The shocking economic future

Professor Joseph Stiglitz, US economist and former senior vice-president of the World Bank asks Naomi Klein, author, a question at the recent Hay literary festival:

Q In The Shock Doctrine, you talk about how free-market fundamentalists use economic crises to impose policies they would not normally be able to put into place. What do you see happening as a result of the current problems in the US? Could this be an exception to your rule? If not, what nefarious policies will result from the current shock to the system we are now facing?

A The Bear Sterns bailout is a pretty classic example of using an economic shock to pass on a significant economic risk to the public while the assets go straight to JP Morgan. We have seen this same pattern – protecting private profits while nationalising debts – many times during other crises. Then there are the bailouts for developers and homebuilders, especially striking in contrast with the laissez-faire attitude towards the more than 2 million Americans who face foreclosure. Meanwhile, Congress’s economic stimulus package contained an estimated $50bn in tax cuts and bonuses for business, roughly one-third of the total.

Yet in the history of shock exploitation, this is all pretty smalltime. What is much more striking to me is how the Bush administration failed in its attempt to use the economic crisis to lock in even more ambitious pro-corporate policies. First, it tried to argue that making the Bush tax cuts permanent was a form of economic stimulus, and that simply didn’t fly. Now treasury secretary Henry Paulson is trying to use this anxious economic moment to whip up panic about the coming crisis in social security – but he still can’t get any traction on the “private accounts” idea.

So I am hopeful that Americans, after seven years of a government that has exploited every crisis for political advantage, are getting wise to the ways of the shock doctors. The real disappointment, though hardly a surprise, is that the Democrats have utterly failed to use the market turmoil to put the logic of market fundamentalism on trial, and demand New Deal-style life-saving measures for those being thrown out of homes and work.

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