Neoliberalism and corruption in America (should we be more careful)

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Hi Kevin

You're asking a big question here - should we be more careful about neoliberalism and the corruption in America? 

I'm reading a book called 'The Debt Generation' by David Malone, in which he says:

'Just as the economic crisis was not triggered here but in the US, so it’s continuation is not dependent on conditions here but on those in the US. All the lending markets between banks, the stock markets around the globe and the bond markets depend on what happens in the US economy.'

Since the 1970's, the so called 'western economy' has more or less been driven by neoliberalism (there is no alternative?) and we are living with the consequences. In the end it's all about creating wealth/money and the
appropriate ethics involved in doing so.  There hasn't been too much public debate on the topic.

A good base for understanding how money works is the book 'Web of Debt' by Helen Brown, which I know you have read. That video featured on our main page,'why are we all in debt and to who' does the same job and is easy enough to follow. There's a hell of a lot more to it than just getting a basic grasp but to have any idea what the constant barrage of news about 'the markets' and such actually means, we need to learn.

This book 'The Debt Generation' is an easy read, often quite humours and covers the current financial crisis from June 2008 to May 2010.

Below are more quotes taken from it that you may or may not agree with but might give you some food for thought.

Most of the people we are bailing out are those who have long argued for massive cuts in public spending and welfare. They have not been able to achieve these goals through the ballet box, but now they will have achieved exactly what they want through economic blackmail. Bankers don’t need state schools: Their children go to private schools. Bankers don’t need the NHS: they go to private hospitals. Bankers don’t need social services: they have bonuses and enormous pensions to cover all that.

It was said that in the Great Depression the market was sacrificed to save the country. Today we risk sacrificing the country to save the market.

Our governments will make ordinary people pay because the politicians don’t have the courage or understanding to tackle the underlying problems. What all our governments will be quite ready to do, though, is bring out the police to deal with any public dissent and unrest.

We got into this mess by sitting and listening to the fatuous and self-serving assurances of the financial experts. Now we are sitting around letting the self-same economic experts tell us how to get out of it. They were greedy, amoral, shortsighted, totally self-serving then; what makes anyone think they are different now? WAKE UP PEOPLE!

As the crisis deepens people are looking around for scapegoats and some are laying the blame purely on the politicians who failed to regulate the banks.

Let’s remind ourselves of exactly what happened should anyone be in doubt. The global banking industry, not happy being limited to the flows of nationally regulated money, sliced and diced mortgages and loans turning them into a new currency of debt-backed securities and derivatives. This became their own private and utterly unregulated currency, beyond the control of any nation state. They did this, not the politicians.

The problem was, and is, that the banks debased their new currency as fast as they could. Prices were inflated and mortgages were sold knowing that the borrower had zero chance of ever repaying the loan.

And then there was the ‘insurance’. When they traded insurance on their investments they knew that not one of the insuring firms, or credit default swap sellers, had sufficient capital to make good on their promises. They knew. Everyone knew. Hell, even I knew. Firms I could name had over $3billion insured with only $80million in capital (a ratio of 37.5/1).

That wasn’t an accident. Many leading bankers lobbied Congress hard for the relaxing of rules restricting leverage. The rules were relaxed, and that has been a major factor in this crisis. They didn’t break any law because they rewrote the laws so they didn’t have to. But they should be blamed.

So when the bubble burst they were the ones left holding all the worthless paper they had created.

In such circumstances what do you do then?


Well, if you’re an unscrupulous, amoral apology for a human being, someone solely driven by greed and motivated by money, the answer is simple: you tell the craven politicos and hired hacks that ‘the world will end’ if you are allowed to go bust. You get your politicians to force people, at whatever cost, to pay your debts. You lie, tell any lie, to make sure they bail you out.

The financial world engaged in a decade of knowingly reckless actions undertaken for personal greed that are now hurting our children. If a man punched your child in the face would you remain composed and not talk of blame? Or would you make sure that person was never allowed near children again.

Let me make myself clear. I am not scapegoating. I am not blaming the bankers and assorted financial experts for something someone else did. I am blaming them for what they did.

Why should the public shoulder the real costs on debt payment over years and years just so the banks can avoid having to use their own assets to settle their own debts?

