F. Duque Ph.D.
Political Science Professor
Universidad de Los Lagos
Puerto Montt, Chile
October 2008
In late October 2008, the world looks on with astonishment at “the beginning of the end” of an historical epoch: the government of the rich, by the rich, and only for the rich. Initiated in the late 1970's, this process seems to be eclipsing in the United States, just as the great nation had seemingly achieved Empire status. For over 40 years, the national income and wealth of the country has gradually concentrated in the hands of the super rich to the detriment of the majority: the working class and poor. And with the initial State plan to save the nation’s beleaguered banking sector, we almost witnessed this concentration accelerate exponentially. During this recent financial crisis, the State put forth policies aimed at “bailing out” Wall Street capitalists, while at first ignoring the millions of working class and poor who are losing their homes and jobs. The US Congress rejected the initial 700 billion dollar “golden parachute” attempt on a national scale, which in essence would have formalized a system that privatizes profits and socialize losses. This is far from the romantic image conjured up by Adam Smith’s “invisible hand of the free market”, upon which capitalism, accurately or not, is founded. Eventually, an incremental deal between the Congress, Senate and Treasury was worked out that would re-introduce transparent “smart” regulation, limit CEO compensation packages and protect “some” homeowners from foreclosure. Most importantly, the government “bail out” would act more as a taxpayer stock investment of the hardest hit financial institutions, with a possible gain on taxpayer investment when these financial institutions got back on their feet.
These recent interventionist measures employed on the nation’s financial sector combined with a probable presidential victory of Democratic Senator Barack Obama early next month could signal an historical transformation for the country and the world. This shift could return the Commanding Heights of the economy back under the watchful control of the State. It also suggests a radical return to democracy at the federal and state level after close to three decades of oligarchic influence. That is, a United States government friendly to everyone, or the government of the people, by the people and for the people.
In this new interventionist regime, Wall Street investment banks no longer have sole dominion over the economic future of the United States. The control of credit and finance has transferred from a small but powerful group of private investors to the US Congress and Senate. Consequently elected representatives now determine whether the financial crisis evolves into a global economic crisis of catastrophic consequences or if the system is nationalized sufficiently enough and in time to save the US economy and the world. Already European governments have implemented similar bail out policies to protect their economies and trading partners. Although experiencing the crisis first, the United States is now playing catch up by comparison. This harkens back to the global contagion of the Asian financial crisis in the mid 1990s. Initiated in tiny Thailand, it soon infected neighboring countries and regions and eventually the West. The great world economies had a chance to address the problem when it first emerged. But at that time, two decades of neo-liberal rhetoric had created an intellectual atmosphere adverse to interventionist solutions and the world’s working class suffered as a result.
How does the greatest economy in the history of civilization find itself in this present crisis? Many observers suggest that for 40 years the US plutocratic elite has unfairly distributed wealth in its favor. Through unchecked political influence, elites and their lobbyists have successfully liberated capital reach beyond national borders. As capital has dutifully sought the highest return, the vast majority of its own consumer constituency has been impoverished with the dismantling of pro-labor wage and benefit structures and outsourcing of high paying job. These regressive policies were responsible in part for the lack of real demand that created the crisis of stagnation and inflation in the 1970's and 1980's. To solve the problem of consumer demand, the plutocratic elite invented with Machiavellian acumen massive and easy credit facilitated by the deregulation of mortgage and credit banking. Credit cards became a daily medium of the consumption, often without sufficient liquid backing, for the purchase of houses, cars and consumer durables. Aside from pseudo-rationalist acumen, these operations made possible a great deal of borderline unethical usury practice: credit cards with hidden fees and usurious large loans to buy houses. They required small monthly payments in the first three or four years, and then these payments increased dramatically after this initial period.
