Capitalism, Socialism or Fascism? → Washingtons Blog
Capitalism, Socialism or Fascism? - Washingtons Blog

Sunday, October 25, 2009

Capitalism, Socialism or Fascism?

What is the current American economy: capitalism, socialism or fascism?


Many people call the Bush and Obama administration's approach to the economic crisis "socialism".

Are they right?

Well, Nouriel Roubini writes in a recent essay:

This is a crisis of solvency, not just liquidity, but true deleveraging has not begun yet because the losses of financial institutions have been socialised and put on government balance sheets. This limits the ability of banks to lend, households to spend and companies to invest...

The releveraging of the public sector through its build-up of large fiscal deficits risks crowding out a recovery in private sector spending.

Roubini has previously written:

We're essentially continuing a system where profits are privatized and...losses socialized.

Nassim Nicholas Taleb says the same thing:

After finishing The Black Swan, I realized there was a cancer. The cancer was a huge buildup of risk-taking based on the lack of understanding of reality. The second problem is the hidden risk with new financial products. And the third is the interdependence among financial institutions.

[Interviewer]: But aren't those the very problems we're supposed to be fixing?

NT: They're all still here. Today we still have the same amount of debt, but it belongs to governments. Normally debt would get destroyed and turn to air. Debt is a mistake between lender and borrower, and both should suffer. But the government is socializing all these losses by transforming them into liabilities for your children and grandchildren and great-grandchildren. What is the effect? The doctor has shown up and relieved the patient's symptoms – and transformed the tumour into a metastatic tumour. We still have the same disease. We still have too much debt, too many big banks, too much state sponsorship of risk-taking. And now we have six million more Americans who are unemployed – a lot more than that if you count hidden unemployment.

[Interviewer]: Are you saying the U.S. shouldn't have done all those bailouts? What was the alternative?

NT: Blood, sweat and tears. A lot of the growth of the past few years was fake growth from debt. So swallow the losses, be dignified and move on. Suck it up. I gather you're not too impressed with the folks in Washington who are handling this crisis.

Ben Bernanke saved nothing! He shouldn't be allowed in Washington. He's like a doctor who misses the metastatic tumour and says the patient is doing very well.
Nobel prize winning economist Joseph Stiglitz calls it "socialism for the rich". So do many others.


Some, however, argue that the economy is more like fascism than socialism. For example, leading journalist Robert Scheer writes:
What is proposed is not the nationalization of private corporations but rather a corporate takeover of government. The marriage of highly concentrated corporate power with an authoritarian state that services the politico-economic elite at the expense of the people is more accurately referred to as "financial fascism" [than socialism]. After all, even Hitler never nationalized the Mercedes-Benz company but rather entered into a very profitable partnership with the current car company's corporate ancestor, which made out quite well until Hitler's bubble burst.

And Italian historian Gaetano Salvemini argued in 1936 that fascism makes taxpayers responsible to private enterprise, because "the State pays for the blunders of private enterprise... Profit is private and individual. Loss is public and social" (page 416).

This perfectly mirrors Roubini's statement about the American government's bailout plan.

Remember that one of the best definitions of fascism - the one used by Mussolini - is the "merger of state and corporate power".

That could never happen in America, right?


  • The government has given trillions in bailout or other emergency funds to private companies, but is largely refusing to disclose to either the media, the American people or even Congress where the money went
  • The head of the Federal Reserve Bank of Kansas City, the former Vice President of the Dallas Federal Reserve, and two top IMF officials have all said that we have - or are in danger of having - oligarchy in the U.S.


As pointed out in May (it is worth quoting the essay at some length, as this is an important concept), looting has replaced free market capitalism:

Nobel prize-winning economist George Akerlof co-wrote a paper in 1993 describing
the causes of the S&L crisis and other financial meltdowns. As summarized
by the New York Times:

In the paper, they argued that several financial crises in the 1980s, like the Texas real estate bust, had been the result of private investors taking advantage of the government. The investors had borrowed huge amounts of money, made big profits when times were good and then left the government holding the bag for their eventual (and predictable) losses.

In a word, the investors looted. Someone trying to make an honest profit, Professors Akerlof and Romer [co-author of the paper, and himself a leading expert on economic growth] said, would have operated in a completely different manner. The investors displayed a “total disregard for even the most basic principles of lending,” failing to verify standard information about their borrowers or, in some cases, even to ask for that information.

The investors “acted as if future losses were somebody else’s problem,” the economists wrote. “They were right.”

The Times does a good job of explaining the looting dynamic:

The paper’s message is that the promise of government bailouts isn’t merely one aspect of the problem. It is the core problem.

