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"As an Economic System, Capitalism
is Going Crazy"
Factors
in Our Colossal Mess
By GABRIEL KOLKO
These are dismal days for those who
attempt to run the affairs of the world. But how should we understand
it?
It would be a basic error to
look at our present situation as if it were rationally comprehensible.
The limits of rational explanations are that they assume rational
men and women make decisions and that they will respect the limits
of their power and behave realistically. This has rarely been
true anywhere historically over the past century, and politics
and illusions based on ideology or wishful thinking have often
been decisive. This is especially the case with the present
bunch in Washington.
We are right to fear anything,
particularly a war with Iran that would immediately reel out
of control and have catastrophic consequences not only to the
region but globally. We are also correct to see limits to the
power of irrational people, for the United States is strategically
weak. It loses the big wars, as in Korea, Vietnam, and now Afghanistan
and Iraq-even though its tactical victories often prove to be
very successful-but also ultimately destabilizing and ephemeral.
Had the U.S. not overthrown the Mossadegh regime in Iran in
1954 it is very likely the mullahs would never have come to power
and we would not now be considering a dangerous war there.
Although the whole is far more
important than the parts, the details of each part deserve attention.
Many of these aspects are known, even predictable, there are
-- to paraphrase Donald Rumsfeld -- the "known unknowns
and the unknown unknowns" -- the "x-factor" that
intercedes to surprise everyone. All of these problems are interrelated,
interacting and potentially aggravate or inhibit each other,
perhaps decisively, making our world both very difficult to understand
-- or to run. Putting them together is a formidable challenge
to thinking people outside systems of power. It has always been
this way; fascism was in large part the result of economic crisis,
and World War Two was the outcome. How factors combine is a great
mystery and cannot be predicted -- not by U S or by those ambitious
souls who have the great task of making sure there is no chaos.
We wish to comprehend it but it is not decisive if we don't;
for those who have responsibility to manage it, this myopia will
produce the end of their world-and their privileges.
What is important to watch?
We can rule out the Left, that artifact of past history. Socialism
ceased being a real option long ago, perhaps as early as 1914.
Since I have just published an entire book, After Socialism,
and detailed its innumerable myopias and faults, I need not say
more than that it is no longer is a threat to anybody. The fakirs
who lead the parties who still use "socialism" as a
justification for their existence have only abolished defeats
at the hands of the people from the price capitalism pays for
its growing follies. That confidence- freedom from challenge
by the unruly masses-- is very important but it is less and less
sufficient to solve the countless remaining dilemmas. The system
has become increasingly vulnerable, social stability notwithstanding,
since about 1990 and the formal demise of "communism".
Assume Anarchy
The failure of socialist theory
is much more than matched by the failure of capitalism because
the latter has the entire responsibility for keeping the status
quo functioning-and it has no intellectual basis for doing so.
The crisis that exists is that capitalism has reached a most
dangerous stage in destructiveness -- and no opposition to it
exists. This malaise involves foreign affairs and domestic affairs
-- vast greed at home and adventure overseas. If the foreign
policy aspects are largely American-originated, the rest of the
world tolerates or sometimes collaborates with it. Its downfall
is inevitable, perhaps imminent. The chaos that exists will exist
in a void. No powerful force exists to challenge, much less replace
it, and therefore it will continue to exist -- but at immense
and growing human cost. Alternative visions are, for the moment
at least, mostly cranky.
Ingenious and precarious schemes
in the world economy today have great legitimacy and flourish
in the sense that the postulates of classical economics postulated
are fast becoming irrelevant. It is the era of the fast talker
and buccaneer-snake-oil salesmen in suits. Nothing old-fashioned
has credibility. Joseph Schumpeter and other economists worried
about pirates, but they are more important today than ever before-including
than during the late 19th century when they were immortalized
in Charles Francis Adams Jr's Chapters of Erie. The leitmotif
is "innovation," and many respectables are extremely
worried. I argued here in Counterpunch recently (June 15 and
July 26) that gloom prevails among experts responsible for overseeing
national and global financial affairs, especially the Bank for
International Settlements, but I grossly underestimated the extent
of anxieties among those who
know the most about these matters. More importantly, over the
past months officials at much higher levels have also become
much more articulate and concerned about the dominant trends
in global finance and the fact that risks are quickly growing
and are now enormous. Generally, people who think of themselves
as leftists know precious little of those questions, questions
that are vital to the very health of the status quo. But those
most au courant with global financial trends have been sounding
the alarm louder and louder.