If we borrow to bail out the banks, we will not be able to borrow more for all the things that make this a civilized country. At that point, no matter how many pensions are obliterated, no matter how many unemployed people there are, no matter what cuts there are on education and no matter what cuts are made to the NHS, no matter what, we will all just have to put up with it. There will simply be no money. It will all have gone to payoff the debts of the rich.

Any sign of social unrest and the government would deploy the full range of state powers against us, casting any talk of debt repudiation as akin to terrorism. There would be a police crackdown on the ranks of trade unionists, student protestors, community campaigners and political activists in the name of national, and even international, security.

By borrowing this money to bail out the banks, we are selling democratic control. The markets will have a veto on our vote. It has happened in developing countries for decades where the governments have simply been puppets of the IMF. Now we are going to enjoy the same status.

I have the abiding fear that the size of the debts we are being shackled to, the scale of the devastation to hopes and lives that paying it back will cause, is just not hitting people. By the time is does, I worry that it will be too late. People seem to think this is still the land of argument and counter argument. But once the debt is sold and the money used then, no matter how horrified people get when they realise the actual cost in misery and deprivation, they will no longer have the option of changing their minds.

You know the small print of any investment says, ‘returns can go down as well as up’? Well, so can freedoms.

For anyone who has never been ‘kettled’ it is when the police at a protest suddenly close ranks and refuse to let anyone leave. A decision made by someone you have never seen now exerts complete and total control over your life.

We are all in that position now.

So vast is the debt our government has burdened us with that this one fact will now determine most of the politics for the next decade…If we are forced to pay back from taxes the vast sums that have been sucked out of public spending and given to the banks, the country will not recover for a generation.

The economic ‘plans’, forced on us without debate, are all based on the banks returning large parts of the money they have taken from us…we have been kettled into having to hope and work for the largest possible growth in world trade and finance. We have to hope that the rich get richer, and quickly. The lords of finance and their servants in politics have decided this for us.

There was never any discussion or debate of possible alternatives when the financial crisis began…That meant that the only answer ever proposed was to provide liquidity at all costs. Liquidity being our money to cover the massive losses they had incurred.

No counter argument is allowed or taken seriously.

Their so-called ‘free market’ has seized control and locked us in to a course of action in which democratic choice has been foreclosed. The growing realization that this is what is happening will bring about increased anger. The smug reaction to anger is to label it ‘mindless’. The mindless anger of the ignorant who don’t understand the necessary steps taken by those who know better. This is the boiled down assumption of all our leaders, all the economic experts and most economic journalists.

The truth is quite different. People…are angry because the same people, who in 2008, assumed that they alone knew how to run the global economy still assume they, and only they, know what must be done now. And their prescription is as simple as it is arrogant: put it back the way it was.

We are told that the debts accrued by those in charge must be paid back by us rather than honoured by them. No debate.

We are told that we must get spending back to old levels. No debate.

We are told that we must get the consumer consuming again rather than saving. No debate.

We are told that we must agree and complete the Doha round of global free trade liberalisation. No Debate.

That is why many people…are angry because the financial elite are shoving their ideology down our throats…because we might have wanted a say…because we had different ideas that were never even considered.

Here we are at the point in history when many of us are looking at the imminent threats of climate change and oil scarcity, clearly seeing the dangers of unbridled growth, and yet at this point democratic choice had been kettled. No debate.

And this crisis is no longer just about lack of confidence in markets: it is now about the legitimacy of our governments. The entire political class has been captured by the same old ideology. They all…believe ‘the market’ is going to save us. No other solutions have even been allowed into the debate.

We shouldn’t waste time arguing over which party is most to blame. All the parties and the economists and the City boys all agreed, and they still do. In their minds the banks have to be bailed out and their losses made ours. We were taken to war without discussion and on false pretences; the same has happened with this financial crisis. So enough of who is to blame: they all were and are.

Such a situation is entirely corrosive to the rule of law, and democracy itself, but it is the situation…we are already in. Democracy was hard to win, but it was very easy to take it away. And it hasn’t been taken away by foreign powers or rabid terrorists; it was given away by political leaders too feeble to resist the influence and lure of the wealthy.

What these simpletons don’t seem to realise is that they have given our money to the wrong people. In order for real growth and sustainable recovery to happen we need investment by investors. People who take money and invest it in some sort of wealth production. Investment creates jobs, which creates income, which creates spending and demand, which then leads to producers needing more investment to produce more goods and to meet more demand.

