Nationalism, Tech Giants, and Spy States

John Buell is a columnist for The Progressive Populist and a faculty adjunct at Cochise College. His most recent book is Politics, Religion, and Culture in an Anxious Age.










Despite persistent efforts by the US media to cast Edward Snowden as a traitor the affair has managed to expose not only abusive surveillance practices but also (even) the supportive role of strange bedfellows in these practices.

Consider first the tech giants. Silicon Valley's leaders project an image of support for market freedoms and open communication. And they trumpet the growth of high tech as the key to the restoration of our democracy. This image is, however, historically inaccurate and hides the role of the major tech giants today.

The telecom industry grew out of government funding and support for computers and the Internet. These companies in turn have enabled government intelligence agencies to solve some of their thorniest intelligence problems. We have here, then, an incestuous relationship with ugly consequences for a democratic citizenry.

In a recent post in her "Naked Capitalism" blog Yves Smith points out that such government surveillance plans as the infamous PRISM "depict the major telecom and technology players like Google, Microsoft, Yahoo as 'partners'. That's no misnomer... If you think ordinary customers are all that important to them, given that most of the markets they compete in are oligopolies, I have a bridge I'd like to sell you... The NSA, and the Department of Defense in general, have long been sponsors and funders of advanced technology. Need we say DarpaNet?... The NSA is an important customer and validator of tech products."

Companies like Google tout cooperation with government. Smith cites Google CEO Eric Schmidt's recent claim in The New Digital Age: "What Lockheed Martin was to the 20th century, technology and cybersecurity companies will be to the 21st."

Smith adds: "If the technology companies were really concerned [about customer privacy], lobbying dollars would go a hell of a lot further than money spent in quixotic fights in the FISA star chamber. But where has Silicon Valley been spending its money?" From a June 2013 story in the Atlantic: So far the fruits of Google's lobbying efforts have resulted in a huge win in an anti-trust case, but the company has even bigger plans...Google is working on updates to the Electronic Communication Privacy Act ­ that pesky bill the government uses to justify spying on your Gmail without a warrant."

Smith also highlights the (most omit) ominous aspects of these revelations:" The extensive cooperation between commercial companies and intelligence agencies is legal and reaches deeply into many aspects of everyday life,... Company executives are motivated by a desire to help the national defense as well as to help their own companies."

I draw several conclusions from these disturbing revelations. US politics has long been characterized by a mindset that political theorist  Bonnie Honig, drawing on the work of the late Michael Rogin, labels countersubversive: "That mentality casts the United States not as a political actor enmeshed in political conflicts with a concrete history, but rather as a hapless victim of alien monsters who appear inexplicably out of nowhere, who might be hiding anywhere, and whose threatening actions justify extreme, often mimetic, (re-)actions on our part."

She quotes Rogin: "Both the postwar Soviet Union and the radical labor movement of [the 1910s] posed genuine threats to dominant interests in American society, although the nature and extent of those threats are a matter of controversy. .. But the countersubversive response transformed interest conflicts into psychologically based anxieties over national security and American identity. Exaggerated responses to the domestic Communist [we could now say Arab] menace narrowed the bounds of permissible political disagreement and generated a national-security state." Indeed, we should say that linking labor to national security issues plays a major role in the defeat of welfare Keynesianism and the later hegemony of neoliberalism.

Perhaps the strangest revelation so far from the Snowden affair is the role of our erstwhile enemy in dismissing or denigrating his principled exposure of government lies and abuses. In his first response to Snowden's request for political asylum, Russian president Vladimir Putin demanded: "He must stop doing work aimed at harming our American partners, however strange that may sound coming from my lips." Putin, like the US corporate media, seemed to feel no need to explain just how Snowden's disclosures had harmed his "partner." Though Putin has now granted Snowden temporary asylum, his long term situation remains quite tenuous. Apparently, however much these national security states may see their opposite numbers as threats, each uses these threats to defend their own abusive bureaucracies, practices and secrecy from their own citizens.

Today, spy agencies all over the world, both whether governmental or private, accumulate reams of personal data with which they can denigrate or disrupt any dissenting politics, regardless of how nonviolent. And here in the US with the especially close ties between private corporations and the national security state, an already strong tendency among elites to identify all anti-corporate dissent as inherently violent and destructive will only intensify.

Even citizens who proclaim they "have nothing to hide" will  lose the stimulation and challenge of a venturesome culture and politics. Eventually, denied any outlet and opportunity to express and refine with others, those creative thoughts themselves may no longer come.

