Following is an excerpt from the introduction to the forthcoming book “Low-Wage Capitalism” by Fred Goldstein to be published by World View Forum.
The Crisis within the Crisis
As the crisis mounts there will be finger pointing by politicians and pundits alike, meant to assuage the anger of the masses. Official opinion is blaming the situation on greed and on a failure of regulation. To be sure, the bankers on Wall Street are voracious and greedy. And it is obvious that the destruction of regulatory restraint on finance capital opened the door wide to an escalation of gambling and speculation—to the “casino” economy.
This deregulation began with the Reagan administration, passed a milestone in the Clinton administration with the repeal of the Depression-era Glass-Steagall Act, and continued in the current Bush administration. Alan Greenspan, former head of the Federal Reserve System, presided over much of this deregulation during his reign of 19 years, from 1987 to 2006.
But to say that deregulation is the cause of capitalist excesses is to put the cart before the horse. It is the irrepressible capitalist lust for profit itself that leads to excesses. These excesses, such as the wild speculation in stocks and land deals that led up to the market crash of 1929, led to New Deal-era regulations restricting the financiers—but only after the speculative horse was out of the barn and millions had been ruined.
The gradually accumulating need of capital to engage in speculation inevitably results in the destruction of regulatory restraint. The system itself creates excess money capital and drives it more and more toward financial speculation and investment in paper wealth that has no relationship to underlying value.
The fact is that the bankers and the rich in general have vastly increased their fortunes in the last three decades. Income inequality in the U.S. has become notorious around the world. For example, in 1976 the top 1 percent of households received 8.9 percent of total income. In 2005 the top 1 percent received 21.8 percent—the highest percentage of total household income since 1928, the year before the stock market crashed. (Inequality.org)
From 2000 to 2007 the wealthiest 400 individuals in the U.S. got a $670-billion increase in their wealth and owned $1.5 trillion. While the top 1 percent of households earn more than the bottom 50 percent, they own more than 90 percent of the wealth. (Figures from Sen. Bernie Sanders’ speech against the bailout.) These are truly staggering numbers and have profound implications for the profit system.
The working class produces all wealth, all value in society. The class struggle is really a struggle over which class will get a larger or smaller share in the social surplus created by labor. If the bosses get more, the workers get less, and vice versa. This is what makes class antagonisms irreconcilable.
Saying that there is growing income inequality in the U.S. is really a masked way of saying that there has been a broad redivision of the social surplus in favor of the capitalist class and to the detriment of the working class. The bosses and bankers have taken a larger and larger relative share and the working class has received a correspondingly smaller share.
However, the rate at which the owners of capital have accumulated this wealth exceeds the rate at which it can be reinvested profitably in productive capital. The scientific-technological revolution has made business more and more productive. The workers turn out more goods and services in less time with each new advance in technology.
Furthermore, the anarchy of production—that is, the unplanned and competitive nature of capitalist production—sends each capitalist grouping in search of greater and greater market share in pursuit of profit, to the point that they collectively produce a glut of commodities on the market and can no longer sell them at a profit. This is a fundamental feature of capitalism and cannot be eliminated.
And after the rich spend billions on yachts, jets, mansions, servants and every form of obscene luxury, they still have hundreds of billions in money capital left over. And, as Karl Marx showed, capital cannot rest, cannot remain idle. It seeks profit, and it seeks to maximize profit.
For example, the two largest industrial corporations in the U.S.—General Electric and General Motors—both have huge financial subdivisions. GE plows billions in profits into GE Capital, which invests tens of billions in loans all over the globe. GM’s financial arm is GMAC. (In 2008, to raise capital, it sold 51 percent of GMAC to Cerberus, a private equity firm.) While GM has downsized its production and forced a large part of its workforce to take buyouts, the company has expanded its lending. The same goes for Ford, Chrysler and other industrial giants. Instead of investing surplus capital in their own companies, they use it to make loans.
The collapse of the housing boom in August 2007, followed by turmoil in the capital markets, was only the latest in a series of capitalist crises.
During the Reagan administration, a severe recession in 1982 and 1983 sent unemployment above 11 percent. The capitalist class used the opportunity to begin the technological restructuring of industry, leading to millions of workers losing high-paying jobs. Reagan then stimulated the economy with $2 trillion in military spending, using Cold War propaganda to justify this huge handout to the military-industrial complex.
