Is It “Socialism”?



The media portrays government handouts to the
rich and their corporations as “socialism”!


[In the fall of 2008 a severe financial crisis broke out in the U.S., as part of the larger and still developing U.S. and world capitalist economic crisis. Some banks, Wall Street firms, insurance companies, and other corporations went bankrupt, and a great many more were on the verge of doing so. In response to this, the U.S. government frantically started handing out hundreds of billions of dollars to them, and even took official ownership shares in some of them. The media, many Republican politicians, and many ordinary people widely viewed this development as “socialism”. My friend Kirby also took this view. The email exchanges below between myself and Kirby hopefully bring out just why these bailouts for the rich and their corporations should in no way be viewed as actual socialism! (For this Internet posting of this exchange I have also added a small number of the many editorial cartoons from the period of these initial government bailouts which show how people have been and are being indoctrinated by this totally false conception of just what socialism is.) There has also been some very minor editing here of the original emails. —S.H.]


From: jscotth@comcast.net
Subject: Is it “socialism”?
Date: Thursday, September 25, 2008 8:45:36 PM

Hi everybody,

Here’s a letter from my liberal friend Kirby asking me why I’m not in favor of the proposed $700 billion bailout of banks and financial corporations. After all, as a Marxist I’m supposed to be in favor of socialism, right? And this is socialism, right? (I’m trying to keep a straight face!)

-----------------------------------------------------------
Kirby wrote:
     Scott....I would think you would at least lean in favor of a bailout.  I 
     thought I understood socialism, but looked it up to make sure.  It said this:
 
     so’·cial·ism  
     Pronunciation[soh-shuh-liz-uhm] 
     “noun
     1. a theory or system of social organization that advocates the vesting of 
        the ownership and control of the means of production and distribution, of 
        capital, land, etc., in the community as a whole.
     2. procedure or practice in accordance with this theory.
     3. (in Marxist theory) the stage following capitalism in the transition of 
        a society to communism, characterized by the imperfect implementation of 
        collectivist principles.
     
     -------------------------
 
     If the government owns these companies, which is the way the thing seems to be 
     packaged, wouldn't this fall under the umbrella of socialism?  I mean, they've 
     essentially "nationalized" this country's mortgage industry and a large share 
     (not most...but a lot) of the country's financial industry.  WE now own these 
     companies.  The more the government owns, and the less the private captialists 
     own, seems to me to be the direction you would want to see us move.   
     
[End of Kirby’s email]
-----------------------------------------------------------

Have you ever been talking about something for a really long time and then had somebody ask a question that shows they have no conception whatsoever about what you’ve been going on about? Well, Kirby, for me this is one of those times.

I’ve also linked to an article from the “Financial Times” web site describing all the yelling and screaming going on in Washington D.C. as some doctrinaire Republican Congressmen condemn Treasury Secretary Hank Paulson (the former CEO of the Wall Street firm Goldman Sachs), and Federal Reserve chairman Ben Bernanke, among other top Republicans for being “socialists”. (I suppose that includes Bush too, though not even very many Republicans pay any attention to him anymore.)



Has George W. Bush become a “socialist”?!


So of course many people, and not just Kirby and Republican politicians, have some very different notions of what “socialism” is as compared to our Marxist conception. In fact, most people at first have no idea what we’re talking about when we refer to socialism or communism. While I have been trying to make clear what genuine socialism and communism are for decades to those around me, it seems it is time for all of us Marxists to try once again.

The first thing to point out is that different people often mean quite different things when they use the same word or phrase, and this is especially the case with political words like ‘socialism’, ‘democracy’, and such.

I would actually pretty much agree with the definition of ‘socialism’ you quoted above, provided it is properly understood! (And that of course is the real issue, what it means to “properly understand” the definition.)

The same words can be understood differently by different people, especially people with different class perspectives. And that is the real problem with that definition of ‘socialism’ that you gave—it tacitly assumes that social classes do not even exist, or that—if they do exist—they do not matter here at all. There are no workers and capitalists, only one big community of homogeneous people. Thus if that community of equal individuals collectively owns the means of production, the factories, machinery, raw materials, etc., then this is “socialism”. (Talking as if classes do not exist is of course a quintessential bourgeois class viewpoint!)

Under this conception of “socialism” there is no mention of who benefits from that supposedly collective ownership. Suppose you and I kick in some equal amounts of money and decide to collectively buy and own a house. But I get all the benefit from the arrangement. If I want I can move in (but you can’t), or if “we” rent it out all the rent money comes to me. (You can pay the taxes, though.) Legally, in some sense, we may both own it (at least until you look at the fine print or the actual facts of the situation). But would you really call that anything like genuine collective ownership?