Finally, so much for both classic laissez faire and countercultural hopes for American democracy. The former, most notably Milton Friedman, argued that free markets and capitalist development nurtured freedom of speech and thought. Not only do markets often require the coercive power of the state in order to form, once formed they hardly ever remain free. Corporate power grows in tandem with and through government. And the state is then called upon to join other institutions in  helping to shape workers, consumers, church goers, the poor and so on to fit "the roles" the system has defined for them. this is an imperative of neoliberalism, not one of its side effects.

That's is one reason it is hard today to remain aloof from politics. But for those who seek to do so the message is just as clear. If the Internet has progressive possibilities, their realization will not be automatic. Today a countersubversive culture nurtures and is nurtured by an evolving alliance of high tech giants, government bureaucrats (whom Smith calls securecrats), the older more established military industrial complex and powerful private corporations that benefit from close ties to the state, including especially the oil  and investment banking community.

If the most repressive outcomes are to be avoided, the best course might be an evolving counter-coalition that would emerge from moral and historical critiques of and alternative to the countersubversive tradition. In Emergency Politics, Honig argues that the very focus on the question of the rules that should govern declarations of emergency and the protections that can be revoked in emergencies reinforce a notion of sovereignty as unitary and top down. Thus they "marginalize forms of popular sovereignty in which action in concert rather than institutional governance is the mark of democratic power and legitimacy." Unitary and decisive sovereignty committed to its own invulnerability is "most likely to perceive crisis where there may only be political conflict and to respond...with antipolitical measures."

The best answer lies not merely in challenging the constitutional status of this surveillance state but in building a political coalition that embodies the forms of popular sovereignty of which Honig speaks. This would include labor, consumer and environmentalist critiques of and alternatives to the role of the state and markets in fostering inequality. It would be attentive to the possibilities and risks of the social media and the limits of its own interventions in these.  The coalition might advance more democratic forms of enterprise and media as well as decentralized and more sustainable forms of energy production and transportation.  And in an era where hyper nationalism erodes so many democratic impulses, cross border initiatives in the interest of widespread access to an open Internet with robust privacy protections would be paramount. (Let's hope that) Edward Snowden's travels (in a world dominated by the state passport and surveillance system) helps to highlight the stake citizens of many lands have in a democratic Internet but a more exploratory and democratic polity.

Cyprus and the Quest for Safe Havens

John Buell is a columnist for The Progressive Populist and a faculty adjunct at Cochise College. His most recent book is Politics, Religion, and Culture in an Anxious Age.

As the European financial crisis waxes and wanes, one hears a familiar refrain in the business press and on such business-boosting media as CNBC. When the risk of default in Greece or Spain appears imminent, US Treasury bonds increase in value and thereby decline in yield. The popularity of and extraordinarily low yields on such bonds are explained as manifestations of a "flight to safety."

Unfortunately the media seldom ask whether there is any safe haven any more and whether individuals managing their pension accounts can or should be asked to find the havens on their own. The latest twist in the saga of the European union's single currency, the Euro, is anything but reassuring on this score.

Is there any safer haven than money in an insured saving account or certificate of deposit? The decision by the government of Cyprus---albeit later amended---to tax, i.e. partially confiscate, even small deposits exposes one more finger of instability in the world financial structure. Ellen Brown, president of the Public Banking Institute, reminds us that: "Although few depositors realize it, legally the bank owns the depositor's funds as soon as they are put in the bank. Our money becomes the bank's, and we become unsecured creditors holding IOUs or promises to pay."

If we do not have an absolute title to the money we deposit in a bank, what happens if the bank experiences a run? In this context it is important to recognize that even prudent, well run banks---and there are many---can experience runs started by false rumors regarding the bank's solvency. The bank may face more demands for deposit redemption than it has in reserves and thus becomes bankrupt, one more ugly manifestation of the self-fulfilling prophecies that can grip social life.

In the process of the bank's efforts to survive it may call in loans and thus endanger the "real" goods and services economy. Thus one of the most important lessons of the 1930's was the need for not only a central bank that could loan money to banks facing temporary liquidity problems but also a well- financed bank insurance program and regular bank inspections by federal regulators. These could guarantee depositors their funds and thus eliminate any need for depositors to worry constantly about the solvency of their banks.

