— Feature Article —
“The funny thing is, of course, that socialists know that Barack Obama is not one of us. Not only is he not a socialist, he may, in fact, not even be a liberal. Socialists understand him more as a hedge fund Democrat — one of a generation of neoliberal politicians firmly committed to free-market policies.”
(Wharton, Billy, Socialist Party USA co-chair; “Obama’s No Socialist. I Should Know.”; The Washington Post; 3/15/2009.)
“Michigan Jobless Rate Hits 23%, Detroiters Continue Migration to Warmer Climates” (Detroit Free Press; 1/15/2010.)
“Gov. Jennifer Granholm’s office reported today that the state’s 2009 fourth quarter unemployment rate was 23 percent, just 2 points shy of the peak national rate during the Great Depression. Residents from Detroit and first- and second-ring suburbs continue to uproot their families and migrate to southern and western states. They have packed up what they still own — usually some sort of vehicle and whatever personal possessions they have room for — to follow paper-thin leads for work in states like Florida and California, which are already tearing at the seams with transplanted citizens. Many people have concluded, whether they find work or not, that it is better to be homeless in warm weather than in cold weather. …
“Granholm has persisted in calling upon Congress to approve President Obama’s stimulus program, including corporate bailouts, which it has blocked since his election. Many administration economists, however, fear it is too late for Detroit and Michigan because Ford might be the only U.S. Big Three automaker healthy enough to benefit from a bailout.”
Great Depression Redux
Obviously the previous excerpt is from a fictitious newspaper article. But if President Obama’s stimulus package, which includes the temporary corporate nationalization (TCN) of certain U.S. companies, were to be derailed, the above scenario is a real possibility. International Monetary Fund head Dominique Strauss-Kahn said in February that the rollout of stimulus packages must be accelerated to avert a “repeat of the Great Depression.” At the end of last year, 60 percent of Americans said, in a CNN/Opinion Research Corp. poll, that a depression is likely. The poll characterized depression as exhibiting common elements of the “economic pain of the 1930s: 25 percent unemployment rate; widespread bank failures; and millions of Americans homeless and unable to feed their families.”
Let me declare my political bias: I am a liberal Democrat. Many of those with alternative philosophies might disagree with us bleeding-heart, throw-money-at-the-problem tree-huggers about the level of responsibility the U.S. government should shoulder in helping its citizens who cannot help themselves. We might disagree on the propriety of programs like Social Security and national health care. But hear me now and listen to me later (— thanks to Franz): President Obama’s stimulus package, including TCNs, does not fall into that category. If this program fails, through congressional sabotage or derailment or boycotts, we’ll see the mass conversion of millions of self-supporting citizens into millions who want to be self-supporting but have no means.
I coined the initialism TCN (temporary corporate nationalization) to highlight the temporary aspect of it. This is not socialism, as opponents would have us believe. Socialism is defined as “any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods.” (Merriam-Webster.com; 7/4/2009.) President Obama does not advocate permanent government ownership of these troubled corporations. And he has no intention, even temporarily, of controlling the production or distribution of any goods.
Socialism is also, in effect, a one-party system of government. Socialism is the former Union of Soviet Socialist Republics (USSR), the Socialist Republic of Vietnam, or the Great Socialist People’s Libyan Arab Jamahiriya. Obama’s emergency policy could conceivably be characterized as having aspects of social democracy, but even that analogy is weak. It is temporary, and it is an urgently necessary solution to the crisis at hand. Problems like large deficits and excess liquidity due to falling interest rates must assume a lower priority — temporarily.
“When you have a fire in the house, you first need to put out the fire and then see how you can evacuate the excess water. So that’s exactly the situation we’re in.”
(Strauss-Kahn, Dominique, IMF managing director; “IMF Warns of ‘Great Depression’”; Bangkok Post; 7/2/2009.)
People, a worldwide financial collapse has occurred. It began in September 2008 when AIG (insurance), Fannie Mae and Freddie Mac (mortgages), and Lehman Brothers Holdings (banking) were facing imminent bankruptcy. After letting Lehman Brothers fail, which some economists think was a mistake, the Bush administration struck deals to take over Fannie Mae and Freddie Mac and secured a 79.9 percent equity stake in AIG. The Fed invoked authority granted to it under the Federal Reserve Act. Though legal, the move was considered “highly unusual,” and Bush took some flak for it. (Karnitschnig, Solomon, & Pleven, 2008.)
But even conservative Republican George W. Bush realized these were highly unusual crises, requiring highly unusual responses. And that wasn’t the end of it. W. also authorized the Troubled Asset Relief Program (TARP) in October 2008 under which, among other federal loans and bailouts, 600 weakened banks nationwide received a $200 billion safety net. Then, in December 2008, he gave Detroit automakers a $17.4 billion “bridge loan” — a little something to get them by while Bush turned the White House keys over to Obama.
