Amid relentless anti-government propaganda and endless pressures for more deregulation, madcap capitalism has returned. The consequences can now be seen from the desolate factory towns in Michigan to the oil spill poisoning the Gulf of Mexico, from teacher layoffs in California to crazy market swings on Wall Street.
Reprinted from Consortium News
For much of the post-World War II era, there was
a broad consensus that well-regulated capitalism paired with an
effective public sector was the economic model that worked best,
especially compared with the Soviet Union's heavy-handed central
planning or the madcap capitalism that had led to the Great Depression.
The harsh Soviet approach failed to meet
basic consumer needs, and laissez-faire capitalism was too susceptible
to the boom-and-bust cycles that brought on the Great Depression.
President Franklin Roosevelt's New Deal had charted a middle course
that let capitalists make money producing and selling products while
the government constrained capitalism's worst excesses.
In the 1950s and 1960s, President Dwight
Eisenhower's Interstate highway system and John Kennedy's space program
also showed how smart government programs could help create an
infrastructure to spur economic growth. Tax rates on the wealthy were
relatively high in those days, but an expanding middle class was
generating an unprecedented national prosperity.
Without doubt, there were many problems
and inequities that the United States and other modern capitalist
countries had to resolve, from ending America's racial segregation to
eliminating the vestiges of European colonialism.
But it was generally agreed that a mixed
economy, combining the dynamism of private enterprise with
democratically elected leaders representing the broader interests of
society, was the way to go. In this view, capitalism was like a
powerful resource that could do much good but needed public oversight
to stop it from doing much harm.
Over the past several decades, however,
that consensus has broken down in the United States.
Amid relentless anti-government
propaganda and endless pressures for more deregulation, madcap
capitalism has returned. The consequences can now be seen from the
desolate factory towns in Michigan to the oil spill poisoning the Gulf
of Mexico, from teacher layoffs in California to crazy market swings
on Wall Street.
Yet, a major difference between the
public reaction to the Great Depression of the 1930s and today's Great
Recession is that the U.S. electorate shifted toward more liberal and
pro-regulatory policies after the stock market crash of 1929 while many
voters now appear to be drawing the opposite conclusions from the
financial meltdown of 2008.
Instead of turning to politicians who
promise to use government to restrain Wall Street and hold
corporations accountable, many Americans seem influenced by the
anti-regulatory, anti-government messages of the Tea Party and
right-wing talkers like Glenn Beck and Rush Limbaugh.
These Americans want to punish President
Barack Obama and the Democrats who favor more government regulation.
Heading toward the November elections, the Republicans appear poised to
win more seats in Congress, maybe a majority that would block any
meaningful reforms favored by Obama.
Yet, the irony of this likely outcome is
that it has been primarily the Republicans and their right-wing allies
who dismantled Roosevelt's economic safeguards and demonized the concept
of effective governance that Eisenhower and Kennedy championed, the
old consensus that helped build and sustain America's middle class.
How the Right Has Won
For several decades now, the Right has
invested heavily in think tanks and media outlets that trumpet the
"magic of the market" and deride "big government." The Republicans have
relied on this same propaganda machinery to drive "wedge issues" into
the American public, exploiting grievances over race and social
The Right"s propaganda system is now so
advanced and dominant that it has convinced not only Tea Partiers but
large segments of the U.S. population that the answer to their current
economic woes is less government interference and perhaps more tax cuts
benefiting the rich.
Polls suggest that the right-wingers are
winning this argument despite the irrationality of their "solution" --
that the way to resolve the twin problems of out-of-control capitalism
and huge federal deficits is to get government more out of the way
and to cut taxes more deeply.
To understand how such a poll result is
possible, one has to go back to the days of Richard Nixon who pioneered
the use of "wedge issues," like his Southern Strategy to draw angry
white southerners into the Republican Party, and to the time of Ronald
Reagan when Republicans denounced "welfare queens" to attract
working-class whites to an anti-government "populism."
The Right's success in this propaganda
campaign was made easier by the American Left's failure to push back
with a media buildup of its own, allowing a media asymmetry to take hold
in the United States.
A key turning point came with the
election of Ronald Reagan in 1980. During his First Inaugural Address,
Reagan spelled out his vision, declaring: "Government isn't the
solution to our problem; government is the problem."
