The Origins of Totalitarianism: Interlude on the Tea Party

As I noted in this post, Arendt says that the great frauds and swindles of the 1870s led to the rise of Antisemitic political parties in Germany, Austria and France. The Grimdungsschwindel in Germany and Austria involved public offerings of investments in what we would call start-ups corporations in railroads, mining, steamships, docks, and so on. The perpetrators were capitalists and aristocrats. Jews were implicated only as financial facilitators. The big losers in these scams was the lower middle class, according to Arendt.

However, another group of people besides noblemen, government officials, and Jews were seriously involved in these fantastic investments whose promised profits were matched by incredible losses. This group consisted mainly of the lower middle classes, which now suddenly turned antisemitic [sic]. They had been more seriously hurt than any of the other groups: they had risked small savings and had been permanently ruined. There were important reasons for their gullibility. Capitalist expansion on the domestic scene tended more and more to liquidate small property-holders, to whom it had become a question of life or death to increase quickly the little they had, since they were only too likely to lose all. They were becoming aware that if they did not succeed in climbing upward into the bourgeoisie, they might sink down into the proletariat. Decades of general prosperity slowed down this development so considerably (though it did not change its trend) that their panic appears rather premature. For the time being, however, the anxiety of the lower middle classes corresponded exactly to Marx’s prediction of their rapid dissolution.

The lower middle classes, or petty bourgeoisie, were the descendants of the guilds of artisans and tradesmen who for centuries had been protected against the hazards of life by a closed system which outlawed competition and was in the last instance under the protection of the state. They consequently blamed their misfortune upon the Manchester system, which had exposed them to the hardships of a competitive society and deprived them of all special protection and privileges granted by public authorities. They were, there/ore, the first to clamor for the “welfare state,” which they expected not only to shield them against emergencies but to keep them in the professions and callings they had inherited from their families. Since an outstanding characteristic of the century of free trade was the access of the Jews to all professions, it was almost a matter of course to think of the Jews as the representatives of the “applied system of Manchester carried out to the extreme,” even though nothing was farther from the truth.

This rather derivative resentment, which we find first in certain conservative writers who occasionally combined an attack on the bourgeoisie with an attack on Jews, received a great stimulus when those who had hoped for help from the government or gambled on miracles had to accept rather dubious help of bankers. P 36-7, fn omitted.

The Marxist class analysis doesn’t fit our social structure today, but translate the lower middle class to the mid- to upper middle class, and the parallel couldn’t be more clear. The big losers in the Great Crash of 2008 were the top part of the middle class, who were losers in the stock markets, and perhaps even lost their homes, and many of whom, particularly those over 50, lost jobs. The rest of the middle class saw their pensions pounded down by Wall Street. Then the rich led an attack on public pensions, and other pensions, further wounding the middle class. There’s one scene in The Big Short where one of the characters points this out. Many people I knew referred to their 201K plans, and others talked about the number of years they would have to work to make up for their losses. As a bankruptcy lawyer, I also saw a number of people who had to file to protect whatever they had left. Not all but many people in similar situations were ready to blame someone besides themselves for trusting the stock market and the economy.

The Tea Party manipulators found a scapegoat: the people who took out mortgages from Countrywide, New Century, WaMu, Taylor Whitaker and Bean, and all the rest of the scumballs. They successfully deflected attention from the people who actually caused the Great Crash: the packagers, the rating agencies, the brokers who sold the garbage, the fiduciaries who stuffed the garbage into mutual funds and pension plans, the bankers who loaded up on it. The banks and their servants blamed the poor slobs who bought houses they couldn’t afford, the strippers in Las Vegas who had 5 houses and a condo (per The Big Short), the families with two jobs and good credit who borrowed to renovate their homes and then lost one or both jobs. You know them, they’re your neighbors. The bankers even got one of their own on the Financial Crisis Inquiry Commission, Peter Wallison, whose dissent became the defense of the cheats and frauds. And Obama and his Treasury Secretary Geithner and his Attorney General Holder and the odious Lanny Breuer foamed the runways for the banks with the lives of millions of formerly middle class people, and excused the bankers with their false explanation of the difference between fraud and greed.

In the DotCom Bubble, the damage fell mostly on upper middle class people who thought they needed to bolster their retirements, or who were sold garbage by sleazy brokers, or for whatever reason. Then they got hammered again by the same people in the Great Crash. Today, their funds are being stuffed with unicorns and other fictional creatures.

