American dreams are different than ours. This is a fierce country. It was born of conflict and the people here hold their ideals much closer to their hearts than Canadians. Take our constitution. It guarantees human rights, “Subject only to such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society.” The famous preamble to the Declaration of Independence is starkly different in tone: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness.”
Of course, in the words of Milton Freidman, the preeminent ideologue of free-market capitalism, “Much of the history of the United States revolves about the attempt to translate the principles of the Declaration… into practice.” Freidman argues that “economic freedom is an essential requisite for political freedom.” He goes on to use the failure of the controlled markets of the USSR to make the case that any encroachment on economic freedom is antithetical to democracy. He is anti tax, anti social program, and anti government intervention in any way. Arguing that both parties invariably benefit from each economic transaction, he would have a world where the market provided for all of people’s needs, be they for healthcare, social security, or education. He sees government encroachment in these sphere’s as a real and pressing danger to freedom. John McCain and the republican party have traditionally appealed to the fierce individualism of Americans – the myth of the frontier is still very much alive – to argue this position.
What is fascinating about the recent economic crash it that it proves them totally wrong, and in doing so calls on us to look again at the meaning of liberty and the policies that best foster it. Policies Barak Obama, unfortunately, does not go far enough in meeting.
For anyone who doesn’t fully understand the crash, I’ll take a few paragraphs to explain it. Following earlier deregulation in the mid nineties, in 1999 the Glass-Steagall act was repealed. A relic from just after the stock market crash in 1929, it had been designed to prevent excessive market speculation, and set up a number of controls on banks and financial markets. After its repeal, commercial banks, which handle normal loans and deposits, and investment banks, which deal largely in trading securities, which in this case were certificates signifying ownership of debt, were allowed to merge.
This created a conflict of interest, because the same banks which were lending personal mortgages could package them as complicated securities which they could then sell to investors (mostly other investments banks, trading companies, and insurance firms). What this meant in practice was that the banks offering the mortgages could pass the risk of the lending onto investors.
Unconstrained by the possibility of non-payment, they started handing out loans to virtually anyone, including people with literally no hope of paying off their new mortgage. Many of them started to default. Their homes were foreclosed and boarded up. This drove housing prices down, and suddenly banks were repossessing houses that were worth less than the amount they’d originally invested in them, a net loss of money.
As the extent of the crisis became apparent, banks, who knew their counterparts owned just as much bad debt as them, stopped loaning to each other. The market froze. Money wasn’t moving, so money wasn’t being made, and as their capital bases eroded, banks started to collapse.
The profundity of these opaque events may not immediately be apparent, but the fact this all happened on Wall Street cannot be ignored. The imperium at the center of global capital is breaking apart. The center truly cannot hold—the premises it was based on have proven false and Milton Freidman and the neocons are wrong. Give people too much economic liberty and their greed will destroy the market and with it their livelihood. But how should a democracy which holds liberty so dear deal with this? John Ralston-Saul argues that we must separate economic liberty from other social freedoms. Freedom of speech, the press, religion, and association are decidedly unaffected by economic constraints, and a regulated market provides for a more stable economy in the long run, one less dogged by the bubbles and crashes caused by excessive speculation.
It hardly needs stating at this point that trickle down economics – the idea that if you deregulate and cut tax to the people at the top of the market some of the wealth they generate will “trickle down” – doesn’t work. Everyone knows the wealth gap has continued to grow. But the crash also underlines the fact that deregulation doesn’t even benefit the people at the top. Without this prime counterargument, the necessity of more governmental focus on social programs – paid for by increased taxes on business and the wealthy – is supremely apparent. While a market may be able to provide healthcare and education to the rich, the poor are left out of the equation. In this presidential election, Obama, while falling short in some areas, markedly healthcare, leans much farther towards this way of thinking than McCain, which is why the collapse has aided his campaign so much.
But the kind of paternalistic governmental intervention on the behalf of the less fortunate that these policies mean raises some more fundamental questions about how the Declaration of Independence should be interpreted. It bares direct relevance on how the fist clause – “all men are created equal” – should be interoperated. These five simple words sum up the beauty and the amazing cruelty of the American experiment better than any others can. They are the very basic premise from which democracy must be built. An argument that ends with the postulate “We All Should Rule” must start with the postulate that we are all equal. (If we were not equal, the better ones should surely rule). It is a beautiful idea, and it resonates with us, but underlying it is something much colder and harder. Accepting “equalness” as a basic fact lays the moral groundwork for people like Milton Freidman and the bankers on Wall St. to argue that the market – regulated or not – is the only fair way to distribute wealth among people. If people are “created” equal, then any wealth they gain in their lifetimes is a product of their own ingenuity. And if they fail, it is their own fault. They can argue that government should step back and let people rise and fall on their own merits.
Listen to Freidman write disparagingly about the New Deal of the 1930’s and what he sees as the political climate since then: “Emphasis on the responsibility of the individual for his own fate was replaced by emphasis on the individual as a pawn buffeted by forces beyond his control. The view that government should act as an umpire to prevent individuals from coercing each other was replaced by the view that government’s role is to serve as a parent charged with the duty of coercing some to aid others.” Inimical in this view is the assumption that all people are equal. If they weren’t equal, then some could rightfully argue that they deserved aid, but it leaves us in a tricky position. One could argue that the less able of us deserve our support, but this is a dangerous philosophy. A belief that some people are better than others can just as easily be used to justify suppression as philanthropy. It is as fertile ground for tyranny as it is for a welfare state.
People then, must be considered equal. What must be understood is that the circumstances into which they are born are very different. In other words, the “forces” which “buffet” them are very real indeed. Governmental policy in America doesn’t take this into nearly enough account. In real terms this means everything that the neocons are against. It means expanded education, social security, and healthcare, among other things. Obama’s platform addresses some of these issues, and if he’s elected we can only hope that he can be pushed to address more. McCain, on the other hand, despite his recent populist posturing, doesn’t even pay lip service to them.
These events clearly illustrate the need in America to implement a more egalitarian tax platform and policies to protect labour and consumers, guiding principles Canadians would do well to think about with their own free market ideologue seeking reelection in Ottawa. But they also show that even those at the very top of the world capital markets must be protected from themselves. It’s no new story that the invisible hand of the marketplace tips the scale to favour the rich, but it is a new story that it doesn’t favour anyone at all.
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