The economy expanded and the stock market boomed again—until it collapsed in October 1987 with record losses. Several trillion dollars of paper wealth were wiped out. An economic collapse was prevented only when Alan Greenspan, who was appointed head of the Federal Reserve in August 1987, poured tens of billions of dollars into the financial system to support the banks and the stock market on an emergency basis. This emergency rescue of the economy lasted only until 1991, when there was another recession.
However, the collapse of the USSR, also in 1991, stimulated a decade of capitalist expansion. Capital flooded into the former Soviet Union, Eastern Europe, India and other places. The upturn in economic output accelerated in the mid-1990s with the development of the Internet and related technologies. From 1995 to 2000, venture capitalists, who are really fronts for the big banks, poured billions of dollars in speculative capital into technology companies. New companies were being created on a daily basis. The stock market boomed, creating the so-called “dot-com” bubble—until the overproduction of technology led to another collapse, beginning in March 2000. From that time until October 2002, $5 trillion in paper wealth was wiped out and an economic downturn developed simultaneously.
In the 110 years since the Spanish-American war of conquest, imperialist capitalism has brought an endless cycle of wars, recessions, depressions and more wars. After each economic downturn, the system has had to resort to military expansion and financial manipulation to revive itself.
During the depression of the 1930s, Franklin D. Roosevelt tried to get the economy going with the Works Project Administration and by allowing workers’ wages to rise. But by 1937-1938, after a brief uptick, there was a second depression. Only preparations for World War II and conquest in the Pacific and Europe revived the U.S. economy.
Throughout the entire Cold War period, U.S. capitalism was dependent on military spending to keep its economy going. The growth of the military-industrial complex, with its web of prime contractors and tens of thousands of subcontractors thriving on Pentagon appropriations for war and for arms exports, was the principal means of keeping the capitalist economy from sinking into stagnation and depression.
This history illustrates that since the turn of the twentieth century, capitalism, in order to sustain itself, has had to resort to artificial measures that bring disaster in their wake, in the form of war, depression or both.
Oct. 3, 2008
Labels: bailout, capitalism, fred goldstein, racismo, stimulus program, wall street, war
Fight for a workers’ program to save jobs, homes!
By Fred Goldstein
Published Oct 1, 2008 4:50 PM
Sept. 30—The political and financial establishment of U.S. capitalism has been stunned by the failure of its initial attempt to get Congress to pass a $700-billion handout to the banks.
Against a background of bank failures in the U.S. and Europe and appeals from the White House and the Treasury secretary, the House of Representatives on Sept. 29 defeated the bailout bill, 228 to 205. Following the vote, all three U.S. stock markets had historic drops, global stock markets initially plunged, and credit markets tightened up as fear struck Wall Street.
The vote was a defeat for a triple alliance: the bankers, represented by Secretary of the Treasury Henry Paulson and Federal Reserve Chair Ben Bernanke; the Bush administration; and the Democratic Party leadership. They all had labored mightily to sell the bailout.
It is highly likely that another round of political pressure from above will lead to the banks getting their way in the long run. Already the new line coming from the corporate media is to threaten workers that there will be no paychecks unless some version of the bill is passed. But with e-mails and phone calls to politicians running against the bill by 100 and 200 to 1 before the vote, the political pressure from below has for the moment overcome Paulson, Bernanke and company.
Capitalism’s faithful parties gripped by fear The growing economic crisis produced a political crisis in the two faithful parties of capitalism. On the one hand, the Democratic Party leadership was unable to force some 40 percent of its members to sign on to this gigantic giveaway to billionaires this time around, especially in the face of mounting foreclosures and layoffs. It was particularly noticeable that a majority of the Congressional Black Caucus and Congressional Hispanic Caucus refused to sign on.
On the other hand, the Republican right wing tried to pose as advocates for the people, spouting hypocritical demagogy against “big government” and greedy bankers. But in actuality, their proposals were to further deregulate the banking industry to allow hedge fund gamblers and private equity billionaires to enter the bailout racket.
