(or, How Deregulation Trashed the US Economy and Government Intervention Became the Only Way Out)
Remember the panic-inducing headlines of 2008? Government Takes Over Troubled Mortgage Giants, Lehman Brothers Files for Bankruptcy, Bank of America Buys Merrill Lynch, and Stock Prices Plummet – that last one just as the government announced an $85 billion emergency loan to rescue insurance giant AIG. And that was just the beginning.
Given the current level of rampant misinformation and distortion of public discourse, it’s vital to remember how the economic crisis happened and what people really thought about it at the time. To begin with, it’s clear that the root of the problem tracks back to the deregulation era launched during the Reagan administration. What Bush I once called "voodoo economics" became the biggest redistribution of wealth since the New Deal.
In 1984, the government took an 80 percent stake in the Continental Illinois National Bank and Trust. The bank had failed, in part, because of bad oil loans in Oklahoma and Texas. One of the country's top 10 banks at the time, Continental Illinois was considered "too big to fail" by regulators, who feared wider turmoil in the financial markets. Sound familiar? It was sold to Bank of America in 1994.
The nearest precedent for the 2008 “rescue” plan was the investments made by the Reconstruction Finance Corporation in the 1930s. It not only made loans to distressed banks. It bought stock in 6,000 banks, at a total cost of about $3 billion. When the economy eventually stabilized, the government sold the stock to private investors or the banks themselves.
So, given all the yelling and sign-waving, what do socialists actually believe? That capitalism unfairly concentrates power and wealth, creating an unequal society. Basically, a no brainer at this point. Yet they disagree about how much government intervention will work. Some certainly do advocate complete nationalization of production. But others prefer state control of capital within a market economy, while social democrats talk about selective nationalization of key elements in a mixed economy, along with tax-funded welfare programs. On the other hand, libertarian socialists don’t like state control and prefer direct collective ownership – workers coops, workers councils, basically workplace democracy.
Most libertarian socialists, like libertarians in general, weren’t happy about the 2008-2009 financial bailouts. Social democrats, in contrast, felt they didn’t go far enough. And most capitalists? Well, they decried the situation but went along. Some even chirped that “we are all socialists now” – at least as far as losses are concerned.
The truth is, Americans have been using socialist ideas – although not living in a socialist society – for many years, and the sky hasn’t fallen. But this doesn’t matter to the politicians and talking heads hawking “out of control” government and a hostile takeover of the country. The attempt to stir up fears about socialism, and link it to terrorism and un-American activity, is a cheap but tried-and-true political ploy. It’s also the latest incarnation of an ongoing culture war based on resentment, ignorance, and selfishness. The subtext is that we are not all equal, that being truly American means embracing a specific, very narrow set of values, and that the government shouldn’t be a force for equality.
But let’s give a conservative the last word. During the 2008 presidential campaign, George Will put it this way: “Ninety-five percent of what the government does is redistribute wealth. It operates on the principle of concentrated benefits and dispersed costs. Case in point: we have sugar subsidies. Costs the American people billions of dollars but they don't notice it it's in such small increments. But the few sugar growers get very rich out of this. Now we have socialism for the strong - that is the well-represented and organized in Washington like the sugar growers. But it's socialism none the less and it's not new.”