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Wednesday, April 2, 2008

Terrorism & Profit

According to Naomi Klein's Shock Doctrine, the economic aspects of the Bush administration's War on Terror are not negligible. The profit opportunities it provides to private industry are enormous and appear to be unending (p. 301):

"Through all its various name changes--the War on Terror, the war on radical Islam, the war against Islamofascism, the Third World War, the long war, the generational war--the basic shape of the conflict has remained unchanged. It is limited neither by time nor space nor target. From a military perspective, these sprawling and amorphous traits make the War on Terror an unwinnable proposition. But from an economic perspective, they make it an unbeatable one: not a flash-in-the-pan war that could potentially be won but a new and permanent feature in the global economic architecture. That was the business prospectus that the Bush administration put before corporate America after September 11. The revenue was a seemingly bottomless supply of tax dollars to be funneled from the Pentagon ($270 billion a year to private contractors, a $137 billion increase since Bush took office); U.S. intelligence agencies ($42 billion a year to contractors for outsourced intelligence, more than double 1995 levels); and the newest arrival, the Department of Homeland Security. Between September 11, 2001, and 2006, the Department of Homeland Security handed out $130 billion to private contractors ... In 2003, the Bush administration spent $327 billion on contracts to private companies--nearly 40 cents of every discretionary dollar."

Privatization of government functions is, along with deregulation of private industry and cuts in government spending on social programs, one of the key principles of Milton Friedman's economic ideology, an ideology that has demonstrated its brutality and savagery in country after country around the world, as amply documented in Klein's overwhelming and shattering work.

Protecting the US from the threat of terrorism is a necessary enterprise, but the thought that in fighting terrorism it is better to spend too much than too little makes the public vulnerable to allowing the War on Terror to turn into a cash cow of insane proportions, siphoning off money from social programs like public education--last night on NBC News it was reported that the drop-out rate from public high schools in numerous areas of the country is in the neighborhood of 50 percent.


Anonymous said...

SD:Rise of Disaster Capitalism is the best guide to the 21st century so far. Clearly, anyone following traditional law, economics or political conventional wisdom would have been utterly shocked by the Bear Stearns bailout. The bailout has become official as the Treasury has agreed to pay for losses booked by the Federal Reserve-so it is right out of the public purse.
Using Klein's SD as a lens for understanding the interaction between gov't and business is a great focus for a blog and I hope more people take a look at this.

Looking at the Bear Stearns "rescue" with a couple of weeks' hindsight... it was perfect. The Fed pulled a new authority out of thin air on a Sunday afternoon, brushed aside NYSE regulations, swerved around Delaware corporate law and presented a "shocked" market with a new reality. The press bleated its applause for Bernanke and Dimon and the rest of us brace for the next shock.

Richard McNally said...


Appreciate your comments. Est-ce que vous etes a trader? I've just written a screenplay about a broker. I agree that Klein's SD is probably the best guide to the 21st century so far. Very emotional to read. It has shaken my world, truly. Remarkable how her thesis so fully explains the insidious Bear Stearns magic trick. It's like a hold-up in full daylight with witnesses on all sides. The "free market" is magnificent and self-correcting and the answer to all humanity's problems--until it runs itself into the ditch of systemic bankruptcy and total dysfunction due to greed and recklessness. Then it comes crying to government with big green tears rolling down its cheeks, begging for help. Friedmanism, presupposing a level playing field, is a utopian fantasy that has had devastating consequences for the real world. US support for Nazi-style dictators abroad has been despicable, criminal and profoundly anti-humanist. How to end it?


Anonymous said...

I've been a trader since 1980. Never worked at Bear Stearns, but I have been at similar places. Collapses are always fascinating as only the most trusted firms can build up exposures so large-and then suddenly, they're not trusted at all. It is more a social dynamic than a capitalist one.

But this Bear collapse seems special: Bear was highly leveraged-who had lent them the largest amounts? The lenders/enablers are receiving a 100 cents/dollar in the bailout. Why did Bear's board accept a $2 bid over liquidation in bankruptcy? The fact that the rest of the shaqreholders would not accept $2 implies a sharp divergence between the interests of the board (which hael about 10% of the shares) and the rest of the holders. Why on earth did the Fed (and SEC) let Bear shares trade all day 14 March when Bear had told them late on 13 March that they would have to file for bankruptcy? It's a great mystery. But great mysteries are better as screenplays than as the centers of economic policy.

How to end it? I don't believe anyone can. It will have to play out. Disaster Capitalism is not sustainable and will end in ruins. It is not possible to predict what will arise from the wreckage.

Patty McNally Doherty said...

The Shock Doctrine is sitting on my end table, face down. I haven't cracked it open yet. As a matter of fact, I'm afraid to. Well, not really afraid, just wary of going in alone. Therefore, I have joined hands with a diverse and completely non-related crew to go in together.

This feels like a creepy kind of forest from the outside.


Richard McNally said...


You raise intriguing questions about the fine points of the bailout. The accounts in the Times were dramatic--shouting and yelling in the boardroom, hard-bitten men crying in the hallways. Good dramatic material. If disaster capitalism ends in ruins, wow, that would be major. Marx of course predicted just that. Cf. M. LeClerc: "Sharing is better than hogging." Perhaps an age of sharing would begin. Like it used to be when you were young and you were taught that if you walked into a room with some cookies you were duty bound to offer to share them with whoever was there. Why do we stop doing that as adults, wrapping ourselves in the privacy of our car and home and career and not offering anything to anyone?