Volatility

March 25, 2009

The Bailout War III: Corporatism and Finance

Filed under: Disaster Capitalism, Globalization, Neo-feudalism, Peak Oil — Tags: , , , , , — Russell Bangs @ 4:08 pm

 

(See also the rest of the five-part series)
 
https://attempter.wordpress.com/2009/03/24/the-bailout-war-part-i-aig/
 
https://attempter.wordpress.com/2009/03/24/the-bailout-war-ii-too-big-to-fail/
 
https://attempter.wordpress.com/2009/03/26/the-bailout-war-part-iv-toxic-bank-assets-and-the-bailouts/
 
https://attempter.wordpress.com/2009/03/27/the-bailout-war-v-nationalization-and-relocalization/

 

We are experiencing an attempted corporatist coup. It’s the same old disaster capitalist battle plan: trigger the disaster, in this case the financial crisis; shock, confuse, and frighten the people with Too Big To Fail and an unending litany of miserable economic news; use this chaotic environment to push through a plan which would never have any chance of success if the people could calmly understand and deliberate on it.
 
The finance elite claim to be capitalists seeking a “free market”, but what they really want is a free-fire zone. They want to be free of all government oversight, free of all antitrust, consumer, of labor protection, free of any obstacle to the most predatory and anticompetitive practices, free of environmental regulations, free of any limit on socializing the costs of externalities, free of any regulation aimed at economic stability, free of all social responsibility, and of course free of taxes and anything else which in any way compromises feudal accumulation. At the same time they want the full cooperation and protection of the public bureaucracy, police, courts, prisons, and military, which are all to be deputized in the service of private profit even as they are paid for with public funds.
 
Feudalism masquerades as capitalism, but it seeks rent rather than innovation (though Orwell-style this is called “innovation”, just as swindler “talent” is called talent as such). Banks, insurance companies, and the real estate industry , who together comprise what Michael Hudson calls the FIRE trust, use debt creation not for productive loans or to raise living standards but to inflate bubbles in real estate, stocks and bonds, luxury novelty markets and so on. They concentrate in a trust to enforce a de facto central economic planning power where all losses are socialized. The “free market” function of the FIRE trust is really a fake rentier function, enabled by the government, which shouldn’t exist at all. Corporatism is pure gangsterism.
 
Corporatism as an ideology and an agenda seeks to topple democratic capitalism and replace it with a de facto unaccountable autocratic government which serves as a wealth conveyor from the public to a rentier elite. Elected representatives and public officials are first captured with bribes and threats and then selected for ideology and obedience. A complaisant media cooperates. The result is an industry/government/media cabal which wages a civil war from above, treating the public and the public domain as a mine and a dump.
 
The FIRE trust is based on nothing productive. Rather it manages the production of bubbles and worthless luxury items priced for the consumer through (1) the exponential debt economic model, and (2) Walmartization, which brings only temporary low prices, but permanently destroys local economies and small business and drives the globalist race to gut all labor and environmental regulation. A basic feature of the debt economy is that the worker is disempowered through a divide and conquer process, where just as in any totalitarian society each individual trembles for himself and fears everyone else. In this case each worker trembles for his job since he’s deeply in debt. Thanks to this fear workers are afraid to claim their rights or organize for better conditions, and the result is a steady deterioration of their position.
 
This in turn intensifies the steep, radical, antidemocratic and antisocial concentration of wealth. Since the financialization of the economy in the 1970s, the protion of the national income going to the top 1% of wealth gatherers has more than doubled, while real wages have decreased by 16%. This concentration process ahs become ever more intense in recent years. The public is steadily stripped of all property and power and reduced to serfdom while power and wealth concentrate among an oligarchy.
 
