Deep in the capitalist doo-doo by William Bowles

[Joanne98]

Monday, July 19, 2008

“The current market jitters are centred on disturbances in the world’s credit markets. Worries about the viability of sub-prime mortgage lending have spread around the financial system, and the central banks have been forced to pump in billions of dollars to oil the wheels of lending.” — ‘Financial crises: Lessons from history’, Analysis By Steve Schifferes Economics reporter, BBC News<1>

Thus runs the opening para from the BBC’s missive (written in September 2007) on the ‘credit crisis’. The piece purports to explain a series of economic meltdowns going back to the 1860s, but explanations of why these periodic collapses occur there are none. One has to read very carefully between the lines to gain some inkling of what links the crises together: in a word, speculation, but the word gets mentioned only once in the entire piece, in relation to the Crash of ‘29.

“After a huge speculative rise in the late 1920s, based partly on the rise of new industries such as radio broadcasting and carmaking, shares fell by 13% on Thursday, 24 October.” (ibid)

“Speculative rise”? “Partly”? What’s the other part? Conveniently, we are not told.

Contrast this with the huge investment in Internet companies toward the end of the 1990s, which too was caused by speculation in what investors then thought was a license to print money (note the parallel with the 1920s, one that is not made by the BBC nor it must be noted, with the latest and most severe of crises),

“During the late 1990s, stock markets became beguiled by the rise of internet companies such as Amazon and AOL, which seemed to be ushering in a new era for the economy.
…
“But in March 2000, the bubble burst, and the technology-weighted Nasdaq index fell by 78% by October 2002.” (ibid)

78%, that is to say, over three-quarters of the value of hi-tech stocks was wiped out almost literally overnight. “Beguiled”? What kind of an explanation is this? The key sentence in the BBC’s ‘explanation’ is,

“But the Federal Reserve, the US central bank, cut interest rates throughout 2001, gradually lowering rates from 6.25% to 1% to stimulate economic growth.” (ibid)

But making money cheaper by lowering the interest rate only fuels inflation. ‘Growth’ may well occur but it was achieved by increasing the credit debt and devaluing the money supply which sooner or later would bite the hand that fed it.

In fact, aside from the ‘29 Crash, the piece, which uses six examples scrupulously avoids any mention of the central role not only of gambling (or speculation) but of the crucial role of government in propping up a bankrupt capitalist system. Instead, state intervention in the market is described as the “central banks” that is to say, ‘socialism’ for the capitalist class.

Speculation played an enormous role in the latest crisis but was not the underlying cause, rather it is a symptom of the system brought about by the falling rates of profit which could only be solved (in the short term) by the complete deregulation of the financial sector, a process initiated in the 1970s which enabled retail banks to operate like commercial investment companies (using ordinary depositors money rather than investors).

Deregulation opened the floodgates of speculation that started with the Savings & Loans companies which were the first to go belly-up back in the 1980s. Billions were stolen and a vast bailout by central government followed. (See ‘Bush Family Connections: Silverado Savings & Loan Scandal’ and ‘Bush Family Connections: The Family That Preys Together’)

Words like “jitters” “worries”, and “central banks” pepper the piece, innocuous descriptions of fundamental contradictions that underly the latest “disturbance”. Thus the BBC would have us believe that the fundamental problem is caused essentially by what the marketeers call ‘sentiment’, that is to say, individuals who fear losing money. But come on folks, is this any way to run an economy, on the subjective feelings of a bunch of parasites?

http://dandelionsalad.wordpress.com/2008/07/19/deep-in-the-capitalist-doo-doo-by-william-bowles/

[bemildred]

1. Word. nt

[Joe Chi Minh]

2. I'm sure I can't be the only one who hears Adam Smith roaring, "What did I

tell you about businessmen being anathema to government!"

The text below is quoted from this article in Common Dreams:

http://www.commondreams.org/archive/2007/09/23/4046/

"· “All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.”

· “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Second, he believed that workers deserve a living wage:

· “It is but equity … that they who feed, clothe and lodge the whole body of the people, should have such a share of the produce of their own labor as to be themselves tolerable well fed, clothed and lodged.”

Third - and here’s a real shocker - he believed that the wealthy should pay more in taxes:

“The subjects of every state ought to contribute toward the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.”

Fourth, he believed in the necessity of public investments in infrastructure and public goods. He spoke of the duty of government to support “public institutions and those public works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain.”

If he were alive today, he would probably consider education and health care as examples of this kind of public goods.

Smith and his Scottish Enlightenment allies were not ideologues and were better psychologists than those today who view humans as organic calculating machines. They were pretty, well, enlightened. They recognized that a good society and a healthy capitalist economy depended on a shared prosperity.

As his dear friend the philosopher David Hume put it in 1752, “Every person, if possible, ought to enjoy the fruits of his labour, in a full possession of all the necessaries, and many of the conveniences of life. No one can doubt, but such an equality is most suitable to human nature, and diminishes much less from the happiness of the rich than it adds to that of the poor.”

Since Reagan and Thatcher, every successive UK and US Government has actually made a point of rejecting each one of these insights, in favour of their antitheses. And they have the blasted gall to claim Adam Smith as their guru. How well our countries would have prospered had they respected his teachings, instead of despising them as doctrinaire "leftie" twaddle.

On the other hand, South America would probably still be in the thrall of fascist dicators, so I suppose great benefits to its peoples has ensued from our own countries' rapine at the hands of our shadowy puppet-masters, and consequent looming national indigence. By giving the "green light" to cartels and the mighty, our crypto-fascist leaders have precisely destroyed any semblance of the free market those right-wing loons go on about.

"And He said to them, "Rightly did Isaiah prophesy of you hypocrites, as it is written: 'THIS PEOPLE HONORS ME WITH THEIR LIPS, BUT THEIR HEART IS FAR AWAY ..."