Stimulus, Ass-Backwards

By Douglas Rushkoff. Published in Arthur on 16 April 2009

I’ve been trying to figure out exactly why President Obama’s approach to the economic crisis upsets me so much, so regularly, and I think I figured it out.

His impulse—perhaps as someone with more faith in the power of centralized, top-down decision-making than I have—is to fix our economic problems by supporting existing institutions. In the president’s view, the best approach now is to pump some necessary short-term assets into flagging institutions to help them make it through the rough patches in the economic road, and then get them to pay it back to the government once times are better. That’s the approach he’s taken to the banks, the automotive industry, and even the insurance industry.

What the Obama Administration doesn’t seem to understand is that the institutions they are attempting to prop up are the very ones whose solvency depends on the continuing extraction of wealth and value from the real people and places making up America.

Take the ongoing bailout of AIG. The American International Group is a big hedge fund masquerading as an insurance company, of sorts. Their fourth quarter loss last year of $61.7 billion was the largest loss by any company, ever. The core business of AIG, and the reason the government feels it is crucial to keep them afloat at taxpayer expense, is insuring corporations against lawsuits. Were AIG to go out of business, big enterprises like offshore oil rigs, amusement parks, and pharmaceutical firms might temporarily lose their insurance coverage.

What does that really mean? It means that larger corporations would lose a certain amount of their unfair leverage over smaller concerns. The handmade toy industry, for example, made up of thousands of individual craftspeople and cottage businesses, has been devastated by the Chinese lead paint debacle. It’s not that the domestic handmade toy industry has anything to do with corporate outsourcing to China. In fact, they represent the alternative to conglomerate-licensed, mass-produced, and outsourced toy manufacturing.

But the government, in its infinite wisdom and unflagging bias towards central control, saw the lead paint episodes as a call for regulating agencies to create industry standards that only larger corporations could meet. The tiniest toy producers with no history of lead contamination in their handcrafted products must attain costly approval from testing laboratories in order to sell their goods. The cost is prohibitive unless the manufacturer is producing very high quantities of toys—quantities on the scale that Mattel makes, not Joe the woodcarver.

Likewise, AIG insures big companies so that they no longer have to worry so much about the human damage their products and practices inflict. The institution itself provides conglomerates with the instruments they need to maintain their monopolies over industries. Of course, AIG went ahead and invested their corporate clients’ fees in really stupid, high-risk paper. And then they borrowed a bunch of money and invested it, too, in really stupid high-risk paper, in ways that could justifiably be called illegal. As a result of these bad decisions, they ended up owing much, much more money than they had, and became utterly insolvent. So then, ostensibly to protect the big companies depending on AIG for their insurance policies, the government came in and bailed them out. Repeatedly.

Then, when a Senate committee finally starts asking questions about all this, we all focus on little inconsistencies: like a few hundred million dollars in bonuses paid to the very brokers who made the decisions of questionable legality that put AIG in its financial mess in the first place, the executives testify about the life-threatening emails his employees are receiving. This circumvents all discussion about AIG’s real place in the economic fabric of corporatism. The truth is that lion’s share of AIG’s bailout funds—close to $200 billion of public money—went straight to European investment banks and other financial institutions. $12.9 billion directly to Goldman Sachs, in fact, a firm that claims an AIG failure would not have had a major impact on their own profitability. So why should taxpayers fork over $12.9 billion to them for still unspecified reasons?

The bonuses themselves were absolutely a red herring, and accounted for a tiny fraction of the American public’s recent contribution to the company. (So are the life insurance policies the company underwrote.) It’s not just that you and me and our children and grandchildren will be paying for these criminals’ bonuses for our entire lives; it’s that our futures are being spent to keep in place the companies that are institutionally biased towards preventing us from living productively in a safe and clean world.

And all of this is occurring because of a government bias towards central administration of economic affairs, and unexamined allegiance to larger corporate players.

The GM bailout, for example, has almost nothing to do with saving a Detroit motor company, and everything to do with saving the Treasury. The government’s Pension Benefit Guaranty Corporation is obligated to guarantee the pensions of GM employees and former employees if the company goes bankrupt. As of December 31, according to its 10-K report (as best I can understand it as a layperson) the plans had $84.5 billion in assets and $98.1 billion in liabilities. This means $14 billion unaccounted for. The Pension Benefit Guaranty Corp has never had to come up with anything close to that much cash. The largest bailout in their history was about $7.5 billion for United Airlines employees when that company went bankrupt.

But how many tens of billions is the Obama administration willing to pour into General Motors to avoid the 14 billion dollars it would have to raise for guaranteed employee pensions? And if the company were liquidated sooner rather than later, wouldn’t there be more assets to apply to these expenses (and repay bondholders who put up the money for employee health benefits)?

What if the billions were spent promoting the research and development of leaner, more innovative companies already working on transportation alternatives? Or, to be even more direct, how about looking at the way government subsidies converted public space (our streets) into conduits for private vehicles (automobiles) at the expense of mass transit (streetcars) in order to create demand for these highly inefficient vehicles, anyway. When does it become too costly to build an entire society around a machine that doesn’t really work?

Indeed, it would be much cheaper to simply build towns and supply chains less dependent on automobile travel, stop penalizing companies capable of innovating effectively, and repair laws on the books so they aren’t so biased in favor of gigantic corporate players. Almost no one questions the need for government spending as economic stimulus. But as long as we’re doing it, why not invest in people, rather than the oversized, over-centralized firms for whom people are just another resource to be exploited?

For a whole lot less cash investment, Mr. Obama could be sowing the seeds of a new economy, one that functions independently of government subsidy and one that creates jobs and opportunity for the bottom up.

To do so, however would require him to have as much faith in the industrious, collaborative spirit of Americans to rebuild America as he did in our ability to get him into office.

Longtime Arthur columnist Douglas Rushkoff has just finished his life’s work, “Life Inc: How the world became a corporation and how to take it back,” to be published June 2, 2009 by Random House. (Pre-order info: Amazon). His talk radio show, Media Squat Radio, broadcasts Mondays 7-8pm EDT on WFMU. Streams and archived shows at and iTunes.