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Noam Chomsky Looks at How the System Is Rigged to Ensure That Corporations Always Win

Truthdig – By Noam Chomsky/Moyers and Company – May 17, 2017
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Photo: Noam Chomsky by jeanbaptisteparis / CC BY-SA 2.0

Noam Chomsky’s new book, “Requiem for the American Dream: The Ten Principles of Concentration of Wealth and Power,” based on the film of the same name, is a primer in Chomsky’s analysis of the faults of the American political and economic system. Taking as its backbone the idea that “a significant part of the American Dream is class mobility: You’re born poor, you work hard, you get rich,” Chomsky systematically documents the many ways the system is rigged from top to bottom to ensure that corporations always win.

As Truthdig columnist Chris Hedges notes in a blurb for the book, “Its power to write its own laws and regulations, Chomsky points out, has ultimately created a mafia economic system and a mafia political system that is exemplified in the rise to power of the demagogue Donald Trump.”

In this book excerpt, we present here Chomsky’s Principle #6: Running the Regulators.
Running the Regulators

If you look over the history of regulation — railroad regulation, financial regulation and so on — you find that, quite commonly, it’s either initiated by the economic concentrations that are being regulated, or it’s supported by them. And the reason is because they know that, sooner or later, they can take over the regulators and essentially run what they do. They can offer what amounts to bribes — offer them jobs or whatever it may be — it’s an advantage to the regulators to accommodate themselves to the will of the powerful. It happens naturally in many ways, and ends up with what’s called “regulatory capture.” The business being regulated is in fact running the regulators. The banks and bank lobbyists are actually writing the laws of financial regulation — it gets to that extreme. That’s been happening through history and, again, it’s a pretty natural tendency when you just look at the distribution of power.

Glass-Steagall

During the Depression, one of the regulations instituted was to separate commercial banks, which are where deposits are federally guaranteed, from investment banks, which just take risks and there are no federal guarantees. They were separated in what was called the Glass-Steagall Act.

In the 1990s, the economic programs of the Clinton administration were run pretty much by Robert Rubin and his associates — people who basically came out of the financial industries — and they wanted to overrule this law from back in the ’30s. They succeeded, in 1999, by undermining Glass-Steagall with the cooperation of right-wing Republicans, Phil Gramm and others. That meant that, essentially, the risky operations of investment banks ended up being guaranteed by the government. Well, you can see where that was going to lead — and it did. At the very same time, they also barred regulation of derivatives — exotic financial instruments — which meant that they could take off unregulated. Now all of this is quite safe as long as you know the government is going to come to your rescue.

Revolving Door

In fact, what Robert Rubin himself did after having achieved this, he went and became a director of Citigroup — one of the biggest banks — and made use of the new laws. He helped them take over a big insurance company and so on — made a lot of money — and it crashed. He went off with all his money, came back as Obama’s chief adviser, and then the government bailed out Citigroup — as they’ve been doing for years, in fact, since the early ’80s. As senators, representatives and advisers in the government leave the government and go into the commercial industrial (by now mostly financial) systems that they’ve been theoretically regulating, it is almost a consequence to have regulatory capture. That’s where their associations are, that’s where they belong. So they move in and out of these systems, and what it means is that there’s the same very close interaction — one aspect of which is the “revolving door.” So you’re a legislator and you become a lobbyist, and as a lobbyist, you want to control legislation.

Lobbying

One of the things that expanded enormously in the 1970s as the business world moved sharply to try to control legislation is lobbying. There was a huge effort with lobbyists to try even to write legislation. The business world was pretty upset by the advances in public welfare in the ’60s, in particular by Richard Nixon — it’s not too well understood, but he was the last New Deal president, and they regarded that as class treachery.

In Nixon’s administration, you get the consumer safety legislation (CPSC), safety and health regulations in the workplace (OSHA) and the EPA — the Environmental Protection Agency. Business didn’t like it, of course — they didn’t like the higher taxes, didn’t like the regulation. And they began a coordinated effort to try to overcome it. Lobbying sharply increased. New think tanks were developed to try to control the ideological system, like the Heritage Foundation. The spending on campaigns went way up — in part, the result of television. And there was just fantastic growth of the role of finance in the economy. With this, deregulation began with a real ferocity.

Deregulation and Financial Crashes

Remember, there were no financial crashes in the ’50s and the ’60s, because the regulatory apparatus of the New Deal was still in place. As it began to be dismantled under business pressure and political pressure, you get more and more crashes, and it goes on right through the years — the ’70s is where deregulation starts, and the ’80s is where crashes really take off.

Take Reagan — instead of letting them pay the cost, Reagan bailed out the banks, like Continental Illinois, the biggest bailout of American history at the time, 1984. In the early 1980s, the US went into the deepest recession since the Great Depression, only to be pulled out by various forms of subsidy, and so on. In 1987, there was another financial crash — well, pretty close, Black Monday. Reagan actually ended his term with a huge financial crisis — the savings and loan crisis — and, again, the government moved in and bailed it out.

Too Big to Jail

The savings and loan crisis was a little different from the 2008 financial crisis, because the perpetrators were brought to court and tried, and a lot was learned from the trials about the chicanery, shenanigans, trickery and crimes that were carried out. Not this last time. Power has become so concentrated that not only are the banks “too big to fail,” but as one economist put it, they are also “too big to jail.” The only kind of criminal investigations that can be undertaken are, for instance, insider trading, where the criminal is actually harming other businesses — that you can do something about. But where they’re just robbing people, that’s done with impunity.

Deregulation went on through the Clinton years. Clinton came along, and there was a tech boom — but by the end of the 1990s there was another bubble that broke, the dot-com bubble. In 1999, regulation separating commercial banks from investment banks was dismantled. Bush came along and we had the housing boom, which, amazingly, the policy economists didn’t notice — or they ignored the fact that there was about an $8 trillion housing bubble that held no relation to the relevant facts about cost of housing. Of course, that broke in 2007, and trillions of dollars of capital just disappeared — fake wealth. That led to the biggest financial crisis since the Great Depression. Then comes the Bush and Obama bailout, which reconstructed the powerful institutions — the perpetrators — and left everyone else floating. There was severe harm to people, who had houses taken away from them, jobs diminished, and so on. That’s where we are now. It was done with impunity, and they’re building up to the next one.
The Nanny State

Each time, the taxpayer is called on to bail out those who created the crisis, increasingly the major financial institutions. In a capitalist economy, you wouldn’t do that. In a capitalist system, that would wipe out the investors who made risky investments. But the rich and powerful, they don’t want a capitalist system. They want to be able to run to the “nanny state” as soon as they’re in trouble, and get bailed out by the taxpayer. They’re given a government insurance policy, which means that no matter how often you risk everything, if you get in trouble, the public will bail you out because you’re too big to fail — and it’s just repeating over and over again.

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Posted by Teri Perticone

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