wave of crises which the Left or authentic liberal and conservative small “d” democrats could have exploited by rallying around an alternative agenda.

The problem, however, is that our social movements are badly designed.  Their charters and vision are so limited that they are putting out yesterday’s fires.  Look at their homepages and compare them to today’s headlines.  You will often see a yawning gap.  If management schools sometimes debate failed management strategy and political science departments analyze failed government policies, there are too few fora to debate the limits of alternative movements and sectors.  If our choices inform democracy’s foundations, then the absence of discussions about choices (and the alternative design of the loyal opposition) will and have sabotaged democracy.  Repeatedly the design decisions are made in the progressive equivalent of a smoke filled room.  A premium is placed on symbolic and ad hoc protests, petitioning the state, and fear mongering.

One reason for faulty designs of the alternative sector is that social movements have been captured by NGOs and 501C3 organizations which in turn have been disciplined by the market (through less enlightened foundations) and the state (through petitioning established fiefdoms in Congress) and appeals to the narrow filter of ideological space (through the established media).  The public is atomized by the hoarding of mailing lists, posturing over policy product differentiation, identity and symbolic politics, or postmodern absurdities.  Sometimes we see coalitions that rally greater numbers but advance the lowest common denominator. Sometimes the only persons handing out political literature in the street belong to the lunatic fringe. Hence, to market and political failure, we have social movement failure, or a failure in civil society and the “third sector.”

Social Innovation as an Alternative to Failure: Towards a new Reinvestment Politics

Alternatives to these failures would require an alternative to the established or dominant practices in the worlds of the market, state and loyal opposition. There are of course exceptions to the rule defined by the triple round of failure.  There are some productive industrial companies, like California-based Haas Automation, Inc., which designs and successfully manufactures computer numerically controlled (CNC) machine tools.  There are politicians, like Dennis Kucinich, who try to educate the public about alternative paths and institutional breakdown.  There are social movements and non-profit organizations that link truth to power or (power to truth) and a growing movement for media reform.  These fragments could generate an alternative to the present condition in which we appear largely powerless in the face of the alternating spectacle of Wall Street meltdown, Executive fumbling, and Congressional sabotage plans.  Of course, they would need to do something different that might mobilize far greater numbers than before.

We need alternative institution building, to create pools of collective economic power, and strategic targeting of local politicians to advance a democratic procurement agenda through cities and states. We need an alternative civics education and accountability systems to hold both branches accountable and build networks within the alternative economic, political and media spheres.  We need social innovations that provide alternatives to the faulty designs in economic, political, and social movement life. We need a national teach in on how politics actually works, the state of the economy, and what real wealth production in an economy actually means.  Trade unions and progressive institutional investors, perhaps influenced by student and faculty activists, could expand their investment in cooperatives and new technology start ups tied to sustainable technologies.  One could make the leap from a “divestment movement” from military contractors to a “reinvestment movement” in an alternative economy.  University administrators, faculty and students ought to re-examine how their investment portfolios have been used or misused by Wall Street.  Perhaps, they (like cities and states) could deposit some of their funds in banks that actually created jobs rather than destroyed them.  This campaign could link the floundering peace movement to the financial crisis and a concerned public of tens of millions.

JONATHAN M. FELDMAN is an Associate Professor at the Department of Economic History at Stockholm University.  He is a member of the Economic Reconstruction network (www.economicreconstruction.com).


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Jonathan M. Feldman is a founder of the Global Teach-In (www.globalteachin.com) and can be reached at @globalteachin on Twitter.

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