Even if there is no further fall out from Cyprus's hint that it might repudiate its obligations to depositors, the very suggestion that governments and banks might rob ordinary depositors may eventually roil world markets. Greek economist Yanis Varoufakis points out that this episode is one more indicator of the depth of the financial crisis and of how desperate elites have become to retain their power.

It is even more disturbing when we recognize that this incident was hardly an aberration. Brown points out: "Confiscating the customer deposits in Cyprus banks, it seems, was not a one-off, desperate idea of a few Eurozone "troika" officials scrambling to salvage their balance sheets. A joint paper by the US Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012, shows that these plans have been long in the making..."

True, central banks in nations that control their own currencies, such as the US or the UK, can print and inflate their way out of such dilemmas, but inflation can damage not only wealthy creditors but also some middle class retirees whose major "safe" investment was in government bonds.

These concerns are music to the ears of the gold bugs, those guys on television urging us to buy gold as a hedge against the collapse of our "fiat money." Presumably we can stash our gold under the mattress rather than in a bank. (Brown warns safe deposit boxes at banks are already subject to search in the event of a national emergency, and a financial panic would surely be deemed one.) We can then use it to purchase necessities when all the banks are closed and depositors are denied their hard earned dollars. But now we must watch our homes like a hawk in the realization that our whole life's earnings may evaporate through theft or fire. All that is solid does melt into thin air. For me, politics and the world seem to have come full circle. During the Great Depression my father went through medical school on $4,000 in gold his grandfather had stuffed under a bed.

There is a deeper lesson here. There probably is no safe haven for the individual retiree or investor. Our safe money in a bank depends on the political decision by bank regulators and ultimately the Federal Reserve and/or the US Congress to adequately fund deposit insurance programs and more generally to issue sufficient funds for the government to pay off its debts. Republicans in Congress have threatened the latter with their absurd and dangerous debt limit blackmail. If the political stink about taxpayer bailout of banks ever became sufficient, banks and their servants might pick on ordinary depositors. As one extraordinarily honest investment banker put it in an e mail exchange with me, "The issue with currency is when the 'full faith' fails. The institution of money is only as sturdy as the institutions that have grown up around it. There is risk in any and all investment be it government securities, corporate bonds, or equities."

The best safe haven remains universal, government financed programs like Social Security. Hence the desperation of the financial community to argue against all logic and evidence that it is becoming insolvent. The existence of this universal, nation-wide program is a major reason the US has weathered the financial crisis far better than the Eurozone, whose nation states have widely disparate social insurance programs. Here in the US Social Security as well as unemployment compensation act as automatic stabilizers, keeping private consumer demand from total collapse.

When I get into a survivalist mode---and all of us must from time to time---I think it best to invest my surplus earnings in tangible energy savings like solar collectors, photovoltaics, insulation etc. Here the returns to the pocket book and environment are tangible and tax- free. But many are not fortunate enough to have the capital for such initial investments and the success of such investment strategies still depends on subsidy levels and the skill sets of others.

My father used to say that stocks and bonds were just paper the value of which could disappear at a moments notice. The only true wealth was one's education. Today stocks and bonds are if anything even more ephemeral, mere keyboard strokes. I would add that our wealth is not only education but also the collaborative relations we can frame today to sustain universal safety nets and a more ecological infrastructure. Retiring to our basement safes, our ethnic enclaves, even our green bungalows won't get that done.

How do we come together to form a collective safety net in this world of rapid population flows, pluralizing modes of dress, family arrangements, styles of music and art? Some hope to restore a notion of idealized communities held together by a set of "core values" that emerge through and are refined by democratic discourse. Paul Krugman appeals to a Rawlsian vision of the social norms we would arguably all choose if we had no foreknowledge of the genetic endowment and family wealth into which we would be born. Both perspectives have their strengths and weaknesses. Debates in which both sides acknowledge the elements of uncertainty in their own positions will need to play a large role in any successful struggle for an effective safety net.

My wish is for an even more genuinely ecumenical and open ended conversation that moves not only beyond the vision of stable market equilibriums but also the certainties of the Rawslian and communitarian moral perspectives. My suspicion is that these sides share more than either acknowledges and both need some fresh challenges.Rather than seeing ethical awareness as flowing from a fixed teleology or some absolute imperative some contemporary theorists, often mislabeled "postmodern" and characterized as nihilists, present an alternative but clearly affirmative ethical perspective. Thus Jane Bennett, author of Vibrant Matter, suggests: "the starting point of ethics [may be] less the acceptance of [the impossibility of full knowledge and control] and more the recognition of human participation in a shared, vital materiality... The ethical task at hand here is to cultivate the ability to discern nonhuman vitality, to become perpetually open to it." And William Connolly, author of A World of Becoming, sees ethics as "anchored first and foremost in presumptive care for the diversity of life and the fecundity of the earth. ...Our goal is to intensify or amplify a care for this world that already courses through us to some degree...One advantage of an ethic of cultivation in a world of becoming is that it can bring this care to bear on new and unexpected situations."