There is no such thing as genuine collective ownership unless the interests of everyone involved are basically the same and unless the benefits (and obligations) of that ownership are at least more or less the same for everyone involved. Anything else called “collective ownership” is actually a lie, a fraud, or a trick.

What are social classes, anyway? They are (in brief) groups of people with a common relationship to the means of production. One person (a capitalist) may own a factory, while another who—having no ownership interest in any means of production—may have no choice but to work for the owner of that factory. Classes, that is to say, are groups of people with common interests with respect to the means of production, and groups which share the same benefits and/or obligations from that common relationship. Therefore, when you analyze it, the concept of collective ownership is actually inherently connected with that of social classes as long as we are still talking about class society (a society where different social classes still exist).

(If that was too brief I may need to get into this point further, since obviously many people in this society are not at all clear about what social classes even are, let alone the different collective interests that people in different classes necessarily have.)

So I would agree that socialism (when viewed as an economic system—it is also a political system) involves the collective ownership and control of the means of production “in the community as a whole” as long as that community consists primarily of the working class (or proletariat) and that all members of other classes are forced (yes, I said forced, on penalty of starvation if they don’t go along with it) to also become workers in the objective sense (even if ideologically they are still capitalists or whatever).

The basic economic principle of socialism is “From each according to their ability, to each according to their work.” (Naturally there are numerous reasonable exceptions or adjustments, for children, sick people, retired people, etc.)

The part about “to each according to their work” is where the benefits of collective ownership of the means of production are talked about. There is a lot involved here (which I won’t try to get into unless you want to). But, just for one point, in the socialist view intellectual work is in general worth no more to society than any other work. (All forms of work are necessary, or else they should be abolished.) Thus under socialism no Bill Gates is ever going to get $300,000 per hour on the grounds that that “accords with the work” he supposedly does.

(We are talking about socialism, and not communism. But just for reference, there is a different basic economic principle in communist society than there is in socialist society: “From each according to their ability, to each according to their needs.” Thus the support of children, sick people, retired people, and such in socialist society—even if they do no or only limited work—is actually a communist modification of the basic economic principle of socialism. For Marxists the goal is to further transform socialist society into communism step-by-step as that becomes possible over time through the expansion of production and—more importantly—the moral/political education and transformation of human beings.)

The next point to think about are the several possible forms of capitalist ownership of the means of production. Originally, this was primarily in the form of individual capitalists, or small groups of partners, owning factories and companies. Over time the corporate form of “private” ownership become dominant (primarily in the past century or so). The corporate form of capitalist ownership may be considered to be a form of collective ownership, but not everybody is in the “collective”! Who benefits from this collective ownership? Everybody who works for the company? Well, if they get paid they are allowed to still exist and so they benefit to that limited extent. But those who primarily benefit from the existence of the corporation are those who own it (because they split up the profits) and/or those who manage it (because managers in modern corporations in effect loot them to a considerable degree). This much should be obvious.

But there is a broader form of collective capitalist ownership of the means of production, namely ownership by the state. The classic example is the postal system. Why is this really collective ownership by the bourgeoisie and not truly collective ownership by everyone in the country? It is for this reason: The capitalist class controls and runs the state in their own interests, not in everyone’s interests. Thus anything owned by the state is in effect collectively owned by the entire capitalist class and collectively operated by management selected and supervised by their government.

In the Marxist view all states, all governments, that have ever existed are class states, that is, governments which exist to enforce the rule and interests of one or another class. Of course in the capitalist era, almost all of them (so far) have been bourgeois (capitalist) governments. Thus to understand why Marxists laugh at the notion that the post office or any other “nationalized” enterprise is really “socialism” you also have to also understand the essentials of the Marxist theory of the state. (The most basic documents in this regard are by Lenin, starting with his pamphlet “State and Revolution”.)

One of the easiest ways to tell a real Marxist from a so-called “social-democrat” (who in reality is neither a socialist nor truly democratic) is to look at the person’s view about nationalization by the bourgeois state. In our view it is only the phony “socialists”, like those who call themselves “socialists” in Europe, who favor nationalization of industries within the bourgeois state.

But it is not only the “revisionists” (i.e., the poor and misleading name we have for phony Marxists) who favor such a thing; sometimes it is the bourgeoisie itself (or a section of it). Have you ever wondered why the post office is government owned and operated (even though they now call it semi-private)? Or why almost all fire departments are “socialized” (in the vulgar sense)? Or why most streets and roads are? The answer is that the bourgeoisie has never been able to get these sorts of things to work well when they are run by private companies. True, they are now experimenting with private prisons, and few private toll roads, and so forth. But these are usually pretty bad in one or another respect and generally quite unpopular with most of the people. It is a simple fact that some things are or should be run as “natural monopolies” (like the post office) and/or providing universal access (like streets and fire protection). If your neighbor doesn’t subscribe to the private fire depart ment service, what does that mean for your house if his catches fire?!

