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'Doomsday Capitalism:' Local virus? Global pandemic?
Commentary: 7 signs toxic partisan politics is killing capitalism, democracy, your retirement

June 15, 2010, 12:01 a.m. EDT

By Paul B. Farrell, MarketWatch

ARROYO GRANDE, Calif. (MarketWatch) -- Warning: "Capitalism as we knew it is dead." What a grabber! A flashing neon sign on Times Square near Morgan Stanley? No, it's the headline on a promo ad for the new book co-authored by the highly regarded American editor of the world's leading business magazine, the Economist.

Yes, "capitalism as we knew it is dead." Who killed it? The usual suspects. Everybody. And it was easy. First we killed democracy. Yes, democracy as we knew it is also dead.

Next question: What'll take its place? In "The Road from Ruin," Matthew Bishop, the Economist's business editor and co-author Michael Green tell us "capitalism as we knew it" died on "Sept. 15, 2008, the day Lehman Brothers went bust. That much is clear. What we don't know yet is what will replace it and whether that version will be any better than what went before."

Wrong: We do know exactly what will replace it. We also know it won't be better. In fact, far worse, far more self-destructive. The "Doomsday Capitalism" virus is spreading:

1. The Economist's doomed Capitalism 2.0

Start with "The Road From Ruin." Four "big ideas," a grand vision of what a revival of capitalism must have to succeed: First, "rethink economics." Second: "redesign global governance," including loss of the dollar's reserve currency status to create "a stabler global financial system." Third, "capitalism must rediscover its soul," put "values back into business," and "serve the greater good." Fourth, "promote financial literacy."

Four "Big Ideas." All doomed. Why? America hates them. Everyone: Palin, McConnell, Beck, the GOP's Tea Party of No-No. Yes, even the White House, Congress, Geithner, Bernanke and Dodd. And certainly the Goldman Conspiracy of Wall Street too-greedy-to-fail fat-cat bankers. All guaranteed to hate the four big ideas, hate them more than Cormac McCarthy's bleak post-apocalyptic "The Road."

Hate? Yes, here's why: The GOP does not want to "rethink" economics. No compromise. They want to reinstate their beloved free-market Reaganomics ideology. Period. Also non-negotiable: They'll never surrender the dollar as reserve currency. Un-American. Worse than surrendering America's divine right as the world's sole superpower.

What about "soul?" Wharton economists warn: Washington's financial reforms are not "game-changers," will leave "plenty of risk in the system," thanks to hundreds of millions spent by Wall Street lobbyists. So America will continue sliding deeper into an economic sinkhole with no-soul, no-values, no 'Invisible Hand.'

Fourth: The big idea of "promoting financial literacy" is a perennial hoax, a cleverly disguised Wall Street marketing gimmick. As Richard Thaler, the godfather of behavioral economics puts it: The last thing Wall Street wants is an informed, rational investor wise to their con game.

Sorry, folks, but these four big ideas will only mislead us into letting our guard down, make us more vulnerable to "Doomsday Capitalism," a viral WMD along "The Road."

2. Inside Michael Lewis's 'Doomsday Capitalism'

In "The Big Short: Inside the Doomsday Machine," Michael Lewis details what really happened in the 2008 meltdown of capitalism, leaving us with the eerie doomsday feeling: This will happen again, bigger, soon. Happen because today's weak reforms are no game-changer like the '30s, will leave Wall Street in a business-as-usual mode, with the same old shadowy derivatives game already blowing a new bubble. Prediction: Another meltdown, then finally the Great Depression II dodged in 2000 and 2008.

Inside the "Doomsday Machine" is the story "of a giant bet gone wrong," Lewis tells the Los Angeles Times: "In the simplest terms, a machine got built to enrich people for taking really stupid financial risks. The way it worked was it disguised the risks in a number of ways, but complexity was a chief tool. It made it too complicated for people in the end to understand the risks they were taking. And the machine ended up being fooled by its own deceit."

Too complex? Self-deception? No reform transparency? Oh yes, it will repeat.

Why? As the Timesonline's reviewer put it: "The titans of Wall Street were not simply the corrupt, flash bankers Lewis chronicled in 'Liar's Poker,' but something far, far worse. They were stupid. They had unwittingly created a monster that they did not understand and could not control." Worse, so stupid they're now building a newer, deadlier monster.

3. Peter Morici predicted the death of 'Democratic Capitalism'

Yes, democracy is dead. In his Chicago Tribune article, economist Peter Morici echoes "The Road," pulls no punches: "Democratic capitalism is in eclipse. From Berlin to Tokyo, governments struggle to instigate enough growth to pay their bills and gainfully employ workers. Meanwhile China enjoys breakneck progress. Democratic capitalism is not flawed; rather, government policymakers are destroying a system that took mankind from dark feudal superstitions to cracking the secrets of life with deceptions, delusions and abuse." Yes, we've gotten "too stupid to fail," a self-fulfilling doomsday prophecy.

