Today George W. Bush and Henry Paulson announced the partial nationalization of the banking industry. Bush insists that this is not an assault on the free market system. And the New York Times notes that this is not unprecedented. The government has nationalized various sectors of the economy before, most notably the collapsing railroad industry in the 1970s. The last time the financial services industry faced nationalization was the 1930s with the Reconstruction Finance Corporation.
Still, it’s hard to avoid noticing the leftward turn in American economic life. Those more committed to socialist principles, including Britain’s Labour PM Gordon Brown, who called for a new Bretton Woods-style financial structure for a changing world, have celebrated this moment and even compared themselves to Churchill and FDR in World War II. Unlike ideological free marketeers, Brown sees this as an inevitable and even positive step for the economy. The times they are a-changing.
In the US, the most prominent advocates for this nationalization strategy have been liberal economists like Robert Reich and Paul Krugman. That these two men have proven so prescient in this crisis says much about the direction of global financial policy.
And then there’s the market itself. Yesterday the Dow jumped over 11% or 936 points. The reason? Governments around the world pledged to nationalize the financial services industry, thus injecting capital into the banking system while taking an ownership stake. Yes, even Wall Street likes socialism now.
It’s curious to witness the muted reaction from the Republicans and the McCain camp over the Dow’s sudden rise yesterday. Surely they understand that the movement toward socialization of the financial services industry – even if the Dow responds favorably – is not something to excite them. Yes, even a recovery of the financial crisis – on left-liberal terms – benefits Obama in this election.