Ultimately two of America’s Big Three auto companies, General Motors and Chrysler, faced total liquidation. In March 2009 the Obama administration decided to access $60 billion in additional TARP funds to save those companies and their jobs. Among detractors, this has prompted renewed opposition to government bailouts in general, and to the auto company rescues, specifically. What these critics don’t understand is that even Republicans like W. and his team, after witnessing the landslide from the ski lift, realized they had to take action to stop the U.S. and the world from being swept off the cliff.
Letting these banks and other corporations advance to liquidation would have also caused another natural disaster metaphor: tsunami-induced financial ripple effects. No banks, no credit. No credit, companies die. Companies die, no jobs. The loss of Chrysler and GM would have caused a financial cataclysm, devastating suppliers, dealerships, credit companies, and surrounding greasy spoons. The resulting job losses would have meant those families could not buy La-Z-Boy recliners, iPads, or school clothes, let alone college educations, cars, or kids braces. The ripple effect would’ve crippled Michigan and surrounding states — producing a subsequent generation of hand-me-down fashions and crooked teeth.
Consider the perspective of those Republicans outside the Bush White House — those who weren’t at the ski lodge. These were their primary arguments against the Obama Stimulus Act, which has continued the work George W. Bush started: A) the resulting large deficits will suffocate the U.S. economy for generations to come; and B) massive deficit spending will not create new jobs. They commonly cited two alternative plans: 1) a combination of stimulus money (over half the currently authorized $787 billion) along with a large package of tax cuts, primarily for corporations; and 2) jobs creation based on an “all-of-the-above energy policy,” which initiates increased production for all existing energy sources. (Cowan & Pelofsky, 2009.)
The first GOP alternative, stimulus money and corporate tax cuts, still involved more than half the debt of the Obama plan — no small amount. Additionally, the problem with large corporate tax cuts is twofold: they are not an urgent response to the problem, and they have shown mixed results in creating jobs. One could argue that the corporate tax-cutting of the G. W. Bush administration created few if any net new jobs. Conversely, during a time of tax increases during the Bill Clinton presidency (1993-2001), the economy experienced its longest expansion in American history, with millions of net new jobs created.
The second Republican alternative involved no deficit spending and a jobs creation plan based on an energy policy that initiated increased production for all existing energy sources. There were two problems with this: again, no urgency, and it was a thinly veiled attempt to promote myopic, polluting, environmentally harmful energy sources such as oil and natural gas.
IMF head Dominique Strauss-Kahn (who was appointed by a conservative), along with many other prominent economists, has made it clear that stimulus package rollouts (including TCNs) across the globe require urgent implementation to avert Great Depression redux. Strauss-Kahn has endorsed the Obama plan, saying it is the “correct size and mix.” Additionally, speculation that the Obama plan will not create new jobs is refuted by the IMF and history. These and the preceding points negate the Republican criticisms, and they clarify the inadequacy of GOP alternatives. Ultimately, Republican concerns about resulting large deficits are the “clean up one does after putting out the fire.” (Strauss-Kahn, 2009.)
Fortunately the GOP plans are now moot. We have a new Democratic president buttressed by a Democratic House and Senate. But there is a small movement growing to sabotage Obama by boycotting GM products. In June 2009, Hugh Hewitt, right-wing icon and talk show host, officially called for a GM boycott saying, “Every dollar spent with GM is a dollar spent against free enterprise.” Rush Limbaugh, while stopping short of an outright call for a boycott, seemed to support it without calling for it. On his show, he cited a poll stating 17 percent of Americans support a boycott, and he said he can understand why people “don’t want to patronize Obama; they don’t want to do anything to make Obama’s policies work.” Sounds like Rush is supporting a non-boycott boycott to me. He’s giving himself plausible deniability: “[My listeners] don’t want to support Obama’s socialism, [but] I don’t do boycotts.” (Limbaugh, 2009.)
Limbaugh and Hewitt disagree with Obama — on the economy and virtually everything else. Their argument is that as soon as they can expose (by promoting) Obama’s failure, they can get conservatives back in control of government to “do it right.” But the fallacy in this is that the soonest any branch of government could be replaced is early 2011, with a new Congress. This presents an agonizingly long time for regular Americans to live with the threat or reality of a 21st-century Grapes of Wrath scenario. Limbaugh and Hewitt are wealthy and could easily sustain a depression. But they have zero empathy for the average people they claim to represent: the people who would suffer most from financial collapse.