Morici warns that "politicians have deceived voters" with endless unsustainable promises of high pensions, cheap health care and education benefits, with favorable taxes, tariffs and regulations.

"From Barack Obama to Angela Merkel the system is suffering from delusions of grandeur, self deception and good old-fashioned abuse by leaders who address the world as Ivy League intellectuals think it should, rather than how the facts of physics, demography and economics define it."

4. Reich's 'Supercapitalism' fueling 'Doomsday Capitalism'

Former Labor Secretary Robert Reich echoes Morici: "Capitalism and democracy go hand in hand," live and die together. Before the Supreme Court granted human rights to cash-rich soulless corporations, Reich reminded us that corporations only answer to shareholders, never taxpayers. Worse, their clever CEOs know how to shift costs to taxpayers. BP is the latest example.

Reich warned that while we "have done significantly better ...in our capacities as consumers and investors ... in our capacities as citizens seeking the common good, however, we have lost ground." Power has shifted "away from us in our capacities as citizens and toward us as consumers and investors."

And that trend is rapidly killing democracy: "The same competition that fueled supercapitalism has spilled over into the political process." We spent nearly a billion in the Obama election cycle, and more than $100 million in the recent California GOP primary.

5. Reaganomics, godfather of new 'Doomsday Capitalism'

In "The Shock Doctrine: Rise of Disaster Capitalism," an earlier version of "Doomsday Capitalism," Naomi Klein exposed the dark economic ideology driving the GOP's Reaganomics the past three decades: "During boom times it's profitable to preach laissez faire, because an absentee government allows speculative bubbles."

But "when those bubbles burst, the ideology becomes a hindrance and goes dormant while big government rides to the rescue." Then, free-market "ideology will come roaring back when the bailouts are done," as did happen. And "the massive debts the public is accumulating to bail out the speculators will then become part of a global budget crisis," as with Greece and the EU.

So today Wall Street banks that were insolvent back in 2008 are not only stronger than before the meltdown, they control the White House, Congress, Treasury.

6. Anarchist-Lobbyist wars driving 'Doomsday Capitalism'

The rise of uncontrolled corporate greed killed the "Invisible Hand," the "soul" of capitalism that Adam Smith saw in 1776 as a divine force serving "the common good." Today the system has no moral compass. Wall Street's insatiable greed has destroyed capitalism from within, turning America's economy into a soulless zombie.

The "Invisible Hand" Adam Smith saw as essential to capitalism in "The Theory of Moral Sentiments" died in endless battles fought by 261,000 lobbyists each wanting a bigger piece of the $1.7 trillion federal budget pie plus favorable laws protecting, vesting and increasing the power and wealth of their special interest clients. Future historians will call this ideological battle replacing democracy the new "American Capitalists Anarchy."

7. America's new competitors: 'Doomsday State Capitalism'

Warning: Everywhere external global competitors threaten America. Ian Bremmer's new book, "The End of the Free Market," is an eye-opener, proof the "Doomsday Conspiracy" of Wall Street, Washington, Corporate American CEOs and the Forbes 400 is sabotaging America from within.

Yes, this greedy, myopic, narcissistic conspiracy is fast making America vulnerable to external economic forces. As a New York Times reviewer put it: Nations like "China and Russia are using what he calls 'state capitalism' to advance the interests of their companies at the expense of their American rivals." Global pandemic?

Unfortunately while America wastes trillions to bail out inefficient too-stupid-to-fail banks, our competition is bankrolling healthy state-controlled corporations to destroy us: "The stakes could be enormous. If the United States and its allies can prevail, their leading businesses will have access to natural resources and growing numbers of middle-class consumers in these nations. But if they fail, the West could be shut out of the very markets where much of the world's economic growth is expected to occur in the next few years."

Since "state capitalists are in a very strong position at the moment," when "the global economy finally recovers, guess which nation is leading the way? Not America, but China where the economy is still tightly controlled by the Communist Party."

Yes folks, this is the new "Doomsday Capitalism" in action. The "Doomsday Machine" is fully operational, will soon trigger the dreaded Great Depression II. Hopefully, this time, trigger a new American Revolution freeing us from this narcissistic, self-destructive "Doomsday Conspiracy."

You can read more about how I see this dark trend unfolding. Read a few earlier columns in my archive, especially: "Death of the Soul of Capitalism: Bogle, Faber, Moore," "The New Capitalist Anarchy and the Lobbyist Bubble," and one about Oliver Stone's new movie, "'Wall Street' sequel is an Omen of U.S. Collapse."

