Government bailouts and their effects on consumers

Government Bailouts

Bailing out American capitalism in the present depression was far more expensive than most of the public will ever realize, especially since many of the costs were deliberately hidden. This Great Bailout was much larger than the Troubled Assets Relief Program (TARP), which went to the large banks, insurance and automobile companies. All but $50 billion of this has been paid back, but that was only one small part of the bailout. Governments concentrated on bailing out the banks and corporate elites rather than creating public works and jobs programs as Keynes would have recommended, and the costs in low wages and high unemployment for the working class and middle class was at least $5 trillion. Wall Street is profitable and the bankers are getting their bonuses, but ordinary workers and consumers at the lower and middle levels of the economy are suffering the worst conditions since the Great Depression of the 1930s. They also had to absorb most of the costs of the rampant speculation of the housing bubble and its collapse in 2008-09, which is conservatively estimated to be $10 trillion. These housing values will not return to the pre-bubble levels in a generation -- if ever -- but there has been no effective federal program for home mortgage relief as there was in the 1930s. So far the Federal Deposit Insurance Corporation has spent about $500 on collapse banks, which have not failed at this rate since the 1930s, and the Federal Reserve has also spent about $2 trillion to but bad mortgages and assets from the banks. In addition, the bailout of Fannie Mae and Freddie Mac, which also participated in the housing bubble, is likely to cost one trillion dollars. Following monetarist policies of keeping interest rates at zero for three years has costs retirees and small savers about $2 trillion in lost interest. Finally, about $300 billion of the almost one trillion in government stimulus spending is basically missing and unaccounted for. In short, the bailout of Wall Street and corporate America has turned out to be larger than the Gross National Project of the United States, although ordinary workers and consumers are quite correct in their belief that very little of it has benefitted them. Almost all of it has gone to save the elites at the top of the social pyramid, and the nation's wealth is more concentrated in their hands today than at any time since the 1920s.

Although these policies were often called Keynesian, they actually had more in common with Herbert Hoover than John Maynard Keynes. To be sure, Keynesians would claim that the free market revival and unregulated capitalism over the last thirty years had in fact led to a disaster that his policies were designed to prevent, and the crash of 2008-09 was entirely predictable to anyone who had studied economic history. Under a true Keynesian policy, governments would ensure full employment to maintain maximum aggregate demand, while on the supply side taking action to ensure that monopolies and oligopolies that keep prices artificially high. In the present recession, the parallels with the situation in the 1930s are all too obvious. Were he alive today, he would demand more equal distribution of income, and point to the growing inequality of wealth and incomes over the last thirty years as a major cause of the current depression. He would also be critical of the electronic economy that allows speculators to make billions by pushing a few buttons on their computers, while hard work that makes a real contribution to the economy and society often goes poorly rewarded. Keynes would also oppose the culture of bonuses, stock options and golden parachutes on Wall Street and throughout the corporate world that reward this type of short-term, speculative activity, and would be far more sympathetic to organized labor, public investment and social welfare spending than conservative economists and politicians. Government policy would be directed towards public works, full employment and a more egalitarian tax system and distribution of incomes, and if this does not occur then the current depression will drag on for many years. None of this has really happened in the present recession since trillions of dollars in bailouts have gone to large banks and corporations while working class and middle class consumers are struggling with very high levels of poverty, unemployment and foreclosures.