PAUL B. FARRELL
The shocking evolution of disaster capitalism Warning: McCainonomics channels inner Friedman/Reagan/Bush/Gramm
By Paul B. Farrell, MarketWatch Last update: 7:23 p.m. EDT Sept. 30, 2008
ARROYO GRANDE, Calif. (MarketWatch) -- John McCain's a street fighter and may well end up the 44th president of the United States. What's his secret strategy?
What's the new McCainonomics going to look like if he takes office?
Many of his detractors, both conservative and liberal, dismiss him, suggesting that McCain's economic policies reflect bizarre campaign tactics, that he's just a "grumpy old man" forced to use endless spur-of-the-moment desperation tactics and Hail Mary passes because his ratings are sagging.
What if they're wrong? What if there's a brilliant method in his [apparent] madness?
What if his earlier admission that he "doesn't understand economics" and all his digs that his opponent "doesn't get it" aren't what everyone thinks they are? Lately, I'm beginning to feel that his game of playing dumb is actually a clever part of an overall strategy and that McCain really is a brilliant economist as well as political strategist.
So today let's be a surrogate economic advocate for McCainonomics. Keep an open mind because it would be a serious mistake to dismiss the power of McCain's strategy.
To understand McCainonomics begin by assuming that McCain's bizarre behavior is actually not a wild series of unrelated, impulsive, seat-of-the-pants decisions, but part of a long, proud political history that may ultimately shock everyone at the last moment and propel him into the presidency. How? The answer lies deep in the DNA of McCainonomics and earlier conservative economic theory.
Let's examine the historical "blood lines" and wisdom of McCainonomics. It's actually quite simple once you realize that McCain is "channeling" the inner vision of four very-related economic giants of modern world history that preceded him in this lineage:
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Nobel economist Milton Friedman, author "Freedom and Democracy"
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America's great conservative President Ronald Reagan
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President George W. Bush, disciple of Friedman and Reaganomics
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Former Texas Sen. Phil Gramm, master architect of McCainonomics
The significance of the McCainonomics historical linage is obvious in Naomi Klein's "Shock Doctrine: the Rise of Disaster Capitalism," a book I reviewed last fall, calling it "the most important book on economics in the 21st century." Her book is a "challenge to the central and most cherished claim" of "disaster capitalism:" That "the triumph of deregulated capitalism has been born of freedom, that unfettered free markets go hand in hand with democracy."
The current global credit meltdown is emerging as contrary proof that, as Klein says, exposes a "unique incompetence and cronyism" in the last eight years that "merely represents the monstrously violent and creative culmination of a fifty-year campaign for total corporate liberation" and a new conspiracy with government
First. Friedmanomics: Nobel Economist Milton Friedman. 1962-1980
Friedman's been the guiding light of conservatism since publishing "Freedom and Democracy" in 1962. His core economic principle is simple: "Only a crisis produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around."
Friedmanomics has been a global driving force for decades: Pinochet's 1973 military coup in Chile. Tiananmen Square. 9/11. The Iraq War. Asia's tsunami. Hurricane Katrina. Today's housing-credit meltdown.
Klein says all "believers in the shock doctrine are convinced that only a great rupture -- a flood, a war, a terrorist attack -- can create the vast, clean canvasses they crave ... to begin remaking the world" and make themselves personally very rich. Klein believes that Friedmanomics principles are, unfortunately, not only extremely toxic to a nation's economic and political future, they deaden the moral conscience of its people.
"The history of the contemporary free market was written in shocks," says Klein, opening the way for action on Friedman core principles "privatization, government deregulation and deep cuts in social spending."
Today, with the current credit meltdown we see the dark-side endgame of Friedmanomics. Friedman's free market "disaster capitalism" has been a disaster for America and around the globe. It is fascinating in theory, but self-destructs in the real world of everyday politics and economic policy-making because greed inevitably goes to excess in unregulated free-markets.
