But can we really save ourselves by simply propping up every company or industry that’s doing poorly in this less than stellar market? Not to be too academic, but that would suck. Although I am suspicious of the purist “free-market” dogma and a big fan of public watch-dogging, I think we should review closely and critically any attempt by government to become too much more than a watch-dog for the people, when it comes to interference in the market. [Amity Shlaes’s The Forgotten Man: A New History of the Great Depression is pretty instructive on this point. While I don’t buy her entire argument, I think she raises important questions about the assumptions historians frequently make about the government’s role in economic recovery in the past.]
Ok, so what if we prop up only those that are “too big to fail”? See my comment above regarding government interference? Let me add: we should be especially horrified by government interference on behalf of tremendously wealthy and powerful segments of society attempting to maintain their positions. This is what the Bush Administration has been doing (despite shameless pretenses to “free-market” and “small government” ideologies). [Check out Naomi Klein’s The Shock Doctrine — I am not endorsing all aspects of Klein’s perspective either, but I think she does a great job of pointing out the fallacy of the big/small distinction (or, more to the point for me, the primacy of that distinction) and she asks the right question: on whose behalf and to what end should government act?]
Although over the last century, “small government” has become (I think cynically) the battle-cry of the privileged, historically, the call for limited government had grown as much out of oppositionto the entrenchment of privilege. Read Thomas Paine’s The Rights of Man, if you don’t believe me. I realize that English constitutionalism (from which most modern “limited government” philosophies are at least partially derived) initially developed as a way to manage aristocratic property rights against a sovereign monarchy. But the success of the idea of limited government in democracy movements is based on the recognition that through most of history, intrusive government was almost universally a tool of aristocracy, the class whence “government” hailed. Government had been practically synonymouswith aristocracy and its exercise of social control.
Any political order that requires us, the middle and working class tax payers, to toil to bail out the auto industry and the financial industry (who are today’s aristocracy) — and makes us accept punishing pay cuts, as the Republicans were demanding in the auto-industry case — all ostensibly in order to preserve the privilege of continuing to toil, is nothing short of a new feudalism.
Note that I’m not commenting specifically on the merits of the auto-industry loan package. More on that tomorrow. But before we get to evaluating any particular proposal, we have to disabuse ourselves of this “too big to fail” premise that is silently turning into conventional wisdom with little examination beyond essentially marginal arguments about what to demand in return for rescue packages. This is frighteningly reminiscent of the early Iraq war bandwagon.
My view on the “Too Big to Fail” doctrine can be summed up this way:
If something can get so big that it requires us to collectively absorb its losses (either by bailing it out, or by letting its demise infect the entire economy), then it should have been prevented from getting so big in the first place, or at the very least, it should have been prohibited from accruing to itself all the benefits of an endeavor for which it would ultimately not have to bear the costs. This is privatization of profit and socialization of loss. As we know from the history of the finance industry, repeatedly bailing out institutions in hard times, without requiring anything in return during flush times, is the surest way to guarantee it will happen again. And again. And again.
Lest I sound glib, let me clarify: just because I’m questioning the wisdom of corporate welfare packages that give lip service to working-class anxieties, it doesn’t mean I don’t understand or sympathize with those anxieties or that I wouldn’t support effective government intervention on behalf of working people. And, by the way, at some point soon, I plan to blog about poverty and the myth of meritocracy, so stay tuned. . . .