When Stone was asked about why he waited 20 years to do a sequel, he replied without hesitation: "It's about the collapse of capitalism and the collapse of our society." Get it? He sees the endgame of "Doomsday Capitalism" ... where American capitalism, as we know it, really is dead.

[hang ten]

Congress in a ‘Vise’ Over Demands to Create Jobs, Cut Deficit
By Brian Faler

June 15 (Bloomberg) -- Voters are forcing Democrats into an election-year equation they may be unable to solve: How to spend more money to create jobs and at the same time reduce the deficit.

Democrats have abandoned billions of dollars in proposed jobs initiatives to avoid adding to the deficit, risking that a pending bill may now seem ineffective to the 15 million unemployed. To further cut costs, they added more than $50 billion in taxes on buyout managers, oil companies and other businesses, seized upon by Republicans as job killers.

Yet there are few signs Democrats’ contortions to avoid adding to the deficit are winning over voters, especially when the savings are compared with this year’s $1.5 trillion shortfall.

“We’re in a vise,” said Representative Gerald Connolly, a Virginia Democrat who is president of his party’s freshman class in the House. “It’s a real dilemma.”

Private payrolls rose last month by just 41,000, the government reported, a fraction of what economists predicted and one-fifth the prior month’s total. About five people are vying for each job opening, more than twice as many as when the recession began in December 2007, according to the Labor Department.

With a 9.7 percent national unemployment rate in May, lawmakers likely will face voters in November with the worst Election Day jobless rate since it topped 10 percent in 1982. Half of the 14 most competitive Senate races are in states with unemployment rates of at least 10 percent, including Nevada, where Senate Majority Leader Harry Reid is fighting for re- election amid 13 percent joblessness in April.

Payroll Tax Break

Democrats, who call job creation their top priority, enacted an $18 billion plan in March offering companies a payroll tax break to hire people out of work at least 60 days. Lawmakers acknowledged the effort was modest while promising to follow up with more jobs bills.

President Barack Obama urged Congress June 12 to spend almost $50 billion to avoid layoffs of teachers, firefighters and police and help states pay for health care for the poor. “We must take these emergency measures,” he said.

Lawmakers have been stymied by polls showing voters increasingly hostile to the costly initiatives that would do more to bring down unemployment.

“There is no reasoning with the public right now,” said Thomas Mann, a congressional scholar at the Washington-based Brookings Institution. “The public would flunk Economics 101.”

Well-Being

Connolly said the contradictory views show voters’ anxiety over their financial well-being.

“They are less well-off in terms of wealth and financial security today than they were when the recession began in ‘07, so therein lies continued anxiety and uncertainty and consumer hesitation and anger,” he said. “I don’t think that’s irrational.”

The demands whipsawed House Democratic leaders, who last month cut $80 billion from an almost $200 billion jobs plan following complaints from some party members that it would add too much to the deficit. The bill passed 215-204 and now is before the Senate.

Representative James McGovern, a Massachusetts Democrat, accused colleagues of killing important initiatives in the name of “symbolic” savings. Those seeking a real effect on the budget should focus on issues such as Social Security, he said.

‘Good Luck’

“Good luck in going home and saying, ‘no, no, no, look we need to focus on the long term, not the short term -- don’t worry about that,’” responded Connolly. “We’re in a political situation right now that doesn’t allow for that.”

The jobs plan before the Senate has been assailed for costing too much and doing too little. To cut costs, the House refused to extend a 65 percent subsidy to help the unemployed buy health insurance. Many will lose coverage without the subsidy, say unions such as the AFL-CIO.

“It would be devastating,” said Senator Bob Casey, a Pennsylvania Democrat. A family insurance policy costs on average $1,137 per month, according to the Kaiser Family Foundation, more than three-quarters of the average $1,340 in aid to unemployed people.

Economist Mark Zandi said lawmakers should send states between $30 billion and $40 billion. A Senate plan to provide them $24 billion for Medicaid health care for the poor is the minimum needed to “make absolutely sure that the economic coast is clear,” he said.

Odds ‘Too High’

Without the money, which the House cut from its bill, states will probably have to fire another 300,000 employees and the economy may tip back into recession, Zandi said. “The odds are just too high, I think, to take that chance,” he said.

Lawmakers such as Nebraska Democrat Ben Nelson are threatening to oppose the plan because of the cost.

“We can’t just keep borrowing money,” he said.

Nelson’s support is critical to getting any bill through the Senate, which Democrats control with 59 votes. There is still the question of how much more the House will accept.

Pat Griffin, the Clinton administration’s chief liaison to Congress, said the debate leaves Democrats “neither fish nor fowl” on jobs and the deficit. “They’re self-imposing these constraints and I don’t think anybody thinks they’re getting any benefit,” he said. “I want to know who the winners are.”

To contact the reporter on this story: Brian Faler in Washington at [e-mail]

Last Updated: June 15, 2010 00:01 EDT