Robber Barons, redux

Back in April, we wrote here about Alden Capital, the greedy hedge fund behind the intentional destruction of countless viable and valuable newspapers around the country. Just last month, we wrote about the skyrocketing number of data centers being built around the country and how they consume previously unimaginable amounts of electricity and water, undermining our efforts to address climate change.
Over the years, we’ve written repeatedly about how our profit-based health care system is failing Americans, both in terms of its high cost as well as its poor outcomes.
All of these things have a common ingredient in that they represent the failings of capitalism, revealing once again the magical thinking behind the notion of the invisible hand. Market mechanisms are remarkably effective at motivating individual human action and innovation and in many cases markets can, in the immortal words of General Electric, bring good things to life.
But the idea that the private actions of hundreds of millions of individuals will somehow lead to the largest benefit to society, is akin to believing that if you give computer keyboards to enough chimpanzees, they will eventually recreate the sonnets of Shakespeare.
Some have argued that a purely free market can work magic, but that’s irrelevant since a truly free market exists only in fairy tales. Adam Smith’s free market was theoretical at best and assumed that every consumer was fully informed and that the costs to society from things like pollution, monopoly power, and simple graft, didn’t exist.
For a time, back in late 1800s, we did experience what was known as laissez-faire capitalism in this country, and the result was a nation in which large industrialists controlled vast wealth and used their economic power to leverage political power. They kept most Americans in a state of poverty through the suppression of unions and wages. Their factories endangered their workers and poisoned the neighborhoods where their workers lived, while they lived in splendid isolation in their gilded mansions. Think Ebenezer Scrooge in “A Christmas Carol,” before he sees the ghosts.
In rural areas, the industrialists kept farmers in chains as well by controlling the cost of shipping, to plunder the wealth created by the nation’s agricultural sector.
Eventually, the American people had seen enough, and they sent leaders to Washington, D.C. to enact regulations to improve product and worker safety, reduce pollution, and levy income taxes to begin to redistribute the vast wealth accumulated by the Robber Barons, to public uses.
Americans had seen the reality of unfettered capitalism, and it was an ugly sight, indeed.
We recognized, at least for much of a century, that only regulated markets, along with a government safety net like Social Security, could allow for the operation of market mechanisms in a way that benefitted society, or at least mitigated capitalism’s worst effects.
Over time, of course, Americans forget. Washington, by the late 1970s, saw a renewed push for deregulation, under the guise of making the economy more efficient. Under President Reagan, Washington deregulated the banking industry among others, and we quickly experienced the Savings and Loan crisis, as nearly a third of thrift institutions went under due to their own greed. Washington tightened the rules for a time, but soon banks were lobbying again for a freer hand. In 1999, they succeeded in repealing the 1933 Glass-Steagall Act, an FDR-era law which had maintained the banking industry as a stable, reliable, and consistently profitable industry for nearly 70 years. Its repeal allowed banks to invest in dangerous derivatives and operate like hedge funds, something regulators warned would lead to trouble. Just seven years later, the big banks had nearly destroyed themselves, again due to capitalist excess. In 2008, the industry collapsed, costing millions of Americans their homes and retirement savings, while those who created the crisis skated off scot-free, with bonuses to boot.
And yet it seems we never learn. Here we are, barely 15 years later with a new administration ready to take a meat ax to banking regulations and promising to fire three-quarters of the workforce at the country’s regulatory agencies. The only ones to be spared will be the political appointees, whose goal will be to render their agencies utterly ineffectual.
We already know the result. Banks will be unleashed from the rules put in place in the wake of the collapse and the American people will pay, within just a matter of years, for the coming cleanup. Our air and water will pay the price for the gutting of environmental protections. More workers will be injured as agencies like OSHA become little more than the walking dead. Organizing unions will become more difficult. Monopoly power will be allowed to grow, along with its inevitable corruption.
As George Santayana famously said, “those who cannot remember the past are condemned to repeat it.” America has some difficult lessons ahead.