We need to act in minor and major ways to build a militant assemblage of minorities of multiple types who are dedicated to ecology and equality. My aspiration is to cultivate appreciation for a world of proliferating life style minorities. Such a world would emerge and be sustained by already evolving debates among various theistic and nontheistic ethics. This may seem to be a utopian dream, but it strikes me as a more humane and even more attainable "safe haven" than any offered by the market or the conventional moralists.

The Austerity Trap

John Buell is a columnist for The Progressive Populist and a faculty adjunct at Cochise College. His most recent book is Politics, Religion, and Culture in an Anxious Age.

The Eurozone is in a deep recession. Some members even face conditions not seen since the Great Depression. Spanish unemployment tops 27 percent, with half of its youth unemployed. Not to worry, say the elites of the European Central Bank. Spain, Italy, Ireland, Portugal, and Greece, aptly abbreviated as the PIIGS, are getting what they deserve. They have spent beyond their means. Once they reduce their deficits—preferably by cutting benefits and services—confidence in the markets will increase and investments will flow in. Swallow your medicine, eat your vegetables, and all will be okay. Here in the US, despite persistent unemployment, budget deficits remain an obsession, at least with the elites. This conventional wisdom now has a new name, expansionary austerity. Austerity in its various forms and guises is the subject of a comprehensive and provocative new study, Austerity: The History of a Dangerous Idea by Brown University political economist Mark Blyth.

Blyth cites the many failings in this diagnosis and prognosis. Some of these will not be unfamiliar to regular readers of Paul Krugman's New York Times column and blog, but Blyth more fully acknowledges the importance of uncertainty in economic life, attributes more significance to the role of investment banking, and develops an interdisciplinary approach to the crisis.

With the exception of Greece, none of the PIIGS had levels of debt that disturbed markets in earlier eras. Ireland and Spain were models of fiscal rectitude. The sovereign debt crisis emerged only after their private sector banks had inflated a massive real estate bubble. This process was driven by a major transformation in the private banking world. In the eighties, as banks lost customers to the corporate short-term capital markets, they needed another business model. That model evolved to include consolidating and offloading mortgage securities. These securities bundled many homes at different levels of borrower economic strength. Risk calculations for each level were based on sophisticated mathematical models. These assumed a normal, bell curve shaped, distribution with Texas housing losses during the 1980s S & L meltdown of 40%, the worst in their sample, as the outer bound, lowest probability event. This market was further pumped up by a new form of security, the Credit Default Swap (CDS). These allowed purchasers of these multilayered securities to obtain insurance against their default.

Assuming a normal distribution, bank economists argued that a 40% decline in value of all mortgages in one of these synthetic securities was a once in a third of the life of the universe event. But as Blyth points out, "if you haven't been around for a third of the life of the universe, then how can you know what is possible over that time period? It is the assumed distribution that tells you what is possible, not your experience." (Emphasis mine) In addition, the providers of the CDS securities were unregulated, allowing them to become enormously overextended. This concoction had an unforeseeable dynamism not reducible to the sum of the parts. Its creators could not imagine that "the meshing of elements that were each intended to make the world safe, such as mortgage bonds, CDSs, and banks' risk models, could make the world astonishingly less safe. "

In Europe, this model had even worse consequences. Its banks were more concentrated and leveraged than even US banks. They soon became insolvent, threatening the complete collapse of national economies. In order to avoid such disaster, the governments of Ireland and Spain absorbed the debt, thus staining their own once pristine balance sheets.

If government deficits did not cause the problem, public sector retrenchment will not end the financial crisis. Households, having lost much of their net worth in the collapse of the real estate bubble, are reluctant to spend. If governments also slash expenditures, from where does the spending upon which the economy depends come? Your spending is my income. Advocates of expansionary austerity argue that confidence will be restored when governments shrink, thus assuring businesses that future profits will not be taxed away. But business is likely to respond only to tangible demand in the market place rather than to uncertain promises.

