Robert Kuttner reviews new biography of Karl Polanyi: Unregulated Capitalism Ends in Fascism

Ever since I found that they had no interest in learning about, let alone organizing against, the dirty money behind Wall Street and leveraged buyout in the 1980s, I have not had much respect for Marxists and communists. My friend, Jon Larson, who runs the Real Economics blog, especially has some entertaining anecdotes he collected from his 1970s travels in Eastern Europe, which he uses brilliantly to illustrate and embellish his critique of Marxism. Astonished at the poor quality of post-war construction in East Germany, for example, Larson wryly observed, "It has to be a really, really terrible economic philosophy that can make Germans forget a basic skill like pouring concrete in less than a generation."

My alternative to Marx is Thorstein Veblen, who coined the term "conspicuous consumption" in his 1899 classic, The Theory of the Leisure Class: An Economic Study of Institutions. From Veblen's school of economics we get many of the too few economists who foresaw the financial crashes of 2007-2008 and who have been accurate about the state of the real economy, such as James Galbraith and Michael Hudson. Their branch of economics is called institutionalism. Ring a bell?

Another alternative to Marx is Karl Polanyi, who, like Veblen, combined economics with anthropology and sociology to create a deep and incisive critique of capitalism. Marxists may find Polanyi somewhat more palatable than Veblen, since a key influence on Polanyi was his residence in Vienna in the 1920s, when the city was governed by socialists who also happened to be competent government administrators of their many socialist and hybrid socialist programs and policies. Hence, the city of that period was known as Red Vienna. To get a bit ahead of ourselves, and quote from the book review below:

The great prophet of how market forces taken to an extreme destroy both democracy and a functioning economy was not Karl Marx but Karl Polanyi. Marx expected the crisis of capitalism to end in universal worker revolt and communism. Polanyi, with nearly a century more history to draw on, appreciated that the greater likelihood was fascism.

The reviewer is Robert Kuttner, co-founder and co-editor of the USA progressive magazine The American Prospect, one of five co-founders of the Economic Policy Institute, and professor of social policy at Brandeis University. The review is in the The New York Review of Books.

The Man from Red Vienna
by Robert Kuttner
Karl Polanyi: A Life on the Left by Gareth Dale
Columbia University Press, 381 pp., $40.00; $27.00 (paper)

What a splendid era this was going to be, with one remaining superpower spreading capitalism and liberal democracy around the world. Instead, democracy and capitalism seem increasingly incompatible. Global capitalism has escaped the bounds of the postwar mixed economy that had reconciled dynamism with security through the regulation of finance, the empowerment of labor, a welfare state, and elements of public ownership. Wealth has crowded out citizenship, producing greater concentration of both income and influence, as well as loss of faith in democracy. The result is an economy of extreme inequality and instability, organized less for the many than for the few.

Not surprisingly, the many have reacted. To the chagrin of those who look to the democratic left to restrain markets, the reaction is mostly right-wing populist. And “populist” understates the nature of this reaction, whose nationalist rhetoric, principles, and practices border on neofascism. An increased flow of migrants, another feature of globalism, has compounded the anger of economically stressed locals who want to Make America (France, Norway, Hungary, Finland…) Great Again. This is occurring not just in weakly democratic nations such as Poland and Turkey, but in the established democracies—Britain, America, France, even social-democratic Scandinavia.

We have been here before. During the period between the two world wars, free-market liberals governing Britain, France, and the US tried to restore the pre–World War I laissez-faire system. They resurrected the gold standard and put war debts and reparations ahead of economic recovery. It was an era of free trade and rampant speculation, with no controls on private capital. The result was a decade of economic insecurity ending in depression, a weakening of parliamentary democracy, and fascist backlash. Right up until the German election of July 1932, when the Nazis became the largest party in the Reichstag, the pre-Hitler governing coalition was practicing the economic austerity commended by Germany’s creditors.

The great prophet of how market forces taken to an extreme destroy both democracy and a functioning economy was not Karl Marx but Karl Polanyi. Marx expected the crisis of capitalism to end in universal worker revolt and communism. Polanyi, with nearly a century more history to draw on, appreciated that the greater likelihood was fascism.