The problem is that capitalism
has become more aberrant, improvisatory, and self-destructive
than ever. We are in the age of the predator and gamblers, people
who want to get very rich very quickly and are wholly oblivious
to the larger consequences. Power exists but the theory to describe
the economy which was inherited from the 19th century bears no
relationship whatsoever to the way it operates in practice, a
fact more and more recognized by those who favor a system of
privilege and inequality. Even some senior IMF executives now
acknowledge that the theory that powerful organization cherish
is based on outmoded 19th century illusions. "Reconstructing
economic theory virtually from scratch" and purging economics
of "neoclassical idiocies," or that its "demonstrably
false conceptual core is sustained by inertia alone," is
now the subject of very acute articles in none other than the
Financial Times, the most influential and widely-read
daily in the capitalist world.
As an economic system capitalism is going crazy. In late November
there were $75 billion in global mergers and acquisitions in
a 24-hour period-a record. Global capitalism is awash with liquidity
-- virtually free money -- and anyone who borrows can become
very rich, assuming they win. The beauty of the hedge fund is
that individual risks become far smaller and one can join with
others to bet big -- and much more precariously. Henced, spectacular
chances are now being taken: on the value of the U.S. dollar,
the price of oil, real estate -- and countless others gambles.
In the case of Amaranth Advisors, this outfit lost about $6.5
billion at the end of September on an erroneous weather prediction
and went under. At least 2,600 hedge funds were founded from
the beginning of 2005 to October 2006, but 1,100 went out of
business. The new financial instruments -- derivatives, hedge
funds, incomprehensible financial inventions of every sort-are
growing at a phenomenal rate, but their common characteristic,
as one Financial Times writer, John Plender, summed it
up on November 20. , is that "everyone [has] become less
risk adverse." Therein lies the danger.
Hedge funds will bet on anything,
natural disasters and, soon, longevity of pension fund members
being only the latest examples of their addiction to taking chances.
London is fast replacing New York as the center of this activity,
and the capital market in general, because the regulatory regime
of the government the British Labour Party established is much
more favorable to this sort of activity than that Bush's Republican
minions allow -- though this may change because Wall Street does
not like losing business.
On September 12, 2006, the International Monetary Fund released
its report on "Global Financial Stability," and it
was unprecedented in its concern that "new and complex financial
instruments, such as structured credit products," might
wreak untold havoc. "Liberalization," which the "Washington
consensus" and IMF had preached and helped realize, now
threatens the US dollar and much else. "The rapid growth
of hedge funds and credit derivative mechanisms in recent years
adds to uncertainty," and might aggravate the "market
turbulence and systemic impact" of once-benign events. Hedge
funds, it warned, have already "suffered noticeable losses."
At the end of October, again
the Financial Times, Jean-Claude Trichet, head of the
European Central Bank, deplored these new financial products,
which have been increasing and growing into the trillions. He
wrote that he could not comprehend them; that there is scant
oversight over them; that many are pure hype; that nothing prevents
them from creating immense domino effects on the entire financial
system were they to collapse, thereby also dragging the well-regulated
parts of the system down. Then, at the beginning of November
the quasi-official UK Financial Services Authority issued a report
that detailed the existing risks to the entire world financial
structure. Despite its tone, it is dynamite.
The FSA report documents the
many risks to the private equity sector: excessive leverage,
unclear ownership of risk, market abuses and insider trading.
There are conflicts of interest of every sort; the system is
opaque; hedge funds made inherent dangers even riskier. "Given
current leverage levels and recent developments in the economic/credit
cycle, the default of a large private equity backed company or
a cluster of smaller private equity backed companies seems inevitable."
Given this growing consensus of risks, on November 13 Sir John
Gieve, the deputy governor of the Bank of England, concluded,
in the Financial Times, that each national state regulating
full-blown financial crises was no longer feasible: the financial
system is international in scope today and no national mechanism
can handle it. There have been at least 13 borderline or full-blown
financial crises since the late 1970s and some of the methods
for dealing with them would be "less easy to deploy"
under present conditions-which is a polite way of saying they
were irrelevant. His conclusion: Regulators "should practise
coping with global crisis," "work together" on
practical examples to develop machinery, especially to avoid
the "moral hazards" of bailing out firms in trouble,
including "closing down a large firm in an orderly way."