But the evolution of mainstream economics from the fifties on had left policy makers with few tools to address the uncertainty and unpredictability of markets. These economists, Paul Samuelson most prominent among them, had reduced Keynes to the contention that economies can be fine tuned by interest rate adjustments or at worst by discrete, specifiable in advance, injections of fiscal stimulus. Market economies were thought to display steady and predictable tradeoffs between inflation and unemployment and policy makers could choose the most desirable point. When the stagflation of the seventies came along, with high unemployment accompanied by high rates of inflation, Chicago school economists had an entry to argue that Keynes was wrong and that markets should thus be left to do their own thing.

Chicago had, however, slayed a paper tiger. Keynes was far more than an advocate of "fine tuning" via fiscal stimulus. He emphasized the uncertainty and unpredictable dynamism of markets. Capital, commodity, and even labor markets can be governed by self-reinforcing swings both internally and with each other in a climate where the future is uncertain. No single fiscal injection or interest rate adjustment can be sure to work. Thus post Keynesian economists like Nicholas Kaldor advocated international commodity reserves, especially for oil and wheat, to limit the damage of commodity speculation. In labor markets, governments could make full employment guarantees, using as much spending as it takes and even direct government hires to restore full employment. Such policies would not abolish capitalism but would rather mitigate its self-destructive potential.

The world, however, has moved in the opposite direction. The Eurozone has no central government with the power to tax and spend. When a bubble in Spain collapses, the Spanish government cannot devalue its currency. Nor can it spend more to reflate its economy and recapitalize its banks without seeing interest rates soar to unsustainable levels. And once markets see this process unfolding in one nation, speculators look around for the next most vulnerable. Their actions often provoke the next crisis. This is a true doomsday machine, as Blyth argues.

The Future of Austerity

Austerity advocates, who like to deem themselves as orthodox scientists swayed by the data, are unmoved by a totality of evidence that would surely prove persuasive in other contexts. How can a doctrine that has consistently failed in practice survive so many reverses? Perhaps the greatest strength of Blyth's work is his explanation of austerity as a leading example of what John Quiggin calls zombie economics. Despite having been killed repeatedly, it lives among us. There is an intellectual and a moral or even identity component to the survival of this bankrupt idea. Lockean notions of government's limited role as defender of individual property and the right to individual appropriation and accumulation of nature's bounty, made possible by money, is a key and deeply embedded theme in American culture. Adam Smith admits the need for government, if only to protect the rich against the envy and ambitions of the poor. But he worries about how to pay for it and is concerned that debt will lead to default and inflation that will erode the wealth of lenders.

Most telling and enduring in Smith is the morality play that so resonates today: "Saving is a virtue, spending is a vice." According to Blyth, Northern European savers "are juxtaposed with profligate Southern Europeans, despite the fact that it is manifestly impossible to have overborrowing without overlending... The conditions of austerity's appearance, parsimony, frugality, morality, and a pathological fear of the consequences of government debt—lie deep within economic liberalism's fossil record from its very inception."

Austerity will not continue forever. The reason for its demise is not its unfairness, though it is. It simply does not work. Continuing rounds of fiscal cuts depress net wealth faster than debt. Eventually populations revolt, not always in sensible and humane ways, as the experience of the Thirties suggests. Blyth makes a powerful case that austerity was a principal cause of the rise of fascism in Japan and Germany and thus of World War II.

Members of Greece's neo-Fascist party, Golden Dawn 

There are alternatives. Blyth guardedly speculates that the current investment bank business model is on its last legs. There may not be any remaining asset classes for investment bankers to "pump and dump." If that is the case, how sad that we have pursued a long, painful austerity to preserve this parasitical creature. Iceland may have been a better role model. Faced with its own banking crisis, it allowed its banks, with assets equal to ten times the nation's GDP, to fail. It recapitalized its banking system at far less cost than keeping its troubled ones alive. It devalued its currency and imposed capital controls so that speculators could not take their funds out of the country. In addition, it stimulated its economy at least until the worst downturn had been prevented. And once the economy started to right itself, government turned toward taxation of the wealthy. Iceland has far outperformed Ireland, which has followed the orthodox austerity course.