Predictably, the housing bubble exploded in 2007. The result has befallen misery upon millions of homeowners who have had or are in the process of having their houses foreclosed. Banks in turn were unable to cover the huge losses from these toxic mortgages and soon many were on the verge of bankruptcy. Some banks were bought up by other institutions, while others, like a row of dominoes, collapsed. To prevent the financial crisis transforming into a national and global economic crisis, the State has intervened. It has tried to restore liquidity and, more importantly, confidence in national financial institutions to avoid contraction of credit and consumption. However, efforts to date have not yielded the expected results. Hundreds of billions of dollars have been introduced into the market. First, President Bush’s stimulus package directly returned three to six hundred dollars per taxpayer. Unfortunately this did not jump start the economy has hoped. As a result the State eased credit lines for banks, encouraged healthy institutions to buy up banks in bankruptcy, and finally, it has chosen to buy vital institutions with acute problems. In other words, it has nationalized an important part of the banking system.
But even with robust state intervention, the results are not those as expected. The US economy is paralyzed and threatens to descend into a deep recession. Last August, before the massive layoffs in the financial system and related sectors, unemployment was at 6.1% or almost at the level experienced during the last recession spurred on by the dot com bubble. It is now widely accepted that it takes dual income earners to maintain the purchasing power enjoyed by a single earner family of the 1960's. Couple this with even higher reductions in disposable income and a contraction of popular credit and it is not difficult to understand why a peaceful, if uncomfortable, economic revolution is unfolding throughout the United States. As a result, it is highly likely that the African-American candidate will win the presidency in November. The average American is very pragmatic. And faced with a future collapse of his family economy, voters may be willing to put aside ancestral racism. Senator Obama is a genuine representative of the majority. He is trying to defend the interests of the American middle class and proletariat. Meanwhile, Republican John McCain makes thinly veiled “tax-holiday” overtures to the very rich, dressed in middle class phrases like “I’ll fight for Joe the plumber”. One reading of recent polls suggests that cynical campaign rhetoric like this amounts to nothing more than the proverbial exercise of “putting lipstick on a pig.”
Obama’s government program includes measures to transform the federal and state politics from oligarchic plutocracy to a genuine participatory democracy. The Democratic candidate seeks to lower taxes for the middle class and proletariat and raise taxes for the very rich, those who earn two hundred and fifty thousand dollars or more per year. In addition, he promises to save huge resources being spent on arms production and on the Iraq war. He also plans to eliminate tax loopholes for the very rich, eliminate subsidies to big business and review the voluminous foreign aid to countries such as Egypt, Pakistan and other third world allies. With new funds extracted from the wealthy and savings from budget cuts, Obama will attempt to re-invest in health, education, basic welfare, job training and affordable housing for the working and middle classes. At the same time, his plan includes substantial investments in infrastructure and alternative energy resources to replace the nation’s dependence on foreign oil. Furthermore, he seeks to reverse job loss from the corporate outsourcing of well-paid manufacturing and technology jobs, while creating new positions for millions in the emerging energy independent green economy.
Recent polls indicate that a large percentage of the US electorate is unconvinced that the Republican presidential candidate can adequately address the looming financial crisis. Perhaps the collective memory of the US electorate still recalls economic downturns of the past such as the great crisis of 1912 and 1913, the crisis that followed the end of the First World War, and finally the worst of all the 1929 stock market crash. Common to all these historical financial disruptions is the classical contradiction of capitalism, an imbalance between excess supply and weak demand. The pre 1929 social catastrophes were eventually resolved, but with extreme hardship wrought upon many of America’s working poor. In other words, policy-makers relied on the “invisible hand of the free market” to resolve this economic incongruence, ruthlessly punishing those at the lower rungs of society. In contrast, after the market crash of 1929 Republican president Herbert C. Hoover’s failure to adequately address the economic depression paved the way for an interventionist solution that placed the Commanding Heights of the economy under State control. Democratic Franklin D. Roosevelt won the presidency in 1932 and directly by-passed the private financial system, creating well-paid jobs for millions of unemployed and under-employed American workers. Huge public works programs, particularly the construction of major roads and the massive electrification of rural areas, were the levers that allowed the country to rise out from the abyss of depression. Apparently, it is these same Keynesian policies that Obama will try to implement if elected. And this turn of events comes at a pivotal moment in US history. For if left to its own devises, the oligarchic elite might completely destroy any promise of the American dream for future generations. A brief review of Niccolo Machiavelli’s political theory may offer us reasons why.
