Corporatism vs. Free Market Capitalism, (and a call to action)

The idea of central planning as the underpinning of an economic system, whether labeled “Socialist”, “Communist”, or “Fascist” is repugnant to those who support free markets, or what might be broadly referred to as “Capitalism”.

There is however an equally repugnant but more insidious system that has materialized without many open advocates or a genuine philosophical underpinning. For lack of a precise term, it might be known as “corporatism” or “crony capitalism”, mixed in with a few tablespoons of genuine fascism. Basically, this is the economic and political system that reigns supreme in the contemporary United States of America. This system is abhorrent to free market principles and its economic effects are disastrous to the vast majority of citizens. In addition, it makes a mockery of the rule of law and destroys individual liberty, initiative, and the entrepreneurial spirit. Perhaps even more diabolical however is the fact that this system persists while masquerading as genuine “capitalism” and a system of “free markets”.

Our entire education system (up to and including elite post-secondary and graduate schools) along with the big-named economists, pundits and mainstream media talking heads persistently emphasize the idea that the United States is a society based on capitalism and the concept of free markets. During our 200+ year history, there have been periods where the description was generally accurate. In the current economic environment, the bones of the free market have been picked clean by the corporatist vultures and only the pale ghost of capitalism remains. Yet, the so-called mainstream thinkers are remarkably successful in maintaining the illusion and allowing the widespread damage and economic injustices of rampant statism and central planning to be blamed on free market capitalism.

Under this guise, the so-called “financial crisis” of 2007 and 2008 led many to suggest that we were witnessing the great failure of free markets and the culmination of the Marxist prophecies predicting capitalism’s demise. Beyond the smoke and mirrors however, we were seeing the bright beacon of the free market’s potential and the bloody fingerprints of central planning on a grievously wounded economy. An edifice based on decades of interest rate manipulation (repugnant to the principles of a free market) combined with statist interference in the mortgage industry (a-la Fannie, Freddie, FHA, etc.) and a culture of widespread federally sanctioned fraud stood poised to come crashing down with a delicate wave of the invisible hand. Even after this prolonged period of rule bending and statist intervention, the force of the free market was being felt. The perpetrators of fraud and those whose greed had led them to massive mal-investment were about to be punished. The culprits at the Federal Reserve and the central planners in government were on the verge of having their meddling and mis-allocation of resources explode in their faces. Only a massive and unprecedented onslaught of government support and an insane money-printing spree were able to sustain the system. Temporarily.

Fraud is generally repugnant to any society or economic system, and especially so to the advocates of a free market. Though they cause temporary distortions, frauds and swindles are ultimately expunged by the fundamental nature of the free market. Thanks to massive statist intervention and active government participation in the perpetration, legitimization and obfuscation of fraud, this warped system of U.S.-style corporatism has been remarkably persistent. Monumental interventionism has granted the system a temporary stay of execution, and the spectre of the free market has been momentarily banished. Yet another layer has been added to the economic house of cards. Financial institutions remain bankrupt by any fair or accurate accounting standards. The Federal Reserve is single-minded in its focus to suck every last drop of blood from the productive economy to keep the parasites alive. Commodity prices increase in the presence of stagnant wages causing pain to the lowest income earners. Value-adding producers in the real economy see their operating margins compressed to oblivion as their input costs rise with zero ability to pass on price increases to the wealth-stripped customer. Massive government deficit spending (now accounting for nearly 10% of GDP), is necessary just to keep up the slightest fiction of economic recovery, and an incessant string of spurious (later revised) government statistics is seized upon by the mainstream media propaganda machine as evidence of progress.

Economic prognostication in this environment of statism and interventionism is a fool’s errand, but it is likewise foolish to suggest that any of the major economic trends are moving in a direction likely to yield improvement for the average U.S. citizen. The free market WILL ultimately prevail. Whether it triumphs by a sudden “return to sanity” in the current environment, gradually works through a period of prolonged economic misery, or arises from the ashes of a general societal meltdown is the only question. Regardless of how the end game plays out however, those who would champion liberty, sound monetary policy and free markets have a MISSION! It is our imperative to expose the doppleganger of corporatism and shatter the illusion that the economic malaise of the 21st century United States of America is due to shortcomings of the free market or capitalism. Whether we fix the problem now, or in years hence are left only to fix the blame, the economic misery of millions must be inextricably linked to the corrupt corporatist system and the miserable failure of central planning.

Michael Moore's "Capitalism" Film

(Warning: spoilers contained herein)

I just rented Michael Moore’s “Capitalism: A Love Story”. As usual, Mr. Moore raises some excellent points, throws in some humor and theatrics, and completely misses the mark when it comes to identifying causes and promoting good solutions.