The chances of developing a common trans-national approach or
rules are close to zero, if only because nations of the world
are rivals in the bid to attract financial companies and regulation,
or lack of it, is a major factor on where to headquarter. When
the next financial crisis occurs, and the likelihood of that
happening has grown by leaps and bounds, it is more likely than
ever to drag the entire global economy with it. At least the
"experts" think so. They did not before now.
So economics may foul up politics.
Perhaps not, but it could become a very important factor in
the overall situation.
Power
in Washington
President Bush made the election a referendum on the war and
was badly repudiated; his party suffered a disaster. Disorientation,
depression, and defeat have left the president and his neoconservatives
adrift. They have power, two more years of it, and we are at
the mercy of people who are irresponsible and dangerous. Their
rhetoric proved a recipe for disaster in Afghanistan and Iraq
-- a surrealistic nightmare. The American public is largely antiwar
(55 percent of those who voted disapproved of the war, most of
them strongly); they voted against the war and only tangentially
for Democrats, most of who vaguely implied they would do something
about the Iraq war but immediately after the election shamelessly
reaffirmed their support for its essence. But people, and voters
in particular, are such a nuisance everywhere. More quickly than
in the past, they respond to reality, which means that traditional
politicians must betray them very speedily. They create certain
decisive parameters that ambitious politicians flout at greater
risk than ever because the people have shown themselves ready
to vote the rascals-whether Democrats in 1952 and 1968 or Republicans
last November -- out of office. The American public is more antiwar
than ever, and no one can predict what the future holds, including
some Republicans outflanking the Democrats from a sort of antiwar
left so that they can remain, or gain, office. That the people
are subsequently cynically ignored-as they have been immediately
after the last American election--is a fact also, but their role
can neither be overestimated nor gainsaid. Experience shows that
politicians, whatever they call themselves or in any nation we
can think of, can never be trusted. Ever. But the facts on the
ground -- reality -- are today very bad for those who advocate
wars.
Israel:
the Dream Comes Apart
Hawks in Israel, ascendant
since the founding of the Jewish state, are still debating their
thirty-three day war in Lebanon and the decisive limits to their
once awesome, ultra-sophisticated modern military power exposed
by their Lebanon adventure. The Israeli press is full of accounts
of ministers' sexual offenses and corruption. Ehud Olmert's
government is badly divided, backbiting, and may fall soon. The
army is openly split and Olmert would like to dump its chief
of staff, Dan Halutz, and the minister of defense. The Zionist
project is in an unprecedented state of disrepair, with profound
demoralization taking hold. Olmert himself is a complete mediocrity,
a minor Likud politician who parlayed himself into the number
two spot and was lucky. His comment when he visited the U.S.
in the middle of November that America's Iraq war had brought
stability to the region either infuriated or embarrassed everyone.
He is basically a shrewd politician but very stupid man.
The most devastating analyses
of Israel's war in Lebanon have appeared in Israel itself, and
"the fact the Israeli army is at a low point," according
to a writer in Haaretz, has goaded rather than deterred Iran.
"Almost every weapon lost its significance and effectiveness
as soon as it was used," Ofer Shelah wrote in the Jaffee
Center's Strategic Assessment. The Israeli military relied
on massive, overwhelming firepower delivered by the most modern
means possible and it failed to stop incoming rockets and enemy
mobility, much less win the war. Hizbollah not only showed Syria
how to defeat the Israeli army but made Iran much more confident
they can carry on what it is doing. The entire government and
army leadership was incompetent.
From its very inception there was a warrior ethic in the Zionist
ideology, one it shared with diverse reactionaries in Europe.
Both its left-wing as well as the Right have nourished it, and
Joseph Trumpeldor, the hero of this militant mentality, was one
of the founders of Zionist socialism-a leader of the Hashomer
Hatzair, the far left of this tendency. But the cult of heroism
in Israel has made way for military technocrats who read digital
print-outs (as described in Defense Tech, Nov. 20, 2006.)
Morale in Israel, and especially the once elitist military, has
plummeted. The arms industry there is very large, and like its
American equivalents need subsidies -- computer-based war is
very expensive and greatly helps employment. But Lebanon only
showed Israel what the Americans learned elsewhere -- it loses.
There are many dangers, from
fascistic politicians like Avigdor Lieberman becoming even more
powerful, to yet greater emigration abroad of those Jews with
high skills. The latter is happening. Israel's ability to flout
European opinion with impunity or to have Washington embark on
military adventures from which Israel gains is increasingly limited.
