Naomi Klein Says Economic Crises Repudiates Milton Friedman Doctrines, Right-wing Trotskyists

Naomi Klein, author of “The Shock Doctrine: The Rise of Disaster Capitalism” recently made a speech at The University of Chicago and at Democracy Now, you can read the whole transcript. Klein’s speech was in opposition to naming of the economics institute there, “The Milton Friedman Institute.”

In the speech, Klein linked “Friedmanism” to our current economic crisis.  She said, “Milton Friedman is pretty much accepted as the godfather of deregulation. And this ideology was the rationale for turning the financial sector into the casino that we see today.”

Klein says that reality has repudiated Friedman’s ideas.  She says the current economic crisis presents a watershed moment for Friedman loyalists, one that should shatter their illusion, one that calls on them to abandon their pure ideology.   Excerpts from her speech:

• What we are seeing with the crash on Wall Street, I believe, should be for Friedmanism what the fall of the Berlin Wall was for authoritarian communism: an indictment of ideology. It cannot simply be written off as corruption or greed … I think this has been a class war waged by the rich against the poor, and I think that they won.
• The corporate world has been good to Milton Friedman, because his ideas were good for them.
• To quote Friedman’s great intellectual nemesis, John Kenneth Galbraith, “Milton Friedman’s misfortune is that his policies have been tried.”
• This process of measuring an elegant perfect, beautiful, inspiring ideology against a messy reality is a painful process, and it’s a process that anyone who has tried to free themselves from the confines of fundamentalist thinking, from ideological constraints, has faced. My grandparents, for instance, were pretty hardcore Marxists. In the ’30s and ’40s, they believed fervently in the dream of egalitarianism that the Soviet Union represented. They had their illusions shattered by the reality of gulags, of extreme repression, hypocrisy, Stalin’s pact with Hitler.
• I bring this up, because the left has been held accountable for the crimes committed in the name of its extreme ideologies, and I believe that it’s actually been a very healthy process for the left, one that isn’t over, that is continuing. But I think that the process of having to examine the unacceptable compromises that were made in the name of hard ideology, that they are paying off in the way the left today is being reborn and re-imagined..
• So, I think all ideologies should be held accountable for the crimes committed in their names. I think it makes us better. Now, of course, there are still those on the far left who will insist that all of those crimes were just an aberration—Mao, Stalin, Pol Pot; reality is annoying—and they retreat into their sacred texts.
• But lately, particularly just in the past few months, I have noticed something similar happening on the far libertarian right, at places like the Cato Institute and the Reason Foundation. It’s a kind of a panic, and it comes from the fact that the Bush administration adapted—adopted so much of their rhetoric, the fusing of free markets and free people, the championing of so many of their pet policies. But, of course, Bush is the worst thing that has ever happened to believers in this ideology, because while parroting the talking points of Friedmanism, he has overseen an explosion of crony capitalism, that they treat governing as a conveyor belt or an ATM machine, where private corporations make withdrawals of the government in the form of no-bid contracts and then pay back government in the form of campaign contributions. And we’re seeing this more and more. The Bush administration is a nightmare for these guys—the explosion of the debt and now, of course, these massive bailouts.
• So, what we see from the ideologues of the far right—by far right, I mean the far economic right—frantically distancing themselves and retreating to their sacred texts: The Road to Serfdom, Capitalism and Freedom, Free to Choose. So that’s why I’ve taken to calling them right-wing Trotskyists, because they have this—and mostly because it annoys them, but also because they have the same sort of frozen-in-time quality. You know, it’s not, you know, 1917, but it’s definitely 1982. Now, the left-wing Trots don’t have very much money, as you know. They make their money selling newspapers outside of events like this. The right-wing Trots have a lot of money. They build think tanks in Washington, D.C., and they want to build a $200 million Milton Friedman Institute at the University of Chicago.
• But, you know, I was interested that yesterday the Heritage Foundation, which has always been a staunch Friedmanite think tank, that they came out in favor of the bailout. They came out in favor of the bailout; they said it was vital. And what’s interesting about that is, of course, the bailout is creating a crisis in the economic—in the public sphere. It’s taking a private crisis, a crisis on Wall Street, which of course isn’t restricted to Wall Street, and it will affect everyone, but it is moving it, moving those bad debts, onto the public books.
• And now the Bush administration has already left the next administration, whoever it is, with an economic crisis on their hands, but with this proposed transfer, they’re dramatically increasing that crisis.
• We can count, I would argue, on the Heritage Foundation refinding their faith, refinding their faith when it becomes necessary and useful to once again argue that the way to revive the American economy is to cut taxes, cut regulation, to stimulate the economy—and, by the way, we can’t afford Social Security; we’re going to have to privatize it, because we’ve got this terrible debt and deficit on our hands. So, the ideology is far from dead, and what we are, I think, seeing with this proposed monument to Friedmanism is really a way of entrenching it and making sure that it is always available to come back, to come roaring back.
• So, I said I would talk a little bit about Friedmanism and the links to the current crisis. And, you know, it’s pretty direct. Milton Friedman is pretty much accepted as the godfather of deregulation. And this was—this ideology was the rationale for turning the financial sector into the casino that we see today.
• And I think that the Chicago School of Economics is properly understood as a counterrevolution against the New Deal, against regulations like Glass-Steagall, that was put in place in 1934 after having seen people lose their life savings to the market crash, and it was a firewall, a very simple, sensible law that said if you want to be an investment bank, if you want to gamble, gamble with your investors’ money, but the government isn’t going to help you because it’s your own risk. You can fail. And if you want to be a commercial bank, then we will help you. We will offer insurance to make sure that those savings are safe, but you have to restrict the risks that you take. You cannot gamble. You cannot be an investment bank. And a firewall was put up between investment banks and consumer banks.
