Karen House Catholic Worker
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Karen House Catholic Worker |
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The Catholic Worker on Economics (Please scroll down for The Bailout: Socialism For Wall Street: Interview with Mark Engler) Main Menu:
From Karen House Catholic Worker: - Building a New Society: Spring 2008 RoundTable - The Global Economy: Fall 2001 RoundTable
From the Los Angeles Catholic Worker: - Free Market Capitalism: Robbing the Poor - Jeff Deitrich - The Bailout: Socialism For Wall Street - Interview with Mark Engler
From the Houston Catholic Worker: - Faith and the Financial Crisis - Jim Consedine - It's All About Usury - John Médaille
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Karen House: 1840 Hogan St. St. Louis, MO 63106 314.621.4052 |
From the Des Moines Catholic Worker: - Trying to Serve God and Money is a Losing Bet - Frank Cordaro - Heterosexism as a Metaphor for Capitalism and Other Sins - Mona Shaw
From the Catholic Worker Founders: - On Economics: Easy Essays- Peter Maurin - On Interest and Money Lending- Dorothy Day |
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More on Distributism (economic system promoted by the Catholic Worker): - "Roots of the Catholic Worker Movement: Distributism: Ownershipof the Means of Production and Alternative to the Brutal Global Market" - Mark and Louise Zwick
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The Bailout: Socialism For Wall Street: Interview with Mark Engler
Mark Engler is a writer based in New York City and an analyst with Foreign Policy in Focus. His book How to Rule the World: The Coming Battle Over the Global Economy came out in Spring 2008. Please visit the LA Catholic Worker website to download the Catholic Agitator, and this article.
Agitator: Thank you for your excellent book. Your book is largely focused on the world economy, but I wanted to begin talking about the bailout. I wonder if you could explain how we got into our current mess, and if the bailout is really necessary. It seems as if this is the biggest robbery in this nation's history! Public discourse on this issue seems so constrained, it's just not obvious what is going on. Also, I want to talk about neo-liberalism and Milton Friedman. Mark: There are several things to say about the current financial crisis we are experiencing. The first is that this is a deregulation crisis; it's a crisis of market fundamentalism; it's a crisis of neo-liberalism—and other parts of the world understand this. Market fundamentalism is a term I use. Its proponents advocate handing over larger and larger sections of public life to the market on the basis that people operating out of their own greed and self interest in a totally unregulated fashion can create the best of all societies. Agitator: Where does this ideology come from? Mark: There was a very small minority of people, led by the Chicago School of Economics, notably Milton Friedman from the University of Chicago, who wanted to harken back to the era of total laissez faire market dominance with a much more constricted government role. In fact, he advocated for a very radical program where the government wasn't really involved at all. In other parts of the world, this is known as neo-liberalism. Now you have, I think, a number of people who have done a good job documenting the rise of neo-liberalism. Naomi Klein, for one, in her book, The Shock Doctrine, has done a good job demonstrating that this huge shift in ideology was implemented not under democratic, open, participatory circumstances, but rather under the most undemocratic and often the most violent of circumstances. In fact, it first happened in Chile, under the Pinochet dictatorship. We know that the United States did not support the democratic government there. In the name of fighting communism, fighting the Cold War, they ousted the democratically elected leader Allende. We helped put in a dictator, Pinochet. His advisors were students who studied under Milton Friedman at the University of Chicago. In fact, they brought their professor down to Chile to take a tour. These advisors handed the dictatorship a fully fleshed-out neo-liberal program: total deregulation, open market, tax cuts for the wealthy... Agitator: And the end of social programs? Mark: Yes, austerity. This became the economic program of the dictatorship and was the first time neoliberalism was implemented. It is interesting to look at what happened in Chile—the economy experienced a number of wild fluctuations, going up and going down, and finally it experienced a total crash. Chile then needed a bailout, and even Pinochet realized the system was too crazy. He began to re-impose some capital controls, though it remained by and large a neo-liberal economy under his leadership. Unfortunately, that was not the end of the story for neo-liberalism. The ChicagoSchool economists were gaining power in institutions like the World Bank and IMF. Essentially, these institutions started to grant development assistance only if recipient countries were willing to implement a program along the lines of neo-liberal ideology—rolling back the welfare state, deregulating corporate access, opening markets to corporations... Agitator: Part of deregulation is allowing corporations to invest in a country and then take all wealth out of the country and suck it into the world market or into their own pockets. Mark: Almost every country wants foreign investment, but there is foreign investment that helps, and there is foreign investment that doesn't help. If a company goes into to a country, hires a lot of local workers, and really invests in the economy, and some of the profits stay in the country and help the people there, that's a relatively benign type of foreign investment. But, if they go into a country, they ship in a lot of the work force, they extract the natural resources and send all profits back home, that doesn't help the poorer country at all. There used to be laws to regulate that—you had to hire local people, you had to put a certain amount of money back into the local economy. These types of protections were outlawed under neo-liberalism. One other thing of importance for us here is that we are experiencing a financialization crisis. What this means is finance becomes a larger and larger part of the economy... Agitator: You mean finance as opposed to production? Mark: Exactly. Finance is not production; it's not bricks and mortars investments; it's not services; it's not education. It's essentially making money by moving money around. Essentially it's the speculative part of the economy. It doesn't have anything to do with real production, with real jobs, or real anything. It is making money out of money—making money by