This is the twenty-fourth of a series of blogs based on excerpts adapted from the 2nd edition of Agenda for a New Economy: From Phantom Wealth to Real Wealth. I wrote Agenda to spur a national conversation on economic policy issues and options that are otherwise largely ignored. This blog series is intended to contribute to that conversation. —DK
I am among those who hoped that President Obama, based on his campaign promises, would introduce reforms putting the United States on the path to a New Economy.
Unfortunately, for all the powers of the presidency, any new president, no matter what his intention, quickly learns that he is captive to institutional forces that severely limit his ability to set a course for uncharted waters.
For example, once elected, the first task of a new president is to staff the top positions of the world’s most complex and sprawling bureaucracy. He is necessarily limited to selecting appointees from a small pool of people with the experience and credentials to win speedy confirmation and step instantly, with confidence and authority, into impossibly complex jobs.
Those so qualified will almost inevitably be practiced in working within the established institutional and policy frames and disinclined to challenge the foundations of the institutions on which their power and prestige depend.
In the economic policy arena, President Obama faced the additional handicap that his choice of eligible candidates was limited to market fundamentalists, Keynesians, or some hybrid of the two.
Market fundamentalism is more ideology than science. Its practitioners are dedicated to privatizing public assets and services, deregulating markets, lowering taxes on corporations and the rich, and limiting government’s role to enforcing contracts and protecting property rights. This school has prevailed for more than thirty years and pushed through the policies that led to the present unconscionable concentration of wealth and crashed the economy. It remains oblivious to the lessons of its experience.
Keynesians, members of the only contemporary school of economic thought that offers an accepted counter to market fundamentalism, recognize a need for governmental intervention to assure sufficient aggregate demand to keep people employed.
When the financial markets crashed, some market fundamentalists called for subjecting failed banks to market discipline by letting them go bust. Keynesian pragmatists, however, recognized that given the size of the banks in question and the implications of interlinked derivatives contracts, this would instantly collapse the entire economy.
Although they may appear to be poles apart on the role of government, Keynesians and market fundamentalists share a basic Old Economy perspective on many basic issues. Both look to GDP growth as the true and defining measure of economic performance. Both take the existing structure of market institutions as a given. Both ignore the difference between phantom wealth and real wealth.
Neither school has the tools to conceive or implement a New Economy restructuring of the money/banking system. Under a New Economy regime, government would have taken over the failed banks, negotiated financial settlements at steeply discounted prices with creditors, and restructured Wall Street’s mega-banks to spin off individual units as independent locally owned community banks, mostly organized as nonprofits or cooperatives. So-called “shadow banking” institutions devoted solely to playing unproductive financial games would have been shut down.
Instead, captive to Wall Street political interests and limited to an Old Economy frame, the Federal Reserve and the Treasury Department teamed up to shower Wall Street banks and corporations with $13 trillion in virtually free bailout money to fund bonuses, dividends, takeovers, and the purchase of bonds paying a market interest rate issued by the government to fund the bailout.
How different things might now be if Wall Street had been forced to absorb its losses and the government had instead directed just a fraction of this bailout money into the Main Street economy to keep people working and in their homes.
With a New Economy frame, the federal government would have placed the Federal Reserve under government supervision and used its facilities to support a restructuring of the financial system and to provide interest-free financing to rebuild America’s crumbling and outdated infrastructure.
Such a dramatic departure from business as usual would have required a ready team of strong leaders working from a shared framework understood and embraced by a major segment of the public. Tragically, the education and experience of our leaders — including President Obama — and the general public have been limited to economic models that are at best seriously limited and at worst actively destructive.
It remains to the institutions of global civil society to articulate and popularize a sound and compelling New Economy policy framework that includes a strong institutional component. A number of new groups have formed since September 2008 to carry forward this work, including the New Economy Working Group, the New Economy Network, the New Economics Institute, and the American Sustainable Business Council.
Recognizing that the needed change will come only as “We the People” demand it, other groups with broad popular outreach capability are currently preparing to launch a national mobilization to support New Economy solutions.
Without fundamental restructuring, another Wall Street crash is assured. Hopefully, next time we will be prepared with at least a rudimentary map to a New Economy.
[Next: How the Left and Right Can Unite]
Why it's important to address our economic problems at their Wall Street roots.
It’s time we the people declare our independence from the money-favoring Wall Street economy.
- Agenda for a New Economy available from the YES! Magazine web store.