Part II: The Logic of Market Utopianism: When Business Turns Bad for Soc.

Of Gross Domestic Keynesians and Ideological Brick Walls

Now one can say “look at the reimagining capitalism” ideas, proof that the counter-movements still operate; citizens are pushing back. And earlier in June, also in The Nation magazine, Gar Alperovitz wrote an article on “The New-Economy” movement, where “a growing group of activists and socially responsible companies are rethinking business as usual.” It is a useful roadmap of what’s stirring out there, and an update from his 2005 book America Beyond Capitalism. What especially caught our attention in the article was his recognition that much of the alternative economic thinking, especially the “green variety,” has an anti-Keynesian bias because of that school of thought’s focus on the macro-economic level, “gross” demand and increasing the “gross domestic product.” It’s a good point, and some of our readers have asked us, especially some political activists, “can’t you give us anything in place of the old Keynesianisms?” Well, that question was directed to a writer and reader who has seven volumes of Donald Worster’s work on the shelf and in the mind; and Gus Speth, David Korten, Bill McKibben, Herman Daly, John Cobb and Hazel Henderson either on the shelf or often referred to, but that still doesn’t quite get us around the very sharp curve we are in the middle of in this economic crisis, one brought to us by the dominance of the ideas of the Republican Right over the past 30 years or so. On this point, even Larry Summers has come around: we’re in a classic demand slump, too much private debt (note we didn’t say public debt), too few jobs and the threat of an even greater financial crisis looming when Greece defaults, the Euro is threatened and not too far away, China has it first great slump, which economic history says is inevitable, because no capitalist country we are aware of has ever gone through the type of industrialization China has without one.

But this is a far too narrow definition of Keynesianism by the alternative thinking greens and B Corporation types. We are heading, eventually, for some form of public jobs program, which, even if it followed the old New Deal model, means contracts today will be given out to different forms of economic enterprises: non-profits, for profits, and all the alternative forms in-between. The trick is for these groups to start thinking and planning now for the funds that can be made available because of the sovereign fiat issuing powers of the Federal Reserve/government (from two devils, that is, in the eyes of the Right and their Libertarian leaners). And even if the federal government plays the direct role of “employer of last resort” for some of these jobs, there is absolutely no reason, under our present conditions, for anything resembling the proverbial “leaf raking/make work” proposals; in the energy and environment field, in other types of lagging and neglected public infrastructure, there is no shortage of meaningful, productive and efficient work to be done - that can be as green as all the alternative thinking out there can make it.
But first, there is a huge ideological brick wall in the way, with the name Republican Right graffitied all over it, and if we have any direct criticism of what Mr. Alperovitz and Mr. Greider reliably say is stirring out there, it’s that it doesn’t seem to be able to grapple with the Right’s ideology, and Utopian market project, and its proven ability to turn a crisis of its own making into a continuing ideological offensive by projecting 19th century austerity “balanced budget” politics onto 21st century anti-government sentiments. If all this good alternative thinking believes it can just go and cultivate its alternative garden while the ideologues of the left and right exhaust each other, and then somehow emerge on top, smiling, well, we’ve got some news for you: it isn’t going to unfold that way. There aren’t many left “ideologues” remaining, it’s mainly the Center which mounts the half-hearted defense, because a good portion of the Center’s hearts fell in love with the market decades ago: just ask Jimmy Carter, Bill Clinton and Barack Obama. And besides, in the Right’s terribly ahistorical and conflated idea of the left-side of the political spectrum, “emergency room” Keynesians, including some professional economists who happen to be Republicans, will serve the Right quite nicely as “socialists.”

For our “can’t you serve us something other than Keynesianism” friends, we highly recommend Alan Brinkley’s 1995 book The End of Reform: New Deal Liberalism in Recession and War. We also highly recommend it as a partial answer to Paul Krugman’s frustrations about policy makers’ “Learned Helplessness.” Brinkley’s book – no coincidence – was written during the “low tide” of the Clinton years, and sketches a portrait of how far the liberal political economy was already thrown back on its heels by the Right’s counter-attacks in 1937-38. “Keynesianism” was being pushed back from any thoughts of structural interventions into the workings of capitalism (anti-trust, labor markets) that earlier populists and progressives has felt was necessary, and being set into the grooves of fiscal management of demand by the Federal Reserve and tax policies. And that also meant, witness the anemic the Employment Act of 1946, that the means to “full employment” (the words didn’t even appear in the bill, even though they were the goals of its sponsors) were also being driven as far away from the precedents of the New Deal’s CCC and WPA tools, and into the distant corners of macro-demand management and deficit spending, and sufficient consumer purchasing power. And readers know where the fate of those last two tools has gone in recent years.