The other reason the bourgeoisie sometimes favors nationalization (despite their ideological identification of it with “socialism”) is that this is the only effective collective means they have to rescue important or even essential private industries and services. Under capitalism it is pretty important to have banks, for example, so if they all start to fail some collective action simply has to be taken to rescue them—contrary ideology or not!

OK, now let’s look at your comment again, sentence by sentence:

“If the government owns these companies, which is the way the thing seems to be packaged, wouldn’t this fall under the umbrella of socialism?” — No! It falls under the “umbrella” of state capitalism.

“I mean, they’ve essentially ‘nationalized’ this country’s mortgage industry and a large share (not most...but a lot) of the country’s financial industry.” — Yes they have, temporarily. These will eventually be sold back to private capitalists for a song, once they are viable again.

We now own these companies.” — Utterly ridiculous! “We” don’t own them after they’ve been nationalized any more than “we” did before. (Without a class perspective, you’ll never be able to understand this, however.) The only thing that has happened is that the capitalists have collectively (through their government) taken control of these enterprises for a while, on behalf of smaller collections of capitalists owning these corporations who couldn’t keep them going profitably.

“The more the government owns, and the less the private captalists own, seems to me to be the direction you would want to see us move.” — Nonsense, at least under this capitalist system. To the (class-conscious) proletariat it doesn’t matter in the least which capitalists own which corporation, nor whether they all own some of them collectively. And working at the post office is just as bad (if not worse) than working for Bank of America.

In fact nationalization is actually quite a bad thing from the point of view of popularizing the ideas of revolution and socialism because people tend to get a grossly erroneous idea about what socialism even is (as in your case).



Yet another slander of actual socialism; the
ruling-class political indoctrination never stops.


The proposal to give a trillion dollars (plus!) to various financial corporations ($400 billion or more so far, with another $700 billion soon to come) is a direct give away of social wealth to a small number of capitalists who own Wall Street gambling houses and other “financial” operations. It is not really even in the interests of all the other capitalists, let alone of the working class.

There are much more effective means of keeping the capitalist economy going (for a while), such as massive public works programs. It is probably true, however, that they won’t do that; and then if they also don’t do extraordinarily wasteful giveaways like this current scheme their current financial crisis will more quickly worsen, and the overall economic crisis which has been developing for decades will more likely develop into a full scale depression quite soon. (It is inevitable before too long in any case.)

Unfortunately, it will be the masses of workers and poor who suffer most in this crisis, as is always the case. But more and more bailouts and handouts to the thieves on Wall Street and the super rich in general is definitely not the answer (as far as the interests of the working class is concerned). The people must start to come to understand that we are all in for some very seriously bad times that will stretch on for decades (though there will be some secondary ups and downs within that).

There is only one long-term solution to this overall problem for the people: get rid of this fucking capitalist-imperialist system!

Scott




OK, this one's funny, and has a germ of
truth to it! But even here the cartoonist
seems to falsely assume that “socialism” just
means something like government hand-outs.





[Kirby replied to my email above, and then I responded to him (as below), inspersing my replies within his comments. —S.H.]


From: jscotth@comcast.net
To: kirbywiese@yahoo.com
Subject: Re: Is it “socialism”?
Date: Friday, September 26, 2008 11:30:15 AM

Hi Kirby,

I’ll intersperse my replies after each of your paragraphs...

     -------------- Original message ----------------------
     From: kirby ...

     Scott....as usual (with your stuff) I started reading this carefully...found 
     my interest flagging, skimmed through most of it, and then tried to pick up 
     the points you were really trying to make when I got to the end. 
     

1) When two people have very different views it is necessary to go on at some length to clarify the differences.

2) If you don’t read my replies you will not be able to understand our differences.

3) This current reply of yours shows that you do not at all understand my position.

4) Of course, if you are not interested in my position, there is no need to read my responses. But then, why do you bother writing to me at all? What is the point?


     I knew when I prodded you that the proposed takeovers weren't technically 
     socialism.  But trying to keep things at a meta level, without all the "messy 
     details", the 100,000 foot level as managers are fond of saying
     

1) It is not a matter of these proposed government takeovers not “technically” being socialism! They are not socialism (in the Marxist sense) by any stretch of the imagination!

2) What you are talking about as viewing things from a high level and avoiding the messy details in reality means that you are refusing to get to the essential differences in our conceptions of “socialism”.


     "Pure" capitalism would let these firms fail.
     "Pure" Marxism would have them owned and run by the employees.
     

