02.01.2009 0

Financial Stability, or Fascist Decline?

  • On: 02/24/2009 10:27:56
  • In: Economy
  • By Isaac MacMillen

    Increased state control in response to economic turmoil is nothing new. After the First World War, the resultant economic depression in Europe was used as a springboard by both Germany and Italy to embrace a fascist form of government. While the word “fascist” has fallen into disuse today (except as a political insult invariably hurled by the Left at the Right) its corporatist methodologies are front-and-center stage in the nation’s capital. And it’s time to reexamine their origins—and impact.

    While most Americans are no doubt familiar with the militaristic facet of fascism, the economic side tends to be neglected—likely in part because those principles are shared by many in government today. The primary economic principles behind fascism focus on state intervention in private industry. In fascist economies, private individuals continue to run private industry, but only under the firm control of the government. This differs from socialism, where the state actually owns the industry.

    A quick glance at history may make the pattern clear: As the inter-war economy worsened, so too did statist policies that destroyed innovation and initiative.

    In the mid-1920s, Italy’s monarchical government was confronted with the rise of fascism, partly spurred by a fear of the rise of communism and partly from festering discontent over the way Italians perceived they had been slighted after WWI. Benito Mussolini, the leader of the Italian fascists, began to introduce state-centric policies. Il Duce (sound familiar?) was particularly infatuated with large public works projects to cope with the worldwide depression that hit.

    In the early 1930s, he founded the Institute for the Industrial Reconstruction, whose purpose was to bail out debt-laden corporations. By the end of the 1930s, the Institute for Industrial Reconstruction had become a tool for the state to push its policies amongst the industries. Columnist Michael Ledeen, in his chilling piece, “We are all Fascists Now,” states that fascism’s “most durable consequence was the expansion of the ability of the state to give orders to more and more citizens, in more and more corners of their lives.”

    Similarly, in the late 1980s, Congress created the Resolution Trust Corporation (RTC), as a result of the savings and loan crisis. The RTC was a government agency intended to temporarily bail out bad assets. Its role, however, was taken over by the Federal Deposit Insurance Corporation (FDIC) in the mid-1990s, which has had to continue doling out cash to failing banks, as seen over the past year. The FDIC’s individual account coverage rose from $100,000 to $250,000 last year, thanks to the TARP, putting taxpayers on the hook that much more. As ALG News previously reported, in the aggregate FDIC assurances rose some $2 Trillion in 2008.

    And this same state-centric philosophy is behind President Obama’s recently announced $2.8 Trillion Financial “Stability” Plan—a plan that demonstrates a strong affinity towards state control of private industry. In the fine print, firms that take TARP dollars will be forced to prove that they will use it to lend money. Yet such a policy does not learn the lessons of history. Mandatory lending and excessive credit by the Fed, the exact problem that put America into the current economic mess, is now proposed as the solution—and the government’s prying hand will reach farther than ever into the nation’s economic engine.

    Already, Citigroup and Bank of America are rumored to be considered for nationalization. Investors are not taking the rumors kindly, and have responded by selling off as much stock as possible. The banks have been given a combined $95 billion since September, according to OpenSecrets.org, yet now they appear to be coming back for more. And the stock market is continuing to plunge with each new intervention.

    So why is this government subsidy not working? The reason is that, as the government becomes more and more involved with the financial institutions, investors show less and less inclination to throw good money after bad. In short, they do not want to invest in companies that will be run by the federal government, for fear of failure. That in turn forces the federal government to purchase yet more shares to keep companies from going under. Ultimately, the government ends up owning the entire corporation. Corporatist fascism leads to socialism, in that sense.

    History is not on the side of state-centric economic systems. Yet as long as those in Washington continue to insist on a government solution, so long will the market continue to flounder and corporations fail. And the blame will rest securely on a government which will have manipulated the economic crisis for its own benefit. After all, as President Obama’s Chief of Staff Rahm Emanuel stated so eloquently, “You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things you think you could not do before.”

    Unfortunately, it has all been done before. And thereby hangs a tale of woe.

    Isaac MacMillen is a contributing editor to ALG News Bureau.

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