The fact today, which our politicians fail to understand, is that financial markets no longer invest in order to primarily help production. That sort of investment is old-fashioned because growth from investment in machines and people takes time. If you invest in production, in machines and people, you need to wait to recoup that investment. You need stability.

Investment today, as far as the banks are concerned, is all about speculation. To speculate you don’t need any real world stuff at all. It’s about betting on derivatives and credit default swaps and otherworldly stuff for rewards that are instantaneous.

And this…is the nightmare we are in. Our central banks gave out our money hoping for investment in jobs, in people and all the other trite political phrases. But…the people they gave our money to were speculators…whose addiction to risk and reward had led to the crisis in the fist place.

These are the people our politicians have given all our money to…They don’t produce anything. They don’t do anything of social use or value. All they do is gamble with debt. And these are the people our politicians look to for salvation?

Now when it comes to unemployment, poverty, homelessness, children going to overcrowded and rundown schools, suddenly the talk is of debt being unsustainable. Never a hint of less borrowing when any bank needs it. Only the cuts to compensate afterwards. That was always the plan. Save them at our cost. Now that the financial aristocracy have been protected is when we get to listen to our leaders telling us how ‘we’ can’t afford to help people who aren’t ‘systematically important’. That’s us, ‘not systematically important’.


Just as the economic crisis was not triggered here but in the US, so it’s continuation is not dependent on conditions here but on those in the US. All
the lending markets between banks, the stock markets around the globe and the
bond markets depend on what happens in the US economy.

 

Quote: Such a situation is entirely corrosive to the rule of law, and democracy itself, but it is the situation…we are already in. Democracy was hard to win, but it was very easy to take it away. And it hasn’t been taken away by foreign powers or rabid terrorists; it was given away by political leaders too feeble to resist the influence and lure of the wealthy.

I couldn't have said it better than that. The word "SPECULATOR" sends a shiver down my spine but at least I have a spine, which very few politicians through history have had in standing up to the banks/speculators. It brings a tear to my eye when I think of JFK introducing his own bank notes, $4,292,893,825 against the FED and loosing his life for it. One day, I repeat one day, later those same notes were taken out of circulation without a word and " No Debate". When oh when are people going to ask those serious questions and if they do, who would tell them the truth? Behind the façade lies hidden an ugly, grotesque, very old but well known monster, with many names, which Dickens liked to call ignorance and greed.

They play and cast lots with our lives. Let's face it, it isn't about money, it's the power money brings that they relish, and they are blackmailing not just us but our governments. This week the present government is accused of being to soft on certain issues. I have yet to see anyone point a figure at the Banks, it's more like "who else can we sacrifice on the alter to distract the people from discovering the truth?"

Here are two Heroes of mine, who both gave their lives, not because they loved power or money, but REAL FREEDOM from the clutches of that age old monster called GREED.

http://www.michaeljournal.org/lincolnkennedy.htm

 

If you want to understand how we have been led astray by modern economics and for a critique neo-liberalism then I would personally recommend a book called 'economyths' by David Orrell (for a review see: http://www.neweconomics.org/blog/2011/02/23/economyths )

I'm also personally a little bit sceptical in calling JFK any kind of saint, as he was also from a wealthy political dynasty that was itself ruthless for power. He certainly had his own set of flaws and his presidential campaign ushered in an age of political spin that still haunts our political system.

If there is some unholy alliance of the powerful then that variously consists of political families, financial dynasty's, military elites and media barons. The Kennedy family played the power game too, even if being Irish Catholics by descent they didn't conform to the white anglo saxon protestant (Wasp) stereotype of the founding fathers of America.

However I think its a mistake to say that there is any one conspiracy of the ruling classes, or that some other people's morals are worse than our own. That way... if we are not careful ...can lead us into intolerance. After all fascism was built on demonising the economic activities of 'others' as a problem that needed cleansing... in the case of the Nazis that was the jewish bankers. Now its just bankers we should hate...

I think our stories and culture has become skewed by history, technology and social development towards one that variously blames others for our situation (aka...its not fair) and praises selfishness (aka... possession = happiness).  A spoilt child perspective. We should grow up more....

