If you think banks on the verge of bankruptcy, widespread job losses, declines in world trade and the spread of economic and financial distress signal the end of "free" market capitalism; or that talk of Keynesian economics, and the adoption of "stimulus" packages by Canada and the U.S. signify the end of right-wing policies, think again.

The analysis of the financial mess that guides the U.S. Federal Reserve and Treasury originated with Milton Friedman, intellectual godfather of the American right. The policies adopted in the U.S., supposedly to fight off the threat of world depression, are designed to re-empower financial capitalists, not to, say, replace them with nationally owned credit institutions. And, the main lesson the depression era taught everybody except the right-wing followers of Friedman, the need to transfer income from those who are sitting on their money, to those who will spend it — because they do not have enough to live on — is being ignored.

In his analysis of the U.S. economy in the 1930s world depression, Friedman pointed to the collapse of the U.S. money supply as the cause of the crisis, and Federal Reserve Bank inaction as the culprit. Current Fed Chief Ben Bernanke made an academic reputation as a specialist on the depression. Now he is applying the Friedman medicine. The Fed has been furnishing liquidity to the banks non-stop for months. From September 2008, until the end of that year, the Federal Reserve expanded the U.S. monetary base by $1.35 trillion, which more than doubled its size. The major banks themselves could be purchased for the value of their paid in capital, which comes to about the same amount as the increase in the monetary base over the four months, $1.2 trillion in total.

The rescue process for the U.S. banking system includes the infamous "cash for trash" deals as the Federal Reserve and the U.S. Treasury provide banks with U.S. Treasury bills in return for bad mortgage related securities with next to no market value. Back in September, Paul Krugman pointed out that was likely to lead only to a system still "crippled by inadequate capital," while taxpayers would be out trillions with nothing to show for it. Instead of nothing in return, he pointed out that publicly aiding the banks should lead to public ownership. He was right then, and his judgement looks even better today.

Undoubtedly, the root causes of the current economic mess include the failure of private finance to build the economic structure needed to meet human needs, even in the wealthy countries, let alone in the rest of the world. It makes no sense whatever that the U.S. banks are considered to be verging on insolvency (however defined), despite receiving trillions in public aid.

The much vaunted conversion to "stimulus" unveiled in Canada by the Conservatives in Budget 2009, and supported by the Liberals as if it were true, conceals an unwillingness to take on the shrinkage of family and individual purchasing power that underlies the economic slow down. It ignores the need for progressive policies, tax increases for the wealthy and major increases in income support for low-income people.

Such an approach is not charity, force fed; it is good economics. Without a straightforward redistribution of income from rich to poor, the day-to-day economy is going to keep slowing down.

The needs of the most vulnerable are being left to the free market, that is to say, ignored and neglected. In Canada there has been no repairs to either the E.I. system or the shameful well below poverty level welfare regime. In the U.S., welfare reform engineered by Bill Clinton — the same U.S. president who removed depression-era safeguards from the banking system — ensures that lots more people are going to be getting nothing at all, as things get worse.

Yes, financial capitalism has failed. Yes, right-wing policies made things worse. Yes, there is a better way. Yes, we will try it. Eventually.

Duncan Cameron

Duncan Cameron

Born in Victoria B.C. in 1944, Duncan now lives in Vancouver. Following graduation from the University of Alberta he joined the Department of Finance (Ottawa) in 1966 and was financial advisor to the...