By the time Rush and Hugh acquire bragging rights for “I told you so,” there likely would be little left to save. If a policy works, as determined by the people and the government, and it is within the parameters of our Constitution, then it should not matter what ideology produced the success. If it fails after a good faith attempt by the government, the support of the people, and the absence of sabotage, then we at least did our best. Unless Barack Obama resigns — and Vice President Joe Biden, House Speaker Nancy Pelosi, the president pro tempore of the Senate, and all Cabinet officials decline to succeed to the presidency — a Democratic administration is all we have for the next three and a half years, at minimum. This is what we have right now, and urgent action is paramount.
No One Wants “Government Motors”
Another opposition concern is that corporations who have received bailouts will be indefinitely tied to the government’s apron strings, which they say would be socialism. But here are some refutatious facts: Ten of the largest banks have received permission to repay $68 billion to the government (permission is based on a determination that the banks will not have to re-borrow funds). Another 22 smaller banks have already repaid their loans. They’re eager to get out from under government control, which is great incentive for loan repayment and independence. (Appelbaum, 2009.)
Banks were granted loans earlier than the automakers. There is no reason to think the car companies will not follow suit with loan repayment. The government took on a 79.9 percent stake in AIG. It has only had to assume 61 percent of General Motors. Moreover, we can look at recent history to find a success story in the government bailout of Chrysler in 1979 with a $1.5 billion loan. Granted, the loan was for much less money, even adjusted for inflation. But the model is the same. Under the leadership of Lee Iacocca, Chrysler paid back the 10-year loan in three years, and the government made a profit. The profit was less than existing loan rates might have produced, but the resulting jobs saved at the No. 3 U.S. automaker and in supporting industries are difficult to appraise. 1979 Chrysler government bailout loan: $1.5 billion. Modest profit and unemployment ripple effects averted: Priceless (— thanks to MasterCard). It’s a realistic expectation that this success story can be extrapolated to 2009-2010. (Krishner, 2009.)
General Motors expects to begin profiting again in 2011. It’s true that the company made these forecasts and they could be optimistic. The Treasury Department, however, has to review and approve these accounting estimates before they release funds, and the estimates are legitimately encouraging. Let’s say GM is overly optimistic and the Treasury does not make a profit, or maybe even takes a reasonable loss: the jobs saved and the accompanying retention of support businesses (suppliers, retailers, coffee shops, etc.) are clearly worth the absence of a government profit.
Bush, Obama to the Rescue
In late 2008 the U.S. and other world economies plunged into crisis. Massive financial institution failures were imminent. Blame for the crisis was thrown around like confetti, but ultimately, solutions were all that mattered. W. initiated a plan to bail out insurance behemoth AIG with an $85 billion infusion of cash, saying it was “too big to fail.” In that same week the U.S. Treasury took over the two largest mortgage corporations, Fannie May and Freddie Mac. In early 2009 General Motors and Chrysler announced they would go out of business without massive government loans. The national unemployment rate began lapping at 10 percent, higher in Michigan and Ohio. These developments required urgent measures and prompted a call for government action. The Republican plans lacked urgency and supported corporate tax cuts — tax cuts that had failed to produce net new jobs in the past. The Obama administration and its best minds picked up on George W. Bush’s initial efforts and answered the call.
The government and the corporations want to cut their temporary, overly symbiotic ties as soon as possible, and they will. It’s important not to allow the Rush Limbaughs and the Hugh Hewitts of the world to sabotage success by demagoging and fomenting GM boycotts and Obama failure for its own sake. If they’re successful in derailing this administration’s efforts, we could again see the Joad family, from Steinbeck’s Grapes of Wrath, on the road to California. We could again see scenes (from the book, not the movie) like Rose of Sharon, with no baby to nurse, offering up her milk-enriched breast to a dying man too sick from hunger to eat solid food — while the depression-proof Limbaughs and Hewitts get their wish: to say, “We told you so.”
Is that too dramatic? ■
Appelbaum, Binyamin; “10 Banks Allowed to Repay $68B in Bailout Money”; The Washington Post; 6/10/2009.
Cowan, Richard & Pelofsky, Jeremy; “Senate Republicans Propose Alternative Stimulus ($445 Billion, Half the Cost of the Dem Version)”; Reuters; 2/3/2009.
Karnitschnig, M. & Solomon, D. & Pleven, L. & Hilsenrath, J. E.; “U.S. to Take Over AIG in $85 Billion Bailout; Central Banks Inject Cash as Credit Dries Up”; The Wall Street Journal; 9/16/2008.
Krishner, Tom; “Iacocca: GM, Chrysler Need to Repay U.S. Loans Fast”; The Associated Press; 6/21/2009.
Limbaugh, Rush; The Rush Limbaugh Show; 6/10/2009.