Bankers are still human beings capable of loving their families or enjoying art or literature. Everyone can be redeemed if given the chance. And from the perspective of slum dwellers of Caracas, Manilla, Mumbai or Lagos there isn't much difference between one over-priviledged 'westerner' and another.

What seems like a reasonable act to one of us (amassing wealth) is a moral-less corruption from another perspective.

But if we know about the problem, what is the solution? I don't know really, but I think it must emerge from the millions of small individual kindnesses that we can do in our daily lives.

Worrying about things we can't change is part of our problem.

Acting on the things we can is part of the solution.

You can't put a price on a smile... but you can try and smile some more....

 

This debate is good and important. For too long we have been fed the myth that the market is important and that it should be free. Adam Smith the great advocate of the free market argued that for a market to be free then there must be perfect competition and no one producer can effect either price or total output. But the free market of neo liberalism is not anything like that. It is a market of powerful organisations that can both effect price and quantity and these organisations are more political structures than economic ones - seeking power even over profit. There is now a great need to debate what a market really is as we seem to have got it so wrong and allowed those who would destroy the concept of a free market to advocate it. That myth has to be debunked and we need to build on fairer and more secure grounds.
Thanks for the tip Jez - 'Economyths' is now on it's way, thanks to Amazon. Looking forward to reading it.

Just finished 'The Debt Generation' - it was revealing in so far as it provides answers to the questions you don't know how to ask when know that something is fundamentally wrong and you can't quite put your finger on it.

Another quote from the book: The financial system had become systematically corrupt. It is no longer fit, or even designed, for the purpose of spreading wealth. It has become a means of looting wealth from those foolish enough to observe the laws, and transferring it to those who regard themselves as far too clever and superior to have to bother with such trifling niceties.

Coincidentally, today's video from The Real News shows how secret exemptions allow speculators from big banks to distort the futures markets for commodities, such as food, causing starvation in third world countries Worth a look. http://bit.ly/rnQrsL
Have to say that neo-liberalism is problematic from my point of view.  I cannot reconcile the notion of free market liberalism (which American, British and European societies would lay claim to I suspect) with what in practice is rabid protectionism, state sponsored cartels and racketeering and other infamies.  Politicians and bankers and multi-national mega-corporations are all part of the problem - they are the pigs gorging at the farmer's table because they are just that much more equal than the poor lumpenproletariat (yes, that means all the rest of us).  What we are dealing with is capitalism eating itself.  Unfortunately it is also at risk of consuming social justice, social capital and civil liberties.  I am quite pessimistic in this regard - if you have enough money, you can blackmail the greedy and self-important governing elites to roll over and give you what you demand.  Governments claim that they do not negotiate with terrorists.  Actually, they do - it is just that the terrorists they deal with are better paid, better dressed and armed with far more effective weapons than guns and bombs.  I am, like many people, on a low income and I watch my cost of living rise steadily, while my income remains the same.  I am, like many people, extremely concerned, in fact I am positively afraid, of what the impact of welfare reforms will be on society's poorest (to allow the politicians to bail out their rich patrons and cronies) and I am tired of the lies, the misinformation and the self-serving, self-justifying bleating of the political elite who try to tell us that this is necessary and that we have to all take the medicine.  I see no politician asking themselves which they will choose - to be warm or to be fed.  I see no politician asking themselves whether they will end up homeless because of changes to welfare benefits.  I see no politician having to tolerate substandard services because they have the misfortune to live in one of the more deprived areas of the country.  I do see politicians lining their own pockets, serving their own and their friends' interests to the detriment of others and I do see politicians whoring their principles and their integrity for money, power and self-importance.  I guess what I am saying is that economics and politics are inseparable, and that neo-liberalism and consumer capitalism are parts of a larger organism.  I am a unit of production to politician, businessman and economist alike.  What I, and eveybody else, should be is a citizen and a human being.  The wrong people are paying the price for the feeding frenzy at the farmer's table.  I do not want to see the good workhorse rendered for glue when its usefulness has expired while the pigs feast on.  How can ordinary people make their voices heard, and stop the rot?  Answers on a postcard please....
Okay, here's the address of one particular postcard, since Kevin started this discussion with an American slant. Just substitute UK for America where appropiate.

