Gailbraith and Panitch: Is a New “New Deal’ Possible? Pt.2

Gailbraith and Panitch: Is a New “New Deal’ Possible? Pt.2


PAUL JAY: Welcome back to The Real News Network.
I’m Paul Jay in Baltimore. And we’re continuing our discussion about the 80th anniversary
of the inauguration of FDR and the New Deal. Now joining us to continue our chat is, first
of all, Professor Leo Panitch. He’s the Canada Research Chair in Political Economy and distinguished
research professor of political science at York University in Toronto. And he’s the author
of the book Global Capitalism and American Empire and coauthor of the book The Making
of Global Capitalism. Also joining us again, Professor James K.
Galbraith. He’s the Lloyd M. Bentsen Chair in Government and Business Relations at the
LBJ School of Public Affairs at the University of Texas, Austin. And he’s the author of The
Predator State and Inequality and Instability: A Study of the World Economy Just Before the
Great Crisis. Thank you both for joining us again. So, Leo, we’ll start with you this time. So
we ended part one basically that the Fed has been able to stop a crash of the global banking
system, but they haven’t had the effect perhaps some thought they might in terms of actually
restarting growth in the American economy and global economy. In fact, Europe is a total
mess. We’re looking at deep recession in many of the countries of Europe. We don’t know
about China. There’s been lots of talk about the burst in the China real estate bubble.
And in terms of the American economy, many people are saying what’s needed is a massive
government intervention, both in terms of spending and in terms of labor law, in terms
of facilitating a general rise in wages, not just a $9 an hour minimum wage, which I don’t
think is going to have that much effect on demand. So, first of all, do you think that’s
what’s needed? But more so, is it possible given today’s politics? LEO PANITCH: I think that it isn’t possible
given today’s politics. And it goes back to what I was saying in the first segment when
I was pointing to the massive mobilizations, the influence of very radical communists on
that mobilization, how that even affected the rhetoric that Roosevelt–and one can point
to many others, including Truman–spoke at the time. And that’s missing. There’s nothing
on the scale of it, although there certainly has been some stuff going on. But I think it’s important to point out that
what has been effective is a prevention of that financial crisis equating to what the
1929 crisis led to in terms of an economic crisis. The pouring of liquidity into the
system, the coordination by the American state of the G20 other states agreeing not to engage
in beggar-my-neighbor policies, in that sense to keep globalization going. That involves
keeping all the unequal power structures of it going as well. But nevertheless, for a
crucial period in 2007, 2008, 2009–there was a coordinated fiscal stimulus in 2009
as well–that prevented the spiral that one saw back in the Depression. But the main point I’d want to make is this,
that what the New Deal didn’t do–and this is what I was trying to get to before–was
take the private banking system, the financial system, into the public domain. It certainly
regulated private banking, it provided protections, and in that sense was important, but it incubated
a banking system that returned, eventually, to the kind of competitive speculative dynamism
that led us to the 2007 crisis. And what I would say is that in terms of the
kind of policies we need and shift in the balance of forces we need, that does involve
beginning to take class power away from the banks, not just regulate them, because what
you ended up getting, of course–and James was alluding to it in the first section–not
only by 1951, but even earlier, was a reversion to the kind of relationship that the Fed and
Treasury, very close relationship, inevitably have with Wall Street when Wall Street is
the power that it is. So one needs to think in terms of a shift in the balance of power.
Eventually, if we’re not going to be facing crises like this into the future, it seems
to me we’re just going to have to turn banking into a public utility. Short of that, we don’t have in any sense
the political forces to do this. Short of that, one could at least have an ambitious
enough president, a self-conscious enough president who would be prepared to undertake
massive direct public expenditure and public employment, at least to call for it in the
run-up to the next congressional elections so people know what’s at stake, because even
though the level of unemployment is nothing like it was in 1933, Heaven knows it continues
to be severe enough. JAY: James? JAMES K. GALBRAITH: Well, your question to
begin with was can we have another New Deal. I think the answer to that is no. History
is not going to repeat itself, and the conditions that gave us the New Deal are not going to
recur. And in part the reason for that is that we had the New Deal, and the New Deal
changed the nature of our economy in irreversible ways. We are still fighting a battle to preserve
the most important institutions of the New Deal, which are–include–New Deal and its
successor, the Great Society, which are Social Security, Medicare, and Medicaid, and to preserve
the larger regulatory functions that the federal government has assumed, and which in a complex
economy are absolutely essential underpinnings to the functioning of the market. If air traffic
control is curtailed, air travel will be curtailed, and everything that depends on it will also
be affected. So we are in a very different phase of, let’s
say, the outfall from the last crisis than Roosevelt was four or five years after the
crash of 1929. That said, the New Deal would not have been
possible in 1930 either. It would not have been possible, I don’t think, in 1931. It
took a certain amount of time for the realization to set in that the system was not going to
