Capitalism, Socialism or Fascism?

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What is the current American economy: capitalism, socialism or fascism?

Socialism

Many people call the Bush and Obama administration's approach to the economic crisis "socialism".

Are they right?

Well, Nouriel Roubini writes in a recent essay:

This is a crisis of solvency, not just liquidity, but true
deleveraging has not begun yet because the losses of financial
institutions have been socialised and put on government balance sheets. This limits the ability of banks to lend, households to spend and companies to invest...

The
releveraging of the public sector through its build-up of large fiscal
deficits risks crowding out a recovery in private sector spending.

Roubini has previously written:

We're essentially continuing a system where profits are privatized and...losses socialized.

Nassim Nicholas Taleb says the same thing:

After
finishing The Black Swan, I realized there was a cancer. The cancer was
a huge buildup of risk-taking based on the lack of understanding of
reality. The second problem is the hidden risk with new financial
products. And the third is the interdependence among financial
institutions.

[Interviewer]: But aren't those the very problems we're supposed to be fixing?

NT:
They're all still here. Today we still have the same amount of debt,
but it belongs to governments. Normally debt would get destroyed and
turn to air. Debt is a mistake between lender and borrower, and both
should suffer. But the government is
socializing all these losses by transforming them into liabilities for
your children and grandchildren and great-grandchildren. What is the
effect? The doctor has shown up and relieved the patient's symptoms –
and transformed the tumour into a metastatic tumour. We still have the
same disease. We still have too much debt, too many big banks, too much
state sponsorship of risk-taking. And now we have six million more Americans who are unemployed – a lot more than that if you count hidden unemployment.

[Interviewer]: Are you saying the U.S. shouldn't have done all those bailouts? What was the alternative?

NT:
Blood, sweat and tears. A lot of the growth of the past few years was
fake growth from debt. So swallow the losses, be dignified and move on.
Suck it up. I gather you're not too impressed with the folks in
Washington who are handling this crisis.

Ben Bernanke saved
nothing! He shouldn't be allowed in Washington. He's like a doctor who
misses the metastatic tumour and says the patient is doing very well.

Nobel prize winning economist Joseph Stiglitz calls it "socialism for the rich". So do many others.

Fascism?

Some, however, argue that the economy is more like fascism than socialism. For example, leading journalist Robert Scheer writes:

What
is proposed is not the nationalization of private corporations but
rather a corporate takeover of government. The marriage of highly
concentrated corporate power with an authoritarian state that services
the politico-economic elite at the expense of the people is more
accurately referred to as "financial fascism" [than socialism]. After
all, even Hitler never nationalized the Mercedes-Benz company but
rather entered into a very profitable partnership with the current car
company's corporate ancestor, which made out quite well until Hitler's
bubble burst.

And Italian historian Gaetano Salvemini argued
in 1936 that fascism makes taxpayers responsible to private enterprise,
because "the State pays for the blunders of private enterprise... Profit is private and individual. Loss is public and social" (page 416).

This perfectly mirrors Roubini's statement about the American government's bailout plan.

Remember that one of the best definitions of fascism - the one used by Mussolini - is the "merger of state and corporate power".

That could never happen in America, right?

Consider:

• The government has given trillions in bailout or other emergency funds to private companies, but is largely refusing to disclose to either the media, the American people or even Congress where the money went

• Congress has largely been bought and paid for, and two powerful congressmen have said that banks run Congress

• The
  head of the Federal Reserve Bank of Kansas City, the former Vice
  President of the Dallas Federal Reserve, and two top IMF officials have
  all said that we have - or are in danger of having - oligarchy in the U.S.

• Economist Dean Baker says that the
  real purpose of bank rescue plans was "A massive redistribution of
  wealth to the bank shareholders and their top executives"

• The big banks killed any real chance for financial reform months ago

Looting

As Examiner.com pointed out
in May (it is worth quoting the essay at some length, as this is an
important concept), looting has replaced free market capitalism:

Nobel prize-winning economist George Akerlof co-wrote a paper in 1993 describing
the causes of the S&L crisis and other financial meltdowns. As summarized
by the New York Times:

In
the paper, they argued that several financial crises in the 1980s, like
the Texas real estate bust, had been the result of private investors
taking advantage of the government. The investors had borrowed huge
amounts of money, made big profits when times were good and then left
the government holding the bag for their eventual (and predictable)
losses.

In a word, the investors looted. Someone trying to
make an honest profit, Professors Akerlof and Romer [co-author of the
paper, and himself a leading expert on economic growth] said, would
have operated in a completely different manner. The investors displayed
a “total disregard for even the most basic principles of lending,”
failing to verify standard information about their borrowers or, in
some cases, even to ask for that information.

The investors “acted as if future losses were somebody else’s problem,” the economists wrote. “They were right.”

The Times does a good job of explaining the looting
dynamic:

The paper’s message is that the promise of government bailouts isn’t merely one aspect of the problem. It is the core problem.

Promised
bailouts mean that anyone lending money to Wall Street — ranging from
small-time savers like you and me to the Chinese government — doesn’t
have to worry about losing that money. The United States Treasury
(which, in the end, is also you and me) will cover the losses. In fact,
it has to cover the losses, to prevent a cascade of worldwide losses
and panic that would make today’s crisis look tame.

