Why Crony Capitalism is the Only Capitalism: David Stockman on The Daily Show
Posted on April 10, 2013
Here’s a neat little conversation we’re not privy to everyday in the popular media. I think David Stockman is off his rocker for all the reasons I explicate below, but it’s still nice to see a member of the Reagan cabinet at least acknowledging certain gross inequities, even if he’s played a significant role in bringing those inequities about, and even if his program for the future is just as problematic as it was thirty years ago. (For a more accurate and helpful reading of late capitalism, see Sam Gindin’s and Leo Panitch’s The Making of Global Capitalism.)
Stockman was the director of the Office of Management and Budget (OMB) under Reagan in the early eighties. He played a large part, along with his hero and former fed chair Paul Volcker, in eviscerating labor and the welfare state in one fell swoop. Volcker, in his famous ‘Volcker Shock’ of ’79, achieved the former goal by raising the reserve interest rate so high that unemployment would peak at 24 percent. This effectively disemboweled all remaining negotiating power on the part of workers and their unions, which in turn commenced the long post-industrial march to deunionization, wage stagnation, benefits reduction, pension cuts, increased work hours, astronomical CEO compensation and shareholder profits, and harrowing inequality. Meanwhile, Stockman achieved the latter objective by gutting one social program after another.
As expected, working families found themselves either unemployed, underemployed, or overworked, but in any case, broke. Right-wingers called this (behind closed doors) “labor discipline,” which was intended to ensure desperate workers worked harder and longer for diminished dime, leading to greater investment and productivity yields. This, combined with tax cuts — especially cuts to the highest income earners as well as capital gains — would amount to optimal capital accumulation and growth, which would then “trickle down” to everyone in the form of cheap prices, technological innovation, increased employment opportunities, and some day… even higher wages, broadened government revenue, and social mobility. Or so we were told. (We’re now one of the most socially unequal and immobile nations in one of the most socially unequal and immobile global marketplaces in recent history.)
Growth did arrive, although it was interrupted by an increasing number of crises, and never competed with pre-1973 levels. Technological innovation proved impressive, although so much of it relied on government grants and public-private partnerships, not to mention the globalization and financialization of our economy, which I’ll elaborate on shortly. Employment ultimately plateaued to a tolerable notch, although this coincided with a sizable creep in poverty and the underclass. Most importantly, cheap prices never made up for wage stagnation, job insecurity, or benefits reductions. And as much as the working class (progressively choked and squeezed) came to rely on tax cuts, this didn’t do the trick either. Ironically, the very bogeyman Stockman, Volcker, and legions of other “fiscal conservatives” and “libertarians” most feared functioned as the one mechanism keeping the laboring class (and the imperial republic) afloat: finance backed by debt, specifically as it pertained to housing and home improvement investments. This would culminate, of course, with the mortgage-backed securities collapse of ’07.
I tell this tale because it’s relevant to Stockman’s latest appearance on The Daily Show, where he presents himself as a staunch opponent of debt, financialization, and “crony capitalism.” He’s right that “easy money” and highly complex and risky speculation, as it has manifested itself lately, has reinforced gross inequalities, both within and between nation-states. What he doesn’t seem to get however, and what Stewart doesn’t call him on, is how it was exactly Stockman’s policies pushed during his OMB days, combined with Volcker’s interest rate pump at the fed, that propelled us toward this road to perdition in the first place. Stockman blames Reagan and Congress for ignoring his advice, keeping interest rates low, and allowing for financial mayhem on Wall Street. But without strong unions and a welfare state, debt and financialization were necessary in order to maintain demand and growth. Remember — workers were broke and out of employment options, so they had no choice but to rely on private debt, both in credit and securitized mortgage/home improvement investments, to get by. In fact, neoliberal and neoconservative policymakers in both parties made a conscious decision that such financialization would do the heavy lifting once accomplished by robust wages, benefits, and social programs. Moreover, the progressively complicated and risky financial instruments that Stockman loves to hate were necessary to hedge trade and capital outflows and inflows in evermore open transnational markets, where exchange rates were becoming too unpredictable otherwise. Reagan and Congress didn’t embrace “crony capitalism” because they failed to realize the wisdom of Stockman. They embraced “crony capitalism” because Stockman’s wisdom didn’t make any sense in a globalized marketplace without substantive welfare states and unions.
I suppose Stockman could argue that had Nixon never abandoned Bretton Woods and the Gold Standard in ’71, investors wouldn’t have had to worry about the uncertainty of floating exchange rates and therefore not had to turn to financialization for hedge protection. But there’s a syllogism Stockman is then missing: increased growth requires increased globalization, increased globalization requires floating exchange rates, and floating exchange rates require increased financialization. Furthermore, with or without any of the above, workers and consumers remain broke in the absence of decent wages, benefits, and social programs. If such means aren’t made available, they either go into debt or go into crime. It’s not a coincidence that the ascendance of both the credit/finance and incarceration industries paralleled the descent of unions and the welfare state.
What this all means is, at the very least, the working and middle classes need more income, wealth, and overall stability, lest we risk an even more crisis-ridden and ugly situation down the road. This can come from the standard liberal or social democratic agenda of healthy wages and benefits, targeted social programs, a more progressive tax code, or a combination thereof. The Gold Standard isn’t coming back, globalization and financialization aren’t going away, and capitalism in its allegedly freest form, with or without the cronyism, isn’t a real thing.
As I made clear in my last post, I don’t think the social democratic/liberal program is the most feasible or preferable path either, which is why (once again) I commend to you this very accessible and important manifesto by Gar Alperovitz. Contra the late great baroness, there is an alternative.