Of course, the right-wing opposition to “big government” does not extend to the growth of the Pentagon and its trillion-dollar war in Iraq, the growth of the repressive apparatus of Homeland Security to persecute immigrants and undocumented workers, the growth of the FBI, the CIA and so on. These ideologues are only against government intervention that might put restraints on the unbridled profit-seeking activity of big business.
It is hard to tell whether these right-wingers voted “no” out of concerns of ideology or pragmatic protection of their seats in the House or both. Whatever their motives, their political rhetoric against “big government,” which used to be applauded on Wall Street, has suddenly been made obsolete by the present crisis.
The once high-and-mighty tycoons of Wall Street used to get their assistance quietly, behind the scenes, from the Federal Reserve. In the present crisis they suddenly find themselves in desperate need of openly and directly getting their hands on the entire U.S. Treasury. The bankers behind the present crisis now need to rid themselves of trillions of dollars in toxic debts that they acquired by swindling the workers and then swindling the rest of the world into buying these bad mortgages. The “no big government” right-wingers, once praised by Wall Street, are completely out of sync with the needs of their masters in the present crisis.
Whatever the ultimate fate of the bailout bill, two important things stand out. First, the working class, the oppressed, everyone who is suffering foreclosure, job layoffs, lack of health care and other hardships, must formulate their own program of demands to solve their problems. And second, the people must wage an independent struggle to fight for these demands.
What the bailout bill says One look at the wording of the bailout bill tells why. The Democratic Party leadership tried to wrap the bill in appealing language about aid to homeowners, accountability, oversight, etc. But this is mainly deception to provide a political cover to shield the politicians in the event of an outright rebellion.
In the matter of stopping foreclosures, the bill calls on the secretary of the Treasury “to encourage the servicers of the underlying mortgages ... to take advantage” of various programs to “minimize foreclosures.” In other words, foreclosure protection is completely voluntary and depends entirely on the will of the mortgage holder.
As for the authority of Paulson to run the show, the bill states that “The Secretary is authorized to ... purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are deemed necessary by the Secretary, and in accordance with ... the policies and procedures developed and published by the Secretary.”
Paulson was the former CEO at Goldman Sachs investment bank. He is the point man for the biggest bankers. This bill would give him the sole authority to deal not only with mortgage debt, but also with “any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability.” In other words, Paulson can buy worthless credit card debt, student loan debt, auto loan debt, or any other type of debt from any financial institution that he pleases.
But the Treasury will be under no obligation whatsoever to give debt assistance to anyone but the banks.
As for oversight, not one elected official would be involved. The oversight board would consist of the chair of the Board of Governors; Paulson himself as secretary of the Treasury; the director of the Federal Home Finance Agency, created last July by Paulson; the chair of the Securities and Exchange Commission; and the secretary of Housing and Urban Development.
This is equivalent to asking the robbers to guard the vault.
The important point about this is that the Democratic Party leadership was touting this as the new, improved version of the bailout bill. But homeowners, indebted workers, students overburdened by loans, families laboring under debt incurred because of illness, job loss, or any of a hundred reasons for workers to go into debt under low-wage capitalism, wind up with nothing.
The bill was originally three pages long and gave total authority to Paulson. After days of negotiation it grew to 100 pages long and still gave authority to Paulson and his oversight committee of powerful financial officials.
Workers need their own demands Thus it is vital for the workers to have a clear and unambiguous program of demands that meet their own needs and put the burden on the bankers and the rich to pay. There is a growing movement across the country to demand a moratorium on home foreclosures and evictions. Foreclosures are at present paramount. However, even with 10,000 people a day facing the loss of their homes, the crisis of the people goes much wider.
As the unemployment rate rises, it is urgent to demand a freeze on all workplace closings and job layoffs and an extension of unemployment benefits. There must be a freeze on utility cutoffs and a rollback in gas, food and utility prices. Workers’ pensions and savings must be protected. Working and poor people need a general cancellation of their debts and an end to repossessions and wage garnisheeing.
As the crisis of the states and cities grows, there must be a moratorium to stop cuts in the budgets of social programs. Affordable, quality health care, housing and education should be a right.
It is the workers and oppressed, the youth and the elderly who need the trillion dollars that the government wants to hand over to the bankers. The Federal Deposit Insurance Corp., which is supposed to insure individual deposits up to $100,000, just took on $40 billion in debt from Wachovia Bank. This $40 billion was the price the government paid to have Citigroup take over Wachovia and keep it from falling into bankruptcy.