• Phil Gramm is the person, you know, on the legislative side who did the most to create the legislative context for what we’re seeing right now in the financial sector.  … You know, I point—I bring him up because Phil Gramm was a Milton Friedman fanatic. I think you know this. In 1999, the same year that he led the charge to strike down Glass-Steagall, he also—Phil Gramm—pressed Congress to get the Medal of Honor for Friedman.
• But, you know, it was—so it was really Reagan who campaigned, you know, with his copy of Capitalism and Freedom on the campaign trail, who was the first person to really put Friedmanism into practice.
• Ronald Reagan—but I do think that, you know, that it isn’t a coincidence that, you know, a movie star president champions these ideas, or a body-builder governor, you know, who says, “Dr. Friedman changed my life”—I don’t know if you’ve seen Arnold Schwarzenegger’s introductions to Freedom to Choose, but they’re good. You should. YouTube them. But the appeal of these ideas, I think, to politicians who are actually in over their head on economics—and, by the way, this goes for military dictators, too, like Pinochet—who get control over a country and are totally clueless about how to run an economy, is that it lets them off the hook completely. It says government is the problem, not the solution. Leave it to the market. Laissez-faire. Don’t do anything. Just undo. Get out of the way. Leave it to us.
• The other major contribution—another major contribution of Friedmanism to the policy framework is not just deregulation, but privatization, of everything. And, you know, in Capitalism and Freedom, he lays out his wish list, everything from the post office to national parks. So I think it’s interesting to think about how this crisis will effect future plans for privatization.
• The crisis, you know—and this is where Friedmanism becomes a kind of a self-fulfilling prophecy, because you neglect the public sphere and—because you have tax cuts and because you’ve derided the public sphere, and we certainly saw this in New Orleans during Hurricane Katrina, which was not a natural disaster; it was a disaster borne of a collision between heavy weather and a weak infrastructure. But then, that was used to rationalize really just erasing the public sphere altogether, closing Charity Hospital, the only hospital that treats the uninsured in New Orleans, closing down the public housing projects. Richard Baker, Republican congressman, said, “We couldn’t clean out the housing projects, but God did.”
• Now, that neglect of public sphere that we saw in New Orleans is, of course, a national crisis. The American Society of Civil Engineers estimates that there is a deficit, an infrastructure deficit of between $1.5 trillion and $2 trillion, just to bring the roads and bridges up to safety standards. And the solution, up until very recently, that was being held up, was public-private partnerships, was privatization of essential infrastructure. You know this in Chicago, because the airport is one of the ones on the block.
• The biggest test case for infrastructure privatization is the Pennsylvania Turnpike, which was on the verge of being handed over to a consortium of private companies on a seventy-five-year lease, and that deal fell through today. And I think part of the reason why it fell through is because one of the companies leading the consortium was Citigroup. And the idea of putting more essential services, more things that are far too important to fail, in the hands of the same people that have made such a mess of the financial sector suddenly seems like insanity.
• The Bush administration, far from being an aberration, is really the culmination of the idea that government is the problem, not the solution. I think they really believe that and totally abdicate it, their responsibility to manage, to govern. The popping of the housing bubble was a surprise to no one. But the only preparation was a two-and-a-half-page plan presented by Henry Paulson that said, “Give me $700 billion, and don’t ask any questions.” That is not preparing, right? This was laissez-faire in action, a really scary kind of laissez-faire.
• Class is suddenly back in America, with a vengeance, and it is the result of this class war that was waged from this school.
• Milton Friedman understood the utility of crisis. And this is a quote—you know, I use it a lot, but I’ll use it now again, because I think it’s important—which he has at the beginning of the 1982 edition of Capitalism and Freedom: “Only a crisis, actual or perceived, produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.”
• So, we know that the crisis is coming, and the question is, how are we going to respond? I think there needs to be better ideas lying around. I think the Milton Friedman Institute is about keeping the same old ideas that have been recycled so many times, that actually make these public crises worse, making sure that they are the ones that are ready and available whenever the next crisis hits. I think that is what—at its core, that’s what so many of the right-wing think tanks are for, and that’s what the Institute is for. And I think that is a waste of the fine minds at this university. I think it is a waste of your minds, your creativity, because all of these crises—climate change, the casino that is contemporary capitalism—all of these crises do demand answers, do demand actions. They are messages, telling us that the system is broken. And instead of actual solutions, we’re throwing ideology, very profitable ideology, at these problems. So we need better ideas lying around.
• We need better ideas responding to what a Barack Obama presidency would absolutely face. As soon as he comes to office, “Yes, you can” turns into “No, you can’t; we’re broke.” No green jobs, no alternative energy, no healthcare for everyone. You know, his plan for—to give healthcare to every child in America costs $80 billion. Bailing out AIG cost $85 billion. They’re spending that money. They’re spending those promises. So, the people who are going to say, “No, you can’t,” who are going to use this crisis to shut down hope, to shut down possibility, are ready.
• And I think it would be so wonderful to have the brilliant young economists of the University of Chicago—I don’t know if any of them bothered to come out tonight—but to have your minds at work meeting this crisis. We need you. We need open minds. We need flexible minds, as creative as possible. The Milton Friedman Institute, in its name and essence, is about trying to recapture a moment of ideological certainty that has long passed. It has long passed because reality has intervened. It was fun when it was all abstract. It was fun when it was all in the realm of promise and possibility. But we are well past that. Please, don’t retreat into your sacred texts. Join us in the real world.