Second. Reaganomics: President Ronald Reagan. 1981-1988
The great conservative president, Ronald Reagan, is best remembered for Reaganomics, his version of Friedmanomics. He neatly summarized this political/economic theory in his famous quote: "Government is the problem, not the solution." And at least in theory, this political ideology means less taxes and smaller government. In practice, not so.
Klein tells us "disaster capitalism complex is on par with 'emerging markets' and information technology booms of the nineties. In fact, insiders say that the deals are even better" during the housing and credit booms. This is an "ideological crusade that has culminated in the radical privatization of war and disaster ... an ideology that is a shape-shifter, forever changing its name and switching identities. Friedman called himself a liberal," since 1962 others have been "identified as 'conservatives,' 'classical economists,' 'free marketers, and, later, as believers in "Reaganomics' or laissez-faire."
More important, says Klein: Reagan's "free-market ideology has always been a servant to the interests of capital, and its presence ebbs and flows depending on its usefulness to those interests. During boom times, it's profitable to preach laissez faire, because an absentee government allows speculative bubbles to inflate. When those bubbles burst, the ideology becomes a hindrance, and it goes dormant while big government rides to the rescue."
But "the ideology will come roaring back when the bailouts are done," no matter how big the recession and who's president.
Three. Bushonomics: President George W. Bush. 2000-2008
Bush is more a practitioner than theoretician with Friedman and Reagan's ideas. Call it Bushonomics. He has been consistent in his application of "shock doctrine" principles, beginning with the attacks in the Iraq War. Who could forget the relentless DOD news reports about the "shock and awe" strategy in the initial bombing of Baghdad and Saddam. Friedman has to be pleased that his theories were driving government policy, especially in privatizing the military with mercenaries.
Looking back, this ubiquitous "shock doctrine" appears to have failed in the economy, the markets, and the wars in Iraq and Afghanistan. It is also failing as it is becoming obvious with the Paulson $700 billion bailout, the nationalization of our $12 trillion housing industry, in the Freddie-and-Fannie takeover, and other failures like Merrill, WaMu, Lehman, AIG. But does this mean Friedmanomics and Reaganomics have failed?
Failed? Yes, if you listen to Thomas Frank in his brutal "The Wrecking Crew: How Conservatives Rule." "In addition to the Iraq war," Bushonomics will be most remembered for "innovations in governance, by turning everything over to the private sector ... take these jobs away from career civil servants and hand them over to the big federal contractors who have these offices around the Washington Beltway."
Frank calls this "industry conservatism;" here Wall Street, Corporate America and Washington become an elite conspiracy of the wealthiest. This new "conservatism is not just a political movement. It's not just an ideology. It's also a way of getting ahead in the world. It's a way of making a lot of money."
Fourth. McCainonomics: Treasury Secretary Phil Gramm. 2009-2012
Yes, this is same Gramm who was recently John McCain's campaign manager, until he was dismissed by McCain after putting down the subprime-housing meltdown as merely a "mental recession" in the minds of a bunch of "whiners." Gramm's rumored to be McCain's first choice as Treasury Secretary. He could become Chairman of the Council of Economic Advisors, maybe Fed or SEC chairman, or just McCain's go-to economist because he definitely channels the best of Friedman's ideas and Reaganomics into the new McCainonomics.
In any event, with McCain as president, Gramm would have much to say about "privatization, deregulation, deep cuts in social spending" as well as how to run Paulson's megabillion-dollar bailout on hard-core conservative principles.
Gramm is a diehard Reaganomics free-market guru and arch-deregulator. In 1999 Gramm masterminded the legislation that killed the Glass-Steagall Act, killing the original 1932 protections that separated commercial and investment banking. So while McCain admits he knows little about economics, Gramm is an economics professor, a long-time buddy of McCain and obviously the master architect of McCainonomics.
Bottom line: McCainonomics fits perfectly in this historical lineage of conservative giants, from Friedmanomics to Reaganomics to Bushonomics to McCainonomics. So before you dismiss his behavior as mere random theatrics, stop and see how it's a part of a long and perhaps brilliant history of shock doctrine economic and disaster capitalism. End of Story