correct itself, that a truly great disaster, irreversible changes had occurred, and that
fundamental institutional reconstruction was required. And that had happened by 1933. I was just reading, for example, a little
passage from Frances Perkins, who became the secretary of labor under FDR, talking about
setting up, at Roosevelt’s instruction in the first days, some hearings with the coal
mine operators who came in asking plaintively for the government to take over the coal mines.
And Perkins, along with Harold Ickes, the secretary of the interior, who was also deputized
by Roosevelt to listen to these people, were saying, how on earth would we do that? The
government doesn’t have anybody who knows how to run a coal mine. And they simply importuned
the coal mine operators to keep going for a while until they could get some income flowing
through a revival of demand, which in fact they achieved. I disagree with Leo about the role of the
New Deal with respect to the financial sector. I think the New Deal institutions did keep
the financial sector effectively under discipline, and that the benefits of that extended well
into the–through the ’60s into the early 1970s, and even a bit beyond. It was only
really in the last 30 years that we have begun to revert to the idea that–or have reverted
to the idea that banking institutions can call the tune that public policy has to dance
to. And the culmination of that, a relatively recent reversion, was the crisis of 2009. We do in fact [incompr.] back to, you know,
agreement that we do in fact face a major problem with these unreformed massive institutions,
heavily concentrated, in control–six institutions–of more than half of U.S. banking assets, which
are not serving the purpose that a publicly chartered bank needs to serve. I think that
is a big part of our problem. The way you deal with that is to utilize,
use the instruments that actually do already exist. The Federal Deposit Insurance Corporation
has the authority to assume control of banks when they are nearing insolvency, and so as
to protect the government’s exposure via the insurance fund. And the new legislation, the
Dodd-Frank legislation, does have in principle resolution plans even for large institutions
that are more complicated than the FDIC felt it could handle in 2009. JAY: Leo, just do you want to respond to this
issue that the banks were regulated and there was–. PANITCH: The reason I’m confirmed in my socialism,
I must say, is that I think that the financialization of capitalism in the ’80s and ’90s was a product
of the contradictions that the New Deal reforms ran into by the 1960s, indeed by 1951, when,
as James indicated, the Fed-Treasury Accord was established to further beef up the role
of investment banks in New York. The truce with business by 1938 had already
preserved financial capital as a very powerful force in the United States, and it ran a rearguard
campaign against Bretton Woods and already softened a good many of the New Deal reforms,
including the labor reforms and others, by the end of the 1940s, if not earlier. So I
do think it’s right to see in the long term the extent to which the preservation of especially
financial power through the course of the New Deal era led to the contradictions when
full employment started producing wage pressure and inflation, when a completely unregulated
Euro dollar market in London began to make it very, very difficult for American banks
not to try to escape the New Deal regulation [kju] limits on interest rates, etc. These
were contradictions that eventually were to undo the New Deal reforms in a capitalist
economy which the American state was sponsoring around the world from 1945 on. So it wasn’t just a matter that some bad guys
with bad ideas got in. It was that the Keynesian New Deal reforms were increasingly running
into contradictions in the face of a dynamic and changing capitalism. And I think we need
to draw the conclusion from this that we should be looking at this inherent crisis-ridden
tendency of capitalism as an opportunity to educate people to the need to democratize
our economies. And that has to begin with democratizing, turning into democratic public
utilities those institutions that control the fundamental decisions about where investment
is to go. That’s the conclusion, I think, that needs to be drawn in the long run, although
I entirely agree that obviously the political horses aren’t there right now to even begin
to put that on the American political agenda. But I think one even wins smaller reforms
by putting that larger issue of the lack of democracy in the economy being at the core
of the problem. If we put that on the agenda, I think even the smaller reforms are more
easily won. JAY: James, if you look at ’08, when the banks
were so vulnerable, a time where perhaps there could have been this discussion of nationalization
of some sector of it or some creation of public utility banking, what happens instead of that,
the banks are, you know, bailed out, as everyone knows. But they also regain their political
power so that you can’t even regulate them. Like, Dodd-Frank, the regulations to enact
Dodd-Frank are, you know, filled with loopholes and holes. The Commodity Futures Trading Commission
can barely pass the weakest position limits that the agencies you’re talking about that
you say the tools are there, but given the politics, they can’t do anything. They’re
getting underfunded. They’re becoming smaller. Their mandates are getting weaker. GALBRAITH: What happened in late ’08 and early
’09 was, I think, an avoidable tragedy, really. And one had a competent federal agency, the
Federal Deposit Insurance Corporation, under an eminently nonpolitical leader, a Republican,
in fact, appointed by President Bush, Sheila Bair, who has written about this very clearly
in her book Bull by the Horns, and who would have, I think, given her agency’s evaluation
of the situation, moved to resolve at least several of the largest American banks at that
time. The decision to do so had to be approved by