On January 2, 2011, I wrote a post titled “What We Lost Because Obama Didn’t Prosecute Banksters”. I argued that people who didn’t know better would believe those lies from the financial empire, and that perp walks and trials would enlighten those who could be enlightened. Obviously that isn’t everyone. But there is no doubt the Tea Party would have had a much harder time getting started if the bankers were being carried off on tumbrils.

Just as the financial scandals of the 1870s started political parties aimed at someone besides the perpetrators, the financial scandals of the 2000s led to the Tea Party, which aims its rancor at people who weren’t the cause of the crisis. History doesn’t repeat itself, but it sure seems self-similar.

Notre Dame undergrad (math); JD, Indiana University at Bloomington; 1st Lieutenant, US Army.; private practice in corporate and securities law; Assistant AG in Tennessee for consumer protection and securities; Blue Sky Securities Commissioner, Tennessee; private practice, bankruptcy and corporate law.

I have had a lifelong interest in economics. For most of my career, that interest was practical, focused on the problems in front of me. Lately I have been more interested in economics as a theory, especially its impact on the lives of people like those I met in my bankruptcy practice, and on the politics of money in the US. I also enjoy reading philosophers, starting in college and steadily expanding my reading ever since. I wrote at FireDogLake for a number of years.

Generally, I think the problem facing the US is the dominance of neoliberal discourse. I think it clouds the vision, and limits the kinds of problems that can be identified and solved. For example, the existence and danger of climate change can easily be identified in a scientific discussion. However, the problem does not fit the neoliberal discourse because science insists that the pursuit of individual and corporate self-interest will lead to devastation. In neoliberal discourse, the pursuit of self-interest always leads to Eden.

The neoliberal project has two prongs. One is the police function of crushing dissent and alternative views. The police function is provided by government agencies and private and institutional actors. The counterpart is the economic system , which is operated by government and by private and institutional actors. Some of these actors operate in both spheres. I focus on the second prong.

22 replies
  1. orionATL says:

    […On January 2, 2011, I wrote a post titled “What We Lost Because Obama Didn’t Prosecute Banksters”. I argued that people who didn’t know better would believe those lies from the financial empire, and that perp walks and trials would enlighten those who could be enlightened…]

    just an aside to this essay,

    but it has infuriated me each time in these 7 years that i have heard attny gen eric holder whine about how existing laws would never not stand up for a banker’s conviction.

    to which i answer, “irrelevant”. it is the historical info he should have pursued.

    holder’s objective should have been to conduct the most thorough discovery imaginable with no part of that discovery sealed afterwards.

  2. haarmeyer says:

    The big losers in the Great Crash of 2008 were the top part of the middle class, who were losers in the stock markets, and perhaps even lost their homes, and many of whom, particularly those over 50, lost jobs. The rest of the middle class saw their pensions pounded down by Wall Street.

    Where I am, this happened in roughly opposite order. First the pensions got pounded (converted to 401ks) starting before 2001, then those over 50 began to lose jobs in a big way starting in 2005, then came the Great Crash of 2008 as they were attempting to recover from it. Many were the same people as those you mention in the “DotCom Bubble” burst.

    • P J Evans says:

      People over 50 were losign their jobs (and not getting new ones) long before 2005. The pension changes started happening under Reagan. Under Bush, the bankign regulations made it worse.

  3. Les says:

    I remember the New York Times wrote a synposis of the financial crisis after the crash and blamed it all on government regulators. It goes without saying that the regulators are in the hip pockets of the WS firms. The captured federal banking regulatory agencies not only turned a blind eye to abuses, but went beyond by protecting the banks from states’ attorney generals who wanted to bring them up on local predatory lending laws.

    By 2006, the Wall Street firms were also directing the mortgage lenders to make loans to non-creditworthy clients so they could short these mortgage securities with naked credit default swaps.

    I always wondered how AIG ended up getting stuck with writing so many credit default swaps. It’s as if they were setting up so a government rescue of Wall Street would be required. There’s no way they could collect on all these contracts from one firm.

    • orionATL says:

      ” always wondered how AIG ended up getting stuck with writing so many credit default swaps. It’s as if they were setting up so a government rescue of Wall Street would be required. There’s no way they could collect on all these contracts from one firm.”

      now that’s an interesting thought, and not at all inconceivable. indeed, it could have been just be very knowledgeable rent-seeking, e. g., gaming the banking system and its government supporting structure.

  4. orionATL says:

    why is my damn comment still awaiting moderation when 2 others appear below it?

    this is not the first time.

    am i that radioactive?

    this is getting VERY tiresome.

