The US Economic Crisis: 10 Proposals
EDITORIAL, 29 September 2008
#29 | Johan Galtung, 29 Sep 2008 - TRANSCEND Media Service
Stavanger-Norway, September 29/2008
What a cynicism to talk about “crisis” as a phenomenon of a month or a year or two, when every day about 125,000 die from system-produced hunger and curable-preventable diseases! Much of the responsibility lies buried in an economism privileging the transaction system above the basic needs of the actors. Economics as a “science” is capital and system, not needs and human oriented. Capital-ism is exactly that, not a human-ism. And yet, there is a crisis on top of the permanent crisis. With a credit squeeze in an ailing finance economy transactions suffer, and so do the actors, even more than before. How come?
In a sense “capitalism as usual”, but that is too general. Capitalism is a system pumping wealth from the poor, up to the rich, with a tiny trickle down if there are no counter-measures. The net result is obvious: poverty, even misery at the bottom of national and global economies with wealth accumulating in rich countries and rich people, and particularly in rich people in the rich countries. Capitalism had to continue the flagrant inequity of the feudal economy it replaced. It met the bill.
In economic terms: a deficit of acquisitive power–except by borrowing and credit cards–at the bottom (meaning, say, the bottom 70% in the USA) and an excess of liquidity at the top. So much so that only a fraction can be used for consumption. But long term investment in productive enterprises in a sluggish real economy is limited. Hence, “investment” turns into short term speculation in the finance economy and the bubble grows.
Any real economy produces products for consumption. But it also needs a finance economy producing products, like loans, for buying and selling. The two have to synchronize; if not: crisis.
As long as that speculation is in black tulips or gold it may pass as a pastime for the rich. When the buying-and-selling craze is in commodities for basic needs, like houses, food and health resources, then it is serious. The lack of compassion–more important than John McCain’s diagnosis, greed–makes everything go. This is the situation we are in.
But there is something new. With a sluggish real economy and excess liquidity, differentiation of finance products was to be expected. Hence “leverage”, “hedge funds”, “futures”, “options”, “derivatives”, etc., where we used to have stocks and bonds, loans and interest. And a little more. So, before Bear and Stearns collapsed they informed customers that one of their financial products had become (close to) valueless. Its name: “High Grade Structured Credit Strategies Enhanced Leverage Fund.” One might add, and not only in hindsight, that anyone falling for that to the point of buying deserved what happened. Maybe that also applies to CDS’s, “credit default swaps” and CDO’s, “collateral debt obligations.” And to the dollar, $, itself.
Lack of transparency compounded by incomprehensibility. Much of it from the 1973 and thereabout US academic work by people like Fischer Black, Myron Scholes and Robert Merton.
So maybe the cause, intervening between capitalism with its greed and the present crisis, is incomprehension? The system is on top of its creators rather than vice versa; they have been taken for a ride they do not master. Of course, greed is there, but perhaps more than greed the sporting aspect of the market, to win, to be No. 1, to make the Fortune list to start with, heading for gold, silver, bronze. At the expense of everybody else, certainly also of themselves, like their souls, if such a thing exists in such calculating machines.
Is there a way out? Of course, but not the 700 billion bailout taken from poor taxpayers given to the banks, including the very rich. This is capital-ism as usual, and will not work. Given massive money printing, this throws bad money at bad money; second, it rewards massive incompetence bordering on fraud; and third, it diminishes further the acquisitive power for most Americans, making real economic growth even more elusive.
Consider instead these ten points that would work. To wit:
 Massive keynesianism: massive funding to improve the crumbling US infra-structure, creating millions of jobs, including building schools and polyclinics. Job preference to disadvantaged groups. More acquisitive power at the bottom.
 Massive redistribution: push taxation upward, progressive, luxury taxes; and tax relief for the bottom 70%, with subsidized housing and health. More acquisitive power lower down.
 Government takeover of housing mortgages contracted between bubble start and bubble burst, relieving the debtor of the burden while also bailing out the banks. Drop any distinction between deserving and non-deserving; the system was at fault.
 Stop all foreclosures, find a fair solution for each one.
 Finance this by cutting the Pentagon budget for too much American Empire (Ron Paul) like bases. Take what the taxpayer must pay for US reconstruction from the budget for destruction around the world, not from health care, education, welfare.
 Let the worst banks/financial institutions sink, the most greedy with the least backing for their transactions and the highest ratio between CEO salary/benefits and average employees. The Japanese pattern of public CEO apology on TV for betrayal of customer confidence might be enforced. Suicide not.
 Rule out as illegal most new financial products, unless they come with a tested guarantee that both buyer and seller of such products are fully cognizant of their working and consequences.
 Celebrate banks that keep direct client-bank relations, those that announce clearly that the loans stay with us and our guarantee and make sure that all small script is understood.
 Publish M2 to make the US economic system more transparent.
 Massive dollar devaluation, maybe a third or a half, to a new dollar to cut the debt service burden, to make remaining US products more competitive, and to avoid massive inflation.
Problem: ideologically blocked by the Democan-Republicrat consensus. Alternative: let the system sink.
Johan Galtung, a Professor of Peace Studies and Founder of TRANSCEND, a peace and development network, is a regular contributor to the TRANSCEND Media Service (www.transcend.org/tms). He is author, most recently, of “50 Years: 100 Peace and Conflict Perspectives,” TRANSCEND University Press (www.transcend.org/tup), 2008.
This article originally appeared on Transcend Media Service (TMS) on 29 September 2008.
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