Government Backed Capitalism Is Not Capitalism

It’s hard to recall a single ideology driving the Occupy Wall Street movement that sprung up after the 2008 financial crisis. Still, many of those activists used the opportunity to protest capitalism itself.

According to a recent Wall Street Journal story, some veterans of the Occupy movement now hold “senior roles” at socialist groups, including those endorsing New York’s socialist mayoral candidate, Zohran Mamdani. But as the story reveals, these socialists’ anger at capitalism is just as misplaced as is their trust that the “right” version of socialism will eventually work.

From ACORN to Occupy

The Journal’s story features Gabe Tobias, who worked for the group ACORN in Santa Ana, California during 2006.

For those who may not recall, ACORN stands for Association of Community Organizations for Reform Now. It was a network of nonprofits that gained notoriety during the 2008 financial crisis. Critics blamed ACORN for lobbying Congress to push financial institutions to make more loans to low-income borrowers, while defenders claimed the group merely helped low-income folks defend themselves against predatory lending and foreclosure practices.

It’s undeniable, though, that ACORN, which got its start in the 1970s, has long agitated for all kinds of “social justice” causes, from living wages to increased use of eminent domain. They even helped get the motor voter law enacted in the 1990s.

As this 1989 Southern Exposure article discusses, ACORN members even protested over the Savings and Loan crisis. It quotes one member who supported using eminent domain to help the homeless as saying “If a house is sitting empty, the government is ultimately responsible for it.” And as this Consumer Federation of America report explains, ACORN (and other groups, including the National Association of Realtors) played a major role in making sure that affordable housing provisions made it into federal legislation passed in the wake of the S&L crisis.

Thanks to these groups, and the support of House Banking Chairman Henry Gonzalez (D-TX), the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 required every Federal Home Loan Bank to establish an affordable housing program. The explicit intent was to help finance “home ownership and rental housing for low-and moderate-income families.” (That language is from the CFA report; section 721 of FIRREA created both “community investment” and “affordable housing” programs.)

An underappreciated story is that FIRREA also allowed commercial banks and credit unions to become members of the Federal Home Loan Bank System. It’s underappreciated because there are now 6,500-member financial institutions, but at that time it was a lifeline to the FHLB system because the S&Ls were defunct. In other words, when a real estate crisis wiped out FHLB system’s members (the S&Ls), Congress “fixed” it by letting everyone else join the system.

This move gave virtually all commercial banks access to federally backed credit advances.

Government Crisis vs. Capitalism Crisis

Now, let’s get back to Gabe Tobias. It’s rather ironic that he attributes the origins of the newly budding socialist movement to the 2008 financial crisis.

For starters, the S&L crisis was partly the product of government intervention in financial markets. And the level of government intervention used to clean it up pales only in comparison to the level used in the wake of the 2008 crisis. And the 2008 crisis was not caused by government deregulation of financial markets. If anything, it was the opposite.

Regardless, the aftermath of the 2008 crisis has included nearly 20 years of government support—both through the U.S. Treasury and the Federal Reserve—for the two giant government sponsored enterprises at the center of the housing market.

Perhaps the names of these institutions and their origin suggest that protesting capitalism is misplaced? It’s hard to fathom how anyone gets any traction arguing that government sponsored enterprises truly represent privately owned companies, but somehow the Occupy movement got away with this.

Limit the Government, Not Capitalism

It’s understandable that “the misery of the financial crisis proved formative for a generation then just coming of age” in 2008. But that crisis was unequivocally caused, in part, by a harmful relationship between industry and government.

The precise label for this arrangement doesn’t matter. There’s no need to label it socialism, fascism, or anything else. The label won’t change the facts: The government became more involved in financial markets after the Great Depression, increasingly right up to the 2008 crisis, and beyond. The results were bad before and after 2008, and the problem can’t be fixed with even more government involvement.

It’s good that Tobias and his friends want to fix what’s wrong with the system. Supporters of capitalism, including libertarians, want the same thing. Many of them even share concern for the poor and people who can’t help themselves, as well as a distaste for the people who use the federal government to protect what they have at the expense of everyone else.

Government Backed Loans Are Not Capitalism

But these problems are not the fault of private ownership and the profit motive. They’re not the fault of capitalism; they’re the fault of expanding the role of government in the economy while hiding behind capitalism.

Poverty is the natural condition of humanity. The success of capitalism in changing that condition depends on cooperation, not exploitation. The marriage of private industry and government is exploitation, and it lowers the success rate of capitalism. One could even argue that it leads to outright fascism, where only the people in charge have rights and the common citizen suffers dramatically.

It’s too much to attribute the 2008 financial crisis to outright socialism or fascism, but it’s also too much to attribute it to capitalism. Everyone who wants to prevent those kinds of economic disasters from recurring, whether they’re capitalists, socialists, Republicans, Democrats, or members of any other group, should start from that common point.

Shifting away from capitalism, with increased government intervention and backing of private enterprise, narrows people’s freedom to do what they choose with their own money. It ultimately makes markets more fragile and contributes to crises. Protest that, whatever it’s called.