1) Both points are utter nonsense!

2) So-called “pure capitalism” is simply your (and other people’s) erroneous ideological conception about what capitalism really is.

3) You fail to understand that the capitalist state (a state run by the capitalist class in their own class interests) is an integral part of the capitalist system. This is all the more the case in the capitalist-imperialist era (since the late 1800s).

4) There is no reason why the capitalists cannot or “should not” (from their perspective) use their state to collectively try to resolve major problems with their socioeconomic system. (Why even have a state, if you are not going to use it to advance your class interests?)

5) In talking about “‘pure’ Marxism” you apparently really mean to be talking about socialism. (You tend to constantly confuse the two things.) Socialism is one political-economic form of society. (Capitalism, communism, feudalism, slave society, are others.) Marxism is not a form of society; it is a theory about many different forms of society (including capitalism), and how they develop over time.

6) What you describe here as “pure Marxism” sounds more like what we Marxists would call syndicalism. Syndicalism is the theory that each enterprise (factory, etc.) should be totally controlled and run by the workers at that enterprise alone, and implies that there needs to be no overall production plan for society, no centralized aspect to the economy. This is not at all what we Marxists put forward. (We argue that there must be a combination of centralized planning and decentralized administration by the workers in each enterprise or factory in accordance with that central plan.


     It looks like they will end up being owned either in whole (like Freddie Mac) 
     or in part by the federal government.  They have, in essence, been nationalized, 
     quite like Chavez did to the oil companies in Venezuela and Castro did to all 
     the industry in Cuba.  Did Castro ever turn over all the businesses to the 
     people that actually worked there?  Did Lenin?  Did Mao?  
     

1) Most of these financial concerns are only temporarily being nationalized (i.e. brought under control of the capitalist state). As soon as they become viable again (i.e., after huge bailouts) they will be sold at a bargain to individual groups of capitalists again. The exceptions might be Freddie Mac & Fannie Mae, which might continue as government entities (they have always been “government sponsored entities”) because no individual group of capitalists will want to take on the enormous risk involved with them.

2) My own view (not every Marxist agrees on this) is that the regimes in Venezuela and Cuba are not actually socialist countries. They are instead anti-imperialist (i.e. anti-U.S. imperialist) regimes controlled not truly by the working class in those countries, but by radical bourgeois nationalists who generally have (so far) a paternalistic attitude towards the masses. (This is a big topic in itself which we can get into further on another occasion if you like.)

3) In asking if Castro or Lenin or Mao ever turned over all the businesses to the people who actually worked there, you are once again confusing socialism with syndicalism. But it is true that great efforts were made by Lenin and Mao to actually bring the workers in each workplace into the management. In China, following the Cultural Revolution for example, all enterprises were run by three-in-one committees, made up of appointed technicians, administrators, and elected workers. This varied somewhat in different types of enterprises; in hospitals for example the committees were made up of doctors, workers and patients’ representatives.


     So this takeover/bailout/whatever is neither Marxism nor Capitalism.  It is 
     BETWEEN those two.  The move is SIMILAR to actions taken by other socialist 
     leaning or Marxist leaning governments.  Somewhere in your 10,000 word 
     explanation you might have said what you consider this action to be CLOSEST 
     to but, as I said, I lost interest.  
     

1) This is utter crap! You have no idea what you are talking about!

2) The “takeover/bailout/whatever” is in fact the temporary takeover of failing financial enterprises by the capitalists as a whole via their government.

3) As I said in my last email, you can’t possibly understand this because you do not even think in terms of social classes.

4) The nationalization of these banks and other financial outfits is indeed more or less the same thing as the nationalization of the steel industry in Britain by the Labour Party after World War II. But despite its name, the “Labour Party” was just a liberal reformist bourgeois party which ran the government in the interests of the capitalist ruling class. After the worst performing steel plants were closed down and the debt paid off from tax money from the workers, the remaining steel plants were eventually sold back to private capitalists again. This is the way “nationalization” generally works in bourgeois society.

5) You lost interest because of the length of my replies. How would you characterize someone who asks a question but then will not stay to hear the answer because the situation is a bit complex? I would say that they are not really serious in wanting to understand the matter.


     My point was that I would have thought that you would be pleased with ANY 
     move that took the means of generating capital away from the capitalists. 
     If your point (somewhere in that "explanation") was that the companies 
     should just be allowed to fail, then that is a very "pure capitalist" 
     position.  I wish I had the patience to wade through your stuff.  I'm sure 
     I would gain a better understanding, but I'm not MOTIVATED, really, to 
     understand it.  So you have to feed it in smaller, more digestible chunks.
     