But the
knowledge among lenders that their money will ultimately be returned,
no matter what, clearly brings a terrible downside. It keeps the
lenders from asking tough questions about how their money is being
used. Looters — savings and loans and Texas developers in the 1980s;
the American International Group, Citigroup, Fannie Mae and the rest in
this decade — can then act as if their future losses are indeed
somebody else’s problem.

Do you remember the mea culpa that Alan
Greesnspan, Mr. Bernanke’s predecessor, delivered on Capitol Hill last
fall? He said that he was “in a state of shocked disbelief” that “the
self-interest” of Wall Street bankers hadn’t prevented this mess.

He
shouldn’t have been. The looting theory explains why his laissez-faire
theory didn’t hold up. The bankers were acting in their self-interest,
after all...Think about the so-called liars’ loans from recent years:
like those Texas real estate loans from the 1980s, they never had a
chance of paying off. Sure, they would deliver big profits for a while,
so long as the bubble kept inflating. But when they inevitably
imploded, the losses would overwhelm the gains...

What
happened? Banks borrowed money from lenders around the world. The
bankers then kept a big chunk of that money for themselves, calling it
“management fees” or “performance bonuses.” Once the investments were
exposed as hopeless, the lenders — ordinary savers, foreign countries,
other banks, you name it — were repaid with government bailouts.

In
effect, the bankers had siphoned off this bailout money in advance,
years before the government had spent it...Either way, the bottom line
is the same: given an incentive to loot, Wall Street did so. “If you
think of the financial system as a whole,” Mr. Romer said, “it actually
has an incentive to trigger the rare occasions in which tens or
hundreds of billions of dollars come flowing out of the Treasury.”

In
fact, the big banks and sellers of exotic instruments pretended that
the boom would last forever, siphoning off huge profits during the boom
with the knowledge that - when the bust ultimately happened - the
governments of the world would bail them out.

As Akerlof wrote in his paper:

[Looting is the] common thread [when] countries took on excessive
foreign
debt, governments had to bail out insolvent financial institutions,
real estate prices increased dramatically and then fell, or new
financial markets experienced a boom and bust...Our theoretical
analysis shows that an economic underground can come to life if firms
have an incentive to go broke for profit at society's expense (to loot)
instead of to go for broke (to gamble on success). Bankruptcy for
profit will occur if poor accounting, lax regulation, or low penalties
for abuse give owners an incentive to pay themselves more than their
firms are worth and then default on their debt obligations.

Indeed,
Akerlof predicted in 1993 that the next form the looting dynamic would
take was through credit default swaps - then a very-obscure financial
instrument (indeed, one interpretation of why CDS have been so deadly is that they were the simply the favored instrument for the current round of looting).

Is Looting A Thing of the Past?

Now
that Wall Street has been humbled by this financial crash, and the
dangers of CDS are widely known, are we past the bad old days of
looting?

Unfortunately, as the Times points out, the answer is no:

At
a time like this, when trust in financial markets is so scant, it may
be hard to imagine that looting will ever be a problem again. But it
will be. If we don’t get rid of the incentive to loot, the only
question is what form the next round of looting will take.

Bottom Line

So
what do we really have: socialism-for-the-giants, fascism or an economy
which calls itself "capitalism" but which allows looting?

Ultimately,
it doesn't matter. They are just different brand names for the same
basic type of economy. All three systems allow giant businesses which
are friendly to the government to keep enormous private profits but to
pass the losses on to the government and ultimately the citizens.

Whether
we use the terminology regarding socialism-for-the-giants ("socialized
losses"), of fascism ("public and social losses"), or of looting ("left
the government holding the bag for their eventual and predictable
losses"), it amounts to the exact same thing.

Whatever we have, it isn't free market capitalism.

Note:
Yves Smith has called the financial services pay arrangement of "heads
I win, tails you lose" looting, and has also argued that our form of
capitalism is evolving into Mussolini style corpocracy, meaning
fascism. But the label most often pinned on the Obama administration is
socialism.

The bottom line is that I don't put much stock
in what socialists might label a system, any more than what fascists or
corporate looters would label a system. Whatever you call it,
if the giants get all the benefits and pawn all of the losses off on
the public, it is a very dangerous system.

Comments

[ghostfaceinvestah]

Yes, most Americans under 60 grew up fighting what was called Communism (but was in reality more like Fascists totalitarianism).

Anyone alive during the run up to WW2 would recognize that this is not unlike German and Italian Fascism.

Remember that the bankers initially supported Hitler because they thought they could control him.

[crzyhun]

What a question...and to answer you'd have to be super-human not to get your biases off. And, the level of complexity is far greater than the past to chew through the bowel of spaget.

I think an answer may be in the level of analysis. If you segment it, maybe then you 'd have a hope. BIGG Gov't= running to socialism. BIG Business=leaning to fascim. Corporate Finance=looting? Capitalism= Innovators and entreprenuers

Ah, well you see the issues.....

[heatbarrier]

Financial Corporatism = Fascism

http://www.youtube.com/watch?v=Jbi-0Tg1b_g

[ghostfaceinvestah]

Agreed, Fascism.

This is a must watch, it is a full length movie, but extremely important.

http://www.youtube.com/watch?v=F8LPNRI_6T8

[MarkD]

Yes a must watch.

[Anonymous]

Gotta go with the expert here..

“Fascism should rightly be called Corporatism, as it is the merger of corporate and government power”
- Benito Mussolini