Capitalism is Okay. Crony Capitalism Is Not.

The United States of America is not a capitalist society. What we have is a system of crony capitalism. The trend started after Lincoln’s assassination, and the Reagan-Clinton era was when crony capitalist policies hit critical mass.

Make no mistake: the “Great Recession” was the direct result of Ronald Reagan and Bill Clinton economics—the two were virtually indistinguishable, and the latter, being a Democrat and a decade later, got away with things that the former never could have. Further, both Bushs and Obama took these policies as a given, never straying from them. Indeed, Obama, like Clinton, got away with things no Republican could have. The best examples are anything related to the economy that either Attorney General Eric Holder or Chief of Staff Rahm Emanuel touched.

The fact that we have this crony capitalist system is precisely why there is an anti-capitalism backlash all across the nation. Even people who do not characterize themselves as anti-capitalists regard the crony capitalist system with disdain, though they may not even know what it is that they reproach. At the end of the day, for the poor and middle classes, it is a feeling before it is anything else: a feeling that the game is rigged.

It is. Badly. And yet, righting the course is not so hard a thing as it seems. Nor are the necessary measures nearly as radical as they appear at first blush. We simply have to undo most of the past thirty years. From there, we replace what we have undone; more on this in a bit.

First, we talk about how Reagan and Clinton destroyed capitalism, distinguishing between it and the crony variety along the way. Then, with words and imagination, we build a new capitalist system. Yes, fellow progressives, the new system is still going to be mostly capitalist. But so different than what we have now—a truly egalitarian economy that nonetheless rewards innovation, raw talent, and hard work.


The great tragedy of our time is that these two men are regarded with esteem. Republicans love Reagan, and Democrats love Clinton. Some Republicans love Clinton, and some Democrats love Reagan. This story is sadder than Romeo and Juliet.

After WWII, America built the most prosperous society the world has ever known. The top 10% and the bottom 90% gained wealth at roughly equal rates. A family could get by with only a single breadwinner. I could go on, but I know I do not need to, so thoroughly is this knowledge ensconced in the American psyche. We have Eisenhower and Kennedy to thank. And Nixon too; that guy wasn’t half as crooked as Reagan and literally every president who came after him.

Then along comes trickle-down economics. Blah. This is when the transition to crony capitalism is complete.


So let’s put some meat on the bones of “crony capitalism.” Trickle-down economics is the founding principle, bleeding into all else. Once again, every president since Reagan has employed trickle-down economics.

The thing about trickle-down economics is that it’s a lot like communism. It works in theory. In reality, it is divorced from . . . well . . . reality. It ignores human greed. You know. One of the seven deadly sins. This isn’t anything new here, people. The reason why communism lost so quickly is that it ignored two of the sins: greed and sloth. Oh yeah, in the background, driving the packed vehicle that is this switch to crony capitalism, is the Cold War and the military industrial complex.

But crony capitalism is much more than its foundation, trickle-down economics. Let’s bring in some specific examples.

Reagan’s sweeping deregulation. Clinton’s repeal of Glass-Steagall. His Telecommunications Act of 1996. Crony capitalist policies all.

Because the thing about capitalism is that it only works if it is well-regulated. But stop and re-read that sentence. I did not say regulated. I said well regulated.

The balancing act that is regulating a capitalist system is not easy. Too much and you stifle prosperity, too little and you get the “Great Recession” (I fucking hate that term). Stupid regulations slow things down, unduly burdensome. Some can even be destructive. Worse, regulation can be the source of corruption—just ask anyone who has ever tried to get a zoning change in the City of Chicago. The devil is in the details; a strong, egalitarian, capitalist society requires smart regulation that does exactly what is needed and not a thing more.


Here’s how the global economy tanked. The Glass-Steagall repeal was the first true domino; thanks to Bill Clinton, investment and commercial banks are able to merge into one, where once they were forced separate. These megabanks grow exponentially, as does their access to resources. Then they started bundling mortgages, buying and selling the packaged debt, trading on it, betting on the housing market—in other words, doing all those things that Wall Street does. This proved to be a huge money-maker, so all of a sudden there was this huge demand in the banking industry for bundled mortgages. A demand born of nothing more than bankers’ desire to get filthy rich and a belief that the housing market was infallible.

Enter the lenders, the builders, and the buyers. This demand for bundled mortgages means lenders start giving out much riskier loans. Worse, the government, emboldened by the fact that so many people are realizing the American dream of home ownership and anxious to take credit, encouraged the risky loans in a variety of ways. Here we get our “toxic assets/debt.” The people buying houses think “hey, if the bank says I can afford it, I must be able to afford it” when in truth they really cannot—the only reason they are getting the loan is because their mortgage is going to be bundled with others so that Wall Street can make money off of them. Yes, that is the sole reason. Now more people are buying houses, so the construction industry steps up to meet this demand.

So we have two artificial demands in our supply-demand market economy: housing stock and bundled mortgages. But that’s not all, folks.

Enter the insurance industry. The banks know that they have a lot of risky mortgages in their bundles. So they insure this risk with an insurance company. Of course, there are a ton of insurance companies. But one giant took on more of this risk than all the rest combined and then some: AIG.

crony capitalism

Alane Golden — Flickr.

