Galbraith’s "Last Shovel"

To save us from Depression, Galbraith uses the last last shovel left, massive federal spending.

He sets out his specific proposals as if they were somehow innovative and daring. For me, they are nibbling at the edges, the stock answer U.S. capitalism always employs when its back is against the wall: Massive federal spending, massive federal debt consolidation. The title of his article admits as much.

Let’s look at the specifics and see how they work. Some of them actually move towards a more socialistic response to our problems; others, well, they simply perpetuate the problem.

Before I outline his solutions, know that I see our present predicament not only as specifically American but also global in nature. Galbraith does not look beyond our borders for solutions, a mistake, I suspect.

Galbraith’s Solutions:

  1. “Plug the tax gaps.” Problem: Local and state governments now have significant shortfalls in tax revenue. The crunch is hitting everywhere. Answer: “Revenue sharing.” By this he means, the U.S. will be writing checks on a massive scale, i.e., piling more debt on the federal government. He should have named it: Debt consolidation, moving the debt from states and localities to the federal government.
  2. “A National Infrastructure Fund.” Apparently the government will set up this fund and then use it to do the kind of capital investment that states and localities can no longer afford. While it will provide jobs and build infrastructure, we have to understand that we have simply postponed “repayment day.”
  3. “A Reconstruction Finance Corporation.” This Corporation is just a “National Infrastructure Fund” with a different set of clothes and a different task, i.e., addressing the industrial crisis, e.g., the auto industry and other industrial collapses. While it is laudatory in purpose, know again that we have just postponed “repayment day.” The national debt will explode; after deflation will come serious inflation–with all those unsupported dollars out there.
  4. “Reduce the age of Medicare eligibility to 55.” Again, Galbraith’s heart is in the right place, but this is certainly a tiny band-aid on a health care system that is bringing everyone down with it: from mighty corporations to lowly workers.
    Come on guys: Nationalize health care. Get serious. One national health care insurer: It set fees and schedules. Be bold. The time for petty tinkering is over. A privatized insurance system benefits only those with power and wealth. The powerful insurance and medical industry write the rules; the wealthy have no problems.
  5. “Home Owners Loan Corporation” that buys “back the mortgages through Fannie and Freddie,” turning “them over to a restructuring facility.” By this I think he hope he means that HOLC will actually own the mortgages and then restructure them. If so, good idea. If Fannie and Freddie still own the mortgages, expect those “semi-private” institutions to holler loud and long about how their investors are being hurt. After the present subprime wave expires, expect a new and equally large ARMS and Alt-F wave. This tsunami is not over.
  6. Raise benefits in Social Security. Good idea. I leave the how to others more knowledgeable than I in this area.
  7. Tax relief for working families “either directly or indirectly through remission of the payroll tax.” Again, Galbraith has his heart in the right place, but I still see the grinning piper entering the town. Who will pay?

What really distinguishes many of Galbraith’s solutions from Paulson’s initial response of rebate checks? Only the total bill is the difference. In many of his responses, the fundamental nature of the response is the same: More government debt. We are not drawing from some “rainy day” fund, using surpluses from good times to see us through. Some of my counters to Galbraith are blatantly socialistic (national health care, for example). I make no apologies for them. They are the way to go. We have listened to the siren song of pure privatization for far too long.

What to do? Here are three suggestions for starters:

  1. Create a national bank. Said bank will compete with private banks, even down to credit cards. Today’s banks will not lend, no matter how much money we pour into them. The credit crunch is real…and it will continue as the recession/depression deepens. In a sense, most of Galbraith’s suggestions do involve a kind of national lending facility. Well, make it official. A national bank. Why fritter around the edges, saving those banking and investment institutions that have brought us to ruin? Let them compete with a national bank.
  2. Institute a serious energy policy that makes us energy independent.
  3. Start seriously addressing our net trade imbalance and disastrous current account balance, which are the root cause of our difficulties. No nation can run our kind of net trade imbalance without imploding

This last point needs elaboration. American financial and economic power was(is?) enormous. When America sneezes, the rest of the world catches a cold. An old saw, but apt.

Capitalism, American style, is collapsing. And with it will fall the leeches who have feasted on it, i.e., China and others. How did they feast? By becoming export platforms to the U.S. We, of course, cooperated, by extending credit in every imaginable way. If we do not shake these totalitarian leeches–I call them for what they are–, then we will never get a handle on trade. Start thinking as a nation with national interests. If we do this, then we will get a handle on trade

Start thinking about a real amalgam of socialism and capitalism, welded together with freedom of thought and expression. Break the back of corporate power both in the House and in the Senate. National health care and a national bank will certainly be a step in this direction. If we disallowed any elected official from ever lobbying, we will begin to finish the job properly.