An historic opportunity presents itself to the American left. The looming collapse of American neoliberalism opens a door that has been shut tight for thirty years. While mainstream analysis of the current financial crisis usually portrays it as an easily avoidable consequence of regulatory laxness, the threatened pain may pry open many ears to a more profound analysis. I don’t presume to present that analysis here, but I would like to sketch out the elements of a response in the hope that others more capable than I will can expand upon.
Critiquing the Critique
The first task is to critique the shallow critique presented by mainstream liberalism. An example is Dean Baker’s recent article, “The Financial Meltdown Continues”, where he states, “While there is no simple path out of this crisis, it was a crisis that could have been easily avoided. If the Federal Reserve Board had acted to stem the growth of the housing bubble before it grew to such dangerous proportions, the country would not currently be facing a recession and the prospect of a financial collapse.” The implication is that a modicum of regulation would have been sufficient to avoid the crisis.
The many variations on the liberal critique usually revolve around the theme of good capitalism versus bad capitalism. Everyone knows what bad capitalism is – it is unregulated, amoral, ecologically destructive, greed-driven, laissez-faire, Gilded Age, buccaneer – name your cliché. Good capitalism is what FDR created with the New Deal. It protects the weak, respects labor, is ecologically responsible, accepts government regulation – name your illusion.
The real crisis is inherent to capitalism itself. Financialization means the conversion of actual economic value into speculative instruments. In order to maximize profits, wealth was increasingly separated from the creation of real value. Instead of a manufacturing-based economy that created actual goods, our economy was transitioned to a finance-based economy that traded in what were essentially financial concepts. Exotic investment instruments proliferated in order to support the illusion of incessant double-digit growth that capitalism requires.
Naomi Klein understands how radical the critique must be: “The reason these junk loans were allowed to proliferate was not just because the regulators didn't understand the risk. It is because we have an economic system that measures our collective health based exclusively on GDP growth. So long as the junk loans were fuelling economic growth, our governments actively supported them. So what is really being called into question by the crisis is the unquestioned commitment to growth at all costs. Where this crisis should lead us is to a radically different way for our societies to measure health and progress.” Naomi Klein, “Free Market Ideology is Far from Finished”, Sept. 20, 2008. The key phrase is “unquestioned commitment to growth at all costs.” This is precisely what capitalism cannot sacrifice. An end to uncontrollable growth means an end to its oxygen supply.
Despite strident calls by the Catholic Church and other Christian associations for financial responsibility, these calls must fall on deaf ears unless accompanied by a parallel call for a new economic system. It is incoherent to support an economic system that requires endless expansion and then condemn the immorality of CEOs who try to achieve this expansion. This is precisely the moral model involved in the condemnation of consumerism.
Here is one of the archetypical condemnations of consumerism, “A disconcerting conclusion about the most recent period should serve to enlighten us: side-by-side with the miseries of underdevelopment, themselves unacceptable, we find ourselves up against a form of superdevelopment, equally inadmissible, because like the former it is contrary to what is good and to true happiness. This superdevelopment, which consists in an excessive availability of every kind of material goods for the benefit of certain social groups, easily makes people slaves of ‘possession’ and of immediate gratification, with no other horizon than the multiplication or continual replacement of the things already owned with others still better. This is the so-called civilization of ‘consumption’ or ‘consumerism’, which involves so much ‘throwing-away’ and ‘waste’. An object already owned but now superseded by something better is discarded, with no thought of its possible lasting value in itself, or of some other human being who is poorer. All of us experience firsthand the sad effects of this blind submission to pure consumerism: in the first place a crass materialism, and at the same time a radical dissatisfaction, because one quickly learns unless one is shielded from the flood of publicity and the ceaseless and tempting offers of products that the more one possesses the more one wants, while deeper aspirations remain unsatisfied and perhaps even stifled.” John Paul II, Solicitudo Rei Sociallis, 28.
The moral overtones to this analysis imply that we should resist this temptation to consumerism, but “how” is left in the ether. Acknowledging the barrage of advertising, what is the remedy for the dissatisfaction which is the driving force behind the capitalist economy? Silence reigns.
