What Michael Moore is proposing, in his recommended diary, Goodbye, GM, is a national industrial policy. The goal is to shed the failed management outlook that crippled General Motors (and by extension the states of Michigan and Ohio), while preserving the industrial capability of GM's manufacturing facilities, and, more importantly, the skills and talents of its workforce and engineers.
What Moore is missing is that while his proposals to convert auto manufacturing capacity to building high speed rail, mass transit, and electric cars are exactly what we need to do, there's not the slightest chance in hell it will ever happen without first taking on and defeating the dictatorship of the propertariat: governemnt of, by, and for the financiers and bankers. (See bobswern's Another Ranking Member of Congress: "Banks Run The Place".)
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These two graphs, which show the funding provided to non-financial companies (NFCs), capture the problem in a nutshell.
What these graphs show us is that Wall Street and the bankers are not practicing capitalism. Indeed, they have not, for decades. Building an industrial facility and getting it running profitably is much too difficult, especially when "making money" through rent, usury, and speculation is so much easier. That is what has to change. We have to re-impose laws and regulations that penalize financial activities that do nothing to help us meet our challenge of transforming our economy into a sane system of designing, producing, and distributing what we as human beings need to live, without destroying the planet's environment at the same time. Because the basic moral question of all economic activity comes down to the survival of the human species. The environmental problems we face should make that moral question starkly clear. What the conservatives, rentiers, speculators and usurers are demanding is nothing less than the "right" to act immorally, and to "profit" from that immorality.
Reimposing re-impose laws and regulations that penalize usury, speculation, and rent, will allow real investment opportunities to emerge - such as building wind power electricity generators, or building out a network of electricity refilling stations. We simply need to make sure that real investment opportunities are more profitable than where the funding has been going the past three decades (look at those two charts, again). One of the best and easiest ways to do that is to impose a Tobin / Pigou tax on all trades and transactions of financial instruments - stocks, bonds, futures, currencies, options, and other derivatives. This will destroy the profitability of short-term trades that are made solely as speculative bets.
Last night, Stirling Newberry posted an insightful analysis that President Obama's (and our) failure to achieve real reform of the financial system means we are in the same place we were just before the 2007-07 crisis: central banks’ "easy money" policies, coupled with a paucity of real investment opportunities, is already resulting in continued stagnation of the real economy and wages, and increasing reliance on offshoring to countries with lower wages, benefits, and safety regimes. In the process, Newberry performs the inestimable public service of slapping down the pretensions of Niall Ferguson.
Newberry begins by noting where the hot money is going now.
Everyone knows that money is rushing into oil, ahead of an expected economic rebound later this year. Since no one has good futures, and because last year they were running over 100 dollars a barrel, more buyers are being forced to the spot market.
This dynamic is unchanged since 2004: no one knows what will lead the recovery, but everyone knows it will involve burning more oil. So buy oil.
Take the time to go through the last paragraph slowly, so that you fully understand it, recalling what Newberry wrote a few weeks ago:
the fight, in economic ideology, was over how much of the investment in the future should be handled by a very wealthy elite, and what fraction should be handled by the public through government. The ideology of the time was that the wealthy elite . . . was always right, and the public was always wrong. This theory has been proven false. The economic destruction of the New Depression, and Depression is the correct word, will extend for years, and has wiped out the fictional gains of the last 30 years. We are now exactly where we would have been without this experiment in a dictatorship of the propertariat, and we have nothing to show for it but a surplus of posh apartments and private jets.
OK, here’s the last paragraph from Newberry’s latest:
now that money can rush back into oil, and into stocks, the cost of public borrowing long term must rise. It's a matter of supply and demand. Previously the supply of safe places to park money was limited, and now it is not. The very decision to put rebound ahead of restructuring is closing the window of change. We are, in essence, right back to where we were before the credit explosion -- around 2004 or so -- ready to charge up the same hill of loose money from the central banks; going into rent seeking parked money; and choking of expansion, wages, employment, and capital formation beyond offshoring of old capital to lower wage and benefit areas. There is an immediate need for a second round of economic policy, one which actually sits in Congress by another name: the energy bill which is proposing, not "cap and trade" since 85% of all the allowances are to be given away, but "a new NIRA [National Industrial Recovery Act]," that is a massive industrial policy based on specific regulation.
As I wrote near the end of January, Saving the financial system without a national industrial policy is worse than useless:
Without a national industrial policy, saving the financial system really makes no difference. The underlying problem is that the financial, economic, and monetary arrangements of the past half century – creating financial paper which is traded for oil, which is then used to build suburban and exurban sprawl, the value of which underpins the creation of the financial paper and the dollar – has, since summer 2007, collapsed into smoldering ruins. We need to return to a production-based economy, not try to resuscitate the speculation based sprawlconomy. The key is to move the U.S. economy off of its base of burning fossil fuels, and into the future. That requires a national industrial policy - whatever you want to call it to calm the demons of free market ideologues doesn't matter. . . .
Whatever we end up doing with the financial system will only succeed if we tailor what we do to this objective of moving the U.S. economy away from burning fossil fuels and into the future. The financial system should be serving that great national purpose. But for the past three decades, it has been obstructing it, by channeling credit into the building of suburban sprawl, and by financing speculation on the trend of peak oil - which just a few months ago delivered us gasoline at nearly five bucks a gallon.
So, we must fuse together these two questions: how to save the financial system, and how to get the U.S. economy going again. It makes no sense to try and keep alive utterly failed the financial, economic, and monetary arrangements of the past.
To sum up: We must ensure that the bankruptcy of General Motors signals, not the end of the industrial economy, but the end of the looting of the industrial economy by the bankers and financiers.