What to Do With Capitalism?:

It’s to bad that in all the heat and rage over the AIG bonuses a far more important question should be,“what to do about capitalism?” Thats the name of the system that we live under. Focusing on the AIG outbreak of the “Extreme Greed Disease” takes our eye off the far more important matter of what caused it? Here are some thoughts.

Since Bill Clinton and Tony Blair spoke of the “third way” I have thought about their new model for how the capitalist system might work. Unfortunately they never quite got around to telling us how the third way would look. However I believe they had some notion of how globalization was in fact a paradigm shift. Capitalism was being spread out so that a far greater number could participate in its goodies. My own recollection is that during the Reagan years there grew the popular notion that “We Could Have It All.” Thats when the the credit card companies began handing out free cards, no questions asked to kids entering college. Its when many of my friends began buying second vacation homes on Martha's Vineyard and Fire Island. (I had a summer cottage on Fire Island except I paid $4000. and had to rebuild it myself on weekends.)

I recall a comment around that time by Admiral Zimwalt,Chief of Naval Operations, that I thought best expressed a fundamental notion about our system. When asked about people who were criticizing extreme profit taking his response was, “They don’t understand that this whole system is based upon greed. Without that desire to have more capitalism as we know it would cease to function.” Wow, I thought now there’s and honest man. And so what I began to refer to as “the big party” really took off.

The foundation for the, You Can Have It All, was, was based on the notion that one didn’t need money to have it. Just go get it on credit. People were buying houses that clearly they could not afford.Why? Well, in many cases they were going to hold them for a while, maybe 6 months-a year and then make a killing selling them for twice what they paid for them and so on. Remember when you were told about Uncle Harry or Aunt Emma who bought a place in Florida for $150M last year and could now get $300M for the same house? Of course you do because we were all hearing these “now you can get rich quick” tales. And of course some people did.

The problem became systemic because far to many folks ventured into the credit forest and got lost when they found they, “couldn’t make the cut” as they say in golf. In the real world the greed folks who were selling the idea that “you can have it all” began to bundle the unable to pay stuff and sold it to the supposedly smart but greedy bank buddies who were all participating in the the big you can have it all party.

Now to the rescue. Conservative economists still firmly believe that the capitalist market left to it own devices would take care of things and get everything back in balance. Very few of us seem to be willing to go through years of crippling unemployment, housing foreclosures and people going hungry, wild social unrest, while the market gets itself back into balance. It was the depression of the thirties that brought an end to the notion that we will let the market do it. We invented the New Deal. Yes, I hear the charge of Socialism coming from those who don’t want the Government interfering in the natural flow of the market.

The facts are that we have long ago started down the road of government responsibility. Start with public schools, the Post Office, unemployment benefits, public pensions, veterans hospitals, welfare, workmen's comp insurance, health care, highway bridge construction etc. etc. A few blogs back I suggested we might be slouching toward socialism seems much more creditable now.

The Obama folks are having one hell of a time getting around to biting the bullet of nationalizing the ailing banks. If they ever want to get the credit market flowing again they are just going to have to do it and the screams of socialism be dammed. Sure once they get all that credit crap out of the banks and all the regulators put back, from where they never should have been removed, the somewhat altered capitalist system will start to function again. Somewhere down the road the greed factor will rise again and yes there will be another crisis. Thats the history of capitalism.

Thanks Kate N.H.W.Y.