In opposing the initial version of the much-discussed Wall Street bailout, Rep. Darrell Issa of California boldly declared that any intervention to stabilize the financial system would be akin to putting a coffin on top of Ronald Reagans coffin. To remedy a crisis that was generated by the systematic assault on state regulation starting with the Reagan administration, Republican dissenters to the bailout offered us a Polyanna-like faith that free markets will never cease to bring forth manna from the earth.
It rarely pays to be more Catholic than the pope, and the strain of strident irredentism that calls for no government intervention in the economy under any circumstances was heartily rejected by the respectable political establishment of both parties. When your house is on fire, you put the fire out you dont sit in the living room and wait for Uncle Ronnie to tell you what to do. However, it is also not well-advised to pay your local arsonist to extinguish the flames.
Authorizing the Bush administration to take hundreds of billions of dollars of public money and spend it on junk mortgages to support those that benefited most from our three-decade-long deregulatory orgy would do just that. Yet, something must be done. However easy it is for the left to caricature Wall Street greed and dance gleefully on the corpses of the financial institutions that we spend most of our time lambasting, this is not a principled position. Financial crises always affect the most disadvantaged in our society, and a global credit meltdown would wreak havoc in the Global South to a much greater degree than the developed world. Told-you-so moralism isnt going to satisfy anyone.
As they do in such situations, our media and politicians have set up an absolute binary between doing nothing to remedy the situation and the elite-friendly bailout. While corporate welfare is an established practice in supposedly free-market administrations, in normal times you cant privatize the Treasury and hand out billions of dollars to wealthy firms. But now, if you dont support the Wall Street giveaway, then you must not care if the world slides into misery.
In her book The Shock Doctrine, Naomi Klein argues that in order to impose unpopular policies that lead to wealth transfer to elites, governments have to convince their population that the only alternative to their policy would be utter disaster. Her thesis is easily applicable to the current situation. In an interview with Bill Maher, she took the issue deeper, arguing that the real disaster could occur in a prospective McCain presidency, in which a looted Treasury and a ballooning debt are used to justify the logic that we can no longer afford Social Security, healthcare, food stamps, and the few remaining pillars of the welfare state. Far from the end of free-market ideology, this crisis could be used as an argument for its continuation and deepening.
It is not surprising that policy elites with roots in the financial establishment would come up with a plan that distributes costs primarily on the poor and middle classes and benefits primarily on the wealthy. But what is missed in this picture is that progressive alternatives to continuing the same policies that led us into this quagmire exist.
Take the proposal of Vermonts Sen. Bernie Sanders, for example. His little-discussed plan, which went down with a whimper on a voice vote in the Senate last week, is the antithesis of what was approved. With a supplemental five-year tax on incomes over $1 million, it puts the burden of paying for the bailout on the rich, reasoning that they are both most able to do so and have benefited most in terms of income increases in the last decades. It calls for equity shares for taxpayers in bailed-out companies, so tat they can benefit if the companies become profitable again, and for a comprehensive government economic recovery package reminiscent of the New Deal. It would be the end of what Sanders calls socialism for the rich and free enterprise for the poor and would start the long and arduous task of redistributing the wealth that has trickled up to the highest echelons of our society.
The fact that opposition to the bailout plan was loudly voiced by Republican zealots makes criticism appear to be a fringe position. However, labor unions usually compliant with the Democratic establishment such as the Service Employees International Union have taken firm stances against the plan and it was this wave of popular revulsion that caused its initial version to fail. The problem is that alternatives like Sanders that seriously challenge the ideological hegemony of free-market capitalism are neither known nor seriously discussed. I may not be able to assess the feasibility of the plan, but I am confident that it should be within the realm of the imaginable.
The task that faces our society is just thatto expand the frontier of what is imaginable in our society. The shaking of the foundations of the speculative economy could lead to a progressive opening, in which we step back from the precipice and reinvent our society in dramatic ways. Or, it can be the impetus for another round of shock therapy from the same people that brought us this wonderful new gilded age.