Nobel Prize-winner in Economics, Joseph Stiglitz, writing in the Guardian this weekend in an aptly titled article, America's Socialism For the Rich, describes the evolution of the American response to the global financial crisis its policies have led to. Beginning with a discussion of the reasons why the US and the Obama administration are still loath to do proper regulation, Stiglitz dives into America's evolving policy of confronting the crisis. Whereas deregulation created banks to big to fail and, Stiglitz says, to big to manage, the Obama administration has gone one step further and declared them too big even to restructure, a logic which is no less than socialism for the rich:
So, we not only can't touch the bondholders, we also can't even touch the shareholders – even if most of the shares' existing value merely reflects a bet on a government bailout.
I think this judgment is wrong. I think the Obama administration has succumbed to political pressure and scaremongering by the big banks. As a result, the administration has confused bailing out the bankers and their shareholders with bailing out the banks.
And, who indeed bails out the banks? Why, you and I, the same people screwed by the bankers:
Rewriting the rules of the market economy – in a way that has benefited those that have caused so much pain to the entire global economy – is worse than financially costly. Most Americans view it as grossly unjust, especially after they saw the banks divert the billions intended to enable them to revive lending to payments of outsized bonuses and dividends...But this new form of ersatz capitalism, in which losses are socialised and profits privatised, is doomed to failure. Incentives are distorted. There is no market discipline. The too-big-to-be-restructured banks know that they can gamble with impunity – and, with the Federal Reserve making funds available at near-zero interest rates, there are ample funds to do so.
Who's underwriting those interest-free reserve loans the Fed is giving away to the banking system? Why, you the American taxpayer will. And for what? More corporate welfare:
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.
It's clear that government in the US is of, for and (considering the US Senate to essentially be a bi-partisan millionaire's club) by the wealthy, it is time to make them pay retail for their wholesale theft of the fruits of the past three decades' ephemeral economic "expansion".
And here again, Stiglitz, via the California budget project, shows the way:
"Every dollar of state and local government spending enters the local
economy right away, generating a greater economic impact. The impact is
especially large when the money goes for salaries of teachers, policemen
and firemen, doctors and nurses and others that provide vital services to
our communities." In contrast, "raising taxes on high income households
also will reduce spending, but by less than the amount of the tax increase
since those with plenty of income typically spend only a fraction of their
income – and some of what they spend is spent on luxury goods made
abroad."8
Part of the reason why we are all experiencing a severe economic downturn is because of a global savings glut. This glut is what is requiring massive amounts of public spending in order to close the output gap between what economies can produce and are producing (difference which, absent government action, produces big and sometimes persistent spikes in joblessness).
So, savings glut causes massive public spending and, like the bank bailout, who ultimately pays? Yup. Absent any changes in tax policy in the US, it's the average American taxpayer. Remember, billionaire Warren Buffett continues to be amazed he pays proportionately less than his secretary in taxes.
And who are virtually the only Americans contributing the savings glut which is a major cause of real unemployment fast approaching the 20% mark in the US? Why, the wealthy are.
It is time, once and for all, to make them pay their fair share, both for the bailout and for the stimulus plan. This was an Obama campaign promise, and, like health care reform, civil rights and Iraq withdrawal promises, Mr Obama needs to be held to this promise. And, given the magnitude of the mess the wealthy in the US have brought to bear on all of us, frankly nothing less than Eisenhower-level tax progressivity will do.