Though the federal deficit was relatively
small when Reagan took office and his predecessor Jimmy Carter had
actually reduced the federal debt as a percentage of the Gross Domestic
Product Reagan promised that he could generate more tax revenues by
Reagan called his plan "supply-side
economics" but his Vice President George H.W. Bush had earlier dismissed
it as "voodoo economics," an assessment that proved prescient when the
federal debt soared over the next dozen years.
Reagan implemented another novel approach
for undermining government. Unable to get Congress to eliminate
federal regulations on issues ranging from the environment to workplace
safety, Reagan appointed bureaucrats who were hostile to the purposes
of their own agencies.
These officials, such as Anne Gorsuch at
the Environmental Protection Agency and James Watt at Interior, made
common cause with the corporations they were supposed to regulate.
Reagan also busted unions and pushed a
pro-corporate "free trade" agenda. His ideological apologists insisted
that removing constraints on capitalism would, in the end, mean greater
wealth for everyone. Instead, much of the U.S. industrial base
disappeared and the middle class shrank.
End of the "Old Lions'
During this time, a generational shift
was occurring among congressional Democrats. The "old lions" who had
experienced the Great Depression and World War II were retiring or
dying off, replaced by a new breed of Democrats who were less willing
to defend the policies that had helped the country overcome the
economic distress of the 1930s.
These younger (and more timid) Democrats
also found themselves in a more hostile political environment. Even
though Reagan's economic policies primarily benefited the wealthy,
large numbers of middle-class whites were switching from Democrat to
Many of these voters were separated from
the Democratic Party by Republican "wedge issues," which exploited
unease about demographic and cultural changes. Also, as the right-wing
media grew in size and influence, the word "liberal" was turned into an
Even though Bill Clinton managed to win
the White House for the Democrats in 1992, the anti-government dynamic
that had been set in motion by Reagan continued. Clinton's "New
Democrats" worked to restore responsible government by reining in the
massive federal deficits but they still rode along with the GOP's
Most significantly, a key reform of the
Great Depression a provision in the Glass-Steagall Act that separated
Wall Street speculators from commercial banks was repealed in 1999 by
a Republican-sponsored bill that President Clinton's senior financial
advisers, Robert Rubin and Lawrence Summers, supported and that Clinton
signed into law.
By the time, Republican rule was fully
restored under George W. Bush in 2001, pretty much all the pieces were
in place for the implementation of Reagan's anti-government vision.
Many of Roosevelt's New Deal safeguards
had been removed; labor unions had been devastated; and a well-funded
right-wing media reaching from newspapers to talk radio to cable TV
shaped the national debate.
Besides slashing taxes again and wiping
out Clinton's budget surplus Bush appointed "free-marketers" to run
regulatory agencies. The new watchword was "self-regulation,"
suggesting that the "invisible hand of the market" would make
corporations do the right thing.
However, there was so much plunder in
Bush's early days that crises resulted. For instance, Bush's political
allies at Enron manipulated the energy markets of California to create
brown-outs and to jack up the cost of electricity. Enron and other
corporations also cooked their financial books to deceive investors.
The scandals grew so severe that even the
anti-regulators around Bush were forced to temporarily reverse course
and support financial reforms in the Sarbanes-Oxley Act. Bush also
replaced Harvey Pitt, his first chairman of the Securities and Exchange
Commission who was viewed as too cozy with the accounting industry,
with William Donaldson, an old Establishment figure.
Donaldson oversaw a period of tighter
financial regulations, but his days were numbered after Bush won a
Donaldson stepped down in 2005, and Bush
appointed Rep. Christopher Cox, R-California, a self-described "free
market" advocate whose selection signaled to corporate America that the
post-Enron period of aggressive SEC enforcement was over.
During his 16 years in Congress, Cox was
known mostly as a Republican hatchet man who conducted investigations
that put Democrats in the worst possible light and protected GOP
As the anti-regulatory fervor returned,
hot-shot Wall Street operatives felt a new freedom to package and sell
exotic new trading instruments that were supposed to limit risk but
instead infected the world financial system with catastrophic dangers.