Promised bailouts mean that anyone lending money to Wall Street — ranging from small-time savers like you and me to the Chinese government — doesn’t have to worry about losing that money. The United States Treasury (which, in the end, is also you and me) will cover the losses. In fact, it has to cover the losses, to prevent a cascade of worldwide losses and panic that would make today’s crisis look tame.

But the knowledge among lenders that their money will ultimately be returned, no matter what, clearly brings a terrible downside. It keeps the lenders from asking tough questions about how their money is being used. Looters — savings and loans and Texas developers in the 1980s; the American International Group, Citigroup, Fannie Mae and the rest in this decade — can then act as if their future losses are indeed somebody else’s problem.

Do you remember the mea culpa that Alan Greesnspan, Mr. Bernanke’s predecessor, delivered on Capitol Hill last fall? He said that he was “in a state of shocked disbelief” that “the self-interest” of Wall Street bankers hadn’t prevented this mess.

He shouldn’t have been. The looting theory explains why his laissez-faire theory didn’t hold up. The bankers were acting in their self-interest, after all...Think about the so-called liars’ loans from recent years: like those Texas real estate loans from the 1980s, they never had a chance of paying off. Sure, they would deliver big profits for a while, so long as the bubble kept inflating. But when they inevitably imploded, the losses would overwhelm the gains...

What happened? Banks borrowed money from lenders around the world. The bankers then kept a big chunk of that money for themselves, calling it “management fees” or “performance bonuses.” Once the investments were exposed as hopeless, the lenders — ordinary savers, foreign countries, other banks, you name it — were repaid with government bailouts.

In effect, the bankers had siphoned off this bailout money in advance, years before the government had spent it...Either way, the bottom line is the same: given an incentive to loot, Wall Street did so. “If you think of the financial system as a whole,” Mr. Romer said, “it actually has an incentive to trigger the rare occasions in which tens or hundreds of billions of dollars come flowing out of the Treasury.”

In fact, the big banks and sellers of exotic instruments pretended that the boom would last forever, siphoning off huge profits during the boom with the knowledge that - when the bust ultimately happened - the governments of the world would bail them out.

As Akerlof wrote in his paper:

[Looting is the] common thread [when] countries took on excessive
foreign debt, governments had to bail out insolvent financial institutions, real estate prices increased dramatically and then fell, or new financial markets experienced a boom and bust...Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.

Indeed, Akerlof predicted in 1993 that the next form the looting dynamic would take was through credit default swaps - then a very-obscure financial instrument (indeed, one interpretation of why CDS have been so deadly is that they were the simply the favored instrument for the current round of looting).

Is Looting A Thing of the Past?

Now that Wall Street has been humbled by this financial crash, and the dangers of CDS are widely known, are we past the bad old days of looting?

Unfortunately, as the Times points out, the answer is no:

At a time like this, when trust in financial markets is so scant, it may be hard to imagine that looting will ever be a problem again. But it will be. If we don’t get rid of the incentive to loot, the only question is what form the next round of looting will take.

Bottom Line

So what do we really have: socialism-for-the-giants, fascism or an economy which calls itself "capitalism" but which allows looting?

Ultimately, it doesn't matter. They are just different brand names for the same basic type of economy. All three systems allow giant businesses which are friendly to the government to keep enormous private profits but to pass the losses on to the government and ultimately the citizens.

Whether we use the terminology regarding socialism-for-the-giants ("socialized losses"), of fascism ("public and social losses"), or of looting ("left the government holding the bag for their eventual and predictable losses"), it amounts to the exact same thing.

Whatever we have, it isn't free market capitalism.

Note: Yves Smith has called the financial services pay arrangement of "heads I win, tails you lose" looting, and has also argued that our form of capitalism is evolving into Mussolini style corpocracy, meaning fascism. But the label most often pinned on the Obama administration is socialism.

The bottom line is that I don't put much stock in what socialists might label a system, any more than what fascists or corporate looters would label a system. Whatever you call it, if the giants get all the benefits and pawn all of the losses off on the public, it is a very dangerous system.


  1. Pretty, pretty good roundup.

    But I have to disagree about one point you made, and that is; it does matter what we term our economic system. We can't call it socialism if it isn't socialism, and capitalism if it isn't capitalism. If it is a fascist economic-politico system we have, which I believe we do, then we need to stop playing footloose and call it for what it is and describe reality correctly. People respond differently to terms, some are against capitalism, some are against socialism, but almost everybody is against fascism.

