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The International Writers Magazine - Our Tenth Year: USA and Obama's rescue plan

Economic Update - New York
Dean Borok

Someday the truth will possibly emerge about how Republican interests, fearing a presidential run by Hillary Clinton, threw massive resources behind dark horse candidate Barack Obama, whom they figured didn’t have a chance in hell to win, only to watch in horror as the banking system collapsed just weeks before the election, and Obama being swept into power with a massive Democratic majority by a fearful electorate.

Obama, whose deep thinking is way to the left of that of the Clintons, is not pursuing half-measures. He is doing what he believes is necessary to bring the U.S. in line with other western democracies, and doing what he can to salvage what is left of a diseased and desiccated social system before it dissolves into chaos and eventually disintegrates. Whether he can marshal the resources necessary to bring about a turnaround is a problematic hypothesis. I personally give him less than a 10% chance to clean up this mess. Sales of gold bullion and American Eagle gold coins are mushrooming because of lack of confidence that the dollar will survive as a currency. Right-wing media is beating a continual campaign of resistance to what they are featuring as a communist coup d’état in Washington. The battle lines are being drawn, and they are a lot narrower than the Democrats’ current 60% - 40% margin in Congress.

If you don’t receive preventive care for a condition and it finally erupts into a medical catastrophe, the costs for care explode exponentially, and that is what happened to American society. Even as they apply triage to an expiring financial system that long ago outlived its usefulness, it is a harebreaths away from dying and shutting down nourishment in the form of financing to the various social extremities. This is what Karl Marx predicted 140 years ago: crises of capitalist credit mechanisms occur “where the ever-lengthening chain of payments, and an artificial system of settling them, has been fully developed".

This essentially means that the ultimate expression of capitalism invariably leads to collapse. And Marx was not even contemplating the entrenched kleptocracy of wholesale looting that was encouraged to flourish here by a systematic looting by the banks, corruption of the rating agencies and emasculation of the regulatory organs. The solution advanced by Obama and Geithner is akin to a blood pumping machine that essentially replaces the heart and pumps energy to the rest of the body until a new heart, or banking system, can be constructed and grafted on.

Where he runs afoul of the entrenched interests is that while he is prepared to set up a mechanism to cleanse the system of the toxic assets created and propagated by it, he is showing no interest in indemnifying the banks’ shareholders. Under a hypothetical Republican administration confronted with the same circumstances, which is what we would be facing now if the banks had collapsed one month later, or after the election, the solution would have been diametrically opposite – an indemnification of the banks’ equity holders with the rest of us scrambling to get whatever dregs would percolate down the system. The capitalist class is now gearing up for the fight of its life, only they won’t represent it as anything so crass as losing their bank shares. They will fight back on grounds of ideology, reducing it to sound bytes for Bill O’Reilly and Ann Coulter to incessantly repeat ad nauseum until huge blocks of society are set against each other. Whichever side ultimately prevails, the end result will be the same – economic consolidation: of banking; of the automotive industry; of energy and transportation.

When presented with a similar breakdown in France in the 1950’s President de Gaulle correctly enforced consolidation of the economy’s major sectors, producing what is today the world’s fifth largest economy. More than any other western leader I can think of, de Gaulle’s experience in resuscitating a moribund society is the most relevant to the present situation. That consolidation of industrial sectors as an ongoing necessity for industrial survival is affirmed by no less an authority than John D. Rockefeller, who pioneered the modern corporation. No friend to the concept of social Darwinism or laissez-faire, which he considered disruptive and chaotic, unleashing instability and volatility in a marketplace that craves order and stability, Rockefeller wrote: “The struggle for the survival of the fittest, in the sea and on the land the world over, as well as the law of supply and demand, were observed in all the ages past until the Standard Oil Company preached the doctrine of cooperation, and did it so successfully and so fairly that its most bitter opponents were won over to its views and made to realize that rational, sane, modern, progressive administration was necessary to success.” This may sound self-serving, but in today’s world the oil company that has just now posted the largest earnings of any publicly owned corporation in history, Exxon Mobil, is none other than the modern descendant of Rockefeller’s Standard Oil Corporation. This obviously begs the question: if consolidation of industry is an ongoing economic necessity, and Rockefeller and Marx are not so far apart in their economic model, which interests or class of people are best suited to be in charge if such an economic monolith?

The answer is social, with each society determining the qualifying factors of who should be in charge. This is obviously idiosyncratic, with factors having nothing to do with economics determining who sets economic policy. The point to remember is that no one sector is any more entitled than any other to determine economic policy. It should be for the most capable and the most qualified to lead, which is rarely the case. In this country that leadership has heretofore been reserved for a class of white persons coming from a very narrow band of culture. We are all bearing witness to the residual effect of that class of persons having lost its dynamism. We are being beat out of world markets at an alarming rate as the Anglo-Saxon business model recedes in importance. I essentially believe that it is becoming more and more urgent for Americans to absorb lessons from other successful cultures, following the Japanese model for emulating success. It is instructive to note that while Standard Oil enjoyed a near-monopoly in America, it was forced to co-exist in world oil markets with Dutch and Anglo-French consortiums whose descendants also still exist today. Flexibility and application of marketing techniques to world markets are the keys to survival.

Right now I give Obama a big edge for his determination to mobilize the use of new sources of energy to power government installations. This is a big step up from leaving it up to the haphazard free-market ideology of letting it grow any which way. That this encouragement of a new industry by the awarding of government contracts is the correct course is made obvious by the frenzied Republican opposition to it. Government contracts for small, innovative artisanal operators could mean a big breakthrough in expanding that industry, as well as bringing into play a whole new class of persons (which will naturally result in consolidation and rationalization of that industry further on down the line). This is the kind of forward strategic thinking of which even de Gaulle would approve.

We are now witnessing incremental signs of regenerated world economic activity. The Baltic Dry Index, which sets freight rates for transport of primary resources like coal and iron ore, has shot up 50% in the last week (though it is still down 80% form its peak), spurred by depletion of raw material inventories in China. This has resulted in some mining activity in Australia, as well as boosting banking and transport stocks in Scandinavia. Isolated industries such as German automotive companies like BMW and the oil sector are performing well. Spain’s Banco Santander, Europe’s largest by market capitalization, is set to report an €8.8 billion profit on last year. These indicators are the evidence that we are not living in 1929. As these dots continue to appear, like isolated electric lights appearing after a blackout, and get connected, combined with aggressive and innovative activity from the top (Obama) to ensure that poor, hapless suckers like this writer don’t get flushed down the drain, the totality of it may yet merge to form the image of an improved world.

© Dean Borok Feb 13th 2009

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