But this silence conceals a host of issues that must be uncovered if we are to make an adequate intellectual, moral and spiritual response to the current crisis. First, we must escape from the good capitalism/bad capitalism dichotomy. Capitalism, in response to government and popular pressure, has at times managed to conceal its basic nature. However, as soon as the pressure declines, as during the late seventies and thereafter, the fundamental nature of the system emerges into the light. The basic features are the same today as they were in 1900, as they were in 1790, and as they will be in 2100, assuming there is a planet left to consume.
The Nature of the Beast
What is absent from these analyses is an instinct for economic reality. During the past five years, Wall Street brokers have frequently been fired because they did match the returns that their compatriots were making. In other words, they were ousted for not playing the game while it was going, a game of shuffling junk mortgages that virtually everyone knew was based on fraud. The same forces apply equally to CEOs of energy corporations, who are under incessant pressure to outperform their competitors. They too can be fired for not matching the returns of their compatriots. They can also be sued by stockholders for actions that detract from maximum profits, such as failing to evade environmental regulations where possible. The essence of capitalist efficiency is competition, reaching for the maximum possible gains in order to outperform and potentially acquire one’s rivals. This is not an aberration, the result of excessive deregulation - it is the nature of the beast.
The beast makes money any way it can. It does not care about producing anything worthwhile for humanity. Consider Michael Hudson’s description of the hedge fund bets that led to the current meltdown, “A hedge fund does not make money by producing goods and services. It does not advance funds to buy real assets or even lend money. It borrows huge sums to leverage its bet with nearly free credit. Its managers are not industrial engineers but mathematicians who program computers to make cross-bets or ‘straddles’ on which way interest rates, currency exchange rates, stock or bond prices may move – or the prices for packaged bank mortgages. The packaged loans may be sound or they may be junk. It doesn’t matter. All that matters is making money in a marketplace where most trades last only a few seconds. What creates the gains is the price fibrillation – volatility.” – Michael Hudson, “America's Own Kleptocracy”, Sept. 20-21, 2008.
These are sins the Church can’t even define, yet hundreds of millions, perhaps billions, of human beings will be devastated by them. The Church, like the rest of us, is buoyed up by wealth that derives from such sources, so its motivation for understanding them is minimal. Capitalists make money the easiest and fastest way possible, not because they are immoral, but because that’s what they have to do to compete. If they can make money using arcane hedge fund formulas, and by doing so can outcompete rivals who follow more productive paths, then they have to do so, whether they like it or not. Most tell themselves stories about how smart they are and come to believe these stories.
While hundreds of millions of taxpayers have been mindlessly convinced to “save the system” by putting themselves and future generations into massive debt bondage, no major world institution can define the system we must save. In this system, if a coal mining company can make more money by blasting the tops off mountains without concern for the health consequences to the surrounding population, they do it, but not because they don’t care about the Appalachian ecology. They may, but soon will convince themselves that other priorities should predominate because the nature of the system forces them to stop caring about factors other than profit.
John Paul II wrote in Sollicitudo Rei Socialis, "It is above all a question of interdependence, sensed as a system determining relationships in the contemporary world, in its economic, cultural, political and religious elements, and accepted as a moral category. When interdependence becomes recognized in this way, the correlative response as a moral and social attitude, as a 'virtue,' is solidarity. This then is not a feeling of vague compassion or shallow distress at the misfortunes of so many people, both near and far. On the contrary, it is a firm and persevering determination to commit oneself to the common good; that is to say to the good of all and of each individual, because we are all really responsible for all. This determination is based on the solid conviction that what is hindering full development is that desire for profit and that thirst for power already mentioned. These attitudes and 'structures of sin' are only conquered - presupposing the help of divine grace - by a diametrically opposed attitude: a commitment to the good of one's neighbor with the readiness, in the gospel sense, to 'lose oneself' for the sake of the other instead of exploiting him, and to ‘serve him’ instead of oppressing him for one's own advantage.”
Commitment to the common good should be the virtue guiding us out of this morass. But it can only be awakened in those who are capable of facing the nature of the system in which their moral choices are embedded. My hope is that other ZNet writers will contribute stories with explanatory power and popular appeal to lift the debate beyond the familiar clichés that set off good capitalism from bad capitalism. The crisis means that many will be seeking voices with the power to provide convincing explanations.