1) The fact that you thought I would be “pleased” by the government handing out another trillion dollars of the wealth created by the working class to financial pirates shows you have no idea what socialism is or what I have been talking about all these years. You will not seriously investigate the matter, even by reading what I write, let alone by reading a little of Marx and Lenin. As you say, you are not motivated to do so. So you will never come to understand what socialism and communism really are.

2) You remind me of the journalist who demanded of Richard Feynman that he explain in a couple sentences why he deserved to win the Nobel Prize. Feynman, said something along the lines “Listen buddy, if it could be explained that briefly I wouldn’t have deserved the prize!”

3) If you don’t want to hear the answer, don’t ask the question!


     I would be willing to bet there has never been even one successful leftist 
     revolution (whatever you want to call the system) where the majority of the 
     people knew or cared about all the fine points of the political/economic 
     system they were fighting "for".  The intellectuals, I hope, understood it, 
     but not the vast majority of people.  They only knew they were fighting to 
     make their lives "better", however they understood that.  Remember, 
     statistically, half the people in the world are below average in intelligence.  
     That's just a fact. 
     

1) Kirby, do you really think that we revolutionaries are so naive as to expect everyone to be experts in Marxist theory? But actually, the most basic points of Marxism, that it’s right to rebel, that the workers should rule society, that capitalism sucks, and so forth, can easily be grasped by millions of people once their own experiences help confirm what the revolutionaries around them (if there are any!) are saying. They will then increase their understanding as further experience and education takes place.

2) Even the illiterate masses in 1917 Russia had no trouble grasping that those who favored continuing the world war were their enemies, and that their own organizations—the Soviets (“councils”) of workers, peasants, and soldiers—represented their own interests.

3) Notice that despite your own demands to keep things brief that you also tend to extend the conversation to many other matters. This is a factor that leads me to have to go on at further length. You want to present ill-informed opinions which assume many false things, and then object if I try to get into all the confusions and erroneous assumptions behind your off-hand remarks. Kirby, this is not the way to have a serious discussion.


     I’ve mentioned this to you on numerous occasions, but it is probably worth 
     mentioning again.  If you want to educate or influence people you need to 
     communicate at the level they are ready to handle or willing to listen to. 
     I know you exchange ideas with several students, and I’m sure they parse 
     your every word, but I think you have turned off some of your (other) 
     audience over the years because you offer the same explanations you do to 
     the scholars.   
     

1) People like you are not the most receptive to revolutionary ideas, and we Marxists don’t focus on people like you. You initiated this discussion, and I only responded to your question. I know full well it is hopeless to try to win you over to Marxism! But you are my friend, so I tried to explain my views to you when you appeared to be asking for them. (Plus I send my responses to others who might actually be able to learn something from them.)

2) Now you object that my response is not appropriate. For some among the masses this sort of intellectual response is in fact appropriate. For many others, it is too demanding. Even for those who read books about physics and the brain, apparently.

3) You are like someone who asks “Are you still beating your wife?” and will not accept any answer other than “yes” or “no”. Many questions cannot be simply answered. I thought you might understand that.


     Given that we only have the TERMS Marxism, capitalism and socialism to work 
     with, it seemed that this move was more socialism in nature than either of 
     the others.  If there is another term for it, just give it to me, without 
     all the explanation.  
     

1) Ah, only one of these three words is allowed? OK, it [the government bailout] is capitalism, pure and simple. I hope that explains things to your satisfaction!

(If I were “allowed” to say anything more I would talk about state capitalism, how the capitalist class runs the state in their own interests, and all the other things I’ve been trying to bring out. But you will have none of that. “Just a yes or no answer, please!”)

Getting pretty damned impatient with you too!

Scott

bcc: Others




And yet another claim that the semi-nationalization
of the AIG insurance company is “socialism”.





[Kirby responded to the above as follows:


From: kirby ...

Now — this is a reply that I can actually read from beginning to end, and not get lost in the weeds. And I understand your frustration...but this actually communicated something to me and made me understand the situation in a different manner.

You should keep reminding yourself that I am more on your side than against you. But I never will be a Marxist....that much is correct....because you have never convincingly presented me with an argument that dispels my single most important objection to Marxism — it’s failure to account for “human nature”. And it’s not that I’m that supportive of capitalism but, to its credit, it understands human psychology and motivation (crappy as it is).

But, if you can keep your answers as succinct as this last exchange — even though you think you failed in getting over to me as much information as you would have liked to — then maybe you can take a crack at this question:


     1) The fact that you thought I would be "pleased" by the government
     handing out another trillion dollars of the wealth created by the 
     working class to financial pirates shows you have no idea what socialism 
     is or what I have been talking about all these years. 
     