    Moore's documentary should have been called Fascism: A Revenge Story, because what has essentially taken place in the last thirty years, most clearly visible in the late 1990's/early 2000's, is a war conduced on the middle and lower classes by the top invisible class. You can't get around the massive transfer of wealth, the unbelievable tax cuts of the ultra-rich, and the gutting of social programs, which were deliberate and organized.

  2. What we have is the result of years of free market capitalism. Reagan gave you free market capitalism. Free market capitalism devolves into fascism because there is no real restriction on monopolies. And, the only interest is unbridled greed. Free market capitalism doesn't work any more than communism. Both free market capitalism and communism fail to take into account human nature. Both are idealistic pipe dreams and both claim they failed because the form wasn't pure enough. Garbage! Instead of hashing over old forms, people need to walk away from the box of labels and figure out a NEW economic structure. Stop trying to retool or agonize about just doing free market capitalism right. If we had let the world's financial system fail, we would have had instant new world order in a very old, feudalistic format. That was what was(and, is)in the works. Throwing money at it bought some time. It is just funny money anyway if these TPTB, or whatever you want to call them, get their way.

  3. Unfortunately the Fed Bankers only do for the United States that which will enrich the Federal Reserve and the bankers who depend on the Fed for solvency. The Federal Reserve glories in the fact that they are "inpenetrable" and escape scrutiny. The Fed is a modern version of the "Mystery of the Sphinx" see..., .
    The fact is the ultra rich and their benafactors will use any means needed to continue to enrich themselves even if this calls for waging wars of aggression and bankrupting the populations of countries like the US by creating unmanageable debt to the public treasury. This is a means of control in order to enrich themselves. Where are todays' patriots to fight these self serving few?

  4. Kleptocracy?

  5. Re: 'it isn't free market capitalism' -- that's why I sympathize with the likes of Michael Moore and others, and respect their anger, but I wish they'd stop calling capitalism the enemy. That's not the enemy, its those that have hijacked our government for their own benefit.

  6. There are three factors of production and corresponding economic systems. Capitalism is the economic system that favors the ownership of capital (profit) over other factors of production. Feudalsim is the economic system that favors land ownership (rent). Socialism is the economic system that favors labor (wages) over the other factors of production.

    Laissez-faire (neoclassical) capitalism tends toward corporatism, the economic and political dominance of large corporations. Corporatism is anti-competitive and leads to oligopolies and monopolies, as well as concentration of wealth and power at the top. It also seeks to substitute financial rent-seeking for productive profit, leading to financializtion of the economy. Wealth is used to buy government influence and ultimately to capture the government. State corporatism is the definition of Mussolini's Fascism.

    The US is tending toward state corporatism. The joke going around is that Goldman no longer has to rent the government. Now it is the government.

    "Socialism" is incorrectly being applied to the present condition because gains are privatized and losses socialized. That is a feature of corporatocracy. Calling Obama a socialist is just propaganda. He has been captured intellectually by neoliberal ideology. He is also reticent to oppose corporatism because it funds political campaigns.

    Get the money out of politics by publicly funding political campaigns and ending lobbying as legalized bribery!

  7. Socialism, Fascism, or, capitalism?

    Don't fool yourself.

    They are all kleptocracies.

    The under-handed action is just at a different level.

    Survival is learning both how not to be a victim, and how to be the perpetrator.

  8. I clicked on your link to "the merger of state and corporate power" and the first hit (since this was a google search) was to an article I wrote in 2004, called "It's the Corporate State, Stupid." I have since learned that the quote attributed to Mussolini may not have been his, but it is still quite descriptive of fascism.

    But you are right, it doesn't really matter what we call the government/economic system we have today. It really is just neo-feudalism. We are all becoming debt serfs and the nobles and kings of the past have become the corporations and governments of today.

    I pondered in 2004 whether a 21st century French Revolution was the only means of taking this feudalistic system down again. Sadly, I think that may ultimately be the only way.

    Power just never seems to be voluntarily surrendered. It seems that it has to be taken away by force.

  9. What we have is a Corptacracy , same thing as Facism I guess but not quite so Germanish. Any more acceptable? Not a chance. It's still corporations controling government function through huge sums of money being used to bribe the Congress in to letting them write the legislation.

    The Free Market Capitalism idea is nothing more than a race to the bottom for the working folks of the world. As ole Ross Perot would have said listen for the giant sucking sounds of jobs moving country to country and driving wages down for the working slob. You can clearly see where Free Market theory has gotten us , and please don't give me the argument that we didn't have a true Free Market because quite simply there never has will never be a free market, not should they be. A country without a manufacturing base will fail economically sooner or later.