  5. bevin says:

    Marx’s class analysis is still a very useful tool but it is considerably more subtle than the account Arendt gives in the passage quoted which is the crudest kind of mechanical economic determinism.
    What Arendt appears to be doing is to provide a rational explanation-other than political choice on the part of ruling classes- for a wave of racism that set out to divert attention from the nature of capitalist exploitation and to divide what is currently called the 99%.
    Given that this is the oldest ruling class strategy of all and one that provides an explanation for just about all the violence and destruction in our lives- from police killings to the archipelago of prisons and torture chambers to the wars raging throughout the middle east and elsewhere- it is one that should not be discarded without much better evidence than Arendt’s lame selection of anecdotes.
    The explanation almost certainly is -very simply- that she young refugee from Frankfurt understood enough to know that there was no future in joining the large number of fascism’s critics who argued that it was capitalism on steroids. And that she understood the enormous cachet awaiting theorists who conflated socialism with its opposite and turned the offensive against fascism into a long war against anything challenging the hegemony of free trade imperialism.
    She was right- and for her monument look around you.

    • Ed Walker says:

      Class analysis is certainly useful. I think class structures today are vastly different from those of the 1870s, and thus my translation of Arendt’s bourgeoisie consisting of small business people and artisans and craftsmen to our upper middle class (the 50th to the 90th percentile by income) of office workers and most professionals and certain small business people. These were the big losers in the scams that led to the Great Crash, and these are the people hammered in the dotcom bust.
      .
      One central difference is that few people today identify by class in the same way Arendt’s bourgeoisie and Polanyi’s working class came to have a class consciousness. For the latter that class consciousness brought with it a sense of class solidarity. That is missing in the US. There is no sense of solidarity with people on the basis of actual class, as opposed to what people call “middle class”, and little sense of solidarity even as a nation.

  6. SufferinSuccotash says:

    The financial scandals of the 1870s and 80s provide some of the context for antisemitism, but there was another factor involved, namely the growth of Jewish immigration from Russia which was largely stimulated by the pogroms that began there in the early 1880s. Refugees fleeing persecution triggering a nativist backlash in the host countries–history sure does rhyme, doesn’t it?

    • orionATL says:

      while trying to understand the question (in my mind at least) of why any nation at war would kill off 10% of its people for any reason, i ran accross this astonishing table (i have seen three versions of it with the same numbers) :

      http://www.jewishvirtuallibrary.org/jsource/Holocaust/killedtable.html

      while germany killed ~ 6 million jews, it turns out that german jews were not the largest number of jews killed by the homicidal machinery of the german state.

      the greatest number of jews killed were polish (3 mill) , soviet (1.5 mill) , hungarian, and czech. by my mental calculations ~80% of the jews killed were from these 4 nations. german jews added another 160,000.

      all the death camps, and most of the internment camps, were outside germany – in poland.

      i make this comment here because it seems to fit with sufferinsuccotash’s comment @17.

  7. bevin says:

    Very true, Sufferin: the pogroms in Russia caused a continuous flight of Jews, mostly from the western marches of the tsarist empire. And these were poor Jews, not financiers but workers and peasants
    who had an immediate and tonic effect on trade unions and political parties in the countries to which they fled.
    It was this political activity on the part of a minority which incensed conservatives in, for example Britain. There was a certain amount of resentment, against this new competition in the labour market, among the poor. But there was nothing new or unique about this, it was inevitable and it soon passed except in those quarters open to racist conspiracy theories. (The most famous of which, The Protocols… was of official Russian origin.)
    What made the Jewish contribution to working class organisations unusual was that it was divided between zionists and communists- the first flight of Jewish pioneers to build a new Jerusalem went not to Palestine but, in the early twenties, back to the Baltic states and Russia where the Revolution of 1917 was seen, from places like Glasgow and London, as the beginning of a new age for Jews and oppressed people everywhere. Zionism, fostered by wealthy families such as the Rothschilds, was to have its day later.

    • orionATL says:

      new info and fascinating:

      “… What made the Jewish contribution to working class organisations unusual was that it was divided between zionists and communists- the first flight of Jewish pioneers to build a new Jerusalem went not to Palestine but, in the early twenties, back to the Baltic states and Russia where the Revolution of 1917 was seen, from places like Glasgow and London, as the beginning of a new age for Jews and oppressed people everywhere. Zionism, fostered by wealthy families such as the Rothschilds, was to have its day later… “

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