That $40 billion, plus a good part of the $700 billion that the government wants to dole out to the banks, could be used to help homeowners facing foreclosure.
From a strictly capitalist point of view, aid to homeowners would transform bad debts into debts that are payable. It would actually ease the financial crisis of the system. Furthermore, by keeping people in their homes, it would keep their homes off the market and ease the glut of unsold properties.
But the bankers would rather get handouts from the government and proceed with foreclosures. They don’t want to set a precedent of granting relief to homeowners, because that could lead to an avalanche of popular demands for all kinds of relief.
It is futile to rely upon the capitalist government or the big business parties to voluntarily give assistance to the multinational working class on a scale that would make a genuine difference in the lives of the millions suffering foreclosures, layoffs and other hardships. The only way that real, profound change takes place is as a result of struggle.
No bailout is going to stop the crisis of overproduction that is overtaking capitalism today. It underlies the financial panic that is roiling not only the U.S. but Europe, Asia and the rest of the world. What Paulson and Bernanke have in mind is to slow down and manage the crisis. They want to avoid a sudden collapse, a social shock that would not only cause a sharp drop in the profits of the corporations and banks but could set off an upsurge of the mass struggle. The goal of Washington and Wall Street is to engineer a so-called “soft landing.”
But whether the economic crisis develops gradually or suddenly accelerates, the ruling class will try to shift all the suffering onto the workers. The greater the crisis of the ruling class and the rich, the more they will try to push it onto the people. The series of government bailouts is a prime example.
They began with $29 billion for JPMorgan Chase to acquire the bankrupt Bear Stearns investment bank.
Then came $200 billion more for the Freddie Mac and Fannie Mae mortgage banks.
Then came $85 billion for AIG, the insurance giant.
With the crisis spreading, the bosses now want a giveaway of $700 billion to all the banks. And that may not be enough.
They admit to at least $4 trillion in bad mortgage debts—and there’s probably more, because the bankers hide everything from each other and from the government. With each escalation of their crisis, they pile more debt upon the working class and the middle class.
Bailout of capitalism In truth, the bailout of the banks is really a bailout of capitalism. The banks are the heart and soul of capitalism. They have engaged in an orgy of speculation for a decade. They inflated values in the stock market and flooded the world markets with worthless mortgage-backed securities. They created a mountain of fictitious capital that far outstripped the underlying real value, all of which must be created by workers working. Now that false value is beginning to collapse.
This is not capitalism “gone wrong.”
It is the fullest expression of what capitalism really is. Panics and crashes have happened throughout the history of capitalism, but now, in the age of globalization and high technology, they have reached new heights.
This system is based on profit. Profit is the be-all and end-all of capitalism. The engine of the entire system is production for profit. Getting the most profits is the aim of every capitalist, from the sweatshop owner to the largest transnational corporation.
Speculation and gambling for instant profits grows naturally out of the system. It is not an aberration or an abnormality.
The bankers who swindled the workers with subprime, deceptive, lying mortgages and then sold these mortgages off to other capitalists, gaining fees and high profits along the way, were doing what the ruling class does all the time, at every opportunity.
The starting point of capitalist exploitation and profit is money. Without money, no capitalist can hire workers or buy raw materials or inventory to set the process of exploitation and profit making into motion.
The bankers are in control of all the money in society. They sit on the boards of the corporations. They advise them and finance their loans. They sell corporate stocks and bonds on the market. The owners of productive capital and the parasitic financiers are completely intertwined with one another.
Human need is not part of their calculation. The fact that people need housing, food, jobs, education and health care means nothing to them if they cannot profit from it.
The bankers who are throwing people out of their homes are interlinked with the corporations that are laying workers off. They are tied to the utilities that are shutting people’s heat off in the winter, to the supermarket chains and agribusiness corporations that are raising food prices, and to the oil companies behind the invasion of Iraq and the high cost of gasoline.
Behind the problem of bankers’ bailouts, foreclosures and layoffs is the capitalist profit system itself.
Labels: bernanke, bush, capitalism, democrats, Federal Reserve System, foreclosures, Goldman Sachs, jobs, layoffs, Paulson, socialism, stimulus program