the Treasury Department. And when President Obama appointed Secretary Geithner to the
Treasury Department, that option was foreclosed, and what one had was a Treasury which constantly
took the line that nothing could be done along these lines because that would destroy the
confidence of the financial markets, as if the confidence of the financial markets had
not already been destroyed. And I think one also has seen a complete failure
of the Justice Department to pursue financial fraud, which underlay a great part of the
development of the crisis, underlay the entire structure of the securitization of subprime
mortgages–liar’s loans and so forth–in the run-up to the crisis. And we have seen figure
after figure, insider after insider, being given a pass, to the point where one gets
the impression that to be a senior officer of a major bank is to be immunized against
criminal liability for practically anything, including, for that matter, the laundering
of the money of the drug cartels in Mexico in a recent case. So we are really seeing–have seen a very
depressing example of the culture of complacency and power of the financial sector in the period
since the crisis. And the argument I would make is twofold.
One is that this in fact has contributed seriously to the failure and inability to reconstruct
the financial sector, because after all, who is going to trust a set of institutions which
are known to be infested with fraud and where the fraud has been treated with the kind of
impunity that it has in fact received? This is a very serious problem of economic functioning,
not just a problem of justice and the rest. It has practical implications for the ability
of the financial sector to actually return to a regular order in the aftermath, and secondly,
that in fact the government does have and must have the power to begin to clean up this
sector. It did in fact do so in the savings and loan debacle, and it could have done so
in this series of events to a substantial extent. The methods are not secret. They are
known to regulators and prosecutors and investigators, and they do tend to have a disciplining effect
on the behavior of the sector for a time. Now, Leo would like to, in some sense, say
that, well, the whole system cannot be reformed, and therefore we have to resolve the contradictions
in some other way. I say–to that I say, well, you know, I’m sympathetic, but good luck.
The contradictions will always reemerge. There has to be what another Galbraith referred
to as countervailing power. And it’s a never ending task of a reasonably well-functioning
government to exercise that power and to keep the tendency of unregulated financial institutions
from blowing themselves and the economy up under control. I do think that has to–we
have to believe that that’s a possibility. PANITCH: To which I say, James, good luck.
I mean, I agree with your diagnosis, but I think the way in which the Treasury and the
other agencies are structured–and indeed, you pointed to a leader of one of the agencies
who was prepared to go a little further, and she got smashed–the way they are structured
is in terms of their embeddedness with Wall Street. And the notion that these institutions
are interested or willing, or if you simply drop me or you or Paul Jay into them, that
given the way they’re structured, they would play the kind of role that you think a regulated
capitalist economy can play, I would say, good luck. I think that’s actually more utopian
than–. GALBRAITH: Well, I would start with reforming
the Treasury Department. I think you could make out a reasonable program for achieving
that. And that is largely a question of personnel, sure. PANITCH: No, I think it’s also–it’s personnel,
but it’s also structure, certainly it’s also structure, especially in the case of the New
York Fed, which is so embedded in Wall Street. So, no, I think people like us have a lot
of room for agreement. And I would want to put the stress on the contradictions that
emerge when you leave a very powerful private capitalist class in place, which isn’t just
the market. It isn’t just competing institutions that are engaged in private capital accumulation.
They are a powerful social force. And when you leave that, that powerful social force
in place and you expect the state to be able to rein it in, I think that’s relatively utopian.
And I think we’ve seen the consequences. Sure, it took a very long time until it all worked
itself out, but I think we’ve seen the consequences of the contradictions that emerged out of
the New Deal. And I would hope the lessons we would draw
would–that were there to be the kind of mobilization from below, were there to be the kind of political
leader who in his inauguration address would be self-confident enough to use the phrases
that I quoted Roosevelt used–and I could have quoted many more–that I would hope that
this time it would be to the end of developing some more radical perspective than thinking
that we’re going to get a capitalist state to adequately sit on a capitalist financial
system. GALBRAITH: Well, I guess I can say I’m happy
to play the role of the practical-minded conservative in this conversation. It’s not a role I get
to play very often. PANITCH: That’s right. And I think this is
a lovely conversation, I have to say. JAY: Okay. We’re going to do one more final
segment, one more segment. It will be the final segment. And I want to free the conversation
up. So we’re going to imagine that there is such a mobilization, that there is a new alliance
of forces that takes over the Democratic Party and is actually in power, and it’s in today’s
world, more or less, although today’s world doesn’t have all those factors I just said.
But what would that president do? That will be the next segment. Sort of we could say
maybe it’s utopian, but a vision people could fight for. Now, thanks again for joining us. Thank you
both. And join us again for the continuation of this discussion on The Real News Network.

