It's Theft, Feudalism is Back

Ayn Rand: The only social system that fully recognizes individual rights is capitalism. When I say "capitalism," I mean a full, pure, uncontrolled, unregulated laissez-faire capitalism—with a separation of state and economics.

the proper moral purpose of one's life is the pursuit of one's own happiness or rational self-interest

The disciples of Ayn Rand and laissez-faire capitalism, Milton Friedman, Alan Greenspan and Reagan were the culprits who kicked off this mess and for the next 20 years Bush I, Clinton and Bush II ably guided by Greenspan and a dominant Republican congress joined the ride. It was quite a trip with a systemic enrichment of 1% of the population while flattening middle class earnings and reducing the buying power of another 40% of the population. It's what happened in the period leading up to the Great Depression.

I don't know what the outcome is going to be from this meltdown but I can't see a simple turnaround because in America greed has trashed the system and it has to be rebuilt.

We have returned to an 17th century feudal model where the wealth of the nation has gravitated to a small number of powerful people. The reality is that deregulation released those with power from any constraints on their desire to have more. Like the dukes and kings of old they took as much as they could; and if there was more they would take that too.

It's theft when a young hedge fund manager can earn in 10 minutes what the average worker earns in a year or many times the income of a Nobel Prize winner, the President of his country or that of an internationally renowned artist. It's theft when CEOs of merchant banks and hedge funds become overnight billionaires and Presidents of large organizations now average incomes eight hundred times that of an average worker. Forty years ago it was only 30 to 40 times an average workers wages. Its theft when they influence politicians to remove inheritance taxes and promote flat taxes so they and their children can take it all home. It's theft when they hide their ill gotten gains in offshore tax havens (and most do) so that they and their corporations can avoid paying their fare share. And its theft when each year they manage to gain a bigger share. (A 2007 study of the Congressional Office Bureau found the wealth of the richest 1 percent of Americans totalled $16.8 trillion, $2 trillion more than the combined wealth of the lower 90 percent of the population)

Now dumping public funds on financial institutions to flood the market with easy credit again and subsidizing mortgages and car buying avoids the basic issues facing working families and will at best put a temporary halt in the inevitable collapse that is bound to continue. The reality is that the wealth of the nation has been stolen, workers have lost buying power over the past twenty years, and unless that changes another frenzy of credit buying will just repeat the cycle.

America has to rebuild with a different model and I have my doubts they can do it. Too many powerful people have an inbred belief in laissez-faire capitalism and have too much to lose. That means, I believe, despite the good intentions of Obama, it is going to get a lot worse. If Merkel has her way the same will happen in Europe.

Once Upon a Time (Before Globalization)

Once upon a time there was a big beautiful country with fertile farms that grew and raised almost everything their people ate and factories that made almost everything they needed including their processed food, their clothing, their furniture, their appliances and cars.

The farms needed many workers to tend and harvest the crops and look after the poultry, and cattle, and in the towns the factories needed semi-skilled and skilled workers for production, and workers with trade skills, engineers, clerks and accountants. There were many good jobs to choose from and people could select the job they were best suited for based on their aptitudes and education. And in these fields and factories if you were good enough you could advance to become lead hands, foremen and even the general manager. With passing years as these companies grew and prospered workers, often with the help of unions, were able to gain a share of this wealth with better wages, retirement benefits and health coverage. As the years past and the businesses grew the workers and people benefited and became increasingly secure and satisfied with their lives and committed to where they worked.

Then one day the owners of these businesses got the bright idea that if they shipped all this work far away to countries where people would work for much less and without benefits and where there were no laws governing working conditions, or hours worked, their companies and its owners could earn much more money. No longer would they have to put up with unions and the wage demands of their workers. And the politicians agreed with this and used terms like free trade and globalization to glorify it.

And now with cheap foreign labour the profits of businesses greatly increased and the owners and their bankers greatly prospered. The population of multimillionaires and billionaires increased like dandelions in an unattended field and the result was an unparalleled demand for the things great wealth could buy such as giant yachts, aircraft, toy girls and boys, and many mansions.

The manufacturing plants were now closed, their workers gone and the life in the towns was greatly changed as the plants became silent shells. Many of the workers who were let go were fortunate to find work in the great shopping areas outside the towns where there were vast shopping plazas and box stores selling food and goods from far away countries. The problem was that the work paid far less than what they had been earning before but with two or more family members working long hours and with fewer benefits and belt tightening life carried on. For those who were unable to find work, food stamps kept them from starving

Governments don't like belt tightening because people spend less and this isn't good for the economy. The solution was reducing interest rates and encouraging lenders to offer easy credit terms: no credit check required, nothing down and next to nothing to pay for the first two years. That enabled people on small incomes to start buying again with borrowed money. This money felt just the same as additional tax free income. They bought houses, put big cars in the garage, or in the driveway for the neighbours to see, and filled their houses with the things they always wanted. With all this buying, housing prices continued to rise and the people were borrowing even more against this, and so it went for many years. People came to believe that a good life living off credit would always be this way as they continued to borrow to finance their new life. So the policy worked for a while. Flat or declining earnings for workers but lots of easy money on credit to keep them buying. There was lots of money going around so the community and everyone benefited.

