The Shock Doctrine 4: States of Shock

“If that track record qualifies Chile as a miracle for Chicago school economists, perhaps shock treatment was never really about jolting the economy into health. Perhaps it was meant to do exactly what it did—hoover wealth up to the top and shock much of the middle class out of existence.” - The Shock Doctrine, page 105

(Previous posts here, Matt's posts here, here and here.)

Trend gave us an excellent rundown of the events in Chile that led to the Chicago School takeover of its economic policy, so I don't need to sum that up here.

Pinochet embraced the Chicago Boys' prescription for Chile's economy, according to Klein, because he liked the idea of a complete revolution rather than a temporary correction. He drove out the other members of the junta and appointed several of the Friedmanites to high government positions, and privatized, slashed social spending, and deregulated. This, predictably led to...

inflation, unemployment, and poverty. So the solution? MORE privatization, deregulation, and slashing social spending. Oh yes, and a calculated terror campaign in which thousands of people were "disappeared." Argentina, Uruguay, and Brazil followed soon after, though some of them took notes from Pinochet and attempted to conceal their torture and murder under a blanket of plausible deniability--in order to stay open to foreign investment, of course.

Klein points out that for all Friedman's free-market utopianism, what resulted was more corporatism than purist capitalism. The countries were run by repressive regimes with deep ties to the corporations who profited from them. Sound familiar? (Well, minus some of the repression.)

The parallels with Bush's disaster capitalism are easier to see when you phrase it in these terms. Bush didn't need a coup (just a disputed election) when September 11 happened (coincidentally, exactly 28 years after the coup in Chile started radical capitalist experimentation).

Warrantless wiretapping certainly isn't mass disappearances of citizens, but it is a tool that keeps everyone in fear that they are next. It suppresses dissent and keeps people in fear for their basic safety, while around them their economic safety net is dismantled. America hadn't undergone enough of a shock to allow, for instance, Social Security privatization, but in Chile and the other Friedmanite regimes, torture and repression left people unable to fight back.

Roger Cohen in the New York Times (h/t Matt) referred to Obama's "counter-revolution," an interesting choice of words considering that The Economist called the spread of disaster capitalism in Latin America its own "counterrevolution."

Which revolution is Obama countering, then? The Reagan revolution, perhaps, since even Bill Clinton furthered Reaganite principles of deregulation and privatization and slashing social programs (:cough: Welfare reform)?

Friday night, I attended a panel discussion put on by The Nation in New York. It featured Joseph Stiglitz, Barbara Ehrenreich, Bill Fletcher, Jr., Jeff Madrick and Chris Hayes discussing the economic meltdown. Stiglitz referred repeatedly to the economic situation in the 70s in Latin America as what we need to avoid--and what we are in danger of repeating.

Madrick noted as well that "This is not recession as usual. This is not recession-plus as usual," but Ehrenreich reminded us that "It's always folly to say this is the end of capitalism."

She went on to note that "What we have to shake off is the curious religion that is market fundamentalism," and Fletcher referred to "the great crap game that is called capitalism."

The fact that there was a line around the block for this event says something about the times, and the amount of little white note cards with audience questions that Hayes had to sort through was evidence that people are scared right now. I fear what this situation would look like at the moment with McCain in office, and the panelists all agreed that it is hard to criticize Obama because he's so much better than what we've had for the past however many years (Madrick pointed out that the standard of living for most Americans has been declining since 1974--in other words, we were better off under NIXON).

Still, the more I read through The Shock Doctrine, the more I realize the parallels. Naomi Klein was supposed to be at this event, and she would've fit in quite well between the economists and the socialists, diagnosing not only the technical problems with our current situation, but the moral and ideological problems there as well.

But the panel on Friday night gave me hope because it proposed solutions. Because we talked about a return to a living wage, a resurgence in unions (EFCA battle coming to a political theater near you), real health care (ditto), and a change in our banking system--a return to "plain vanilla" lending, Madrick called it.

"What are the social functions which a good financial system should serve?" Stiglitz asked, and Milton Friedman might have rolled over in his grave. Still, these are questions being asked right now, and the people in power for the first time in my lifetime may actually be willing to attempt an answer.

Why Nationalizing the Banks is the Capitalist Thing To Do

I get the giggles every time I hear the term "Zombie Banks," which Krugman in particular likes to use. I've been pissed off about the bank bailout from the beginning, though I figured there wasn't much to do about it.

I've never been anything close to an economist--my studies were always more in political science and critical theory--but I've sure had a crash course since September. So now, I feel qualified to say that nationalizing the banks isn't only the best course, it's actually the proper capitalist thing to do.

Oh yes, I'll explain my thoughts here.

Krugman writes:

Lately the Federal Deposit Insurance Corporation has been seizing banks it deems insolvent at the rate of about two a week. When the F.D.I.C. seizes a bank, it takes over the bank’s bad assets, pays off some of its debt, and resells the cleaned-up institution to private investors. And that’s exactly what advocates of temporary nationalization want to see happen, not just to the small banks the F.D.I.C. has been seizing, but to major banks that are similarly insolvent...

And once again, long-term government ownership isn’t the goal: like the small banks seized by the F.D.I.C. every week, major banks would be returned to private control as soon as possible. The finance blog Calculated Risk suggests that instead of calling the process nationalization, we should call it “preprivatization.”

Handing out wads of cash to Citibank (how about some student loan forgiveness?) and the rest is exactly the type of socialism of which the GOP would've liked to accuse Obama. Those campaign claims sound pretty hollow when money-for-nothing isn't being handed out to poor citizens of color but to massive corporations.

Propping up institutions like these banks isn't the socialism I'd like to see--I'd much prefer health care for all, a public school system that works, public transit that is both greener and more efficient, oh, the list can just keep going. But instead of making tone-deaf arguments that government is always the problem like, er, Governor Bobby Jindal (disparaged in better detail below), I note that the government in this case has a perfectly legitimate rationale for taking over the banks.

Steve Waldman wrote:

But if we are dumb enough to force-feed credit into the economy, let's not hide that behind a bunch of puppet banks. And let's keep it very clear that we are not confiscating private firms in order to make them tools of the state. We nationalize reluctantly, when we have had no choice but to inject public money (or guarantee assets, which amounts to the same thing) in banks that otherwise would have failed. We nationalize because, in a capitalist economy, investors get to keep the profits they endow, even when the investors happen to be taxpayers.

In other words, in a capitalist society, when you shell out money, you get something for it. You don't just give handouts.

Republican opposition to this idea gives us the perfect opportunity to call them what they really are: less free-market idealist and more classist and racist. They don't oppose government handouts; they simply oppose government handouts to the poor.