This is when the bottom falls out. Bear Stearns is the first bank to collapse, and the government immediately bails it out. Then they nationalize Fannie Mae and Freddie Mac and let Lehman Brothers fail, just as the fact that AIG is about to tank comes to light.

Understand that AIG is the cliff’s edge. If AIG fails, we are talking true chaos. So the government bails it out too. This is not conjecture. An insurance giant like AIG has its hands in everything, from teacher pensions to mortgages to the motherfucking space program.

In the end, more than $700 billion of taxpayer dollars are dished out free of condition. Free of condition, and why? Because, if there were restrictions on the bailout money, the fucking banks would not have taken it.

How did they spend the money? Well, we know that they did not stop paying out huge bonuses and salaries, though they were all much smaller by then. Some of them eventually paid it back. But the one thing they did not do was loan it out to Americans, as the government wanted.

Now, that’s a lot of fucking up. And why was it all possible? Reagan deregulation and the repeal of Glass-Steagall.


Let’s put this in perspective, through the eyes of the bottom 99%. Hell, really only the top .01% were unaffected by the Great Recession. Indeed, those bastards profited off of it even as the banks and companies they owned caused it. Strange, that.

The middle class took a huge hit and shrunk. Let’s start with the upper middle class. This group, today, is better off even than before the Great Recession. Though it is no less sensitive to a sinking economy, it members are equipped to weather storms, and they gain wealth steadily over time. But still, if you are upper middle class, you lost a lot those years and probably had a very stressful time. Furthermore, though some of the Reagan deregulation definitely helped you, some of it stifled you, some of it hurt you, and the Glass Steagall repeal absolutely was not good for you—unless you work on Wall Street, of course.

So, to the upper middle class, I say this: in the grand scheme of things and over time, you benefit from undoing the past thirty years of economic policy more than you do from keeping them in place. This is especially true because undoing the past thirty years will grow the middle class a great deal, not only adding to its numbers but also increasing its political might. More tax revenue, more jobs, more everything.

Now to the rest of the bottom 99%. The middle class is vanishing. Furthermore, gone are the days of the good union jobs and single breadwinner homes. Don’t get me wrong; I’m not saying women should be kept in the kitchen or anything like that. I’m saying it’s a shame that most families do not even have the option of one parent staying home. Children having more direct contact with their (nonabusive) parents is never a bad thing, and, if an individual parent would prefer to be a stay-at-home one, that is their decision and theirs alone.

Thus, it is the poor and middle class who most clearly benefit from undoing Reagan/Clinton-nomics. The last thing to do before we move to building our new system is rebut an argument. Some would say that what I call “crony capitalism” actually is better for the global poor and middle class. And, on that, I call nonsense. But, to understand why it is nonsense, we need to build our new system.


Folks, is it really so hard to imagine a world in which, instead of giving so much of our tax dollars to the military industrial complex, we instead do stuff that, you know, truly helps people? P.S. You should probably read this earlier piece of mine.

We waste—and waste ($640 toilet seats in the Pentagon), and waste (this DoD Inspector General Report is a must-read)—enough money in defense spending to guarantee every American citizen housing, food, water, good education through college, and healthcare. Never mind this is the humane thing to do; it’s also good policy that benefits all except the .01%. After guaranteeing these things, then we go full capitalism.

You want to create jobs? This is the way to do it. Make it so people don’t have to worry about spending money on the necessities. How many new businesses will sprout up? How many new artists will discover their talents? How many new people will be called to professions such as teaching, policing, fire-fighting, things we need but have a hard time attracting people to because the pay is so little? The benefits are boundless. Can you imagine the increase in police and teacher professionalism if the fact that these people make no money was not an issue?

And the best part is we do not need to take from anyone other than the military industrial complex. There is more than enough money there.

Now, we have to take a moment to rebut another argument. Conservatives who understand constitutional law will here draw an important distinction between positive and negative rights. The former are rights to something, while the latter are rights that guarantee the government won’t do something. Our Constitution only guarantees negative rights, and the framers certainly understood the difference between the two. And Conservatives will say that to guarantee positive rights is to create a form of slavery.

Yes, I have had this argument made to me. That to guarantee housing and all the rest is to create slavery. I promise it’s not as stupid as it first sounds.

The argument goes like this: to guarantee these things means that the government absolutely must provide them. Duh. This means that many someones need to do these things, build the houses, etc. Thus, because the government must have this labor supply, guaranteeing positive rights creates slaves.

This argument only works in theory, and two points destroy it utterly. First, the argument is completely divorced from reality. To say that there won’t be people clamoring for jobs to build houses and the like—whether the employer is the government or a private entity—is to live in an ivory tower built on an island of bullshit. Second, the argument is already disproven by our present system. Though the Constitution does not guarantee positive rights, there are plenty of statutes that do.

So there it is. Capitalism is cool, so long as we do it humanely and regulate the markets intelligently. Crony capitalism sucks, and the past thirty years of economic policies need to be undone. And we have a huge piggy bank to smash: the military industrial complex.


Featured image by RosieTulips via Flickr.