The “Market’s” Bid for Complete Supremacy

For more than thirty years now, the Right has been pushing to expand the Utopian idea of market supremacy throughout all areas of American life. So let’s do a refresher course by listing the ways in which “free-market” thinking has pushed up against, or overturned, previous societal restraints, in Polanyi’s terms, starting with the most obvious, the state of American labor, which is once again being placed on the defensive and retreating in the one area where it has expanded since the 1970’s: local and state governments. Closely related to this reality, private pensions have been eviscerated, and public employees and their pensions are slated to follow; the struggle to preserve the old social safety net inherited from the New Deal and the Great Society is taking place under a losing “framing” battle, since the struggle is called “entitlement reform,” not the implementation of FDR’s Second Bill of Rights. Is there any more telling commentary on the success of the Right’s framing efforts than that Cass Sunstein, author of a 2004 book called The Second Bill of Rights: FDR’s Unfinished Revolution and Why We Need It More Than Ever, didn’t enter the Obama administration to pursue this second Bill of Rights, whose very first one is “The Right to a useful and remunerative job in the industries or shops or farms or mines of the nation”; he entered the Obama administration as its regulatory “czar,” with the blessing, no less, of the Wall Street Journal, which presumably read the market-friendly way Sunstein packaged his presentation of the Second Bill of Rights, and his none-too-threatening posture towards America’s sterling financial industry in matters of his regulatory intentions and style. And when’s the last time you saw Cass Sunstein out there on the hustings, promoting that Second Bill of Rights?

In matters of law, within the legal profession itself, we have had the Right on the offensive too, whether it’s the “law and economics school,” the Federalist Society, you name it: and they have been able to name their favorites for the openings on the benches. We’ll spare you the full iteration of the impact this is having on the Supreme Court’s pro-corporate decisions, in many, many matters, but especially in defending corporate personhood, and the already ample corporate influence in campaign spending; while we note a complete silence over the emergence of our two-tier legal system, one for average citizens, another for corporate “citizens.” So if you’re really wondering why it is that “Wall Street Isn’t in Jail,” the full answer transcends both Matt Taibbi’s and Bill Greider’s take: it is the slow-growing “fruit” of 30 years, of being on the ideological offensive…now being fully harvested…but let us continue to count the ways…

How have consumer interests been fairing over at the SEC, the FCC, the FDA, the Departments of Interior, Agricultural and EPA, over the past 30 years? Not so well? Got in the way of the power of those free-markets? Anyone heard from the anti-trust folks over at the Justice Department? Nothing? Well we sure as hell know that’s not because Justice is busy sending Wall Street to jail, is it? And how are the professional standards inside “accounting” doing these days after the Congressional “oversight” representatives ordered the Financial Accounting Standards Board to bend to the bank’s balance sheet needs, and weren’t shy about wagging their finger right in the face of the Board’s executives, in public? Well, they’re doing about as well as the private sector’s Ratings Agencies did in “policing” the marketplace during the shameless years of 2005-2007. All bent before the ideological wave of the Right, and its advancement of the free-market’s needs, not the needs of consumers or even business’s own customers…

The Warning Signs

It’s not that there weren’t warning signs over the years, if one cared to look. Let’s offer you a few samples, just to refresh memories. Keep in mind, as we go back down memory lane, Karl Polanyi’s warning that when the market is wielded as a utopian weapon, it becomes a stark Utopia, which can threaten both society and nature, consumer and customer alike, the very base upon which businesses depend; it’s the market becoming dis-embedded from society, even turning against it. Will the counter-movements always develop, and will they be in time? Or is it possible that the Right’s project has advanced along so many corridors of society that the doors of reform have all been nailed shut?
Let’s try to do this in rough chronological order by going to Michael Lewis’ Liar’s Poker, from 1989. This book is about the rise in bond trading at Salomon Brothers in the 1980’s, but it’s mainly about Lewis’ stark realization that the firm’s customers are often thought of as an enemy to be fooled and ripped off, brought home by the vivid language employed by one teacher of Lewis’ class of trainees, called The Human Piranha, who has, it almost goes without saying, special contempt for French customers: “His world was filled with copulating inanimate objects and people getting their faces ripped off. We had never before heard of people getting their faces ripped off…The Human Piranha, a Harvard graduate, thought nothing of it. He was always like this.” (Page 71.)

