By L. Randall Wray, senior scholar, Levy Economics Institute of Bard College, Blithewood and Bartlett Naylor, financial policy counsel, Public Citizen
In her best-selling book Shock Doctrine: The Rise of Disaster Capitalism, social critic Naomi Klein argues that crises are intentionally created to push the free market agenda. In the midst of a crisis, social protections can be destroyed, paving the way for ever more virulent versions of free market capitalism.
Our current economic calamity buttresses Klein and Galbraith’s claims. The global financial crisis was spurred by gutting many of the New Deal constraints on financial institutions. By doing so, we promoted a gambling spree that enriched Wall Street. Self interest can explain all this; no need for conspiracy theories. Individual self interest created the debt-fueled real estate boom and then individual self interest created the cover up. When a bank makes a liar’s loan, every other link in the real estate food chain — from the property appraisal, through the securitization process, on to the foreclosure and finally to the bank bailout -- involves a cover up that taints everyone involved in the process.
New York Times reporters Gretchen Morgenson and Louise Story help explain how the crooks are escaping prosecution in "Why No One on Wall Street Is Going to Jail" (The New York Times, July 10, 2011). No one is going to jail because “government lawyers now go to companies early in an inquiry, and often tell companies to figure out whether improper activities occurred. Then those companies hire law firms to investigate and report back to the government.” One thinks of the “shocked, shocked” French officer overseeing Rick’s café in the film classic Casablanca.
Appallingly, the bankster/predators now use the state and federal budget shortfalls they caused when they trashed the entire tax-generating economy as grounds to bust unions and cut social spending.
The only reason we have not already slipped into the first great depression of this new century is that the federal government’s safety net has not yet been entirely removed. A recent report estimates that one-fifth of last year’s personal income came from the federal government, a record. Most of the growth was due to counter-cyclical social spending on programs like unemployment benefits -— thanks to extensions. But the extensions will end soon, punishing states with the worst unemployment.
Despite 14 million unemployed, and millions more with undesirable jobs, both political parties have only been talking about the debt limit. This only diverts attention away from America’s real problems and allows the predators to go after the last of the Roosevelt-inspired social safety nets on the false argument that the government is broke.
And that is the ultimate irony. The predators who created the crisis, crashed the economy and created the deficit are able to use shock doctrine to eliminate the only protections their prey have left.
L. Randall Wray is a senior scholar at the Levy Economics Institute of Bard College, Blithewood and director of the Center for Full Employment and Price Stability at the University of Missouri, Kansas City. Bartlett Naylor is a financial policy counsel for Public Citizen, a public interest advocacy group.