The government has already taken this trillion dollars of wealth. It’s not in our pockets anyway. Better it go to these assets then to the war in Iraq or some other stupid Bush idea. But the question is what financial pirates are you talking about? The bill has not been passed yet, but it seems that what they are attempting to do is to “buy” those financial institutions by insuring their debts with federal money. The way I understand it is Company A owes Company B a billion dollars it can’t pay. Company B is depending on getting A’s money so that it can, in turn, pay Company C, and so on an so on. If A can’t pay then a whole domino line of companies can fall, putting millions more people out of work and creating all sorts of financial havoc. I didn’t think the trillion dollars was actually going to pay anyone as much as it was to keep that first domino from falling. Where is my thinking wrong on that? Who is going to get that money?

By the way, I should point out that Maria and myself, like about half of all Americans (according to polls today) think that there should be no bailout of any kind and the chips should just fall. And I believe Democrats, Republicans and Independents are all about equally divided on this...and that includes the politicians. They all have their calculators out, not to count bailout money but to count electoral votes. If this election was leaning strongly toward McCain I doubt the the Dems would be too supportive of a bailout and, likewise, if Obama was a shoo-in the Republicans would probably just hand over the whole mess as is. But neither side is sure who’s going to win and they’re trying to hedge their bets in case it is their guy. I don’t think they give a damn about us.

So, anyway, can I ask a short answer to who is going to actually put a trillion dollars in their pockets (but a longer answer than just “capitalists”)?


[End of Kirby’s letter.]




Some people think the U.S. is already “socialist”,
even before the “Marxist” Obama is sworn in!
(Ignorance is rampant in America!)





[Scott responded to the above as follows:


From: jscotth@comcast.net
Subject: Re: Is it “socialism”?
Date: Friday, September 26, 2008 7:37:27 PM

Hi Kirby,

You’re not going to like this at all, but once again there is no satisfactory short answer to your question! At least none that is really both intelligible and convincing. Why not? Because the situation is itself very complicated, and because everybody talking about it is actually, to varying degrees, either wrong, lying, or else speaking elliptically much of the time. Therefore to really explain what is going on requires the unpacking of a great deal of this “short hand for the truth” as well as “outright lies or false assumptions about what the real situation is”. This simply cannot be done in a couple sentences.

But anyway, since this is what you want I will give you the almost uselessly brief answer to your question, and then if you have any further questions that this cryptic and apparently propagandistic answer might give rise to, we can get into them later.

Your question was “who is going to actually put a trillion dollars in their pockets” if this government bailout goes through? The answer is: The banks and other financial corporations (and their owners and those they owe money to) whose books already say they have this money (or equivalent assets), but which in reality they do not. In short, the idea is to bail out fools, con men, frauds, and suckers by giving them the money so that they will really have the assets that they already falsely claim to have. No physical money will likely change hands, and nobody nor group of people will have their pockets directly stuffed with cash. But the government will then pay off debts that these corporations and their owners now owe. Thus it will still amount to the same as handing out a trillion dollars to Wall Street bankers and their buddies. And in the end that gang of thieves will actually be a trillion dollars richer than they really are right now.

That is actually a quite correct answer to your question, but it is the sort of answer that most people will not be able to understand and fully appreciate unless they know a whole lot more about the situation. To most it will sound like “leftist hyperbole” or such. This is because they do not have a deep understanding of the situation that would actually show these words are not in the least any exaggeration.

One area where elaboration of the answer is obviously desirable is with regard to precisely which banks and financial corporations will benefit from this handout. The short answer here is that Henry Paulson isn’t saying yet! (Largely because he isn’t sure yet himself.) But it will likely be the most important big Wall Street firms, other important national banks, Fannie Mae and Freddie Mac, and other major holders of mortgages which have been “securitized” (artificially turned into bonds or other “debt instruments”) in one way or another, and definitely including foreign banks and “Sovereign Wealth Funds” (i.e., foreign governments, such as China).

The reason that foreign banks and SWF’s cannot be left out is that these days the U.S. is greatly dependent on massive flows of foreign funds into U.S. government debt in order to keep the economy above water. If the U.S. does not make sure these foreigners don’t lose money in things like Fannie Mae & Freddie Mac bonds, then there would likely be a massive withdrawal of foreign funds from the U.S., the dollar would sink like a rock, and the whole international financial system could collapse. The interesting thing is that this might happen anyway because of the huge new debt the U.S. is piling up now. Those in the know, like Bernanke, are scared to death!

The main thing your question seemed to suggest to me is the notion that really, when you get right down to it, nobody is actually going to benefit from this bailout. That is, you seem to imply that no human beings will actually be putting money in their pockets. This conception is fundamentally wrong; many already rich individuals will benefit tremendously.