The historical evolution of US politics can be analyzed using Machiavelli’s theory of “anaciclosis” developed several centuries ago. This is a teleological approach that describes, explains and tries to predict the march of history. It is generally argued that all human societies are moving from traditional authoritarian forms of government towards more participatory or democratic ones. That is, the government of one transforms overtime to the government of a few, which eventually evolves into a government for all.
The evolutionary process begins with the government of one, the philosopher king, who governs for the benefit of all or, better put, for the common good. This form is benignly referred to as a Monarchy. Its sustainable legitimacy through dynastic succession often insures stable ethical standards society wide. When this form of government is corrupted, though, society often falls into the clutches of a ruthless leader. This illegitimate sovereign rules in an unsustainable manner that benefits himself, his family and/or his elite social class, while forsaking the common good. This form of governance is often referred to as a tyranny and can produce great suffering and injustice in society, creating a self reifying series of corrupt or unjust practice in order to maintain power. When the tyranny reaches extreme levels of corruption that can no longer be supported even by those social elites that once benefited from its largess, a revolution is eminent. From the ashes of this political turmoil, a government of a select few is born. This is the rule by the rich, but for the benefit of all social classes. The ruling class is often inspired by great ethical values and patriotism. Like a Monarchy, this form is also considered a sustainable and benign form of government. This political form is referred to as an aristocracy. The essence of the aristocratic Republic is a government of the well educated, most talented, and the wealthiest that works for the benefit and defense of all.
When the aristocracy falls into process of acute corruption, and the rich begin to govern only for their own benefit, and decide to unfairly exploit society, an oligarchic government is born. This form is also referred to as a "malignant plutocracy." After decades or centuries of suffering extreme exploitation and injustice under this cadre of wealthy elites, the working poor rebel, and another benign form of government, democracy, is born. This is a government of all for all. The essence of the democratic Republic is the rule of the majority (the working poor) that governs in the interests of all social classes and the common good.
Democracy can be corrupted when certain interest groups are allowed to circumvent legitimate and ethical process and avenues for their own betterment at the expense of the common good. This parasitical form of democracy is referred to as the oclocracia. This is the government of the greedy with the greedy and only for the greedy. These parasitical interests fall into hedonistic practices and customs, no longer work productively, waste the national wealth and ruin the State. As a result of acute corruption and decadence, the oclocracia destroys the political system. A free society ceases to exist and falls into extreme dependence. The government becomes a “failed State”, which due to systemic weakness, is easily conquered and colonized by a neighboring country with a superior organization. It is at the conclusion of this pessimistic evolutionary process (moving from good to bad) that the original free society suffers great social divisiveness and transform into a vulgar dependent colony of a foreign parasitical State.
Is it possible to apply the theory of “anaciclosis” to a better understanding of the teleological political development of the American society? In the case of this great country, its history begins in Britain with the benign sixteenth century monarchy of Elizabeth I. This queen and hers successors administered a series of relatively benign monarchies that ruled England until the seventeenth century. These monarchs facilitated the colonization of the east coast of the North American continent, while managing with relative wisdom. However, conditions for the American colonists changed drastically in the mid-eighteenth century when the British monarchy gradually transformed into a tyranny. Fortunately this tyranny ended with the American Revolution in 1776. The United States broke with the British Empire and created a benign aristocratic republic. This form of government progressed through the rest of the eighteenth century and most of the nineteenth century. However, in the late nineteenth century, the American elite slipped into an accelerated deterioration of core cultural values. The aristocratic descendants of the American colonists of yesteryear were now super rich and with absolute control over society. Consequently, absolute power corrupted absolutely a large proportion of the aristocracy. The ruling class had lost much of its earlier puritan ethic that Max Weber would argue facilitated the great American success story. Calvinist stoicism was replaced by consumerist hedonism.