11 thoughts on “Gailbraith and Panitch: Is a New “New Deal’ Possible? Pt.2

  1. Now I understand and agree with what Mr Panitch is saying, which I believe is essentially that capitalism cannot be reformed. However it took the explanation of this by Mr Galbraith later for me to unravel it.

    In Copenhagen on 5/13/11 Mr Galbraith gave a superlative speech in which he linked, in no uncertain terms, the financial crisis to the massive fraud of many perpetrators. When here he says the capitalist system can be reformed, I wonder what happened to his memory of that great speech.

  2. We need a banking system that is able to make banking work for the consumer without creating a giant corporation that is only out to maximize its profits. That's all our banks are anymore; they have been captured by the greedy rich and put to making them huge profits while denying real, safe, banking to the consumer. Our Federal, and some state, government has gone the same route, and it also is under the control of the greedy rich.

  3. The US has fascism as the road of socialism allows either to spring forth.

    Would the banks be able to change the laws (in their favor) if the gov wasn't allow to change them? Of course not. They'd be forced to seek slow backdoor ways to change them slightly. If they can at all.
    Would the banks get loads of money if the gov had super low taxes and was unable to inflate with severe limits on borrowing? No, they'd be out of luck.

    You give an entity all the reigns guess what's going to happen.

  4. It's ironic that many democrats are arguing for less democracy. It's already nearly non existent at the federal level. Money and the ability to leave are the only two pillars left. And they're quickly dissolving those too. The value of money being "not important" even though endless complaints are against those who have much vs those who do not.

    And support for taxing everything from someone deciding to leave. Anti democracy is popular right now.

  5. We will not be overcoming anytime soon the fraud that exists on Wallstreet and politics until the Government liquidates the assets of these major banks into more smaller regional banks, and start putting these banksters in military tribunals. Giving these banking cartel crime families actions their due proper focus in what has amounted to treason, laundering and economic warfare in a environment and where their freedom cannot be purchased.

  6. When James Galbraith is debating Robert Higgs, I'm closer to James. When Leo Panitch is debating James Galbraith, I'm closer to Leo. When Jesus Christ is debating Leo Panitch, I'm totally with Jesus. Socialism is great when it's totally voluntary (except for in the heart) and there's no coercive capitalism (is there any other kind) trying to kill it.

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