France has warned Israel that should it initiate a war with Iran
it would create "a total disaster" for the entire world".
Oil prices would rise, the entire Arab world would unite behind
the Iranians, and Israel would be targeted but so would other
nations. Even more important, Israeli strategists admit that
Iranian nuclear weapons would only create a stable deterrent
relationship between the two nations, and are not an "existential
threat."
Repentance
or Rapture?
Above all, in Iraq the American
government is facing the failure of its entire Middle East project,
an illusion in which the Israelis have a profound interest.
Bush and gang are in a state of denial, but the U.S. is going
the way of its defeat in Korea and Vietnam, and its military
is increasingly overstretched and demoralized. It has based its
foreign policies on fantasies and non-existent dangers, neo-con
dreams and desires, only partially to meet equally illusory Israeli
objectives to transform the entire Middle East so that it accepts
Israel in whatever form the fickle Israeli electorate presents
it. American foreign policy has been fraught with dangers since
1945, and I have documented them extensively, but this is the
worst set of incompetents ever to hold power in Washington. It
"shocked and awed," to use the departed Secretary of
Defense's phrase, itself. Things are going disastrously for conservative
warriors.
But it is very difficult to anticipate what this administration
will come up with, though disasters over the past six years have
made a number of alternatives far less probable. In a way, that
is a good thing, although the cost in lives lost and wealth squandered
has been immense. The Baker/Hamilton bipartisan commission is
deeply split and if -- with emphasis on "if" -- if
it happens to come up with a clear alternative the president
is free to ignore it. The Pentagon has formulated alternatives,
summed up as "go big," "go long"-both of
which would require 5 to 10 years to "Iraqize" the
war-- or "go home", but it is divided also. One thing
certain, however, is that it has neither manpower, materiel,
nor political freedom to make the same mistakes as in Vietnam-as
the first two alternatives would have it do. There are no options
in Iraq because the U S has traumatized the entire nation and
created immense problems for which it has no solutions. No one
can predict what it will do in Iraq because the administration
wishes to preserve the illusion of success and is genuinely confused
how to proceed. It has produced chaos. Iraq is very likely to
remain a tragedy, one wracked by violence, for years to come.
The Bush administration has created a massive disaster involving
the lives of many millions of people.
A great deal depends on the
President, whose policy has utterly failed in Iraq, is failing
in Lebanon, and one of his options is escalation -- war with
Iran. Israel might attack Iran in order to drag America in,
but by itself it can only be a catalyst. Olmert and Bush approach
these issues in a remarkably similar fashion. Either way, Bush
has not ruled out war with Iran despite warnings from many military
men that such a conflict would have vast repercussions, probably
last years, and the U.S. would likely lose the war, even if it
used nuclear weapons, after creating an Armageddon.
A number of the neocon theoreticians
have repented the Iraq adventure, and even criticized some the
basic premises that motivated it, but it would be an error to
assume that this administration has some contact with reality
and can be educated-by the electorate or by alienated neocon
intellectuals. There are still plenty of people in Washington
who advocate going for broke, who still retain fantastic illusions.
There remains the imponderable factor of rapture -- fantasy and
illusions mixed with desires. Is victory around the corner if
we escalate with more troops? Will the Iraqi troops the Americans
train attain victory over enemies that eluded U.S. forces? Many
much wiser presidents have pursued such chimeras. Why not Bush
too? Facts on the ground, which are much greater in constricting
American power than they were six years ago, are a critical factor.
They may not be sufficient to prevent irrational behavior. We
simply cannot know.
All of these factors, and perhaps others not mentioned here,
will affect each other. The whole is very often no stronger than
all the parts. All surprises that thwart the Bush administration's
freedom to act are now to be welcomed, and while the world's
financial system is the leading candidate for upsetting the U.S.'s
calculations, it is scarcely the only one. The facts on the ground,
realities rather than decisions, are usually crucial, and here
the U S is losing in its megalomaniac ambition to shape the world.
It has been this way for many nations led by men far superior
in intellect to George Bush.
Wishes are not reality and
the U S has an endemic ability to hold onto its wishes and fantasies
as long as possible. Desire often leads to its acting despite
itself. But its resources are far more constrained now than they
were six years ago, much less for the United States during the
Vietnam War-which it lost. The American public is already deeply
alienated, the world financial system is teetering, the U S'
military resources are virtually exhausted.
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