Wednesday, May 26, 2010

The democratic deficit in neoliberal economics

A quartet of writers - Marc Brost, Uwe Jean Heuser, Petra Pinzler and Mark Schieritz - give a good description of the problem with the kind of neoliberal economics and politics that, for example, led the Obama administration to allow BP, the oil giant that caused the catastropic spill in the Gulf of Mexico, to themselves run the effort to plug the hole and contain the environmental damage. Even to the point of buying into their self-serving assessments of the extent of the damage.

They are speaking specifically about the efforts of the European Union to stablize the euro in the face of efforts by big banks and hedge funds to drive down its value in order to make money on the kind of derivatives gambles that brought on the real estate bubble and the crash of 2008. From Haltet die Herde Die Zeit 11/05/2010:

Sixty-five years after the end of the Second World War, the continent again finds itself thrust into a new type of great conflict - with the financial markets. We hear about an "all-out attack" on the euro, from a "general mobilization" of the states. It's not the land mass that is being defended: "We're protecting the money of people in Germany," says [German Chancellor] Angela Merkel - and it sounds just like 2008, when she guaranteed all bank deposits and staved off the big runs on the banks.

It is a conflict that plays out differently than a war between nations, because here two worlds come into conflict. On one side stand democratically elected governments that are supposed to represent the will of their citizens. On the other side are the markets that live off the money of these same citizens - banks, insurance companies, hedge funds. In the two worlds, they think differently, bargain differently, make decisions differently.

In the logic of politics, state elections and coalition agreements are what count.

In the logic of the financial markets, using money to make more money is what counts.

The two world are inextricably bound together. And the markets usually win.
One of my graduate business professors put it well: there is a contradiction between democracy and capitalism. That doesn't mean they can't co-exist, obviously, since they have co-existed for a long time.

What it does mean is that the interests of the public as expressed through democratic institutions inevitably comes into conflict with the profit motive of private corporations. If elected officials are going to represent the vital needs of the large majority of their publics, at times they are required to fight against the immediate demands of private businesses on behalf of the public good. John Kennedy was faced with a classic case of that in his conflict with the giant steel companies. He handled it well. It was that occasion that prompted his famous remark, "My father always told me all businessmen were sons-of-bitches but I never believed him until now."

Obama faces such an occasion with the BP oil disaster and he's handling it very badly. The Republicans under Cheney and Bush didn't try to handle the conflicts. Their Predator State approach put the state on the side of destructive business priorities against those of the public.

The writers of the Zeit article note after the part quoted above about how the markets usually win, "Only not this week." They are referring to the EU's decision to create a large emergency fund to assist member states who come under attack by the bond vigilantes like Greece and Spain. (For more substantive reasons in Greece's case than in Spain's.)

Given how the Obama administration has let BP roll over them so far and therby passed up one of the best chances any Democratic administration has ever had to build public support for a positive and constructive vision of government, it's discouraging to think about what it will take to shake the Democrats out of their enthrallment to neoliberalism. But the public good in cases like the BP oil spill and their failed clean-up efforts needs a government that will stand up against corporate bad actors and defend the public interest. Obama and the Congressional Democrats are so far falling badly short of that.

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"It is the logic of our times
No subject for immortal verse
That we who lived by honest dreams
Defend the bad against the worse."

-- Cecil Day-Lewis from Where Are The War Poets?


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