The finance and political elite uses the creation and control of debt, of debt-enabled addiction to sham luxury, privatization, deregulation, destroying social services and protections, setting up barriers against relief in the courts, turning the law itself into the infinitely pliable tool of corporate lawyers, to accumulate and deploy power and wealth. Too Big to Fail and its bailouts, the Global War on Terror and its wars, are nominally administration, not even “American” projects. They’re really private wars waged using hijacked public resources.
 
The corporatist oligarchy, unlike true capitalism, seeks a centrally planned economy. The government taxes the people and borrows in their name, and saddles them with the debt. It then distributes this wealth to the maximum benefit of big industry, according to plans laid out by the finance industry. Today’s Bailout War is just the most brazen and thorough-going manifestation of the standard program. There’s seldom a need for policy conclaves, since the top government officials like Paulson or Geithner almost without exception started out on the private side, and many return after their government service for the industry.
 
So we have an economy run by bankers and captured Fed and Treasury planners rather than democracy. Through deregulation and regulatory neglect they developed an economic anarchy zone where anything went.  The finance industry inhabited this anarchy with increasingly large, ramified, interconnected structures. Hudson calls them grupos after the feudal finance trusts of Pinochet’s Chile. In good Orwellian fashion they called this generation of bubbles and debt “wealth creation”. They used this position to develop a command economy where nothing except at the lowest, smallest level can work except according to the top-down central plan.
 
The basic activity of the FIRE trust is according to Hudson to “make money by creating and selling debt”. The finance industry seeks to inflate bubbles: Asian debt, dot-com, housing. The insurance giant AIG spurred a $30 trillion market in credit default swaps. The basis of this market is not insurance of real assets (a steady, frumpy profit) but betting on derivative paper. The real estate business was no longer based on the real assets of land and house but turned the housing market into a casino whose features were predatory lending, speculators flipping houses, and encouraging Americans to view a house not as a home but as a retirement vehicle (which also, in a vicious circle, politically helped justify and further the shredding of the safety net, placing people ever more at the mercy of this bubble).
 
The origin of corporatism lies in the instability of capitalism itself. According to James Livingston under normal circumstances the finance industry is merely an epiphenomenon, a subsidiary factor within a productive real economy. But the unstable tendency within capitalism is for the proceeds of economic activity to shift toward wealth inequality to the point that there aren’t enough investment outlets for this surplus wealth. Different things can cause this shift. Of course the capitalist always seeks to maximize his profit. As for systemic shift, back in the 20s there was machinery, Taylorism, and monopoly centralization. In recent decades we have modern technology and Hobbesian globalization. The result in both cases is that productivity can be maintained while the economy undergoes a massive shift form wages to profits. With the advent of this surplus, the epiphenomenal finance industry turns into a monster reality. Where there’s too much capital which can’t be productively reinvested, it becomes rent-seeking.
 
[As Livingston points out, this is why tax cuts for the rich in a debt bubble economy can never increase productivity; why trickle-down can never work. It’s because the extra money just seeks an unproductive rent-maximizing investment. It’s just used to further blow up bubbles.]
 
[We also see here the incipience of collapse and Depression. This surplus capital is the result of a systemic shift to greater inequality. Its quest for investment outlets conjures up the FIRE trust. As it blows up bubbles and heats up inflation the finance industry exacerbates wealth inequality. So it’s a vicious circle: inequality -> surplus capital and rise of FIRE trust -> aggravate inequality -> more surplus, ever more concentrated finance action and so on, until: (1) the debt load on the consumer is unsustainable, (2) some proximate cause sets off the crash, (3) overproduction and asset deflation crashes the system.
 
This is the risk and result as disaster capitalism seeks an interior financial frontier where denied an external physical plunder frontier. The late 20s were a hiatus between the heyday of colonial imperialism and the rise of globalist imperialism, while in spite of his best efforts Bush wasn’t able to achieve a sufficient new economic disaster zone in Iraq, even as globalism in its most predatory aspect was starting to be rolled back elsewhere.  
 