Here's a snip from today's Medialens alert - from former New York Times journalist Chris Hedges:

The corporate coup is over. We have lost. In other words, we are nations under corporate occupation. The coup that has deprived us of some of our most basic freedoms – the freedom to choose governments that serve people rather than profit; to choose genuinely independent, uncompromised mass media that serve truth rather than power – cannot conceivably, as a matter of elementary logic, be in the business of exporting democracy abroad. It can only be in the business of business – maximised profits and control. It really is that simple.

 

Here's a short and somewhat simplistic vedio but very much too the point

Hi Joe,

for me you can label it however you want and you can read what ever books and musings you want but you can still return to the first book 'The Bible' for the original script of them all.

Now as you know I am not a religious person but all of this boils down to the greed of man, his need to own or covet what is not his own, envy and jealousy, they are all there. Warned against, documented and openly discussed as the evils of man. Will we ever learn?

American bankers funded the sub-prime market, they realised there was a problem so they sold on their 'debt' to other greedy bankers who say a quick return on a reliatively small outlay and so it is perpetuated.

Throughout history, wars have raged between countries, men die on the battle field for principles whilst the arms dealers (gentry and politicians) of that same country grow rich from fascilitating and providing 'the means of war'. Governments pontificate on right and wrong but provide arms to rebels, unsavoury characters who would be more easily manipulated once the bullets stop flying and the ink dries on the documentation which ensures a steady supply of oil to fuel the industrial revolution.

Nothing new and no lessons learned, sadly it is all cycular!

It’s become fairly obvious that, since deregulation started in the 70’s, governments have tended to represent the interests of multinational corporations and the financial elite rather that the interests of their electorates – but why?  

We were told that there is no other way – but there has to be.

For some considerable time now, many of us have probably felt in our bones that something must be fundamentally wrong with the way the world economy is run but might not have been able to put a finger on exactly what.

The book Jez recommended ‘Economyths’ by David Orrell certainly gave me the answers I needed.  It’s hard to summarize a book with selected quotes but I’m sure you’ll get the drift.  Hope it helps.

***

Anyone who believes exponential growth can go on for ever in a finite world is either a madman or an economist (Keneth Boulding, ecological economist 1910 – 93).

In the 19th century, a band of outsiders sought inspiration from science and engineering to create a new theory of economics.

The tragedy is that mainstream economics did not develop much beyond their initial vision of a stable economy governed by simply mathematical laws.

According to the Victorian founders of economic theory (principally William Stanley Jevons, Leon Walras and Vilfrado Pareto), the main aim of growing the economy is to make people happy.

Neoclassical economists argued that the market gains its power by aggregating the desires of a large number of people, thus increasing overall utility (described by the philosopher Jeremy Bentham as the sum of pleasure minus pain). However, it seems better at aggregating some things than others… Markets can aggregate our power…as investors to maximize profit…they are much less good at aggregating our desire for a reasonable living-wage, or a clean environment, or basic decency and justice.

Economists are taught that the economy is intrinsically stable – price changes are small and random, so perturbations are rapidly damped out by the invisible hand of market forces. This assumption would be fine, except that it is contradicted by all of financial history.

It makes sense only when you think of economics, not as a true scientific theory, but as an encoding of a particular story or ideology about money and society. 

Ideologies are what the elites use to justify their inherently unstable positions.

As the economist Alan Kirman noted: ´almost no one contests the poor prediction performance of economic theory.  The justifications are many, but the conclusion is not even the subject of debate. ´

Paul Krugman stated that much of the past three decades of macroeconomics was ´spectacularly useless at best and positively harmful at worse.´

The main effect of the models, in all their neat perfection, has been to desensitise policy-makers to the messy realities and lurking risks of the economy.  One problem is that the models do not properly account for the role of the financial sector (which in a perfect economy isn’t necessary).  The Bank of England’s general equilibrium model, for example, omits banks.

The main obstacle to a rebalancing of the economic system is main-stream economic theory – the stuff they teach in universities. It is an entire view of the world, and pattern of thought, that reduces complexity to simple laws, and human motivations to cold calculations. The subprime crisis, which was based on highly complex instruments…that could only be assessed by relying on abstract mathematical tools, was a perfect example of this…the same emphasis on abstract theory over empirical reality is a major driver of everything from social inequality to the environment crisis.

