In an essay last month, Nouriel Roubini wrote:
This is a crisis of solvency, not just liquidity, but true deleveraging has not begun yet because the losses of financial institutions have been socialised and put on government balance sheets. This limits the ability of banks to lend, households to spend and companies to invest…
The releveraging of the public sector through its build-up of large fiscal deficits risks crowding out a recovery in private sector spending.
Roubini has previously written:
We’re essentially continuing a system where profits are privatized and…losses socialized.
Now Nassim Nicholas Taleb is saying the same thing:
After finishing The Black Swan, I realized there was a cancer. The cancer was a huge buildup of risk-taking based on the lack of understanding of reality. The second problem is the hidden risk with new financial products. And the third is the interdependence among financial institutions.
[Interviewer]: But aren’t those the very problems we’re supposed to be fixing?
NT: They’re all still here. Today we still have the same amount of debt, but it belongs to governments. Normally debt would get destroyed and turn to air. Debt is a mistake between lender and borrower, and both should suffer. But the government is socializing all these losses by transforming them into liabilities for your children and grandchildren and great-grandchildren. What is the effect? The doctor has shown up and relieved the patient’s symptoms – and transformed the tumour into a metastatic tumour. We still have the same disease. We still have too much debt, too many big banks, too much state sponsorship of risk-taking. And now we have six million more Americans who are unemployed – a lot more than that if you count hidden unemployment.
[Interviewer]: Are you saying the U.S. shouldn’t have done all those bailouts? What was the alternative?
NT: Blood, sweat and tears. A lot of the growth of the past few years was fake growth from debt. So swallow the losses, be dignified and move on. Suck it up. I gather you’re not too impressed with the folks in Washington who are handling this crisis.
Ben Bernanke saved nothing! He shouldn’t be allowed in Washington. He’s like a doctor who misses the metastatic tumour and says the patient is doing very well.
(PhD economist Steve Keen uses the same analogy of a patient with a tumor and the unwitting mainstream doctor).
Socialism, Capitalism or Fascism?
Some, however, argue that the economy is more like fascism than socialism. For example, leading journalist Robert Scheer writes:
What is proposed is not the nationalization of private corporations but rather a corporate takeover of government. The marriage of highly concentrated corporate power with an authoritarian state that services the politico-economic elite at the expense of the people is more accurately referred to as “financial fascism” [than socialism]. After all, even Hitler never nationalized the Mercedes-Benz company but rather entered into a very profitable partnership with the current car company’s corporate ancestor, which made out quite well until Hitler’s bubble burst.
Is Scheer right?
I don’t know. But Italian historian Gaetano Salvemini argued in 1936 that fascism makes taxpayers responsible to private enterprise, because “the State pays for the blunders of private enterprise… Profit is private and individual. Loss is public and social” (page 416).
This perfectly mirrors Roubini’s statement about the American government’s bailout plan.
Remember that one of the best definitions of fascism – the one used by Mussolini – is the “merger of state and corporate power“.
That could never happen in America, right?
Again, I don’t know. But consider:
- Two powerful congressmen have said that banks run Congress
- The head of the Federal Reserve Bank of Kansas City, the former Vice President of the Dallas Federal Reserve, and two top IMF officials have all said that we have – or are in danger of having – oligarchy in the U.S.
- Economist Dean Baker says that the real purpose of bank rescue plans was “A massive redistribution of wealth to the bank shareholders and their top executives”
- The big banks killed any real chance for financial reform months ago
Ultimately, though, whether we have economic socialism or fascism is not really important. Whatever we have, it isn’t free market capitalism.