As Polanyi demonstrated in his masterwork The Great Transformation (1944), when markets become “dis-embedded” from their societies and create severe social dislocations, people eventually revolt. Polanyi saw the catastrophe of World War I, the interwar period, the Great Depression, fascism, and World War II as the logical culmination of market forces overwhelming society—“the utopian endeavor of economic liberalism to set up a self-regulating market system” that began in nineteenth-century England. This was a deliberate choice, he insisted, not a reversion to a natural economic state. Market society, Polanyi persuasively demonstrated, could only exist because of deliberate government action defining property rights, terms of labor, trade, and finance. “Laissez faire,” he impishly wrote, “was planned.”

Polanyi believed that the only way politically to temper the destructive influence of organized capital and its ultra-market ideology was with highly mobilized, shrewd, and sophisticated worker movements. He concluded this not from Marxist economic theory but from close observation of interwar Europe’s most successful experiment in municipal socialism: Red Vienna, where he worked as an economic journalist in the 1920s. And for a time in the post–World War II era, the entire West had an egalitarian form of capitalism built on the strength of the democratic state and underpinned by strong labor movements. But since the era of Thatcher and Reagan that countervailing power has been crushed, with predictable results.

In The Great Transformation, Polanyi emphasized that the core imperatives of nineteenth-century classical liberalism were free trade, the idea that labor had to “find its price on the market,” and enforcement of the gold standard. Today’s equivalents are uncannily similar. We have an ever more intense push for deregulated trade, the better to destroy the remnants of managed capitalism; and the dismantling of what remains of labor market safeguards to increase profits for multinational corporations. In place of the gold standard—whose nineteenth-century function was to force nations to put “sound money” and the interests of bondholders ahead of real economic well-being—we have austerity policies enforced by the European Commission, the International Monetary Fund, and German Chancellor Angela Merkel, with the American Federal Reserve tightening credit at the first signs of inflation.

This unholy trinity of economic policies that Polanyi identified is not working any more now than it did in the 1920s. They are practical failures, as economics, as social policy, and as politics. Polanyi’s historical analysis, in both earlier writings and The Great Transformation, has been vindicated three times, first by the events that culminated in World War II, then by the temporary containment of laissez-faire with resurgent democratic prosperity during the postwar boom, and now again by the restoration of primal economic liberalism and neofascist reaction to it. This should be the right sort of Polanyi moment; instead it is the wrong sort.

Read the rest of Kuttner's review.

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Meteor Man's picture

Polanyi was spot on here:

Hayek later contended in The Road to Serfdom that well-intentioned state efforts to temper markets would end in despotism. But there is no case of social democracy drifting into dictatorship. History sided with Polanyi, demonstrating that an unrestrained free market leads to democratic breakdown.

Hayek, Mises and the whole Austrian School of economics have been a curse to economics and the general welfare.

We can only pray that this lesson will finally be learned after we pick up the pieces of the free market collapse of the American Empire:

In sum, Polanyi got some details wrong, but he got the big picture right. Democracy cannot survive an excessively free market; and containing the market is the task of politics. To ignore that is to court fascism.

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"They'll say we're disturbing the peace, but there is no peace. What really bothers them is that we are disturbing the war." Howard Zinn

Tony Wikrent's picture

@Meteor Man
"But the most common and durable source of factions has been the various and unequal distribution of property. Those who hold and those who are without property have ever formed distinct interests in society. Those who are creditors, and those who are debtors, fall under a like discrimination. A landed interest, a manufacturing interest, a mercantile interest, a moneyed interest, with many lesser interests, grow up of necessity in civilized nations, and divide them into different classes, actuated by different sentiments and views. The regulation of these various and interfering interests forms the principal task of modern legislation...."

--James Madison, The Federalist Papers, Number 10.

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- Tony Wikrent
Nation Builder Books(nbbooks)
Mebane, NC 27302
2nbbooks@gmail.com

Tony Wikrent's picture

@Tony Wikrent

"The fact that neither capitalism nor communism had solved the problem of class conflict led Beard to the "grand conclusion" that it was Madison's economic interpretation of history rather than Marx's, that had withstood the greatest test of modern political history. Madison was correct to the extent that he identifies the problem of regulating class struggle, rather than eliminating it, as the central problem of political statesmanship and constitutional development, regardless of the mode of production or any particular distribution of wealth. There is no end to class struggle and, therefore, no end of history (or politics)."

-- Clyde W. Barrow, "Introduction to the Transaction Edition," Political Theory and the Economic Basis of Politics, by Charles A Beard.

