Shock

One thing the neocons taught us: if you want fundamental change have a crisis. The “Shock Doctrine” as advocated by Milton Friedman & Co. says that economic oligarchs use the occurrence of economic shocks to create privilege for themselves and to limit the freedom of ordinary citizens.

Our current crisis did indeed threaten a meltdown of our economic and financial system. But out of that we got the opportunity to address the problems that were impoverishing us as a nation.

This Great Recession is first of all an economic problem and only incidentally a financial crisis. It is not like the recessions that we have seen in the past 60 years. It was brought on because the working people of America ran out of money or places to borrow. Something had to happen.

The most serious problem we face is, therefore, the lack of purchasing power on the part of the middle-class. That problem began in the 1980s with the deliberate crushing of the labor movement, enormous tax cuts for the rich, a sharp increase in Social Security taxes on working families and a general assault on the American paycheck.

It took us 30 years to pile up this mountain of debt and get ourselves into this hole. It is going to take more than a year or two to get out. Progress will depend on how we as a nation respond to this shock.

First, we have to re-establish the buying power of working Americans. The $400 billion spending bill, the $780 billion stimulus package and the $3.6 trillion budget are all crafted to feed money to working Americans and get the economy moving again.

All of this comes even before the economy has hit bottom. Wisely we are not waiting Hoover-like. All of this purchasing power will be in the hands of the people just as the economy hits bottom and when they need it most. Natural economic and bureaucratic time lags mean that will be late 2009 to mid-2010.

Best of all, this spending turns the economy to investment rather than consumption and it does so in areas that we have long neglected: energy, education, healthcare and infrastructure.

The Economic Recovery Act and the budget respect and honor our environment. It is a bold investment worthy of an entrepreneurial America – and it is green. The age of denial and pseudo-science is over.

Those who complain that the money is not being well spent misunderstand Keynesian economics. In a depression economy, John Maynard Keynes wanted government stimulus money spent on investment. But, because that might take too long, he also suggested that they could just as well bury money in milk bottles and let people dig them up or they could build pyramids in the South of England.

What the Obama administration is doing in regard to a stimulus package is right on target. In this regard, the first 100 days could not have been done better.

Then there is the other half of the problem. The cure for the financial crisis in our banking system faces entrenched opposition. The large, “too big to fail”, banks are determined to dictate terms that will maintain them in their power position in the economy. The bankers want to use this shock to maintain their enormous wealth, outrageous paychecks and bankrupt banks, despite what they did to the economy with their incompetence and corruption.

These banks have to be made susceptible to failure and the administration has not yet found a way to do this.

Last weekend, Rahm Emanuel, Obama’s Chief of Staff, said that the Administration is now ready to convert the loans made to these banks into equity. That would put the government in an ownership/control position.

The government would then be able to force the banks to furnish the necessary finance for the investment generated in the stimulus package. We the people, through our Executive Branch, would then again be in charge of the economy.

So things are looking up.

Rahm Emanuel has been criticized for saying: “a crisis is a terrible thing to waste.” Well, he’s right.

Famously, the Chinese character for crisis is also the character for opportunity. Honesty demands that we recognize that Obama would not have happened without this crisis coming when it did. The recognition of our needs in energy, education and infrastructure and the restructuring of our financial system to serve the people would not have had a chance in the absence of this severe crisis.

What Rahm Emanuel and the Chinese recognize is that the Shock Doctrine can work the other way as well. We the people can seize this crisis/opportunity to take back the control of our economy. So let’s push Obama and our Congress to do that.