The dangers of financial shock therapy…

A week ago Saturday, when the preparation of Sarah Palin to be vice president seemed like the central political issue, I heard Naomi Klein, among others talk about the presidential campaign. Like any good writer with a recent book, she offered a capsule summary of the shock doctrine. Instead of getting into the detail, I let the amazing director Alfonso Cuarón do it for you.

Whether or not you’ve caught up with the details of the crisis in the financial markets or the Wall Street bailout, keep one eye on the political game being played here. After a week of downtown Manhattan traders whipsawing the market (with a net loss of less than 1%), an emergency measure is proposed, on a scale larger than anything we’ve ever seen in our lifetime (think the full price of the Iraq war being proposed up front). This is classic shock politics. And it doesn’t end today, it transfers the risk and the loss from Wall Street banks to the US Treasury in the form of new debt. Klein argues on Real Time with Bill Maher:

The disaster is far from over. They’ve actually just relocated the disaster. The disaster was on Wall Street and they have moved the disaster to Main Street by accepting those debts. … The bomb has yet to detonate, the bomb is the debt that has now been transferred to the taxpayers. So it detonates when — if John McCain becomes president, in the midst of an economic crisis, and says, “Look, we’re in trouble, We’ve got a disaster on our hands. We have to privatize social security; we can’t afford healthcare; we can’t afford food stamps. We need more deregulation, more privatization. You know the thesis of the Shock Doctrine is that you need a disaster to rationalize putting through these policies.”

And it’s not just McCain who might try some kind of emergency pullback around the debt. Those of us who were hopefully watching the president from Hope, Arkansas, saw this whole story in 1992:

It was in the two and a half months between winning the 1992 election and being sworn into office that Bill Clinton did a U-turn on the economy. He had campaigned promising to revise NAFTA, adding labor and environmental provisions and to invest in social programs. But two weeks before his inauguration, he met with then-Goldman Sachs chief Robert Rubin, who convinced him of the urgency of embracing austerity and more liberalization. Rubin told PBS, “President Clinton actually made the decision before he stepped into the Oval Office, during the transition, on what was a dramatic change in economic policy.”

The narrative is from Klein again, who warns that Barack Obama has his own Chicago Boys advising his economic policies. And right on cue, Mr. Hope is announcing the bailout “will likely postpone his sweeping proposals on healthcare, education, alternative energy, and other priorities.”

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