Cox also loosened rules for buying stocks
on competing exchanges, allowing fast-computer trades to seek out the
best available price, a change that some critics warned would eliminate
the safeguard of human specialists who had traditionally matched buyers
While there were efficiencies in the new
approach, there also was a lack of regulatory conformity to the system,
opening the possibility that a rapid decline in a stock could cascade
out of control with computerized "stop-loss orders" chasing "the
best-available price" to the bottom. That could end up costing
investors millions of dollars.
But there was such trust in the "magic of
the market" and in "self-regulation" that many of the hazards
accumulating on Wall Street weren't noticed. Indeed, many experts up
to the level of Fed Chairman Alan Greenspan seemed to be wearing
ideological blinders, while others simply didn't want some grumpy
government regulators spoiling the fun.
The music finally stopped in mid-2008,
confronting the Bush administration with the choice of either accepting
a devastating collapse of the stock market or rushing in with a
multi-trillion-dollar bail-out package. Bush opted for the bail-out, a
position ultimately supported by the two major party presidential
candidates Barack Obama and John McCain.
The financial crisis and McCain's
apparent cluelessness about what to do contributed to Obama's solid
victory in November. But the cost of the financial meltdown went beyond
the pricy bailout. Millions of average citizens lost their jobs, their
homes and their savings.
Turning on Obama
However, unlike Franklin Roosevelt who
benefited from sustained public support to take on Wall Street and
fight to get Americans back to work, Obama soon faced a revived
right-wing movement determined to block government efforts that might
alleviate the meltdown's worst consequences.
Obama managed to pass a $787 billion
stimulus bill and extended emergency loans to save the U.S. auto
industry, but the Right used its media power to rally more and more
Americans against him and his supposedly "wasteful government
When Obama turned his attention to the
most severe long-term budget challenge the soaring cost of health care
congressional Republicans lined up unanimously against what they
decried as "Obama-care." Democrats were forced to defeat a bitter
filibuster in the Senate and pass the final legislation amid a near
riot by Tea Partiers surrounding the Capitol.
Meanwhile, other long-term consequences
of the Reagan-inspired deregulation continued to play out. In April
2010, an explosion in West Virginia killed 29 miners in a mine that had
been repeatedly cited for safety violations but was allowed to
continue in operation.
Later that month, one of BP's
deep-sea-drilling oil rigs exploded in the Gulf of Mexico, killing 11
workers and endangering the coasts of Louisiana and other states with a
massive oil spill that remained out of control three weeks later.
In a political atmosphere where
Republicans had not long ago chanted "drill, baby, drill" and
President Obama had acquiesced to more offshore drilling the rig was
one of many that had been allowed to operate in deeper and deeper
waters with lax regulation and without adequate safeguards.
Essentially, the Bush administration had
trusted the oil industry to "self-regulate."
On May 6, the dangers of madcap
capitalism resurfaced again on Wall Street. A combination of factors,
including computerized trades that flitted from exchange to exchange as
prices dove, precipitated a near-1,000-point drop in the Dow. Some
blue-chip stocks lost almost their entire value in a matter of minutes
before humans could intervene.
Many small investors with
computer-triggered "stop-loss" orders (the kind advertised by E-Trade's
talking baby who says in one ad that the techno-system saved him "a
pant load" while he was away at a Las Vegas bachelor party) saw their
shares sold at sharply discounted prices (costing many of those
investors "a pant-load").
New suspicions surfaced that Wall Street
insiders had figured out yet one more way to game the system against the
Yet, all these examples of madcap
capitalism unnecessary deaths of workers, environmental catastrophes,
dangerous stock speculation and scammed investors have failed to
generate a new national consensus for a broader government intervention
in the economy.
Instead, with the right-wing and most
mainstream news outlets still sniggering about the incompetence of
government, the political tide continues to flow toward a likely
Republican resurgence in November.
In effect, that would put back in charge
the very forces that did the most to create the Great Recession and
other disasters. Presumably, the nation would begin hearing new GOP
demands for more deregulation, more tax cuts and less of a government
role in restraining madcap capitalism.
Robert Parry broke many of the Iran-Contra stories in the 1980s for the Associated Press and Newsweek. His latest book, Secrecy & Privilege: Rise of the Bush Dynasty from Watergate to Iraq, can be ordered at secrecyandprivilege.com. It's also available at
Amazon.com, as is his 1999 book, Lost History: Contras, Cocaine, the Press & 'Project Truth.'