Anyone who takes an introductory economic course is taught that the individualistic pursuit of pleasure will, by a roundabout process involving the invisible hand, free markets and so on, somehow make life better for all humanity.  Since these students go on to become leaders in business or government, where they perpetuate the same self-legitimising fiction, it is no surprise that we live in an individualistic, materialistic culture, dominated by market norms.

Mainstream economics - the kind taught in universities to undergraduate students and the kind that dominates government policy and business strategy – does not take into account the true values of natural recourses; the effects of pollution; or…the future…we should consider the demand of future generations, but there is no pricing mechanism in the market that will take this into account.

Mainstream economics treats money in abstract numerical terms, as something that can grow and expand without any constraints…Under fractional-reserve banking, banks can lend out far more money than they hold as reserve. The result is a debt-based financial system in which most of the ´money´ is in the form of credit, and everyone is running around frantically trying to pay it off.   

Our current approach to the economy is schizophrenic.  We design an unregulated system that is economically and ecologically unsustainable; model it on techniques that assume stability; try to make predictions of the future; and then react in surprise when something goes wrong.

Mainstream economics teaches that the market economy, if left to its own devices, will maximise utility and lead to the best of all possible worlds.  The mistaken assumptions and myths of economic theory mask our understanding of how the economy actually works. They persist not for scientific reasons, but because they serve a certain agenda.

The neoclassic story means that ruthlessly perusing your own objectives and amassing incredible wealth can be interpreted as virtuous behavior – Goldman’s CEO Lloyd Blankfein said his company was performing God’s work – which is an important motivational plus. And the system has a powerful network of contacts at top universities, institutions like the World Bank and the IMF, and the highest ranks of world governments – all of which employ or are run by neoclassical economists.

Their theories don’t only asume that the economy was once in a state of symmetry – they assume that it still is. This belief is the source of the greatest economic myth of all – the idea that the economy is inherently fair and balanced.

At Milton Friedman’s birthday bash, his former student, Donald Rumsfeld, said that Milton is the embodiment of the truth that ideas have consequences.  The subprime crisis, in turn, is graphic proof that economic myths have consequences.

Friedman’s utopian society of maximum individual freedom sounds attractive until you see how it plays out in the real world. Giving companies like Goldman Sachs the maximum freedom to package subprime mortgages at teaser rates for financially illiterate people, construct multi-trillion balloons of credit out of thin air, and then extract money off the government when the scheme goes sour, probably wasn’t what he had in mind.   

Three days after Lehman’s bankruptcy, the Federal Reserve had to intervene to stop an electronic bank run on US money market accounts…they feared that if they were allowed to continue, $5.5 trillion would have been drawn out of the money market system of the US, which would have collapsed the entire economy of the US, and within 24 hours the world economy would have collapsed. 

For a theory to last 150 years is a triumph, of sorts. For it to last one more decade will be a disaster.  It was perhaps the right story for a certain period of history, or one that people wanted to hear, but it has far outlived its usefulness.

Now more than ever we need strong democratic institutions to temper the power of multinational corporations with their unelected and extravagantly paid CEO’s.  We also need an economic theory to make sense of it all.  Unfortunately, mainstream economics isn’t it.

(David Orrell – Economyths published 2010)

Sadly I'm upside down proof reading and preparing for a rush of youth work events in the next few weeks and haven't time to respond properly to the debate. However it does seem bizarre that a discussion about neo-liberalism, the present form taken by capitalism, makes no mention of Marx. His critique of capitalism remains  an essential reference point. This said Marx in my humble opinion was wrong to propose that there could be a science of the economy with immutable laws and he was guilty of believing in ever expanding productive forces. There are though radical economists seeking to go beyond Marx - see Bichler and Nitzan 'Capital as Power' - articles to be found here Where both Marx, Bichler and Nitzan and I  would agree is that to propose that there can be democratic tempering of the power of the ruling class is to possess no sense of history. Like it or not, the obstacle to creating together an economic order based on need rather than greed is systemic. The obstacle is capitalism, whether neo-liberal or socialist in its organisation. Of course it is easy to say this. Doing something about it seems more distant than ever. But what is much easier again is to pretend that - given a tweak here and there - capitalism can be the servant of justice, equality and democracy.

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