Neither Keynes nor Blyth ever said that debt does not matter. But today's heavy debt load is not a result of an irresponsible democratic government. Nor is a deep recession the time for cuts in an already inadequate welfare state. And once growth resumes, taxes would be appropriate—especially on those who have profited most from the bailout of the banks, tax avoidance, or tax rates lower than those paid by typical working citizens. But taxation alone as a path toward economic justice may be a difficult sell in America, where the prevalent mindset is "I earned it and I should get to keep it." Policy should thus also aim for reforms that foster more justice in labor markets. Over the last forty years workers have seen gains in their productivity unmatched by any increase in their real income. In a full employment economy labor can demand its just rewards. And as Dean Baker has pointed out, intellectual property holders and high income professionals use the law to extract monopoly pricing power even as blue collar workers face the perils of the free market.

Banks also merit special attention. Even if their business model is dying, steps might be taken to hasten this process. Blyth suggests financial repression, forcing them to hold low interest government bonds, thus gradually eroding their assets until total national debt is reduced to tolerable levels. In Debunking Economics, Australian economist Steve Keen presents a related idea. He acknowledges that debt forgiveness can hurt creditors, a class that might include workers' pension funds as well as affluent investors. He advocates instead a simple one-time grant of say $50,000, which can be spent only after it has been used to pay down any personal debt. This proposal has several merits. Because it is universal, it would help the thrifty homeowners sufficiently who have paid off most of their mortgage while also aiding those under water from home or student loans.

Other post Keynesian economists have advocated changes in banking law that would make bank executives doubly liable for losses in investment schemes, a measure that would surely change the whole incentive structure of banking. Banks must be returned to their role as handmaidens of industry rather than as parasitical speculators. With such changes the corrosive inequalities of the last decade can be mitigated.

One final thought I draw from Blyth is that combating the dangers of austerity may require more than economic arguments. It will also need an ethical critique, one that awards consumption its place. Such a message may seem dangerous in an era of environmental limits. Consumption, however, need not be limited to the corporate driven consumerism of our era. We might revisit John Kenneth Galbraith's moral critique of two generations ago, with his contrast of private affluence and public squalor. Especially necessary is public sector spending on a new green infrastructure, on preventive health care, university education. Equally important would be public and private art. The gains from technological progress can also be "spent" on more leisure, with all its possibilities, rather than more goods. Austerity is a passionate opponent and demands a multifaceted response.

New Deal Liberalism's Checkered Past and Uncertain Future

John Buell is a columnist for The Progressive Populist and a faculty adjunct at Cochise College. His most recent book is Politics, Religion, and Culture in an Anxious Age.

Why have US liberals and European social democrats been unable or unwilling to combat the fiscal austerity that so captivates the world? On one level the answer is obvious. A more strident, self-confident, and well-financed conservatism has been in the ascendance. But New Deal liberalism and European social democracy have had internal problems of their own. A radical liberalism must address not only its conservative foes but liberalism's own tensions and limitations.

It is easy to forget today just how surprising the triumph of the pro-capital ideology is. That ideology celebrated markets free of the state as the source of a dynamism and sensitivity that no government bureaucracy could achieve. That conviction seemed decimated by the events of the Great Depression. Conservatives' claim that in the proverbial long run things might work out seemed scant comfort to even many of the business leaders of the immediate post WWII generation.  That generation had experienced the success of World War II rearmament and even such unorthodox practices as price controls and rationing.

Yet Friedrich von Hayek, the principal architect of the market celebration, was too clever a polemicist not to have an answer. If one is losing the argument over economics, change the conversation.  He argued strenuously that whatever the success of wartime planning, any economic planning led inexorably to the excesses of totalitarianism.

Irish political economist Philip Pilkington, in a blog post for Naked Capitalism, counters: "One may as well make the observation that totalitarianism was often accompanied by arms build-up, therefore arms build-ups 'cause' totalitarianism. " He adds that it is absurd to suggest that "Hitler's Germany and Stalin's Soviet Union ­ had formed because a naïve democratic government had engaged in some economic planning that then got out of hand and resulted in tyranny."

Pilkington reminds us that the harsh economic demands of Versailles led to hyperinflation in Germany and the turmoil that aided Hitler. Nazi popularity waned once US loans began and inflation subsided, but after the crash of 1929, unemployment soared and was exacerbated by the Weimar government's misguided turn to austerity. Hitler resumed his disastrous march to power.

Pilkington, however, warns us: 

Hayek's delusion, with all its emotional overtones, spread quite effectively. Today whenever we encounter an anxiety-ridden Tea Partier, it is Hayek's delusion that we are hearing echoed through the chambers of history, albeit in slightly vulgarised form. It is the fear, distrust and paranoia which Hayek's portrait of a free society descending into barbarism evokes that captures the minds of those it touches. That it is completely deluded and ignorant of history only makes it more effective, like all propaganda, in its role as propaganda. The bigger the lie, the more emotional investment it requires to believe in and so the more it captures the uncritical and the emotionally weak.

