By Dr. Steven Jonas
Simulposted with Buzzflash
Well the stock market is crashing, credit is freezing up, unemployment is rising precipitously. An institution called the “free market” bears a major responsibility for this state of affairs, perhaps the total responsibility. So how did this happen? Isn’t the “free market” supposed to be self-regulatory? Isn’t the “free market” supposed to be the best determinant of the best distribution of goods and services in society for everyone? Isn’t the only way that the “free market” can operate successfully is to be left alone by government so that it can just go on its merry way?
Well, if the central goal of the “free market” were really to be the best allocator of goods and services for all of society, perhaps that might be true. But that is not the central goal of the “free market.” Sometimes it is a peripheral one. But if there are side benefits for society as a whole, from successful professional sports teams making money while bringing joy to a certain segment of the members of their home community to major companies making technological breakthroughs that benefit large numbers of people, that is just by-the-by.
The central goal of the “free market,” which is made absolutely crystal clear every time something like what is going on now happens (and it happens with regularity in “free market” economies going back to the early 19th century) is to make money for those who have enough capital to participate in it. Despite what Milton Friedman and his clones, and their historical predecessors going back to the early 19th century, like to tell us, making money for its participants is it. Nothing but it. Any side benefits are not it. They just are, for some folks, happy accidents. What has happened now is a clear demonstration of that fact.
For example, lots of people made lots of money in the “free market” for something called “securitized mortgage instruments.” (This is a type of security so complex that even a financial writer for Newsweek who I happened to have heard on Air America Radio the other week confessed that he did not fully understand all of its permutations and combinations and certainly could not explain them to his listeners).
The recently former head of the bankrupt Lehman Brothers investment bank, with only mild embarrassment, told a House Committee chaired by Henry Waxman of California that yes indeed he had made somewhere between $300 million and close to $500 million (he seemed not quite sure, although that seems like a rather large range to me) over the past seven years (coincident with Georgite reign, it should be added). He and his boys were collecting their most recent “bonuses” at the same time that Lehman was going down the drain. There were no restraints or constraints. So why the heck not? It is not a question of “morality,” as suggested by a recent panel at the John Templeton Foundation, “Does the free market corrode moral character?” www.templeton.org/market. Morality has nothing to do with it, other than the morality of making money in the “free market” itself. They were just participating in the “free market” to get what doing so is precisely supposed to get them: more money.
On a broader scale, the “securitized mortgage instruments” were being sold and re-sold at rising prices, not because value was being added at each step. Rather, the prices went up, it seems, because each purchaser was just sure that he (or she) could find someone next in line to pay more for the thing. That is until the bottom dropped out of the housing market and also the mis-sold and wrongly sold subprime mortgages stopped paying off as their monthly payment rates suddenly went sharply up.
As is well known, the other principal causes of the crisis are: the rapidly mounting national debt (which among other things causes a decline in the value of the dollar), the rapidly rising cost of oil (which is caused in part by the rapidly declining value of the dollar, in which international oil sales are denominated); the rapidly rising annual Federal deficits caused in part by the massive tax cuts with which Bush rewarded what he has publicly called his [real] “base” (as contrasted with his electoral base, the Christian Right, to whom he has thrown bones now and again) and in part by the borrowing of $10 billion (or more) per month to pay for the Georgite War on Iraq; and by “globalization,” which in reality has little to do with “free trade” and a great deal to do with the free export of capital from the U.S., that is American jobs going overseas. But there should have been no surprise here. The “free market” was doing exactly what it is designed to do, except of course in the words of its propagandists who dominate the media and have dominated much of the government and the Federal Reserve Board since the election of Ronald Reagan.
And so we come to what should be done to remedy this catastrophe. (Of course, most people’s financial nightmare is Grover “Shrink Government to the Size of a Bathtub and then Drown it in the Bathtub” Norquist’s wet dream. If Obama should somehow manage to overcome the extensive plans to fix the election being already implemented by the Republicans and be elected President, he will have precious little leftover money to work with. Grover will be so happy. But that’s another story.) “Our side” very sensibly says: re-regulate the stock and banking markets, get rid of such exotic instruments as securitized mortgages, bring back the Glass-Steagal Act (which was flushed down the toilet by McCain’s principal economic advisor and apparently Treasury Secretary-designate Phil “Nation of Whiners” Gramm), which keeps commercial and investment banking separate, regulate the currently unregulated and unexamined “hedge funds,” which may well be involved in market rigging, and so on and so forth.
All of these measures and others to be sure would be necessary to fix the mess and prevent it from happening again, that is until the next historical period when the so-called “free marketeers” were able once again to sell their snake oil to an unsuspecting public. And so what do the “free marketeers” and their political “leaders” such as McCain, Palin, Giuliani, Romney, Jeb Bush, and Gingrich, and their mouthpieces such as Hannity, Limbaugh, O’Reilly, Savage, and Levin (pronounced Levin rather than Levin because presumably most Levins, such as Sen. Carl Levin of Michigan, don’t agree with him on politics and policy and pronounce their name the latter way), and Kristol and the whole Weekly Standard/Fox “News” Channel crowd tell us to do?
Why, cut taxes; eliminate regulation and let the “free market function freely;” go after “Wall St. corruption” (except that those folks were simply behaving like any well-respected “free marketeer” would, but logic is not the other side’s long suit); and cut government spending by “eliminating earmarks.” Why do you know that cutting out McCain’s favorite target, the $3,000,000 gene study of bears in Montana (designed to help preserve the species) would save the cost of about 10 minutes of the War on Iraq? (You could do the arithmetic like I did.) And oh yes, they would continue the War until “victory” (left thoroughly undefined) is achieved (with more borrowed money, presumably).
These people have followed their ideology over the cliff and they just want to keep going, while taking all the rest of us with them.
Steven Jonas, MD, MPH is a Professor of Preventive Medicine at Stony Brook University (NY), a weekly Contributing Author for the Web zine TPJmagazine.us; a Special Contributing Editor for Cyrano’s Journal Online; and a Contributing Columnist for the Project for the Old American Century.
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