The neoliberal utopianism that caused the financial crisis has been repackaged for the 2012 election, where it masks a giant swindle that transfers wealth from low- and middle-income citizens to bankers, defense contractors, real estate speculators and the wealthiest 1%.
In the endless swirl of headlines about the current global financial crisis, the dominant narrative, which is also driving the 2012 US presidential election, is that crippling amounts of public debt run up by profligate government spending have brought us to the brink of financial ruin and must be offset by deep cuts in social services and “entitlements.”
It is a false narrative that masks the largest ongoing financial swindle in human history, a swindle being carried out at public expense by a small class of elite financial speculators. This speculative class has been unleashed over the past three decades by a Utopian neoliberal political project now embodied in its most virulent form in the Republican presidential ticket of Mitt Romney and Paul Ryan.
Let’s start with the depth and size of the underlying financial crisis, which is almost in the realm of hyper-reality. In 1997, for example, the total value of annual financial transactions worldwide was an already-staggering 15 times greater than global GDP. Today, it is 70 times greater. (1) In 1995, the six largest US banks controlled assets worth 17 percent of annual GDP. Today, the figure is 64 percent. (2) Again in 1995, the global total of outstanding derivative debt obligations was $17.7 trillion. By 2010, at nearly $470 trillion, outstanding derivatives were 741 percent of global GDP. (3)
This wholesale financialization of the US-led global economy has burdened the public sector with the task of propping up unregulated speculative debt in the private sector that is 7.4 times our annual productive capacity. Add US deficit spending for three wars since 9/11, and major cuts in the top tax rates, and the burden becomes unsustainable. The difference is being made up in the guise of austerity, as everything we own is liquidated, from personal and retirement savings, to homes and public-sector assets that have been built up over generations.
In the US, the inexorable logic of this process is embedded in the numbers that comprise the national debt. By most estimates, the national debt is at least $15 trillion.(4) Here is one way to understand where the money went.
- The US government spent $7.4 trillion on bank bailouts. (5)
- It then spent $5 trillion for three elective wars in Iraq, Afghanistan and Libya. (6)
- It simultaneously incurred $2.8 trillion in lost revenue due to the Bush tax cuts for the top income brackets. (7)
The $15.2 trillion total of reckless government giveaways and war spending equals the national debt. Where did this money come from? It came from we the people. During the current economic downturn:
- US citizens suffered $14 trillion in lost stock market value, declining home values and lost pension fund values. (8) (9)
- Workers lost $1 trillion in wages due to long-term unemployment. (10)
The total losses to citizen wealth are also $15 trillion.
From this perspective, the ongoing financial crisis of the past few years is a giant swindle that transfers wealth from low- and middle-income citizens to bankers, defense contractors, real estate speculators and the wealthiest 1% via the US Treasury, which is acting as an agent for upward redistribution.
To give a comparative sense for the historic scale of the swindle, it is worth noting that the entire inflation-adjusted cost of World War II was $3.6 trillion.(11)
How did this happen?
In the 1980s, US President Ronald Reagan and British Prime Minister Margaret Thatcher set out to reconfigure and liberate Western capitalism by shrinking government’s role in the economy based on the neoliberal concept that markets are “self-regulating” and would produce unprecedented societal wealth if deregulated. Using the ideas of Ludwig von Mises and Friedrich Hayek of the famed Austrian School as macro-economic underpinning, Reagan and Thatcher sought to limit or eliminate government regulation that might inhibit the actions and movement of capital.
From the start of this Reagan-Thatcher revolution, the “trickle down” theory of wealth was accompanied by promises of a smaller, less intrusive state, except for a strong military. Fast forward through 30-plus years of nearly uninterrupted neoliberal policymaking – Bill Clinton and Tony Blair were deregulating neoliberal champions – and not only do we have the most expensive, heavily militarized, war-prone, increasingly inequitable and intrusive state in US (and British) history, it is also the most indebted.
Neoliberalism is failing on its own terms, yet it continues to define US politics due to its appeal among a sizable and particularly fervent segment of the electorate. (12)
The Rise of the Utopians
In order to understand the fervor of this continued popular support for failed policies, it is important to grasp the utopian, quasi-theological nature of neoliberal ideology. In the neoliberal worldview, the self-regulating market is not a merely human construct, but a form of naturally-occurring “spontaneous order” that produces optimum outcomes and maximum individual freedom if left completely unfettered. (13) It is, as Karl Polanyi pointed out in “The Great Transformation,” a radically utopian vision that rests on a blind faith that markets are essentially part of the natural order. (14)
On the political right, this faith has reached its fullest expression, ultimately moving markets into the realm of the sacred, where their legitimacy cannot be questioned. In this utopian setting, regulation is not merely ill advised; it is a violation of natural law that is nearly sacrilegious. Witness, for example, the reactionary explosion on the right to the apostasy of Barack Obama’s health care plan to regulate the insurance cartels.
