Tuesday, September 30, 2008

Wing Nuts are Right -- and Left

The House failure to pass the bailout plan has evoked images of lunatics in charge of the asylum. Yet there is one sense in which the wing nuts, most of whom are right-wing, are right and, ironically, also left: a traditional bailout of financiers by the committee of capitalists we call the government is certainly not the answer to what ails the United States -- or the world.

Any solution to the problem of a burst bubble of snake oil mortgages has to begin where the problem began. One cannot perennially expect that an economy whose ever greater productivity is relentlessly squeezed out of service and production-line workers, but whose rewards flow only to the top, to be based on a firm grounding.

Why is there a credit crisis? Because Americans have overborrowed. Why have Americans overborrowed? Because the nation's vast economic engine depends on consumption and, since the incomes of average Americans have stagnated for the last five years in a row, purchasing has had to occur on credit.

Don't believe this? Consider that between 2005 and 2006, the top 1 percent of households (with incomes above $375,000) added $73,000 to their incomes, the next 9 percent gained $16,000 and the bottom 90 percent (below $105,000 a year) increased their incomes by just $20.

That's a finding that is consistent with data for all of the current decade, as examined by two economists who also found that income disparity is the largest it has ever been in the United States since ... wait for it ... 1929. (See a paper based on the research, Striking it Richer: The Evolution of Top Incomes in the United States by Emmanuel Saez.)

And who is finding themselves unable to pay their mortgages? The stagnating majority, who have reaped only a quarter of the wealth generated by their labor in the past economic expansion.

Unless we collectively make it possible for the 90 percent to increase their incomes, no amount of lending to financiers will solve the problem. Yes, ladies and gentlemen, this calls for answers remarkably similar to -- gasp! the salts! -- socialism.

Americans hear "socialism" and their McCarthyist muscle makes them see Soviet Gulag prison systems. Yet socialism has been very successful in Sweden, Britain, France, Germany, Spain and Italy, where not everything is government owned, as in the old Soviet Union, but the society as a whole guarantees everyone's basic well-being.

Indeed, the capitalist class in this country has always believed in socialism for corporations and the rich, of which the proposed bailout plan was a perfect example. I am just suggesting that all of us get a bit of that socialism, instead of their doling out capitalism for the middle class and the poor, while taking our tax money to subsidize themselves.

Specifically, this moment in history calls for a top-down revision of the American economic system, for a vast democratization of the economy similar to the democratization of civic life begun in 1776. I can think of two basic principles that would undergird such a new society:
  1. All people have the inalienable right to the basic necessities of life, including food, clothing, shelter, schooling, work and life itself.
  2. Beyond what is needed for the bare necessities, all earnings must bear a direct relationship to work making something or delivering a service.
With those principles in mind, housing becomes an essential that no one in a country with the resources of the United States should ever lack, rather than a luxury which a hardy few can obtain, and, on the other hand, investment, inheritance and manipulation of assets does not amount to work.

This priority-reordering scale of values would mean that any bailout plan would seek first to perform the tasks the failing institutions are performing.

In the case of AIG, for example, instead of securing the firm itself, the goal would have been to secure the insurance policies while seizing the money and firing the entire management. When IndyMac was seized, regulators first froze all foreclosures, then began an analysis of the outstanding loans, one by one.

This may take trillions and many years. But only a framework to deliver help first at the bottom and only secondarily to the top, a framework that would be gradual, one that recognizes that the current structures simply don't work, will ultimately solve the many problems facing the United States and the world.

So the obstructionists of George W. Bush's 9/11-style call for a blank check were right. We all need to sit down and think our way out with a little deliberation. Perhaps we need to wait to after the presidential election, so we can start from scratch to build a new economic democracy from scratch.
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