Pilkington's analysis is provocative, but he perhaps places too much emphasis on the role of Hayek and the libertarians in the post World War II era. That era was marked by domestic and international bargains shaped by pragmatic business and political leaders who accepted at least some role for government and even unions. Hayek and his sympathizers did not go away. They provided a kind of background chorus ready and willing to reassert themselves when the opportunity presented itself, as it unfortunately did.

In the late forties even some US business elites recognized the need for stable market demand in order to sustain an ever more productive capitalism. They supported the economic reconstruction of their erstwhile enemies and tolerated moderate unionism. This Grand Bargain between labor and capital brought steady economic growth and declining inequality both in the US and Western Europe.

That bargain, however, contained the seeds of its own undoing. Revolutions were occurring in the developing world, upon whose resources the major industrial powers depended. On the economic front, Japan and Germany achieved remarkable gains in productivity while American workplaces experienced increasing turmoil. Unions had been granted the right to bargain over wages, but questions of workplace organization had been ruled out. Furthermore, minorities had been left out of the Grand Bargain and began to express their discontent amidst the growing general prosperity of the sixties. The consequence of turmoil abroad and at home was soaring government expenditures for a welfare/warfare state.

The late sixties and seventies are remembered for the conjunction of unsettling antiwar, civil rights, and feminist movements. But equally part of that story, both as a consequence and intensifier of the crisis, was the so-called stagflation, the bouts of inflation coincident with rising unemployment.

Economist Robert Vienneau, drawing on path- breaking work of Cambridge economist Nicholas Kaldor, asserts: "the prelude to stagflation was also marked by a significant explosion in commodity prices that occurred in the second half of 1972. Part of the problem was the failure of the harvest in the old Soviet Union in 1972-­1973 and the unexpectedly large purchases on world markets by the Soviet state. That was exacerbated by the uncertainty caused by the break up of the Bretton Woods system, after Richard Nixon had ended the convertibility of the US dollar to gold on August 15, 1971."

That breakup itself was rooted in part in the combination of massive military spending and social welfare expenditures designed to address the growing social revolutions of the period. That decision marked the US movement from a creditor nation to one burdened by a trade deficit. In a recent interview, Greek economist and author of The Global Minotaur, Yanis Varoufakis comments:

What Nixon recognised was that, once the US had become a deficit country, [its Bretton Woods era role as supplier of global credit] could no longer function as designed. Paul Volcker had identified with immense clarity America's new, stark choice: either it would have to shrink its economic and geopolitical reach (by adopting austerity measures for the purpose of reigning in the US trade deficit) or it would seek to maintain, indeed to expand, its hegemony by expanding its deficits and, at once, creating the circumstances that would allow the United States to remain the West's Surplus Recycler, only this time it would be recycling the surpluses of the rest of the world (Germany, Japan, the oil producing states and, later, China).

The US made the latter choice, with implications not only for its economy but for the future of its democratic politics as well.

Corporate Reconstruction of the World Economy

The breakdown of the international economic order created in the wake of World War II was something its authors had not anticipated. How was the US to move from being the world's greatest creditor to its biggest balance of trade debtor? We are still grappling with the consequences of this transformation. Getting to a new world where capital would flow into the US markets was difficult and stressful. Post Keynesian economist Nicholas Kaldor pointed out: "The end of Bretton Woods (the post-WWII international monetary system) was momentous: inflation expectations and instability on financial and commodity markets resulted, as well as a rise in commodity speculation as a hedge against inflation. This contributed to the cost-push inflation that was being felt in many countries after 1971. This could have been averted had the United States not dismantled its commodity buffer stock in the 1960s."

It could also have been mitigated had automatic cost of living escalators not been built into many standard labor contracts, thus making inflation self-sustaining.  Kaldor points out that "From 1968­-1971 there were the beginnings of inflationary pressures, in both wages and prices in many industrialised nations. There is of course an eternal struggle in modern capitalism between labour and capital over distribution of income, and sometimes this can get out of control. Post Keynesians recognise the need for some kind of [government mandated incomes policy] in modern capitalism, when wage gains become excessive..." I would add that such struggles can become especially intense as compensation for workers' lack of control over their own work process. An incomes policy that included profit sharing and participation in management could blunt wage price spirals without disadvantaging labor.