Forward just a bit now to Frank Partnoy’s Fiasco, from 1997, whose original hardcover edition was subtitled “Blood in the Water on Wall Street,” which had been softened to “The Inside Story of a Wall Street Trader” for the paperback edition. (He should have kept the first one.) It’s about Frank’s years, 1993-1995, as a derivatives trader for Morgan Stanley. Different time, different firm, different writer, but once again, it’s about how the business viewed its customers, and it’s pretty hard, in looking over these words from the Preface to the paperback edition, not to think ahead to the fate of the customers who would be later sitting in the chairs of so many subprime mortgage lenders’ offices less than a decade later. Here’s a sample of some of the foreboding language, echoing what Lewis has said a decade earlier:

The derivatives group received its marching orders from the firm’s leader, John Mack. Mack had worked his way up from the depths of the trading floor, where he still was known as ‘Mack the Knife.’ On his desk, Mack kept a large metal spike, upon which, it was rumored, he would threaten to impale inept employees…Following Mack’s lead, my ingenious bosses became feral multimillionaires: half geek, half wolf. When they weren’t performing complex computer calculations, they were screaming about how they were going to ‘rip someone’s face off’ or ‘blow someone up’…Some clients tired of having their faces ripped off or being blown up, and business declined briefly in 1995-1996. Many of us quit during this period, some leaving for less brutish firms.” (Pages 14-15.)

Then, in 2000 we have the trials and tribulations of a 15 year old from Cedar Grove, New Jersey, Jonathan Lebed, who became “the first minor ever charged with stock market fraud” by the SEC, thanks to once again, Michael Lewis’ account in Next: The Future Just Happened. We actually learned about this amazing story in 2005, in Mark Taylor’s account in Confidence Games: Money and Markets in a World Without Redemption, but he in turn relies upon Lewis, so there we were, watching the investing world getting its “face ripped off” by a teenage whiz. Here’s how it worked:

Armed only with accounts at AOL and E-Trade, the kid had bought stock, then using ‘multiple fictitious names,’ posted hundreds of messages on Yahoo Finance message boards recommending that stock to others. He’d done this eleven times between September 1999 and February 2000, the SEC said, each time triggering chaos in the stock market. In advance of the chaos he’d left sell orders in the marketplace, in case shares rose in price…Now the kid had agreed to hand over his illicit gains, plus interest, which came to $285,000. (Confidence Games, Page 194.)

But in the hands of Taylor, and Lewis, it the governmental regulator who looks bad, prosecuting a kid for practices which mimic what many others on Wall Street are doing, and ultimately showing that the SEC’s rules, and its interpreters, can’t distinguish very well between “artificial” market forces and “ordinary” market forces – as so many have come to learn the very hard way. And we suppose that there will be some readers out there thrilled at the idea of market entrepreneurship spreading so successfully to the young; indeed, we’ve read accounts of legislators urging the teaching of entrepreneurship at the earliest possible age. It makes sense doesn’t it? If we are going to give the public schools a dose of “market” discipline by pushing privatization and charter schools, it only follows that logic to bring the ideals of market entrepreneurship down to the earliest ages. How about naming grammar schools for some of those early “classical” economists? …We could have the Thomas Malthus School where they would skip lunch to keep the learning process going…giving the young a foretaste of the old and honorable linkage between empty stomachs and tight labor markets… “flexible and efficient” they’re called today.
Whatever you may think of 12-15 year olds engaging with the stock market, can there be any doubt that society was being issued a warning of future troubles from the rip-tide currents of Market Utopianism’s waters when in late July of 2003, retired Rear Admiral John Poindexter launched his rather unusual proposal for dealing with terrorism. We can’t tell the story any better than Steve Fraser has done in his account in Every Man a Speculator: A History of Wall Street in American Life (2005), so here it goes:
Poindexter…announced that starting in October the Defense Advanced Research Projects Agency would run a futures market in terrorism. People would be invited to speculate on the likelihood of death and destruction around the globe. In its original incarnation, it was to be open to the first thousand members of the public who applied to participate. This Populist version of el casino macabre was soon modified so that only insiders, recognized ‘experts’ from government, business and academia, would be allowed to place their bets on what mayhem seemed most likely and where. (Page 573.)