Although this pernicious sacralization of the self-regulating market is absurd on its face – modern markets being embedded in particular cultures and dependent on enormous government intervention and expenditures, full of frictions and totally absent the perfect information required by economic models – it has nonetheless turned out to have powerful allure even among those who are being swindled out of their hard-earned assets as a result.
Not least among the reasons for this allure is the fact that in the US, neoliberalism’s utopian market fundamentalism meshes so readily with utopian strains of fundamentalist Christianity, thereby lending the neoliberal project a zealous sense of populist mission. A neoliberal class project is dressed up and sold as a patriotic religious project.
While those at the top with access to policymakers reap enormous financial benefits from their embrace of neoliberal theology, many of those at the bottom who stand to lose the most economically join forces with them because of political appeals to their utopian religious and patriotic beliefs. Neoliberal presidential candidates from Ronald Reagan to Rick Santorum and Mitt Romney have come before voters as kindred utopian spirits, true believers couching their self-regulating market utopianism in the familiar and compelling language of patriotism, individual freedom, mom and pop entrepreneurism and religion. (‘Believe in America.’) Utopian faith thereby trumps the pain of ugly reality.
And the ugly reality is that neoliberal markets – unlike the elegant models of classical economics – are rigged. And rigged in favor of the wealthiest members of society. Income disparity between the bottom and top 20 percent in the US has more than doubled since 1979. (15) Income for the top 1 percent grew by 275 percent from 1979 to 2007, while income for the bottom 20 percent grew just 18 percent. (16)
The US now has 49.1 million people living in poverty, the highest level since the Great Depression of the 1930’s. (17) Yet among true believers at both ends of the economic spectrum, the powerful emotional pull of a shared utopian vision transcends the homely realities of the fact-based world.
Utopians at the Gate
In the 2012 US presidential election, the Republican Romney-Ryan ticket represents the triumph of neoliberal utopian faith over the messy realities of experience and history. There has been much discussion about the political calculations of Romney’s selection of Paul Ryan as his running mate, but it seems entirely plausible that he was picked because he is a kindred utopian spirit.
Born to wealth and privilege, Romney’s utopian worldview was formed among the high priests in the secretive and cloistered worlds of the Mormon Church and equity capital markets. At every turn in his insular pilgrim’s path, Romney’s utopian economic and religious beliefs have been reinforced in untroubled environments far removed from the struggles of daily life. He can change positions at will because his overriding utopian faith remains untouched irrespective of the particulars of individual policy prescriptions.
Also born to wealth, Ryan was a youthful devotee of neoliberal founding fathers von Mises and Hayek, supplementing his market faith with the culturally corrosive, ego-centered atheism of Ayn Rand, until the US Conference of Catholic Bishops, representing his professed Catholic faith, publicly objected to the cruelty and inhumanity of his 2011 US budget proposals.
The bishops described Ryan’s budget as being antithetical to their call to create “a circle of protection” around the poor and vulnerable. With his tea-vangelical base of support threatened, Ryan quickly discovered St. Thomas Aquinas as a more appropriate religious vehicle for channeling his market utopianism. (18)
The presentation of the Romney-Ryan ticket by the Republican Party tells us that the path to utopia is stony and difficult, as it should be. Reaching the neoliberal Promised Land requires sacrifice. In order to scale the utopian summit, we must cast out the unbelievers (Obama, Democrats, liberals, environmentalists, feminists, et al.) and balance the divine books with the purifying fire of “austerity,” the neoliberal equivalent of self-flagellation.
Austerity-mandated cuts in vital public services must be accompanied by ever-increasing tax reductions for the top income brackets – aka, the priestly class of “job creators” – thus intentionally accelerating the insolvency of the iniquitous public sector. Someone has to pay for the extravagant incomes, lifestyles and war profiteering of the oracular speculative class in order to keep the swindle going, and it turns out to be us.
Where does this lead?
Were Romney and Ryan to be elected in November, it is probable that some of their more radical policy pronouncements would be constrained by the realities of Washington. (19) Yet there is something disquieting about the seriousness with which they embrace discredited utopian ideals. Fascism has been described as “a utopian movement in search of a utopia.” (20) Today’s Republican Party, headed by true believers Romney and Ryan, comes dangerously close to this description.
Polanyi postulated three essential elements of Western consciousness: knowledge of death; knowledge of freedom; and knowledge of society, which is gained experientially and liberates us from our utopian illusions. (21) The Republicans of 2012 are in denial about this third element of consciousness.
The certainty that comes from faith in an immanent utopia leaves them unable to acknowledge and deal with the enormous complexities and uncertainties of a modern multi-cultural, information-age society, except through demonization and the story of an idol defiled. As a result, the commonweal is eclipsed by a divisive utopian vision that defines extreme religious economic individualism as true patriotic freedom. Romney’s recent comments dismissing the lives of half the electorate offer a clear illustration of the utopian incapacity to deal with society as it exists. (22)
Given the billions in Super PAC money now available to Republicans, (23) this utopian strain in US politics is not likely to fade away irrespective of November’s election results, and that is a troubling realization in a nation more heavily armed with weapons of mass destruction than any other in history. (24)
Tobin isn’t enough now, Le Monde Diplomatique, February 2012
The Bill Daley Problem, from BaselineScenario.com.