Beard wrote Political Theory and the Economic Basis of Politics a decade after An Economic Interpretation of the Constitution of the United States, to make clear that his method of political interpretation based on economics was not Marxist, as was widely believed at the time.

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- Tony Wikrent
Nation Builder Books(nbbooks)
Mebane, NC 27302
2nbbooks@gmail.com

Meteor Man's picture

@Tony Wikrent @Tony Wikrent
Nice touch with Madison from The Federalist Papers. Our founders were well aware of the mischief monopoly power and excessive wealth being a threat to sound governance. IIR a primary dispute between the Federalists and Anti-Federalists (especially Madison) was the role of banks.
If the desire to protect the sound administration of government from monied interests is Marxist, maybe Madison and Beard we're both Marxists.

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"They'll say we're disturbing the peace, but there is no peace. What really bothers them is that we are disturbing the war." Howard Zinn

Cant Stop the Macedonian Signal's picture

@Meteor Man The man who wrote the quotation that ended human civilization:

“There is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”

Of course, just as "one man's opportunism is another man's statesmanship," one man's deception or fraud is another man's savvy business practices.

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The part of John Edwards could easily be played by a burnt out light bulb.
--strollingone

The issue is patriotism. You've got to get back to your planet and stop the Commies. All it takes is a few good men.
--Q

Morire de cara sol.
--Jose Marti

Meteor Man's picture

@Cant Stop the Macedonian Signal
So called "business ethics" are meaningless without government oversight. Another oxymoran is "prosecutorial ethics". The current problem we are experiencing is the age old question who watches the watchers?

Since the Reagan Revolution and with plenty of Democratic assistance, nearly every government agency, including the courts, has been co-opted by regulatory capture:

https://en.m.wikipedia.org/wiki/Regulatory_capture

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"They'll say we're disturbing the peace, but there is no peace. What really bothers them is that we are disturbing the war." Howard Zinn

lotlizard's picture

@Meteor Man  
Regulatory capture? Boy, howdy.

https://www.emptywheel.net/2012/09/14/lanny-breuer-admits-that-economist...

https://www.nakedcapitalism.com/2015/04/bill-black-lanny-breuers-defense...

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Pluto's Republic's picture

@lotlizard

Thanks to all the above and of course, Tony.

All of these subjective "watching the watcher" dilemmas can be and will be solved with existing technology. Predictive technologies can pinpoint outcomes to proposed policies insofar as they benefit special interests to the detriment of social interests — in the zero sum environment of "the current state of the nation." Fortunately, we have a strong body of evidence-based results to act as a control, for which we have paid dearly. Thus, proposed policies can be coded to algorithms and crunched along with a vast array of tangential variables. Here's where AIs can shine, as they inform agencies and public utility commissions so that they can intelligently serve and protect the people, society, and the long-term economy of the nation. The profits that special interests seek to extract from the nation's bounty can be evaluated to determine how much wealth is too much when concentrated in too few hands — that point where concentrated wealth, privately held, creates a drag on the overall well-being of society because it no longer directly stimulates economic improvements for all. This excess must be taxed at 100 percent because we have also paid dearly for the body of evidence-based outcomes that shows where excess money in the hands of special interests begins to destroy a sense of social well-being for the many, and where it degrades the health of the nation, overall. Fortunately, AIs are not swayed by bribes, corruption, insider trading tips, or contributions to their personal foundations.

Where things stand now, we are served by the completely inadequate GAO and CBO and their adding machines. This leaves the special interests free to make their own policy predictions, in an environment where we do not use our body of evidence-based outcomes to challenge, or confirm, their rosy self-serving policy promises. So, will a $1.4 trillion deficit, caused by pouring additional profits, tax free, into the hands of very wealthy key stakeholders of these special interests, result in an explosive growth of government revenues (above and beyond the expected growth due to the natural increase in population and consumption)? Have these same policy predictions ever worked as proposed in the past? Or do they always fail in a very specific fashion? If this policy is enacted and then fails, who pays the debt this expensive mistake has cause, so that it is not imposed on the lives of the children being born to our latest generation? Who picks up the tab for a mistake forced upon society by wealthy persons fulfilling their personal greed?

I, for one, welcome our new, Artificially-Intelligent Overlords.

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@Pluto's Republic

... Fortunately, AIs are not swayed by bribes, corruption, insider trading tips, or contributions to their personal foundations. ...