In the seventies, however, not only did inflationary surges coupled with job insecurity cause real harm, they also contravened the expectations of the architects of the grand compromise. Keynes himself saw a need for international and domestic institutions to regulate speculative finance and to compensate for and provide buffers against unpredictable bouts of underconsumption and overproduction. These would serve as employer of last resort with whatever it took.

However, American economists like Paul Samuelson had watered Keynes's insights down to a more conservative, market- oriented approach. Samuelson had assumed that except in dire circumstances capitalist economies could be managed via the Fed's adjustment of the interest rate to provide a stable and predictable tradeoff between inflation and unemployment.

It was just these predictable tradeoffs that stagflation contradicted. The ability — even during periods of sluggish growth — of large corporations to administer prices, of speculators to drive commodity prices higher, and of unions to gain wage increases in lieu of other privileges and satisfactions denied by the grand compromise undermined broader public faith in government. It thereby/encouraged a retreat to Hayek's pre-Keynesian economic orthodoxy.  Thus enter Paul Volker in the late seventies and a new economic agenda that as summarized by Varoufakis, meant that: "To attract wave upon wave of capital from Europe, Japan and the oil producing nations, the US had to ensure that the returns to capital moving to New York were superior to capital moving into Frankfurt, Paris or Tokyo. This required a few prerequisites: A lower US inflation rate, lower US price volatility, relatively lower US energy costs and lower remuneration for American workers."

The seventies were a time of economic uncertainty and doubt. Right wing think tanks pounced on the failures of American Keynesianism. They articulated a libertarian celebration of the market in order to blunt demands of labor and the left. Nonetheless, in practice they were not above support or at least toleration of a series of bailouts of investment banks and special subsidies and privileges to well placed corporate enterprise, such as military and pharmaceutical giants.

Even the organized Left, both in the US and much of Western Europe, played its role in this transformation. Varoufakis argues that Left and Labor parties "saw the rivers of privately minted money that the financial sector was printing (while labour was squeezed and real estate prices soared) and thought they could harness some of it in order to pursue social democratic policies! ...Let finance free to do as it pleased and then tap into some of its proceeds to fund the welfare state. That was their game and, at the time, it seemed to them a better idea, more fathomable, than having to be constantly in conflict with industrialists, seeking to tax them in order to redistribute. In contrast, bankers were quite easy going. As long as the leftist politicians let them do as they pleased.... Alas, to be allowed that small portion  [t]hey had to shed their distrust for unfettered financial, labour and real estate markets And so, when in 2008 the tsunamis of capital produced by Wall Street, the City and Frankfurt crashed and burnt, Europe¹s Social Democratic side of politics did not have the mental tools, or moral values, with which to subject the collapsing system to critical scrutiny."

This transformation relied on more than economic discourse. Brown University political economist Mark Blyth has argued in The Great Transformations, "In moments of crises when agents are uncertain about their interests they resort to repertoires of action that resonate with their core identities."  Corporate inspired attacks on "big government" resonated with nationalist and fundamentalist attacks on liberalism for its purported support of the racial and life style minorities emerging politically in the late sixties and seventies. In subsequent years immigration has emerged as a hot button issue that encouraged vilification of another minority and thereby defused potential radical economic currents.

A More Egalitarian Future?

However discouraging this journey may seem, it does point up several zones of vulnerability in the current order. Progress is being made on the social issues. Immigration has added to the political resources progressives might be able to mobilize. Occupy Wall Street has raised issues of corporate power, capital mobility, and finance regulation in ways that might resonate with a majority.  The collapse of manufacturing firms, traumatic as it is, also gives opportunities for direct forms of worker control and ownership, especially in a climate where bailout of financial institutions has become common.

Other religious currents have raised issues of social justice, and dissenting currents even within fundamentalist theologies have expressed concerns about the future of God's Creation.  The philosophical and theological grounds on which future coalitions may grow are shifting and contested, but respectful debate among those committed to a more egalitarian and sustainable future can strengthen the resolve.

Along these lines, paradoxically the environmental crisis may offer some hope on the political economy front. The inability of unregulated markets to handle these complex issues is becoming apparent to more of us along with the need for a government planned and financed green agenda. There are ample resources and causes with and for which to organize. Perhaps Hayek's greatest contribution is the lesson of perseverance even in dark times.