The Magic Elixir of Democracy and Free Markets

Here is a wonderful attack by Yves Smith in her blog Naked Capitalist on the confusion between political freedom (democracy) and market freedom (free trade). I've bolded the key bits:

Probably the most wicked intellectual subterfuge of the last three decades — and goodness knows there have been many — has been the pretence that democracy and markets are two sides of the same coin. Both have been extolled under the banner of “liberty”. “Free markets” are somehow the hallmark of democracy and they should be allowed to roam free, untrammeled by evil governments who never doing anything right. Any number of commentators, coincidentally funded by right wing think tanks, warned us that constraining markets represents an attack on basic freedoms. Such elision is, of course, rubbish; and in many cases deliberate deceit. In a market one dollar equals one vote. The more money you have, the more votes you get. In a democracy it is one person, one vote. You can only be one person at a time (except in Florida, it seems). With this in mind, I was intrigued to see a response from Rob Windt mid week about the aftermath of the Icelandic bankruptcy:

What happened next was extraordinary. The belief that citizens had to pay for the mistakes of a financial monopoly, that an entire nation must be taxed to pay off private debts was shattered, transforming the relationship between citizens and their political institutions and eventually driving Iceland’s leaders to the side of their constituents.

The Head of State, Olafur Ragnar Grimsson, refused to ratify the law that would have made Iceland’s citizens responsible for its bankers’ debts, and accepted calls for a referendum.

This, I would suggest, is real liberty at work. And it is probably an early example of what I expect will become an increasingly political debate, rather than a managerialist debate, about the direction of developed economies. As Jeremy Grantham in his fine piece pointed out mid-week, there has been an unholy alliance between corporate profits and government spending, something he said he “never saw as a faint possibility”. It turns out that business is not in a virtuous war with government; the only victim in America is the ordinary worker. One only has to see the film Inside Job to see how government and the financial system have worked in tandem, in large part because it is the same people playing both sides of the fence.

I keep hoping to see evidence that the electorate is waking up to the horrors around us. But as I watch the "buzz" in Iowa around the ship of fools that pass for Republican presidential hopefuls, I despair. These people are all sellouts. If you listen to their message they are making gestures and empty promises because their real loyalty is to corporations and billionaires.

Here's her grim outlook for the future:

The Icelandic move is where we are heading. The rule makers in the financial system, who think they can make up rules as they go, are on a collision course with those who have to assent to the rules — the people and the governments they appoint. So far, it is mostly presented as a management problem — how can governments manage their fiscal and monetary levers — but it will become more than that. It will become a question about who has the right to set rules and possess power.

The outcome is not a foregone conclusion, even in democracies. Grantham argues that there needs to be more income distribution, a reversal of the money grab of the rich in the United States, in order to return to a more balanced form of economic growth. But that is by no means inevitable, indeed it is not even the norm. More normal is what happened in South America in the 60s, 70s and 80s where the middle classes were gutted and the rich ruled with increasing violence. As Grantham shows, America is heading the same way — its middle class has been progressively eviscerated for about 40 years, while corporations and the rich have thrived. The history of human behaviour tells us that, unless stopped, the powerful will enslave the weak and America is heading in that direction.

American's love to glory in their revolutionary past with Paul Revere's famous ride calling citizens to arms. But today needs it own Paul Revere and sadly I don't see one. I sure wish I could say that there is one on the horizon charging in like the Hollywood cavalry that gave me great comfort as a youth, but in reality there is no saviour on the horizon. The sad joke is that Obama presented himself as "the one", the "hope" for the people, but his a completely sold out tool of the corporate class. Obama and the Republicans are the problem not the solution. Most of the Democratic legislators are part of the problem not the solution. There needs to be a radical overhaul of American politics of the Latin American future that Grantham foresees is coming. (Remember the bloody secret war where the generals "disappeared" people, where pregnant women were kept in jails until they gave birth and their babies were given to right wing families as "their own" while the woman was taken to a firing squad or dropped out of a helicopter over the south Atlantic. That is the future unless Americans wake up.

You really must read the whole post by Yves Smith. It is well worth your time.