Doesn't rather a lot depend upon the parameters/means as to achieving desirable goals, and to whom, which may be programmed into them or later acquired? Or are we assuming that AI cannot be indoctrinated with the conscious or unconscious biases of those it's accumulated information from, with which it is to work in order to to formulate decisions/calculations? And that they cannot suffer from glitches?

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Psychopathy is not a political position, whether labeled 'conservatism', 'centrism' or 'left'.

A tin labeled 'coffee' may be a can of worms or pathology identified by a lack of empathy/willingness to harm others to achieve personal desires.

Pluto's Republic's picture

@Ellen North

I am not in the least daunted by describing the human experience rated highest on the OECD scale of wellbeing (a measurement of many factors) as a starting benchmark. This is a measurement of wellbeing that is experienced by all citizens, even the most vulnerable. This is one of many scales of successful happy societies that have been measured and tracked closely for decades. An AI can start there, and we can look for even more fulfilling experiences to raise the standards higher.

Are we assuming that AI cannot be indoctrinated with the conscious or unconscious biases of those it's accumulated information from...

There is no "those" and no intention — there is only binary data across vast and varied demographics from OECD nation's self-assesment indices that are associated with a sense of wellbeing and occasional joy. In other words, Big Data.

Doesn't rather a lot depend upon the parameters/means as to achieving desirable goals, and on [who may have programmed this objective]...

AIs are taught how to learn independently and where to begin looking for relevant information. It's primary objective is establish a benchmark for social wellbeing. Over time, if it was asked, the AI would likely know which governing policies lead to an individual's sense of security and their levels of positive social engagement. It could add other relevant data that correlated across all the demographic fields. It could ultimately predict how a new proposed policy would affect the happiness of the governed over time.

[If it is] to formulate decisions/calculations [about achieving desirable goals], can it not suffer from glitches?

Well, of course, the AI is not making "decisions" about "goals." In this case, it is making predictions about what increase people's wellbeing and materially enhance their life experiences within society. The AI may have taught itself the characteristics of successful societies and stable friendly governments. It would certainly have learned all about recognized human rights. But the "decisions" are for the government to make — after they are told what the outcome of their decision would bring. Goals are the realm of people to determine when there are areas where they feel unsatisfied. Yes, there can be glitches. That's a big part of AI technology, figuring out whether a logical glitch is a feature or a bug. But in the end, the analysis must logically align with the real world data of the OECD, because that is what it knows. Nonetheless, glitches are why multiple independent AIs are used.

Good questions.

There is so much coordinated paranoid projection that divides and paralyzes the United States and prevents enlightened progress and extraordinary experiences for its people — that I am now considering that this mongrel culture is somehow meant to be a baseline dystopia, isolated in the Western hemisphere. As if that was indeed a proclamation from on high.

I can certainly accept that and live with it, if that's what the people would prefer. I am big on the human right of self-determination, which I hold above all else. People, as a committed group/country should get exactly what they collectively want from their association/government. And there is an argument to be made that Americans are indeed the masters of their fate and are already in possession of what they want. There is no other way to interpret their paralyzing fear of change or social peace.

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Cant Stop the Macedonian Signal's picture

@Ellen North I'm more worried about the predilections of the devs than I am about glitches.

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The part of John Edwards could easily be played by a burnt out light bulb.
--strollingone

The issue is patriotism. You've got to get back to your planet and stop the Commies. All it takes is a few good men.
--Q

Morire de cara sol.
--Jose Marti

Cassiodorus's picture

is still a good idea today.

No, not the one proclaimed in 1848 in the Communist Manifesto, which Marx and Engels disavowed in part (in the forward to the 1872 edition they argued that "One thing especially was proved by the (Paris) Commune, viz., that the working class cannot simply lay hold of the ready-made state machinery, and wield it for its own purposes”). Nor the substitute held up by the Russians, which was a bad idea proclaiming itself to be the real thing while closing down the public sphere to avoid discussion of what real communism would look like. (One early and obvious sign of this Russian public sphere closure was in the way they treated Yevgeny Zamyatin, one of my literary heroes.) Peter Hudis is especially devastating about what the whole Russian thing was, as a fraud and a setback to any idea of transcending capitalism. Hudis:

The tragedy of ‘Marxism’ is that a philosophy that originated (at least in Marx’s hands) with the aim of abolishing any social powers that operate behind the backs of the producers ended up creating dictatorial régimes that imposed their will on individuals without even a minimal degree of democratic control or public accountability.