Doubtless our readers know that despite all the Congressional leanings in favor of freer markets, this was too much and likely to give the Grand Project a bad name, so it didn’t gain much traction with either party - eyebrows were raised in time.

Orszag Reforms the Labor Market

But they hardly went up at all when much more recently, President Obama’s now departed Director of the Office of Management and Budget, Peter Orszag, focused some of his attention on how many disabled people were receiving disability benefits from Social Security, thus depriving the labor force of an additional…well, you get the idea. We heard this at a conference jointly sponsored by the Center for American Progress and Robert Rubin’s Hamilton Project, in December of 2010. The conference was about jobs, but we didn’t hear much which convinced us they were going to be created, least of all by Mr. Orszag. What his “project” seemed to be about was saving money by chasing allegedly disabled shirkers off disability, and getting the others back into the labor force, which we were supposed to understand had humanitarian overtones. But really, for the economic “genius” he’s supposed to be, how much sense does it make trying to push, or require, or invite, you choose the means, hundreds of thousands of people into a workforce where 24 million already have learned that they’re not wanted or needed full time, part-time, or maybe, anytime? You go figure what this Orszag gambit was about; sounds like a market Utopian’s way of driving down labor costs, by creating an ever larger, more “flexible” and efficient” labor force, even if the market has no real use for them. We’ll take this idea more seriously when Mr. Orszag joins Cass Sunstein out there stumping for FDR’s Second Bill of Rights.

And finally, is there any clearer sign that Karl Polanyi understood the fanaticism and near religious zeal of Market Utopians than in watching what unfolded in 2009-2010, as the cap and traders ran into the Brick Wall of the Republican Right on the issue of global warming? Here were the NRDC and ED types, and indeed, many of the innovative entrepreneurs covered by Gar Alperovitz and Bill Greider, hoping to ride the Obama wave by fighting global warming and creating a new “Green Collar Economy,” all dressed in the most market-friendly garb they could find, called Cap and Trade. Some Wall Street firms, like Goldman Sachs, Matt Taibbi tells us, were drooling, or rather, eager to shove that infamous funnel under the process, they were so supportive, or dollar-eye glazed. But despite all the market-friendly positioning, and very flexible negotiating, they found out the Right wasn’t buying any of the science, no matter what percentage in the high nineties of scientists who said it was true, and no matter which way the green entrepreneurs twisted and turned to avoid the admission that indeed they were trying to raise carbon prices to set those market forces in motion, leading to the next energy regime; and little did they know that they were still going to stand accused in the permanent docket of the American Right, stand accused of the most atrocious crime against The Market that mere humans can commit: they were going to create, and raise a new tax.

“…The Demolition of Society?”

And we can well argue, in Polanyi’s terms, that here is a clear example of market ideology so fanatical that it is willing to gamble on the slimmest of odds that the science is wrong, and place all of society, all of humanity’s welfare directly at risk in the process. That would be bad enough, no matter what else was going on…but the Right also is willing to take us all along for another huge roll of the dice, in matters of debts and deficits, and their answer to the riddle of why the economy isn’t creating any jobs. In doing so, they are running the same risks that those who clung to the gold standard did in the 1930’s: deliberately imposing austerity under conditions of diminished demand, with the threat of a deflationary contraction just around the corner, as it is in Greece.

And now we have come nearly full circle in explaining to our readers what we meant by our title, that the “logic of market utopianism leads to ‘business’ turning against society itself.” Let us be more precise though; we are not speaking about all businesses or business people, many of whom were supporters of the efforts to fight global warming, and willing to back legislation to that effect. But not enough, that’s very clear. What we’re talking about is the formal positions of the major business lobbying groups, like the Business Roundtable and the Chamber of Commerce, and their equivalents in the financial sector. On the whole, these groups are allies of if not the initiators of many of the major policies of the Republican Right, especially now on the issues of the federal debt and deficits that are bearing down on the entire nation as we enter the July 4th weekend. And they are the allies of the efforts in Western Europe to impose the stark austerity regime there. There are dissenters, to be sure, distant allies of a more Keynesian view, who know that Greece cannot bring itself out of its debt and death spiral with the measures being forced upon it, nor can the United States lower its debt successfully unless it creates a genuine full employment program and somehow solves the foreclosure crisis…but they are in a minority, and not able or willing to stop the Republican Right’s ideological forced march. With Europe in so much trouble by following these same policies and China on the verge of slowing down, we are about to enact, with the Republican policies on the budget, their dream ever since 1932: to balance the budget at all costs, Keynes be damned, while we all sit back, much poorer from their programs of cutting, as workers well know in New Jersey and Wisconsin…and see if those market forces, additionally freed from taxes and regulations, can recover, unaided, to supply all the jobs we could wish for…the timeline for this being a secret. But that’s their hope, and their program…the only questions that remain to be answered are how many trillions will be cut, and when the cuts will take effect…and, from our perspective, when and if the American people will say they’ve had enough…