In 2008 Peak Oil and energy issues triggered the unravelling. The American suburbanite got simultaneously hit three ways: (1) as commuter, oil supply constriction and speculation over it sent oil and gasoline prices soaring, while biofuel mandates and extreme energy prices were major factors in food price inflation; fuel and food inflation drove general inflation which hit the suburbanite (2) as consumer; and at the same time as he was beleaguered by a higher cost of living and already finding it more difficult to make his mortgage payments, (3) these conditions and higher interest rates triggered the ARMs in those mortgages, and for more and more people it was too much. The defaults started avalanching and the crash was on.]
 
What to do with the surplus? It seeks to inflate a bubble. The proximate bubble can be inflated by just blowing up whatever balloons happen to be laying around – real estate, stocks, toxic paper, overhyped startups. In modern times, the global economy was fully financialized starting in the 70s. It took the form of an exponential debt economy. It was all based on the dollar’s reserve currency status. Now “all previous bubbles [were] folded into a ‘Treasury bubble’ “, as John Bellamy Foster put it. The dollar was the reserve currency; at the same time it floated free of any reality-based anchor once it was detached from gold in 1971; to complete the picture OPEC agreed to require dollars as payment for oil deliveries, and all other market sellers followed.
 
Now the basic pattern was in place. Economic growth was based on exponential debt. Petrodollars sloshed around the world as the financial trusts blew up bubbles wherever they could. Globalization drove the infamous “race to the bottom” for wages, privatization, social spending, labor and environmental regulation (and for that matter public participation, democracy itself). Multinational corporations urged on this downward race while rushing to help inflate the bubbles and, under the auspices of the corporatist-captured World Bank and IMF, rushed as disaster capitalists to exploit any burst bubble or other disaster. All the while the American middle class was placated with a consumer debt binge and flashy worthless technological gadgets, even as its wages and social protections were eroded.
 
Under these conditions where corporatist speculation depends upon inflating and imploding bubbles, triumphs and disasters, surging and crashing prices, volatility became the new normal. Orwell visits us again to coin the term “Great Moderation” for a world of permanent upheaval and tension and instability where the only thing perceived as constant was the disaster capitalist’s uncanny ability to surf the wave of destruction and always come out profitable. (We can place Great Moderation alongside the Washington Consensus, that self-congratulatory affirmation to drown out the cries of rage and pain of millions who most definitely did not “consent”.)
 
But in spite of its soothing, moderate name the exponential debt economy was not only unstable but intrinsically unsustainable. Over the years it experienced a diminishing growth return on debt. $1 of created debt generated a 60 cent rise in GDP back in the 70s. The same real dollar in 2000 generated only 20 cents. The reason exponential debt is in itself unsustainable is because each debt-creating entity reaches its limit where it cannot borrow another cent and must crash at the first margin call. We watched this repeatedly in 2008. So to keep any bubble inflating the players need to appeal to larger entities. This drives the merger and consolidation process, but eventually everything must be enfolded in the Treasury bubble, where the US government is the ponzi schemer, the good name of the US government and its dollar is the bubble, and this debt bubble must run up against the limits of the dollar itself, and there’s no higher body to whom to appeal.
 
That’s the point we’re now reaching. As a nominally private set of structures the FIRE trust bubbled as far as it could. Now it can do nothing but de facto privatize the government and be de facto nationalized by it. Its only other option is terminal collapse.
 
Similarly we the people now face a fork in the road. The scenario I just described is also doomed. The government itself cannot maintain the dollar’s position even as an out-and-out feudal cabal. So the choices are to let them go ahead and continue taking the debt bubble civilization to its extreme, becoming enserfed along the way, and then suffer the complete collapse while going form mere dreary poverty to absolute destitution.
 
Or, we can stop corporatism in its tracks right now, defy the terroristic threats of “Too Big to Fail”, recover our country and what wealth we have left, and use it to guide us through a transformation to a sustainable and just economy and society. And best of all we can do it as a free people.