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Corporate-State Socialism in action

Sheldon Richman wrote two posts in the last two days that are great examples of blag posts about libertarianism and economics for non-libertarians. They are very instructive because they mention ways in which specific State actions help the rich and powerful and screw the little guy. In this case the rich and powerful are investment bankers and the little guy is the taxpayer.

First, in Privatized profits, socialized losses, he discusses how the Federal Reserve’s bailout of Bear Stearns might properly be characterized as capitalist, not free-market.

The Federal Reserve’s decision to underwrite the bailout of Bear Stearns, the giant investment bank that’s in deep trouble because of its involvement with securities backed by bad subprime mortgages, further exposes what is called capitalism as a system of government intervention on behalf of capital. …

The subprime problem has its roots in pro-business government intervention; the policies at fault were designed to help the housing industry and the lenders who write mortgages. Now the other shoe is falling. Big lenders and investors handling securitized mortgages who are in over their heads will get their promised bailout under the “too big to fail” doctrine. And the rescue will set the table for the next round of bad business decisions and the next bailout. …

What does this have to do with the free market? As Kevin Carson likes to say, if this is the free market, then I’m against it. Of course, it is not the free market. The free market is a profit and loss system void of privilege. When businesses fail, they are supposed to actually fail, not turn to the taxpayers. What we really have is (state or political) capitalism, corporatism, or fascism. An essential characteristic of this system is that while profits are private, losses are socialized, i.e., ultimately covered by the mass of people without political clout.

Unfortunately, potential allies of libertarians won’t catch the distinction and will thus be further alienated from true free-market thinking. They won’t realize that the free market is the system that would deliver what they want, particularly much of what they call “social justice.”

His second post, from today, (State) Capitalism in action, quotes a Wall Street Journal article about the Bear Stearns bailout:

To help facilitate the deal, the Federal Reserve is taking the extraordinary step of providing as much as $30 billion in financing for Bear Stearns’s less-liquid assets, such as mortgage securities that the firm has been unable to sell, in what is believed to be the largest Fed advance on record to a single company.

Fed officials wouldn’t describe the exact financing terms or assets involved. But if those assets decline in value, the Fed would bear any loss, not J.P. Morgan.

The sale of Bear Stearns and Sunday night’s move by the Fed to offer loans to other securities dealers mark the latest historic turns in what has become the most pervasive financial crisis in a generation. [emphasis added by Richman]

The reason I blagged about these two posts of Richman’s is that they aren’t a bunch of moral philosophizing, which we libertarians do plenty of, and they don’t consist of vague but dire-sounding pronouncements about tyranny and liberty and rights and powerful elites running everything and the individual being powerless against Leviathan—though those things are always important and relevant. Rather, they contain specific actions by the federal government that any socialist, communist, capitalist, liberal, neocon, libertarian, or apathetic person can understand hurts taxpayers, helps already-rich-and-powerful bankers, and promotes the existence of very large businesses and hinders (or, at least doesn’t promote) the flourishing of small businesses. He doesn’t give a lot of details because they were just two blag posts, not economics columns. Still, this is what libertarian commentary needs more of: cause and effect of specific State policies; how one State intervention causes disruptions that always seem to lead to more State interventions, which cause disruptions calling for more State action, et cetera ad totalitarianism.

This Fed bailout of Bear Stearns is an example of what Anthony Gregory called “corporate-state socialism” and which Richman just calls capitalism. I kind of like using the word capitalism for my ideology of free-market economics, even though Karl Marx coined the term (I think), because it is simple and doesn’t sound like we’re trying to use a less-scary-and-hateful euphemism, like “free market.” Which is why I refer to real libertarians as anarcho-capitalists instead of the other common terms market anarchist and individualist anarchist. But I’m kind of starting to think there’s nothing special, or even necessarily accurate, about the word, and that maybe “market” and “free market” sound better not because liberals have sullied the connotation of the word “capitalism” but because they are simply more appropriate.