Tuesday, January 22, 2008

Is This Monetarism Last Stand?

by Norman Markowitz

The Federal Reserve cut interest rates today by 0.75 before the stock
market opened and Dow Jones still went down 128 points to reach a
fifteen month low. Global stock markets(and there are now more of them
than in previous stock market crises, which were once called panics,
since the Soviet Union was dismembered and China adopted its socialist
market economy or mixed economy approach) are plummeting through the
world and you don't have to be Marxist or dialectical materialist to
see that the decline of these markets interacts with and intensifies the
U.S. decline.

Monetarism as a substitute for public sector social investments in the
economy to sustain mass purchasing power has never worked for the
people, but it doesn't seem to be working today for the capitalists
themselves, since the world is swimming in "globalized" overproduction,
increasingly unequal and inadequate mass purchasing power, and an
underconsumption that can't simply be avoided through deeper and deeper
installment plan debt for the people and more and more anti-social
government investments in the military industrial complex, the major
center for "fiscal stimulus" in the economy since the beginning of the
cold war.

Can the U.S. economy withstand this without going into a major
depression, 1930s style, given nearly three decades of deregulation,
detaxation of corporations and the rich, and a political consensus on
the part of the elites to both permit and then bail out through the the
various federal insurance programs reckless and often corrupt get rich
quick schemes by banks, mortgage companies, brokerage houses, "corporate
raiders" who buyout and merge companies to take speculative profits and
pay off their debts by taking it out of employee pension plans and
health benefits.

It did in the 1980s, but the escalating debt of that time was less than
a third of the present debt, and personal consumer debt was also a
fraction of what it is today. What will happen when the FDIC and other
federal insurance agencies are overwhelmed with collapsing financial
institutions, so much so that they can't, whatever the law says, both
bail out those institutions and compensate small depositors? What
happens when the trillions of private, union, corporate, public sector
pension funds(not to mention the IRAs which workers have been encouraged
to get for a generation) go into deep crises or collapse just as the
mutual funds that many had invested in as retirement annuities when
there was no social security n the 1920s did? Social Security doesn't
really provide an adequate income for senior citizens and it has been
undermined in terms of benefits and costs in recent decades. Those who
have undermined it have also poisoned political discourse with nonsense
about "privatizing it" either partially or completely, which would, in a
great crisis, leave millions of retirees with what they had in

Milton Friedman, the Nobel Prize winning theorist of modern monetary
policy, always contended that the Great Depression itself could have
been avoided had the Federal Reserve implemented the "correct" monetary
policy at the time. The Federal Reserve and the Bush administration
still believes or "knows" in its heart, as the Right said about Barry
Goldwater in 1964, that Friedman was right. In my guts, as progressives
answered about Goldwater in 1964, I know that Friedman in his belief
that monetary policy was a panacea was nuts, and that an economic policy
which worships monetarism as a dogma and denies the need to raise mass
purchasing power in the U.S. and globally to deal with the new
production is literally learning nothing from history and pretending
that it can continue pre New Deal policies of blessing Robber Baron
capitalism with monetarist fine tuning can only end in a great depression.

The Europeans are already blaming the U.S., as they did with a great
deal of justice, for the world depression of the 1930s. The U.S. has
yet to blame the Europeans, as Herbert Hoover did, for their financial
crisis and trade policies, but give Bush time. All that we can say is
that this is a fast moving crisis, and it may, have significant very
destructive effects before the next administration takes office.
However, instead of fighting each other, as Clinton did yesterday when
she was, in my opinion, very unfairly, attacking Obama for "praising"
Ronald Reagan(which he, in my opinion, fairly, denied) the Democrats
should be coming forward with a program to rid the United States of the
"legacy" of Reaganism, that is, multiplying federal deficits produced by
massive tax benefits for corporations and the rich, massive subsidies to
corporations and investors through a tripling of military spending, and
massive social service cutbacks along with union busting These
policies had very destructive effects on the working class, freezing
minimum wages, increasing social security payroll taxes, actively
eliminating all public housing and transportation subsidies that it
could get away with, all of which, in the context of the deregulation
of the economy both made the economy more vulnerable to a major crises
and encouraged the banks and corporations to continue to carry out
policies which produced crises like the Savings and Loan Collapse twenty
years ago and the sub prime loan disaster today, because if they were
caught they would get minor punishments and the government would bail
out their financial institutions.

Monetarism never really worked as a substitute for state investment and
regulation in the economy. Monetarism isn't working today. It is time
for progressives to work to teach the people to throw in history's trash
bin and begin to once more see jobs programs, national health and
housing programs, national transportation and education programs, and
regulation of capital as preventive medicine for the U.S. and global


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