In early June, John Engler, president of the Business Roundtable, clarified things for us on job creation, being quoted in a New York Times article, that “ ‘We need action by government agencies to clear out obsolete rules and streamline permitting to reduce delays and impediments for companies to invest and grow. The private sector is the only hope for future job creation.’” (Our Emphasis, from the “War of Ideas Overshadows Job Struggle”). Meanwhile, his partner in building a market-driven Utopia, Representative Jeb Hensarling, a Texas Republican, filled out the rest of the prescription: “ ‘…one of the biggest impediments to job creation today is the lack of confidence, a lack of confidence in the future that comes from an administration where regulators have gone wild, from an administration threatening the largest single tax increase in America’s history and an administration that doesn’t take seriously the debt that is threatening our job creators.’” So there you have it citizens; the fact that state governors have taken billions out of the pockets of consumers to balance their state budgets, from consumers still in shock and paying off debts from the financial crisis, and this will not be offset at the federal level; instead the overall direction will be intensified, thereby driving down a demand depressed economy even further. Does it occur to Mr. Engler that these are his Roundtable’s customers who won’t be spending as much as in the past? This is an economic recipe for catastrophe.

Let’s step back one moment and look at where the logic laid out by Mr. Engler leads. Only the private sector has the authority and authorization to create jobs. Apparently, he feels confident that despite the budget austerity measures, investors will see the rainbow, even without consumer dollars at the end of it, and invest and create jobs. But the clear implication is that the Business Roundtable will not give any other part of the society, least of all the government, the freedom and room to innovate to create jobs in the absence of private demand, despite the Federal Reserve’s ability to pay for it (an idea also vehemently disputed on the Right). He doesn’t say it, but this time around, “FDR and the New Deal” won’t even be given room to breathe.

And in the great chain of market logic, it stands to reason that those closest to the market - that would be businesspeople, investors, and Wall Street - can best interpret it, not regulators or planners or non-profit “innovators,” and that’s how we explain why our past regulators “stood down” as the great subprime Doomsday Machine churned on. In Mr. Engler’s “only the private sector can” fiat, we hear an old form of absolutism for the private sector and markets. Like the old Greek gods, they are all powerful but moody and sensitive at the same time – sensitive to government created “uncertainty.” Therefore, by all means, appease that uncertainty with the proper sacrifices and offerings: further tax cuts, regulatory “reforms,” and unstated but implied in all that is unfolding in Europe, in American state governments and in the logic of the federal budget negotiations: lower wages, weaker pensions, higher contributions…all in the hope that someday the private market gods will be “in the mood” again to create some jobs.

And that is how the logic of Market Utopians can turn business against not just its customers, and its consumers – but against society itself. In all of this from the Roundtable and the Republican Right, and from far too much of the Democratic Center, there is not even a hint that there might be deep trouble within the markets or the current model of capitalism: too much citizen debt, too little demand, too many unsold goods and least recognizable of all, too many surplus workers, here, in Europe, and around the globe. At a time when the left around the world is no longer anti-capitalist, but reformist in nature, social democrats trying to create a mixed-economy that once again will work for the entire society, the questions we have for the market Utopians of the business lobbies are these: do you recognize any limitations, or flaws in the private economy as it now stands facing us; and do you intend to give the rest of society any freedom to use government to make up for the shortcomings?

Without a doubt, we are looking at all the key ingredients for a re-run of the 1930’s, only this time the U.S. is not the ascendant economic power. All we need is for some force stong enough to put all the disastrous ideas in motion. You know by now very well what that force is.
Until our next posting, the very best to our readers.

Bill Neil
Rockville, MD

P.S. Readers who are interested in what is happening in Governor Chris Christie’s “state of austerity” are invited to follow the proceedings, especially the environmental ones, at Bill Wolfe’s blog, here at http://www.wolfenotes.com/ Bill is a friend and former environmental colleague of ours, and no one has a better command of the full range of environmental policy, and its implications for the economy, than Bill, especially in the area of alternative energy policy.

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future