Laissez Faire Capitalism: Except When It’s Not

Tom Tomorrow

In this heated season of GOP primaries, we hear, ad nauseum, about the virtues of “small government”, Adam Smith’s “invisible hand of the market”, and the almost holy power of “laissez faire economics”, which, in French, basically means “get the hell out.”  As in:  corporations are entirely capable of being self-regulating, both financially and ethically, and they don’t need no stinkin’ Feds looking over their shoulders.  For more elucidation on this sweet Fairy Tale, please see anything written by Ayn Rand.

What have been the results of deregulation in the past?  Let’s start with a familiar name – Leland Stanford – an infamous member of the Big Four (aka, “The Octopus”) which held a stranglehold on the nation’s transportation with their unabashed monopoly, The Southern Pacific Railroad.  It certainly gave Mr. Stanford enough money to endow a nice university in his name. And to earn the sobriquet “Robber Baron.”

Now onto the airlines.  You could say that prior to deregulation in 1978, fares were kept artificially high and the Friendly Skies loved it.  But what has happened since?  Nine major carriers have declared bankruptcy or are no more (including United, Delta, Braniff, American, Pan Am, Continental, and TWA).  The level of service has sunk beneath appalling – no food, baggage fees, potential carry on fees, seats that could barely hold a Hobbit, flight attendants who go postal due to increased layoffs and higher workloads.  Even pilots are having episodes mid-flight, and safety standards have inched down the inflatable slides.

Anyone remember Alaska Flight #261, which crashed into the Pacific because the jackscrew wasn’t properly greased?  I personally spent a fun-filled twelve hours in the Honolulu Airport (at least they had hula dancers) because my plane needed a new battery.  I didn’t realize it was like your car, where the AAA shows up with jumper cables.  Personally, I’d pay the higher pre-reg fares to get:  1) A decent meal (Alaska used to serve baked salmon!) 2) The peace of mind that some semblance of maintenance has taken place 3) A flight crew not collectively on the verge of a nervous breakdown.

Microsoft’s tech version of “laissez faire” was certainly unique.  Bill Gates, before his later, humbler period, was a hyper-aggressive bastard who either bought his competition or put them out of business.  Anyone remember Netscape?  At one point, they had the browser market sewn up.  Then Bill came along, bundling IE Explorer with Windows (which was at one time on 90% of desktops), and Netscape now occupies that place where FoxPro, Lotus 1-2-3 and WordPerfect gently sleep.  Of course, billg. and crony steveb. attained that market share by forcing PC makers to bundle their machines with Windows, or else.  Clinton’s DOJ brought this to the fore, and Microsoft was saved from breakup by the reign of King George W. Still, they must now abide by what are frequently known as rules.

Let’s look at the precursor to this Great Recession, one brought about by exactly the same factors:  deregulation, massive fraud, and greed.  In the 80’s, it was decided by the Wise Powers in Congress that Savings & Loans could now make risky real estate loans without undue supervision.  Why, they could even lend money to themselves!  This brought about the failure of 747 S&L’s.  Total cost of bailout?  A mere 87.9 billion. [1]  Those involved in one of the biggest financial scandals in US history?[2]  A certain Neil Bush (yes, from those Bushes) whose fraud was so great that he was forever barred from the banking industry; a Senator John McCain (one of the “Keating Five”), and a certain astronaut/Senator named John Glenn.  You will be happy to know, though, that the average sentence for those S&L execs who went to jail was 1/5th that of the average bank robber.[3]  Here’s another foreign phrase which should always appear next to laissez faire:  Caveat Emptor (“Let The Buyer Beware”).

Which brings us to these Modern Times.  Was it really just 2001 when Enron finally imploded?  Doesn’t that scandal seem almost quaint in the wake of 2008?  Due to greed, corruption, stupidity, and greed, the US economy tanked due to the implosion of the real estate market, subprime lending, and Wall Street’s unfailing knack for creating something (to be securitized) out of nothing.  The result?  Then-Treasury Secretary Henry Paulson going on bended knee before Congress, begging for a $700 billion bailout of “too big to fail” companies.  You may have heard of some of them:  Wells Fargo, B of A, CityBank, JP Morgan Chase, Goldman Sachs, Morgan Stanley, AIG, AMEX, Discover.

Oh yeah – GM and Chrysler.  Now, in the harsh land of Capitalism where workers can be decapitated – uh, downsized – by the thousands, to increase profits and offshoring, the Feds suddenly felt sorry for the automakers (they are after all, people), and kept them from closing their massive doors.  In the theoretical realm of laissez faire, their failure would have happened (Hey, they couldn’t compete, they stayed too long with SUVS, boo hoo).  Exactly the rhetoric that the Newts and Mitts spout every day.  However, in the real world, the results would have been disastrous:  thousands more losing their jobs; the death of two great American icons; the death of a U.S. city; stowaways in allied industries going down with the ship, no more Camaros, ever.  This simply could not be.

TARP put to the lie forever laissez faire as a consistent economic policy.  America will not let Coke go out – nor Disney, GM and Chrysler.  Who would sponsor the next Olympics?  The funny part is the attitude of the bailed-out execs themselves:  they are all for hands-off  government when it comes to things like safety and profits.  But the moment they risk going under, they accept corporate welfare with more eagerness than Ismay stepping into that lifeboat.  And unlike actual welfare recipients, they aren’t required to work for it.  In fact, the more they mismanage their business, the more cash (and bonuses) they’re awarded. Talk about failing upward.

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