The Bailout: When Democracy Fails, The Ruling Class Resorts To Terror

Michael Lyon

The ruling class’s tax-supported bailout of Wall Street was so hated that calls to Congress were 200 to 1 against, in a country where a 55 /45 electoral split is considered a landslide. This bailout was forced through by (1) lies that we’re all in this together, and (2) terror by hammering the message that not passing the bailout would produce an unthinkable and cataclysmic shutdown of the US economy.

But if we recall the early 1980s, we can see that deep recession and a shutdown of the economy are quite thinkable for the ruling class. In fact, they CAUSED a shutdown of the economy to terrorize us into accepting deep cuts in jobs, wages, housing, education, welfare, job training, and all other social services, We have not recovered since.

What follows are excerpts from a September 1999 talk by Christian Parenti, author of “Lockdown America“. “Lockdown America” describes the mass incarceration of minority youth since the early 1980s, and what has driven corporate rulers of the US to attack workers and youth. Christian Parenti was a teacher at San Francisco’s New College of California, and has written for “The Nation”, “The Progressive”, and “The Christian Science Monitor”. Some quotes from “Lockdown American” are added in parentheses.


“We’ll come back to the … other part of the dual crisis of the 1960’s which is the political economic crisis.”

“What happens is that beginning in the late 1960s average after-tax profit rates take a nosedive from around an average of 10% in the mid-60s to 3% in the early 1970s. Suddenly big business in America is gripped with a serious economic crisis. The roots of that crisis go back to World War II. Just briefly, the postwar economic history is this.”

“As you all know, World War II leaves Europe and Japan, the two other industrial poles of the capitalist world economy, completely devastated. … The US emerges from the war with its industrial capacity greater than it has ever been, producing what some estimates put at 40%, some at 50% of the world GDP at that point. To ensure stability against Communism, and for a whole bunch of other reasons, the US invests massively in rebuilding Japan and Europe. US business profits incredibly off a twenty-year process of rebuilding, reindustrialization, and recovery in Europe and Japan. …”

“US corporations are in a perfect position to reap the lion’s share of the benefits throughout the late 1940s, 1950s, and early 1960s. That creates average after-tax profit rates that were unprecedented high, around 10%, as opposed to an average of 4% and 6% historically. But by the mid- and late 1960s, Japan has recovered, Europe has recovered. The newly industrialized countries are joining the game. All of these economies were supplying their own domestic markets, which means US corporations are losing what’s called market share. They’re also starting to export to the US market. So that by the late 1960’s you have a saturation in world consumer markets. There’s just too much stuff to go around.”

“Of course, there’s tons of human need. There’s plenty of poverty, people who need shoes and education and drinking water, but human need is different from economic demand. Human need only becomes what economists call “effective demand” if people have money to meet those needs. … The industrial economy was capable of putting out way more than could be absorbed. So this crisis of overproduction leads to heightened competition, price slashing, dumping of products in different markets, and rising costs and plummeting profits. That becomes a serious crisis that the American business class and policy elites realize they have to deal with. The solution doesn’t really arrive until 1980, with Ronald Reagan.”

“After attempts to try to rectify this problem, the policy elites realized that, OK, we can’t really deal with the crisis of overproduction. We can’t make all the goods in the world go away. But we can at least take away some of the gains that working people and consumers have won through the 1930s to the 1960s. Labor’s share of the pie had gotten bigger. (By 1960 US labor costs in manufacturing including Social Security, were triple that of Europe and ten times higher than Japan.) In this time of crisis, capital, that is large businesses, looked at the share of the economic pie that workers were getting and thought, if we want to boost profit rates, it has to come out of that section of the pie.”

“Together (Paul) Volker (Federal Reserve chair appointed by Jimmy Carter) and Reagan engineer the most severe recession the US economy has seen since the Great Depression. For very political reasons, they deliberately raise interest rates to almost 16% (in 1981, up from 8% in 1979), which has the effect of shutting off all economic activity. It becomes impossible to get loans, start businesses, go to school, and get a job. There’s less consumption, economic activity, and there’s massive unemployment. It was a deliberate attempt to discipline and scare organized labor.”

“You have to recall in the late 1960s and early 1970s, organized labor was getting really active. Rank-and-file movements, wildcat strikes, that have been totally forgotten. For example, the entire postal system was shut down by a wildcat strike for up to two weeks in 1970. Two trucking strikes shut down the entire trucking system. (Over 1966-1973, 40% of workers participated in strike activity.) Every industry, the air traffic controllers were wreaking havoc. You name the industry, there was massive labor agitation, often in the form of wildcat strikes throughout the 1970s.” (“The working class was too powerful, and, from the management point of view needed disciplining. .. Between 1964 and 1979 the federal government enacted 62 health and safety laws protecting workers and consumers and 32 other laws protecting the environment and regulating energy use. .. All these social democratic reforms were part of the (capitalists’) problem and costing enormous sums. As the Trilateral Commission (a liberal think tank) 1975 “report on governability” put it, there was a “crisis of democracy”, which, though coded, meant there was too much democracy.”)

“This recession changed all that.” (The book quotes Margaret Thatcher’s chief economic advisor: “Rising unemployment was a very desirable way of reducing the strength of the working class. What was engineered – in Marxist terms – was a crisis in capitalism which re-created a reserve army of labor, and has allowed the capitalists to make high profits ever since.”)

“From 1964 to 1980, not a single union contract included a wage freeze or a wage giveback. In 1982, just two years after into this recession, 44% of all union contracts included either wage freezes or outright givebacks. So that’s one of the effects of this recession, the salubrious economic effect of scaring the hell out of working people so they’ll work harder for less. Also on the political front Reagan stacks the National Labor Relations Board, the organization that mediates labor disputes, with conservatives who hate labor, always rule against labor, does the same to the courts, slashes public assistance. One of the first things he does is ends the Comprehensive Employment and Training act, which was sort of like a WPA program of the 1970s. That alone throws 400,000 people onto the unemployment rolls.”

“He cuts AFDC radically, puts another 500,000 people out there looking for work, reduces spending on HUD, reduces spending on education, basically launches a policy and an economic assault on all the institutions that had cushioned working people, that had made it possible for working people to resist big business’s attempt to take away their gains.” (In 1982 alone he cut the value of welfare 24%, child nutrition 34%, school milk 78%, urban development action grants 35% and educational block grants 38%.)

“This does in part help boost profit rates and deal with that problem.” (1980s after-tax profits went up to 6%.) But it also creates massive poverty and all the instability and contradictions that go with that. You have the rise of homelessness again in the early 1980s, the hyper-ghettoization of cities that were burnt out in the 1970s and de-industrialized in the late 1970s and then really, really de-industrialized in the 1980s.”

“… Previously, poverty in the US had been managed with naked force, often in the South and many places, but increasingly through the 1960s it had been managed through co-optation and amelioration, that people could be dealt in, bought off, given jobs, job training to keep the lid on things and to keep people feeling that the system was OK. But that could no longer be done because that was making it difficult to discipline labor. The social welfare net that existed was making labor too strong. It was a subsidy to class war.”

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