First of all, I don’t think his definition of “capitalism” is anywhere close to the mark. He described it with the absurd phrase “a system of taking and giving” as opposed to a system of building, producing, earning, etc. Another point on semantics later.

Moore makes some effort to correctly attribute blame for the economic and fiscal woes of our country to officials from both political parties, but he still has a soft spot for anyone with a “D” next to their name, and a clear animosity for those evil “R”s. He accuses Ronald Reagan of “presiding over the “wholesale dismantling of [the U.S.] industrial infrastructure”. Hardly a fair accusation when U.S. manufacturing was in decline before, during and after Reagan. Also a bit biased when the film omits the fact that Bill Clinton(with the help of Republicans) signed both the NAFTA and GATT treaties which were not exactly healthy for U.S. manufacturing, but forget partisan bickering.

Michael Moore makes a point of the fact that “capitalism” isn’t described in The U.S. Constitution, although his citation of phrases such as “We The People”, “a more perfect union” and “general welfare” indicate that he didn’t read much beyond the preamble. He then makes a point of talking to several priests who state that capitalism is pure evil, and that Jesus would never stand for it. I know that the bible condemns “usury” but, like the Constitution, I don’t think it specifically mentions “capitalism”.

The film contains scathing criticisms of the banking and financial systems, the cozy relationship between Washington and Wall Street, the TARP bill, and AIG bailout. One photo shows Federal regulators, namely the head of the OTS and deputy director of the FDIC in a pose with bank lobbyists figuratively cutting through “red tape” of regulation. The sweetheart loans that government officials such as Christopher Dodd, Donna Shalala, Pete Conrad and any number of banking and securities regulators received from Countrywide Financial are described. Numerous examples are provided which reveal the relationship of elected officials, economic advisers and high ranking appointed officials with banking and investment firms that they were supposed to be regulating. The issue of the 2004 FBI report describing an “Epidemic” of Mortgage Fraud is also raised. Then, there’s the major issue of the big bailouts in which the U.S. Government funneled hundreds of billions of taxpayer dollars into AIG and the large Wall Street banks.

These are all valid things to criticize, yet Mr. Moore would have us conclude that this is somehow an indictment of capitalism? All I see is a tale of corruption and failure on the part of big government. We have mountains of regulations, and armies of regulators employed to prevent fraud, corruption and abuse in the marketplace. These highly paid government officials have utterly and completely failed in their appointed tasks. The FBI warns of an epidemic of fraud, yet we see no high profile prosecutions? The SEC fails to note the proliferation and danger of exotic financial instruments? The FDIC, OTS and Federal Reserve don’t sound the alarm about badly under-capitalized and over-leveraged financial institutions? WORST OF ALL, right at the moment when we were about to witness a vindication of free market principles ... just when the people and the companies who committed the frauds, who created the financial derivatives and who made millions with reckless speculation were about to be wiped out by their excesses . . . in comes BIG GOVERNMENT and The Federal Reserve to bail out the failed businesses with trillions of taxpayer dollars. I challenge Michael Moore or anyone else to find me a source which would define one of the elements of capitalism as “Big government confiscates wealth from successful and responsible businesses and individuals to reward failed businesses and individuals.” More than a few other ‘isms’ come to mind when I think of a a system in which economic outcomes are ordained by a central power.

In other parts of the film, there is a story of a bread company that is organized as a co-op, and uses a business model which minimizes the pay differential between the managerial workers and the assembly line workers. There is also a profile of a successful company called “Isthmus Engineering” which has cast off the top-down management system in favor of a decision making process where all employees vote and participate. There is also the story of the employees of Republic Windows and Doors in Chicago who staged a sit-in to demand the severance benefits which they had been promised, and the outpouring of community support for their effort. In holding up these shining examples, Mr. Moore fails to note that Isthmus engineering doesn’t operate on government grants. The bread company in question doesn’t produce under the direction of a government commissar, and it wasn’t Barack Obama, Richard Daley or Nancy Pelosi who organized the protest at Republic Windows and Doors. These folks are free American citizens, and it is by virtue of our Constitutional system of limited government that these people are at liberty to pursue their creative business models, and exercise their right to organize and assemble, free of the constraints and tyranny that have been the hallmark of economies designed around a system of central planning.

I would advise Mr. Moore to choose his terms more carefully, and be thankful for the fact that he lives in a society where he is able to produce films and distribute them to a wide audience free of interference from any Ministry of Truth.

One final side note on “Capitalism”. . . That guy Randy Hacker, who was being foreclosed upon had quite a collection of firearms. In the film, he even says that, after what he and his family have gone through with the banks, he could understand why someone might snap and go on a shooting spree. Sounds like a dangerous right wing extremist to me. Perhaps he and the rest of us peasants should be deprived of our firearms. What say you Mr. Moore?