International Swaps and Derivatives Association.NOTE: The Bank for International Settlements (BIS) actually reported a much higher total of $708 trillion for “notional amounts outstanding of over-the-counter (OTC) derivatives…” in a detailed 28 page analysis released November 2011 for the first half of 2011. To stay conservative, I have used the ISDA figure of $470 trillion. The BIS report can be found here: . GDP from Wikipedia Public Data.
External government debt is actually $11.2 trillion. Getting to $15 or $16 trillion depends upon how one accounts for intra-governmental obligations. For the purposes of this article, the point is to show the orders of magnitude, not up to the minute totals, which are difficult to get in any event and tend to vary widely depending upon who is doing the calculations. Concord Coalition.
Bloomberg Media.”Follow the $7.4 Trillion: Breakdown of US Government’s Rescue Efforts.”. NOTE: The real total of federal bailouts may be much higher. For example, a July 2011 GAO report documents over $16 trillion in secret loans to both US and foreign financial institutions.
Joseph Stiglitz estimated the total cost of Iraq and Afghanistan as high as $5 trillion in 2008, and in Sep. 2011 opined that this figure was too low. Project Syndicate, Joseph Stiglitz, The Price of 9/11. . A June 2011 Brown University study reported by Voice of America, estimates the total for Iraq and Afghanistan at nearly $4 trillion with a projected interest cost of an additional $1 trillion. Iraq, Afghanistan Wars Cost US Nearly $4 trillion. A detailed Sept. 2011, report by the Fiscal Times (more than a year ago) estimated the total US cost of war since 9/11 at over $5 trillion, with the wars in Iraq and Afghanistan still in progress when the analysis was published. Fiscal Times, 9/11 and the $5 Trillion Aftermath.
Washington Post, Revisiting the cost of the Bush tax cuts.
For simplicity, I am using the CEPR figures below. While a more complicated case could be made for a higher total of lost citizen wealth, the main point is to show the logic of the process and the general orders of magnitude in the losses, which the CEPR figures conveniently encapsulate. Center for Economic and Policy Research, Paper Wealth and the Economic Crisis.
Other sources documenting US losses to citizen wealth. Reverse Mortgage Daily, Home Equity Declines more than 60% During Great Recession Says Fed Report. Federal Reserve Bank of New York, Household Debt and Saving During the 2007 Recession. American Progress, The Consequences of Conservatism (Estimates total losses at $12.8 trillion)
Urban Institute, How is the Financial Crisis Affecting Retirement Savings? ($3.4 trillion loss from 2007 to 2009). Reverse Mortgage Daily, Home Equity Declines more than 60% During Great Recession Says Fed Report. Dr. John Rutledge, Rutledge Capital, Total Assets of US Economy $188 trillion, 13.4 x GDP (Calculated $13 trillion loss to”household net worth” in 2008.) Don Shelton, The Great Recession of 2008-10.
Center for Economic and Policy Research, The $1 trillion wage deficit.
Don Ritholtz, The Big Picture.com, Big Bailouts, Bigger Bucks.
See Raymond Plant, The Neoliberal State, Oxford University Press, 2009.
See also, David Harvey, A Brief History of Neoliberalism, Oxford University Press, 2005.
Library of Economics and Liberty, Friedrich Hayek.
Karl Polanyi, The Great Transformation, Beacon Press.
Mother Jones, March/April 2011, It’s the Inequality Stupid.
Congresssional Research Service, March 7, 2012, The US Income Distribution and Mobility: Trends and International Comparisons
Congressional Budget Office report to Congress, Trends in Distribution of Household Income Between 1979 and 2007
CBO Director’s Blog, October 25, 2011, Trends in the Distribution of Income
Top 1% income crew 275 Percent Grew 275 Percent from 1979 to 2007
Fox News, Nov. 7, 2011, Census Data Show Americans Hit by Poverty at All-Time High
CBS News, Nov. 8, 2011, New data shows poverty at an all-time high
Letter to Congressional leaders from the US Conference of Catholic Bishops, April 16, 2012
New Yorker, August 11, 2012, Ayn Rand joins the Ticket
Harper’s Magazine, Sep. 2012, Spend, Baby, Spend
Fascism – The Tensile Permanence, Dr. Sam Vaknin
Karl Polanyi, The Great Transformation, Beacon Press, 2001, p. 267-268
Mother Jones, Full Transcript of the Mitt Romney Secret Video
Rolling Stone, Right-Wing Billionaires Behind Mitt Romney, May 24, 2012
24) Wikipedia, Weapons of Mass Destruction