Then one day the loan payments started to come due and many discovered that they didn't have the money and in desperation began walking away from their homes and the many things they had bought on credit. This caused housing prices to start declining rather than growing so people couldn't borrow anymore to meet their obligations. Then everything began to collapse. The banks faced billions in unpaid debts, business performance declined because fewer people were buying, many businesses failed and millions of people became unemployed.

The government, like Mary Mapes Dodge's Little Dutch Boy, kept plugging the holes as best they could with pots of money but unlike the Dutch Boy they didn't succeed because all those good paying jobs on the assembly lines were gone and along with them many of the research, engineering and skilled service jobs. The obvious had happened; without these jobs the country had lost its buying power and the housing bubble couldn't be blown up again.

This formerly great country subsequently went into an economic decline for many years, faced political turmoil, and faded away as an industrial power.

But many years later this  story has a happy ending. The far away countries became very rich and their people prospered. Then one day the owners of their businesses got the same bright idea that if they shipped all this work far away to a country where people would work for much less and without benefits and where there were no laws governing working conditions, minimum wages or hours worked, their companies could earn much more money . No longer would they have to put up with unions and the wage demands of their workers. And the politicians agreed with this and used terms like free trade and globalization to glorify it.

And so, the work came back again to that now poor, but once big beautiful country, and the cycle started all over again.

T Hobbes, J Locke, JC Rousseau vs Ayn Rand

Dave's Observation
I don't find the usual attribution of the US financial meltdown to greed to be particularly helpful.
By and large people were just trying to maximize their sales, hit their targets or whatever. There is greed there but I don' t know that it expressed itself in a different way than in normal times. One wonders if it is even useful to ascribe a human vice to something like a financial system.

My Response

The word "Greed" clearly reflects the anger and resentment of a public who feel betrayed and exploited by a collapsing financial system. It's true, as you point out, that the people involved were simply maximizing their performance as they have always been inclined to do, but you have to accept that free of constraints, self interest inevitably leads to excesses. This is what has happened.

The belief that dismantling regulations would free the entrepreneurial spirit and thereby benefit humanity has proved to be utterly naive. The philosophers,Thomas Hobbes, John Locke and Jean Jacques Rousseau who profoundly influenced Western thinking and the formation of our governments understood that man is driven by self interest and by necessity had to enter into a social contract with his fellow man to control his behaviour by establishing governments for societies protection.

Ayn Rand took the opposite view that self interest should be the foundation of morality. Since all participants are acting selfishly the market is self correcting. She chose to be blind to the fact you could harm others while pursuing your self interest. The Chicago School and Greenspan were captivated by this ideology and thus the disaster we have today. In short, you need rules of the road to prevent disasters; regulations to restore our confidence in the integrity of the fiscal system

Yes, there is a moral element in all this. A social contract saves us from ourselves and makes for a fairer society. A world run by corporate interests is unlikely to have any collective moral compass.

The neo-conservatives and their Republican friends really believe that no government is good government and by starving tax revenues all public effort to set a social agenda and offer regulatory controls will be starved into extinction. Thus man can again be restored to his "noble savage" state of freedom.

I think the answer to "what does it all mean and what needs to be resolved" will only be found by America shifting politically to the radical left. Leftist values invariably respect intellect and education, and demand a fair redistribution of the nation's wealth through universal health coverage, adequate minimum wage policies, taxation commensurate with earnings, arts subsidies and the list goes on. It is fair to say that this sense of fairness eventually becomes a universal public value and spills over into international relationships.

Would it happily end there? Obviously not. Our world changes, our environment is threatened, in the absence of any weapons agreement the proliferation of atomic weaponry goes on, and our vastly expanded global trade has us tripping over each other. The social contract to manage the pursuit of self interest becomes increasingly a vital global concern. It is now self evident that the US role of "The World's Policeman" by necessity must give way in an increasingly multipolar world.

America can't face its Guilt

Why can't America face its past? The Germans after WWII had to at Nuremburg and today we have a well informed and comparatively enlightened population. Germans recognize their dreadful past and wish never to repeat it. Jacques Chirac publicly attempted the same cleansing in France but unfortunately his successor, Sarkozy, in order to gain favour with Le Penn's extreme right wing voters in the 2007 elections refuted Chiracs claims.

Obama is being condemned by Bill Clinton for supporting his pastor who at one point said "Damn America" for a past that has reaped the problems America faces today. In other words the pastor clearly stated the obvious and what every American needs to understand. Instead we here again observe the flag waving of Hillary and McCain who claim to love America more than Obama does. The US election campaign has truly hit the gutter with most of the press joining in. If Americans fail to come to grips with their sordid past the younger generations will go on making the same mistakes.

I recall that when the shoe bomber was sentenced the judge made the comment, "you hate us because of our freedom" It was a statement much heralded in the US and I received several copies via email "to send it on" No guilt or reflection on the many millions that have suffered in the Middle East, Vietnam, Cambodia and throughout Latin America over the past 100 years through US actions. Just "we love freedom and they hate us for it"

Like the pastor I am stating the obvious to most non Americans and am bewildered by their blindness. Maybe the impeding financial collapse will tear people away from their escapist TV and a majority will put their flags away and actually begin to think. I have my doubts.