It is true that this is a bailout, and not an out-of-the-blue giveaway. Suppose some big gambler in Vegas runs up a debt to the house of $100,000. Suppose it is now time for him to settle up with the casino, but he doesn’t have the money. But suppose he talks a rich friend into giving him the hundred-thou to get the casino off his back. Is he a $100,000 richer? In an obvious sense he is; before the gift his net worth was minus $100,000, and now it is zero. That is much better! True he still doesn’t have any money in his pocket, but his legs aren’t broken either.

However, most of those individual people who will ultimately benefit from this government handout are very rich, and will still be rich even if the government changes its mind and they take big losses on bad mortgages. In that case they will just be much less rich. And a few of them might even be broke. But personally I have more sympathy for the Vegas gambler than for those Wall Street assholes.

*       *       *

I am tempted to get into a lot of other things you raised, including the business about “human nature” which I claim to have long ago already answered adequately. But I’ll save that reprise for another time.

For now I’ll just address one other point about the bailout. You said that the government “has already taken this trillion dollars of wealth” from the taxpayers. This is not correct (although there is a secondary element of truth to it).

The government does not now really have the trillion dollars or so that it is proposing to pay out. There is no government account somewhere with a spare trillion dollars in it, either from taxes or from borrowing or from anywhere else!

But governments, unlike us poor citizens, can create money out of thin air when they choose to do so. This is where that trillion bucks will actually come from when it is needed. The simple way to look at it is that when they need the money they just print it up. Actually the method used is generally slightly more complex but amounts to the same thing. (Typically the Treasury Department creates and sells new government bonds to the Federal Reserve. Where does the Fed get the money to buy the bonds? It either just prints it, or more typically, just makes a bookkeeping entry saying that the government now has an additional positive balance on its books.)

At this point the Fed usually tries to sell those new government bonds back to the public. If it can, then the Federal debt goes up by a trillion. But if it can’t, then the currency is debased (inflated)—although the actual inflation might take a while to fully materialize.

It may seem that this new debt is therefore harmless to the taxpayers and the rest of the public. But actually it is not. The economy is kept going by ever-increasing debt (consumer and government). But the more debt there is, the less possibility there is for getting away with further increasing it. In short, all new government debt (as well as inflated currency) simply speeds up the coming economic “end times” (to use a religious metaphor I’m sure you’ll appreciate!).

It is so very, very easy—and even apparently painless!—for the government to massively increase its debt. But in the end it will hasten the developing disaster.

And the worst part of all is that this bailout will not even really address the ever more serious developing economic crisis! Yes, it conceivably might (but is by no means guaranteed to) put us back where we were 4 or 5 years ago, before the housing bubble got quite so extremely inflated. But this gain would come only by making the underlying debt contradiction all that much worse.


Scott





[Kirby responded to the above as follows:


To: jscotth@comcast.net
Subject: Re: Is it “socialism”?
Date: Friday, September 26, 2008 11:25:47 PM

Also a reply that is concise and understandable.

So, if the bailout does not happen, and the firms they are currently trying to “save” go under, what happens then? I’m not really in favor of the bailout, but neither am I in favor of living in the street, along with millions of other folks, looking like Depression Era people. And of course the government is using the “fear factor”...if we don’t bail out these couple of firms the whole economy collapses (they say). And while I have my doubts about that, I think my reason for not bailing them out may not be the same as yours....that is, your motivation may be that everything will collapse. So, again, what happens if they don’t go through with the bailout?


[End of Kirby’s letter.]





[Scott responded to the above as follows:


From: jscotth@comcast.net
Subject: What if the Wall Street bailout doesn’t happen?
Date: Saturday, September 27, 2008 5:43:30 PM

Hi Kirby (and everybody),

The short answer about what is going to happen if the $700 billion bailout to Wall Street doesn’t happen is “more economic hell”. But the short answer about what will happen if the bailout does go through is also “more economic hell”. Even a lot of bourgeois economists are already admitting this and starting to prepare the public for this. (See for example James Cooper’s column in the current issue of Business Week, or the article “What $700B won’t buy: a quick fix for the economy” on the Forbes web site at http://www.forbes.com/feeds/ap/2008/09/27/ap5479284.html.)

Moreover, it is true that if the bailout does not go through, the economic situation will be notably worse than if it does (or at least notably worse sooner than if it does go through)—assuming that the government doesn’t do something else instead to mitigate the economic problems. But what this leaves out is that:

1) The bailout is really treating a symptom of the larger problem, not the larger problem itself.

2) There are much more effective ways of treating the larger problem (for a while!).

3) Nothing the government can possibly do will prevent much more serious economic disaster eventually, even if they are smart enough (which I am beginning to doubt) to put it off for quite a bit longer.

