Friday, July 11, 2008

Dionne Does It Again



E. J. Dionne Jr. has written another marvelous editorial in The Washington Post.

Capitalism's Reality Check

” The biggest political story of 2008 is getting little coverage. It involves the collapse of assumptions that have dominated our economic debate for three decades.“

In short -- Franklin D. Roosevelt was right. Ronald Reagan was wrong. It’s been my belief that FDR saved capitalism from itself. Revisit 1929. Capitalism had failed. The Great Depression drove the countries of the world to look at other political systems. Socialism grew by leaps and bounds. Communism -- for a time -- looked like a viable alternative. FDR didn’t let America dump capitalism. He just regulated it.

I thought it was all rather simple to see. We won. We became a superpower. We became the world’s largest economy. We became the envy of the world.

Now, you have to look no further than the aviation industry to see what went wrong. The airlines couldn’t raise ticket prices before oil prices started rising because of the destructive competition of deregulation. They are now in dire straits.

Airline CEOs ask customers to lobby Congress on oil

"Executives said in their letter long established regulations to control speculators have weakened or been removed. "We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight," the CEOs wrote."

(Emphasis added)

Like I’ve said before, I enjoy irony. I guess the airline executives ought to know what “weakened” or “removed” regulations can do to an industry.

Getting back to Dionne’s editorial, there was another line that jumped out at me.

”Mobile capital and the threat of moving a plant abroad give employers a huge advantage in negotiations with employees. "If you're dealing with someone and you can pick up and leave and he can't, you have the advantage." “

That probably doesn’t hit you like it hits me. But you’ve probably never been in negotiations with the Federal government. The balance of power between a union and the Federal government is laughable. PATCO found that out -- the hard way -- in 1981. The only thing a Federal employees union has going for it is the citizen’s sense of fairness. Private employees dealing with a multi-national corporation don’t even have that. A strike isn’t much of a threat to a company that is moving its operations overseas. The goodwill of the citizens of one country aren’t much of an obstacle when the corporation is moving to another.

Perhaps you were paying attention this week when I told you Todd was threatened with being fired for having a blog. Think about the implications of that in terms of free speech. If the Government (for whom Todd used to work) had made that threat, the free-speech implications would have been clear. But this was a private company that made the threat. Only, that private company works for the Government. To a lot of people, free speech is some vague concept. Maybe they’ll pay attention when they realize that the combination of Government and corporate power can be used to cut their paycheck too.

As you watch the financial market drop today, as we ponder another bailout for Fannie Mae and Freddie Mac, as the airline CEOs beg you to pressure Congress to save them -- maybe, just maybe -- the citizens of this country will realize the balance of power between them and corporations has tilted too far. Maybe they’ll recognize that financial panics are nothing new and the can be controlled or at least contained. Notice the large gap between 1937 and 1973.

Smart, prudent, effective regulation can make the difference. It can tame the wild swings of “the market” while still allowing innovation and entrepreneurship. Good government can provide the stability needed to foster an industry like aviation and improve our transportation infrastructure. Targeted government funding in research can change our world for the better -- creating new markets and prosperity in the process.

Hopefully we can rediscover this knowledge before we have another Depression. Don’t depend on the “smart money” to see it for you. They might be blinded by their profits or they just might not see it at all.

Take a look at this from Ron Chernow’s book Titan.

For all his financial savvy , Senior was democratically dragged down in the crash along with lesser mortals and saw his rump fortune of $25 million dollars dwindle to a mere $7 million, prompting grandson Winthrop to exclaim, “For grandfather that was being practically broke !”

“Senior” is, of course, John D. Rockefeller and “the crash” was the stock market crash of 1929. Senior had already given the vast majority of his money to Junior -- some $500 million dollars. Give or take a few million.

What the average citizen has at risk and what the wealthy have at risk are two different things entirely. You might not have a million (or a billion) dollars at risk but they don’t have their home and their children’s future at risk. Somehow they’ll manage on the few million they have left. How about you ?

Don Brown
July 11, 2008

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