gambling. This has become a larger and larger percentage of profit in the United States. I don't have the graph in front of me, but in the 1980s, corporate profits that came from finances were in the 10% to 15% range; in the '90s that went up to 20%; in the last decade, it was 25%; recently it was 27%. Corporations are turning to finance and speculation, which creates an environment where people are gambling on... Agitator: So, that’s what happened in the United States—housing became an investment bubble. Mark: We saw it happen first in the Asian crisis. People tried to make money on real estate. They tried to make money just on the strength of the currency, betting on the currency going up or down. And then, at the first sign of trouble, at the first sign that maybe the housing market wouldn’t go up forever, someone starts to panic. They start to pull all the money out, in the absence of any capital control. All of a sudden, in a way that has not before been seen in history, all this money can rush out at the push of a button on someone’s computer, and the economy is left in desperate shape. Our current crisis started in the housing bubble. It started in sub prime loans, which is a part of the housing market that preyed on working class and poor people who could not afford expensive homes, but banks gave loans on the idea that housing values were going to forever increase. They gave loans that looked good for the first year, but then had interest payments that ballooned out of control the next year or further down the line. You had to really read the fine print, and these loans were given to people who, for whatever reason, were not able to read the fine print, or the fine print was hidden. That’s the nature of the crisis—you had this totally deregulated gambling fed by this fevered speculation around housing. All that has now fallen apart. Agitator: What’s the 700 billion dollar bailout being used for? Mark: OK, we’ve talked about the crisis of market fundamentalism and the crisis of speculation. Now we’ll talk about what some people call “Wall Street socialism,” where profit is privatized and risk is socialized. This is the genius of the free market system—as long as everyone is making money, individual initiative and private entrepreneurialism creates all this expansion. But the moment everyone starts to lose money, it is no longer private ingenuity that is responsible. Instead it becomes a public issue. We need a public response; we need the government to step in and bail us out. Agitator: It seems to me that there used to be a regulation in place that kept the financial market separated from the investment market. Banks were prevented from investing in high-risk financial markets. Those safeguards were removed. Mark: Yes. I think you are talking about a bill that specifically deregulated that one sector of banking. But this is a long-term plight. Beyond that one bill, we have seen a twenty or thirty year process of deregulation. We have institutions that are supposed to deal with these problems. This is a crisis of “experts.” The people who are supposed to bail us out of this are the very people who got us into this problem. They are people who made a ton of money... The current Treasury Secretary, Paulson, came out of Goldman Sachs. He made something like $400 million when he had to sell his Goldman stocks to become Treasury Secretary. He made $400 million, plus his salary, from this deregulation process. There is a mandate for a government response, although some measures will seem odious to us on the Left. Now, all that being said, there are good bailouts and bad bailouts. Paulson’s initial proposal for $700 billion was a bad bailout—he wanted the money to dole out as he chose with no regulations, no strings attached, no oversight—the same deregulation mentality that got us into this mess to begin with, but this time using public money. The "experts" got us in trouble, but fortunately ordinary people said this was a ridiculous proposal. So, the bailout that they actually passed was a step in the right direction. Anyway, to sum it up, the original bailout in the United States had no equity whatsoever. The slightly improved bailout does have some equity, so there's some prospect of some of the $700 billion coming back to us. However, it didn't give the government the controlling share. Agitator: What is the $700 billion bailout, along with the $800 billion or so cost of the Iraq war and occupation going to do to the possibility of improved social programs in this country as the next president takes office? Mark: Well, it hurts. We have the bailout; we've seen huge tax cuts for the wealthy; we've seen runaway military spending; we've seen the wars in Afghanistan and Iraq—these are things that are rather comparable when it comes down to crunching numbers, in the tens and hundreds of billions of dollars. Agitator: If not trillions. Mark: Yes, easily it adds up to trillions. With $700 billion we could do an awful lot toward creating a "new deal" in this country. When we propropose a $700 billion social investment, they say there is no money, we're in debt, the country's in a deficit, etc. When Wall Street wants it, when there are wars in Afghanistan and Iraq, all of a sudden money becomes available. What this ultimately illustrates is that it's a question of priorities more than economics. The economics always gets sorted out later. It isn't a budgetary question, it's a political question. Agitator: What do you see as the best short-term scenario for the future in the United States. Mark: As I discuss in my book, the deregulation policies or market fundamentalism— all the things that led to this crisis—are not just a Republican program. Unfortunately, these very same policies were pursued by Clinton in the '90s. Clinton did more to enhance corporate globalization than anyone else, and most of Barack Obama's advisers come from that same camp. This is very, very frightening to me. Agitator: They are essentially neoliberals? Mark: Exactly. There is a distinction I make between imperial globalization and corporate globalization. There is a tendency to say, especially in the Bush years, that this is all the same thing. I think we need a language to distinguish them. Agitator: What would your advice be for people who want to see the economic change that is necessary for this country—change that would provide full employment, good jobs, and investment in public spending? Mark: It's very simple: don't just sit around and think that Obama is going to do it for you. We have to get out and organize. It is no mystery how you organize. It involves going to meetings, getting together with people to plan, then act. There are a hundred ways to do that. Ω
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