This huge cultural change gave birth to a large number of financial and economic crises. The unbridled individual desire for profit was much more important than the public good. Fortunately, by the early twentieth century Theodore Roosevelt and other leaders of the progressive movement substantially challenged this ethical descent. As the leader of the aristocratic elite, Roosevelt was successful in reversing corrupt trends and preventing the transformation of the political system into oligarchy, thus ensuring the survival of the aristocratic republic.
But the elite cancer was never eradicated and when the opportunity presented itself, the elite propelled the political system back into crisis in 1929. Again, another representative of the aristocratic elite, Franklin Delano Roosevelt, managed to save the country yet again. Thanks to President Roosevelt’s New Deal, the country recovered from the dark years by the end of the 1930’s. With the close of the Second World War half a decade later, the historical economic incongruence between supply and demand was finally resolved with the destruction of millions of commercial, agricultural and industrial enterprises in Europe and Asia. By mid century, the reconstruction of post-war Europe coupled with an opportunistic entrepreneurial enterprise that filled the global vacuum left vacant by the former colonial powers, transformed the United States into the most powerful nation on earth. Managing a successful mixed economy with key interventionist regulation and control over the Commanding Heights of the economy, the period from 1940 – 1970 became known as golden age of the American dream, and the aristocratic republic was robustly legitimized.
However, by the end of the 1970’s, the desire for unbridled profit reared its ugly head once again. The US aristocratic elite underwent a process of decadence and excess. As a result of this cultural depravity, the 1980’s saw the Commanding Heights of the economy privatized and key business sectors deregulated under Presidents Reagan and Bush Sr. What followed was the accelerated enrichment of the elite, simultaneous with the gradual impoverishment of the middle class and proletariat. The social cancer of greed increased exponentially through the mid 1990's with the neo-con global policies of the Clinton administration. This corruption was consolidated under President Bush Jr. and Vice President Cheney during the first seven years of the new millennia, an era that will henceforth be referred to by history books as the American Empire of the 21st Century. The political system achieved full plutocracy, while democracy survived only at the level of local and municipal governments.
Now we stand at the threshold of a paradigmatic shift. It is likely that the tertiary corruption of the oligarchic elite could be the beginning of the end of its plutocratic rule. Even after spending close to a trillion dollars on the current financial crisis, it will likely not be enough to prevent the onset of a serious economic depression. With the State bailout, banks could try to lend money and temporarily stimulate consumption. But the proposed measures do not include a meaningful redistribution of income or an increase in real wages, the only stimuli that can insure sustainable consumer demand. It is possible that in this climate of financial uncertainty without real increases in disposable income, the average citizen will drastically reduce their spending. Consumer fear could be the tipping point over which the US economy descends into an economic and social depression.
These historical trends have converged at an opportunistic moment for Senator Obama. Given recent economic events, his Election Day win early next month is quite likely. Moreover by riding Obama’s coat tails, the Democratic Party might deepen its hold in the House and Senate. Once in power, the new leadership could initiate a paradigmatic shift. That is, a change from a government favorable to a few extremely wealthy interests, to a government favorable to the majority: the working class and poor citizens of the country. The government would thus revert back from oligarchy to democracy or the rule of the majority for the benefit of all.
The next president and his successors would be well advised to implement a radical shift placing the Commanding Heights of the economy back under State control. The neo-liberal experiment of deregulation has simply failed within the complexity of global economy. Even one of its celebrated architects, Alan Greenspan, now admits in front of Congress to a great “flaw” inherent to the ideological underpinnings of neo-liberalism.
The new political leadership should also take the necessary steps to revive the stoic values that are the foundation of the America’s Weberian success story: individual initiative, honest entrepreneurship, basic decencies, and a culture of saving and judicious re-investment into one’s community. Oclocaracia must be avoided at all costs. Great and powerful nations once affected by the oclocratic cancer produces divided societies that risk transforming into weak satellites of more powerful and organized nations. The painful experience of the former Soviet bloc nations forebodes a dark future for America if it does not heed the wisdom of history. And that, as they might start saying, is a pig who can no longer afford a new shade of lipstick.