It is not true that I oppose the Wall Street bailout(s) on the grounds that I think they will prevent economic collapse which will otherwise occur, and I “want” the economy to collapse (to punish the rich for their sins against the people, or in order to create the conditions for revolution, or some such thing). It is always the working class and the poor who suffer the most during recessions and depressions and I do not wish that on them (or us!). But my Marxist economic theory leads me to predict that this depression will happen relatively soon in any case, massive bailouts or not, and whether anybody is foolish enough to “want it to happen” or not!

*       *       *

The first point is that the government is attempting to treat a symptom of the basic problem, not the basic problem itself. Think of it this way: There are really two crises at the present time, this sudden new financial crisis (which only began last year when the housing bubble started to pop), and the underlying economic crisis which has actually been developing for decades (since the early 1970s) but which seems to be recently taking a qualitative turn for the worse.

This basic economic crisis is what Marx called an overproduction crisis; that is, an overproduction of goods (and of capital itself) compared to what the market can support (and of course not overproduction in relation to what people want and actually need). In desperate brevity, the capitalists can’t possibly pay the workers enough to buy back all that they create, so the capitalists extend them ever more credit. In addition the government itself buys up more and more goods (especially weapons) which also helps keep the process going for a long time. When one or more of these debt bubbles starts to pop (as it eventually must) it appears that the basic problem is in the financial sphere, but really it is in the fundamental workings of the capitalist system itself which requires these bubbles to be created in order to work at all.

What the government is now attempting to do is to stop this housing bubble from continuing its collapse—not (primarily) by helping out the home buyers who can’t meet their mortgage payments—but by bailing out the banks and speculators who bought these mortgages which are now going bad. (Well, actually, as you know, they didn’t buy the mortgages themselves, but bond-like investments which were supposedly “backed up” by those bad mortgages.) So the government wants to bail out the middlemen. Their logic is that this will then allow those middlemen to buy up new mortgages, which will allow more people to buy houses, and so forth. But this only makes sense if those middlemen are still inclined to buy up more mortgages (which they definitely are not right now!), and if there are a lot of people out there who can qualify for and obtain new mortgages (which given that the economy is sinking further into recession is not the case).

Which leads into my second point, that there are much better ways of addressing the current problem. If the financial crisis rests on the fact that many people cannot afford to keep up with their mortgage payments, then the government could simply give them the money to do so! I know this offends the “Protestant ethic”, but it would actually work better (and even cheaper) than the current Wall Street bailout plan would. In fact, the $1.4 trillion or so being squandered in these current and proposed bailouts is such a big amount that the government could actually use it to buy outright all the homes with bad mortgages and just give them to the people for free! (Of course that will never happen.)

Note that direct bailouts of those “homeowners” with mortgages they can’t keep up with would also bail out the bankers and Wall Street gamblers. (But much more of the benefit would go to ordinary people.) Since the mortgages would then be “good” again (or even completely bought up by the government), the derivatives (securitized mortgage bonds) would also be made good. Of course the speculators and gamblers could still go on to create new bad bonds, CDOs and all the rest based on new mortgages, dubious credit card debt (which they have already started to do), and so forth. “Wall Street” exists in order to do these sorts of things! New regulations might rein them in a wee bit for a while, or slow them down slightly, but they will never stop them completely.

All of these alternate suggestions, as well as the current $700 billion scheme, are different forms of Keynesian deficit financing for the purpose of keeping the economy going for a while longer. All them create massive new amounts of government debt (which cannot keep expanding forever). But some of them are more rational than others. Even the method of just sending out “tax rebates” to every taxpayer is much more rational than the current scheme. The Bush tax rebates of $600 per person last spring, for example, either postponed for 6 months the recession now developing, or else at least greatly mitigated its initial stage. Given the current financial panic, it would probably take rebates maybe twice as large to do the same thing for another half-year, but that would still be only 20% of the $700 billion Wall Street bailout cost.

None of these alternatives, nor the current plan, will actually solve the problem once and for all. They are all really just short-term “solutions” to what is an on-going long-term problem. And that is my third point. Even if the government does manage to resolve this current financial crisis in one way or another, by blowing another trillion dollars or so, in a short time, a few years at most, a new financial crisis will break out. As I said earlier, these financial crises are merely symptoms of the underlying overproduction crisis which is nearing the point of developing into a full-scale depression.

The fact that we have reached the point where government “rescue” plans to keep the economy going are in the trillion-dollar-plus range should make it very clear that the “end is near”. An economic collapse and new depression is not all that far away, no matter what they do.

And on that happy thought, I think I’ll go get a beer and supper!

Scott

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