Photo: Franklin Delano Roosevelt signing the Tennessee Valley Authority Act, part of the New Deal.
By Mohamad Shaaf, CounterPunch | May 1, 2020
I. Evolution of Current Economic Depression and Ineffective Policy Responses
The current economic depression was predicted by many economists 1 2 (YouTube), before it was triggered by the Covid-19 pandemic. Trump’s Treasury-Fed policy response to this crisis is expected to result in repercussions worse in scale and dimension than the Great Depression of 1929. The fundamental cause of this crisis is due to the process of over accumulation, i.e., excess and concentrated capital, which cannot find profitable investment due to insufficient aggregate demand that is a hallmark of a capitalist economy.
The progression of mergers and acquisitions, a normal process of capitalist economies, and the movement of excess capital from the productive sector to unproductive finance capital has led to higher prices of stocks and bonds, lower interest rates, and higher demand for housing with resulting increases in housing prices; those increases fueled further expansion of capital with higher excess and concentration, exacerbating the political power of capital.
Subsequently, to mitigate the severity of the crisis, government subsidized a stimulus of $6 trillion for 2020, and the Federal Reserve began interfering in the “free” markets by creating additional trillions of dollars of debt: pouring money into all kinds of financial assets, including corporate stocks and bonds, even municipal and junk bonds, and bailing out many big financial and non-financial corporations, resulting in distorted asset prices, meddling and destroying market price mechanism, enabling outright fraud, unbalancing the economy further by creating even higher surplus capital and higher concentrated capital, including media, and banks. Similar policies on a larger scale will be still ineffective postponing and compounding until they lead to a larger crash; they are the manifestation of US government representation of corporate capital, thus overt fascism.
Furthermore, the policies will lead to even larger political power quantitatively, with more money and resources increasing the number and size of institutions like think tanks, and corporate lobbies, and qualitatively with decisions such as Citizens United. There will be an increase in scope of political tricks, corruption, gerrymandering, intimidation , blackmail such as the Jeffrey Epstein case, further empowering the Deep State, as the executor (1, 2, 3, 4).
II. Policy Steps Toward a Sound, Effective Recovery and Prosperity
An effective policy response to the current world depression is to slow down the crash. A speedy recovery requires adjusting the structure of the economy toward a steady and speedy flow of capital in circulation by removing obstacles, and calibrating and coordinating different parts of the financial sector. In order to rescue capitalism, the following policies must be instituted as soon as possible, and those that have just passed Congress should be reversed.
1. Nationalization of Failed Banks and Financial Institutions
One of the premises of capitalism is a “free market” that rewards the winners and penalizes the losers that should be applied to banks, hedge funds, and other corporations; those who take risks that result in bankruptcy should not receive trillions of dollars in reward. While it is not suggested that all banks be nationalized, those whose risks result in failure must be nationalized, buy out not bail out. When compared to bailouts, buy outs of failed bank’s assets are much less costly to the taxpayers, and prevent bank runs that lead to more slump and unemployment.
National, i.e., publicly owned, banks like Bank of North Dakota, not bailed out in the 2008 crash and not listed for bailout in 2020, are more secure, immune to bank runs, more prudent, and finance projects for the community that are beneficial to the public rather than profit. Those banks reduce the speculation that leads to future crashes, resulting in higher economic growth, lower unemployment, lesser inequality of wealth and income, and end the “too big to fail” game. More importantly, national banks are urgently needed to finance new workers’ cooperatives from failed businesses purchased by employees, preventing closure and loss of jobs.
2. Socialization of Basic Needs of the People, and Stopping Aggressions
Since workers are the contributors to production and profit, they deserve to be treated more kindly and gentler in proportion to the growth of their productivity that has not been happening for decades. Socialization of basic needs includes free health care, education, and a living wage to reduce social anxiety resulting in a better quality of labor force. Those actions can be financed by stopping provocation, initiating world peace, cutting military spending and waste, stopping naked imperialist wars of aggression, converting military bases abroad into factories and educational institutions before it is too late.
As President Kennedy had in mind, the risk of nuclear war could be reduced and world peace initiated. Rather than bombing, invading, and occupying other countries, the US could do what the Chinese have done by starting joint projects with other countries, such as building ports, roads, infrastructure more equitably; providing help to emerging nations while making a profit as well.
3. Fiscal Policy: Taxing Surplus and Speculative Capital, and Targeted Spending
Progressive capitalism has passed its time and evolved into large excesses, factious and speculative capital that has proved to be monopolistic, cancerous, and destructive in many areas: privatization of war and public assets such as prisons, resulting in more people sent to prison, and production of unnecessary and unhealthy commodities, such as harmful drugs. Some results of current capitalism include bribery, thievery, intimidation, (1, 2, 3), blackmail (1, 2, 3), imprison, immigrate, and torture of those who resist and speak out against those activities. Instead, excess capital can be used constructively on badly needed projects, such as infrastructure to stimulate the economy and the wellbeing of the population.
Taxing surplus and speculative capital would move the economy to productive activity, with higher wages that match the growth of productivity of workers and lead to a higher standard of living. Furthermore, increased taxes will encourage employers to think beyond profit, support the urgent needs of their workers, and eliminate permanent war that costs the lives of millions of innocent people. It also requires a strong fiscal policy aimed at high-intensive labor sectors of the economy, and a moratorium on pay-roll tax that can lead the economy toward a steady-state of growth.
4. Reducing Concentration of Political Power
As mentioned earlier, unless regulated to balance the economy, capitalism has a tendency toward unlimited and exponential growth of capital, income, and wealth that is not sustainable, goes hand-in-hand with concentration of political power and moving further away from true democracy. Current policies: trillions of dollars in bailouts, purchase of corporate assets, and stimulus, will cause even more expansion of capital and political control into fewer and fewer individuals and corporations; wealth and income inequality moving toward an even less democratic system. If the goal is to preserve capitalism, current policies need to be reversed to reduce the severity of the depression that is underway; growth of capital must be balanced with absorption capacity through taxing and/or shifting excess capital to be used in meeting human needs: food, shelter, health care, and education that lead to physical and mental health in a peaceful world toward a decent life that’s worth living.