  10. I'll try to make this short. The U.S. political and economic system is dominated by corporatism: (from Merriam Webster) " the organization of a society into industrial and professional corporations serving as organs of political representation and exercising control over persons and activities within their jurisdiction." In a political system governed by the results of elections, the political parties compete for campaign contributions (financial and in-kind) and blocks of votes. The Democrat Party understands the corporatist dynamic. Thus they have [been?] captured [by?] Wall Street finance, the super rich, the highly [over?] educated, unions, and the trial lawyer industry for monetary contributions. For contributions of campaign worker input, they have the unions, the [far left] NGO community (p.s. every non-profit which is not expressly conservative is, in fact, far left staffed and operated, e.g. see the comments from the founders of HRW and Greenpeace), and the racial/ethnic grievance groups. The voting majority is fast being solidified by cries of racism and oppression the inundate minority communities, attacks on "the rich" (largely Republican leaning small and mid-sized businesses) and of course the removal of an income tax burden on 50%+1 of the tax filing, voting population. The Democrats may soon succeed in establishing a near permanent corporatist-style state based not just on control of private sector, profit making corporations (the health, energy and vehicle sector capture is underway), but also on the informal and non-profit "professional corporations" such as the AMA, NEA, UAW, NAACP, La Raza, the Sierra Club, etc., etc. And where is the opposition party in this competition? Bwahahahahaha! They are so out of it, they haven't even figured out the rules of the game they're playing. Since, almost by definition, a dominant Corporate State cannot be stable over the long term given the U.S.'s, and industrial world's, current demographics, much more pain and suffering is probably in our future.

  11. It is without a doubt Fascism.

    Here's why:

    In Capitalism the whole economy is not hooked on government money and everything isn't controlled centrally like the Fed and Treasury do now.

    In Socialism, the Government takes from the banks and gives to the people.

    What we have now is a centrally planned system in which the Government takes from the people and gives to the banks. This is by definition corporatism aka Fascism.

  12. It would be incorrect to claim that corporations rule the United States. Anybody can open a corporation - however, it would not provide a ticket to power.

    Like Nazi Germany, Fascist Italy, and Soviet Union, this country is ruled by managerial class.

    In 1942 James Burnham published his "Managerial Revolution" - where he argued that Nazi Germany and Soviet Union, while having different ideology, are ruled by the same type of people - manager class - and have similar socio-economic structure.

    Large enterprises - Socialist or Capitalist - are the new means of production. Their creation gave birth to the new class - management.

    It is management of large corporation that has access to power, it is management types who circulate between government and large corporations.

    It is management, not shareholders, who control and, thus, effectively own companies.

    Thus, it is management class - that is the ruling class today.

  13. Socialism: You have two cows - you give one to your neighbour.

    Communism: You have two cows - the Government takes both and gives you the milk.

    Fascism: You have two cows - the Government takes both and sells you the milk.

    Nazism: You have two cows - the Government takes both and shoots you.

    Capitalism: You have two cows - you sell one and buy a bull.

    Trade unionism: You have two cows - they take both from you, shoot one, milk the other and throw away the milk.

    The Moral: Don't have anything to do with cows.

  14. Nobody understands what communism is. You all think you do, but you're all way, way off. I am sick and tired of listening to people, from Milton Friedman to Glenn Beck, criticise communism - they haven't studied it; they haven't read Marx; they don't know what communism is.

    Communism is 'the self-emancipation of the working class'. That means the workers rising up and destroying capitalism. This means that it's the worker, the average person, who will govern society - communism has nothing to do with a faceless government, or bureacrats.
    Marx hated officialdom, as everyone but the bourgesie does.

    This is all a gigantic Stalinised misinterpretation.

  15. Take it with a grain of salt, but I've picked up from some questionably reliable sources around the internet that FDR's system were well-liked (and even praised?) by some of the fascist rulers of his era, including Mussolini and Hitler. While I haven't checked any primary sources myself and am not enough of a historian to tell if a given primary source is of any value, I thought the (again, questionable) topic salient to the discussion.

  16. Socialism, in modern times, seems to be more of the economic system where private property is diminished, whereas fascism is a political/power system which suppresses opposition with force. A fascist government can have a socialist economy, right?

    I would even argue that socialists tend to lean into fascist principles as a way to move their agenda along. Now that a socialist true believer is in the White House, we are seeing the signs of dangerous fascist tactics emerge, such as shunning certain reporters, taking another swipe at the Fairness Doctrine and, out just today, an apparenly illegal subpoena for records, emails, and financial info from the esteemed Attorney General to a indy news outlet in Philly...


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