The Triangle

Issue date: 11/14/08 Section: Ed-Op

Media Credit: MCT

Media Credit: MCT

The financial pages and the talk shows are full of people explaining the Great Crash of '08 to us. Unfortunately, they are mostly the people who talked us over the cliff in the first place, or argued that the cliff was never there. Meanwhile, the Bush administration - already a wholly owned subsidiary of Goldman Sachs, with Josh Bolten, the former Goldman executive, as White House chief of staff; Henry Paulson, Goldman's former CEO, as Treasury secretary; and a regular Goldman mafia as Paulson's underlings - has moved rapidly with the Great Bailout to protect the fortunes of the rich. The standard excuse for this is that while the poor and soon-to-be-poor (you and me) need to bear the brunt of any new Great Depression, the rich must at all costs stay rich because they are the pillars that support the financial universe. So great and so imperative is this need that when the banks, brokerage houses and insurers that larded themselves up on bad debt started shedding their poundage, Paulson moved to grab dictatorial powers to prop up the fortunes of his fellow CEOs, and, incidentally, his own.

We wait now for the Coming of Obama, but don't bet your buttons on the omens. He has already surrounded himself with the likes of Robert Rubin, the former Treasury secretary who helped bring Citibank to the brink as its resident guru, and avuncular Paul Volcker, the former Federal Reserve chief who gave us the Reagan depression of 1982. So it's already pretty clear that the foxes will rule the chicken coop as usual. (On the other hand, think on the bright side: we could have had John McCain, the guy who couldn't count the number of houses and autos he had, and who thinks that anyone with an income under $5 million a year is middle class.)

The rich are already on the way to a soft landing, thanks to their friend Henry, who extended them public credit (i.e., printed greenbacks and Chinese yen) to unblock the capital markets, without requiring that they actually spend any of the money except on themselves. You and I, on the other hand, are being scolded for not spending whatever is left of ours. The blame for the depression will be placed on the backs of us "consumers," who are simply failing to keep the economy afloat with money we don't have and can't borrow.

The conventional wisdom is that the government must tweak the system with a new stimulus package that, via deficit spending and tax cuts for that ever-elusive middle class, will get spending up a bit. The bill will be deposited, as ever, with the future. No one wants to say it, but this will be too little and too late, a band-aid for catastrophic organ failure. Unless you are rich - Henry Paulson or John McCain rich - prepare to suffer.

Of the numerous explanations for what went wrong, I was most amused by the one offered by Professor Tyler Cowen of George Washington University in The New York Times Oct. 17. Cowen attributes our meltdown to (1) "an enormous growth in wealth that needed to be moved into investments," or what our present Fed chairman called the "global savings glut"; (2) consequent risk-taking "driven by investor hubris and collective delusion"; (3) loose monetary policy and regulatory failure; and (4) plain bad luck, which generally follows when you jump off a cliff. Cowen doesn't bother to cite the popular villain - greed - as an independent variable, "because greed, like gravity, is pretty much always there."

Cowen fails to explain how all that "enormous wealth" accumulated in the first place, but Karl Marx did a century and a half ago, and his analysis seems plenty valid until a better one comes along. You might have noticed a pair of twin statistics about the Bush years, at least until the current crisis got traction: productivity was up in "our" economy by 20 percent, while worker income during the same period shrank by 3 percent. Productivity is one of those weasel words that means greater output per worker, which can signify anything from technological innovation to just forcing the poor bastard to work longer hours and with fewer bathroom trips. Either way, it does mean generation of wealth; and, as Adam Smith pointed out long ago, since all economic value is labor value, you'd think some of the gain would accrue to the laborer himself. Instead, less of it did, continuing a trend that, with occasional ups and downs, has been pretty consistent not only back to the 1970s but to the time of the pharaohs.

Where did the extra value go? Here you can consult your Gideon Bible: "Those who have, to them shall be given; and those who have not, from them shall be taken away." Marx called this, with that embarrassing honesty to which he was prone, exploitation, and the sums extracted from the creators of wealth by the parasites of wealth "surplus value." He suggested that this was no accident, but the very purpose of the system.

The problem with the system, particularly under the decentralized form of it known as capitalism, is that rich people and financial institutions overfed on wealth require, at the bottom of the food chain, willing and able consumers to support the investments. But a system that starves the worker cannot support the consumption required to make investment profitable. Like a body feeding on itself, it can string the cycle out on cheap credit, and cannibalize itself by extending credit to those who cannot by any reckoning be expected to repay what they have borrowed. This latter went by the name of subprime lending, another weasel word for loansharking. Applied to the giant housing market, and fed into the general economic bloodstream by banks and brokers, it assured that the Crash of '08 would be - to alter the Hobbesian formula a bit - nasty, brutish and long.

John McCain claimed that Barack Obama was campaigning to become "Redistributionist-in-Chief" because he has proposed some largely symbolic adjustments to the tax code. These will have no impact on the broad inequity that is the root of our social evil. Instead, Obama has supported the bailouts by which that inequity is being propped up. Real redistribution would require not mere taxation on income, but on underlying assets.

We are not going to tweak the system back to life this time around. It will probably take a new version of the New Deal - financial insurance and support for states and municipalities; rolling unemployment benefits and make-work infrastructure projects; and major banking controls - to avoid a general catastrophe. We can thus expect a substantial increase in what Marx called in Capital, "official pauperism ... that part of the working-class which has forfeited its condition of existence (the sale of labour-power), and vegetates on public alms." This will no doubt shock the conscience of John McCain. He may be comforted by the thought that Joe the Plumber will not live on those alms nearly as extravagantly as he and his friends do already.



Robert Zaller is a professor of history. He can be reached at op-ed@thetriangle.org.

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