The American way: socialism for the rich

The truly alarming part about the bank bailouts in the United States was the way it redistributed wealth to the bank shareholders and executives. It was a case of socializing losses and privatizing wealth. Let's just call it socialism for the wealthy. That says the United States is being controlled by an oligopoly of banks and broking houses.

It's a point made by Simon Johnson, former chief economist of the International Monetary Fund. Johnson writes: "In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn't be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn't roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

"But there's a deeper and more disturbing similarity: elite business interests-financiers, in the case of the U.S.-played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them … the American financial industry gained political power by amassing a kind of cultural capital-a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America's position in the world."

Nobel Prize winning economist Joseph Stiglitz has called it socialism for the rich. "Some have called this new economic regime "socialism with American characteristics". But socialism is concerned about ordinary individuals. By contrast, the US has provided little help for the millions of Americans who are losing their homes. Workers who lose their jobs receive only 39 weeks of limited unemployment benefits, and are then left on their own. And, when they lose their jobs, most lose their health insurance too.

"America has expanded its corporate safety net in unprecedented ways, from commercial banks to investment banks, then to insurance and now to cars, with no end in sight. In truth, this is not socialism, but an extension of longstanding corporate welfarism. The rich and powerful turn to the government to help them whenever they can, while needy individuals get little social protection."

This will have an impact on American society and its politics. According to a new Rasmussen poll, 71% of all voters now view the federal government as a special interest group, and 70% believe that the government and big business typically work together in ways that hurt consumers and investors.

Those people would say the Democrats are just as bad as the Republicans and that there's no difference between the two. And down the track, that could create a political vacuum. That's perfect for political extremists.


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  1. Good post on contrast between people’s perception of socialism and reality. Referenced in my blog machimom.wordpress.com

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