The part of Marx that is still inspirational can be found in his writings on political economy, in which he digresses now and then to give the reader hints at what a world after capitalism might look like. The Hudis book, which I've linked above in full, can give you an idea of where these hints might be. The fundamental notion these hints convey (mostly in the Grundrisse of 1857-1858 and in the volumes of Capital but also elsewhere) is that human beings need a society in which the great mass of people are in control over what they value, rather than "value" being a cudgel to oblige the many to work for the few.

Now, I'm OK with Veblen and Polanyi, both later thinkers than Marx, as creative exponents of a new alternative to neoliberal political economy. You know, of course, that even John Maynard Keynes had a utopian vision in which, by around now, capitalism would be able to meet everyone's needs. At any rate, it's very cool to point to Veblen or Polanyi to suggest that the capitalist system, even when "well regulated," doesn't do that. The remaining problem is one of being able to say and to perform that which comes next, and Marx for his part was only able to suggest a few hints (albeit very good ones) about what a viable postcapitalism would look like. The burden for solving that problem remains on your shoulders and mine. Meanwhile this book counts as an innovation.

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"The Democratic Party is better than the Republican Party in the way that manslaughter is slightly better than murder: It might seem like a lesser crime, but the victim can’t really tell the difference." -- Michael Harriot

Cant Stop the Macedonian Signal's picture

@Cassiodorus I'm OK with Keynes. He seems like a capitalist I would be able to work with.
Unfortunately, with capitalism, it never stops there. I've never seen a system pretend to so much individualism, and operate by it so little. More often than not, it doesn't matter a flying fuck if the individual across from you is a good guy, rational, smart, willing to keep his promises. Sooner or later he'll be replaced by one who isn't, and then your deal will fall apart.

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The part of John Edwards could easily be played by a burnt out light bulb.
--strollingone

The issue is patriotism. You've got to get back to your planet and stop the Commies. All it takes is a few good men.
--Q

Morire de cara sol.
--Jose Marti

Cassiodorus's picture

@Cant Stop the Macedonian Signal cool kids -- in Keynes' case he was one of the core members of the Bloomsbury Group. These people were often exponents of high modernism in art and in scholarship -- note that another of the cool kids was Virginia Woolf, the quintessential high modernist novelist, and also another (on the outside of the core group) was T. S. Eliot, the quintessential high modernist poet. My favorite among the bunch was the tall man with the bad eyesight, Aldous Huxley -- who will receive a chapter in my forthcoming book. But yeah Keynes was a big figure in the 1918-1939 UK scene.

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"The Democratic Party is better than the Republican Party in the way that manslaughter is slightly better than murder: It might seem like a lesser crime, but the victim can’t really tell the difference." -- Michael Harriot

Pluto's Republic's picture

@Cassiodorus

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Cassiodorus's picture

@Pluto's Republic @Pluto's Republic Russian writing, as suggested above, runs into the intellectual conformity problem that Zamyatin encountered. The Germans, same thing in 1933. Huxley's Eyeless in Gaza borrowed its format from Andre Gide, but Gide was French.

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"The Democratic Party is better than the Republican Party in the way that manslaughter is slightly better than murder: It might seem like a lesser crime, but the victim can’t really tell the difference." -- Michael Harriot

Meteor Man's picture

Here's an essay I put together a few months ago citing Stiglitz, Pikkety and Saez for the unremarkable proposition that capitalism requires consumers who can purchase products and services:

https://caucus99percent.com/content/stiglitz-and-piketty-and-saez

And a link at the end of my essay to The Next System Project:

Reversing Inequality: Unleashing the Transformative Potential of an Equitable Economy

https://thenextsystem.org/inequality

We have had a running discussion here at c99p about why the 1% is so determined to kill the middle class goose that lays the golden egg. Many of us have concluded it is a combination the corruptive influence of absolute power and the love of money that blinds them to the destructive economic path they are compelling global first world nations to follow by leveraging economic power for disastrous political ends.

Any thoughts on the probability that the global political and economic elites will see the error of their ways soon enough to avoid economic armageddon?

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"They'll say we're disturbing the peace, but there is no peace. What really bothers them is that we are disturbing the war." Howard Zinn

Song of the lark's picture

fascism as survivalism. We will pass through the tumult of fascism, endgame bubble monetary capitalism, kleptocracy, kakistocracy, neoliberal shock doctrine feudalism etc etc but in the end and with many fewer people climate change will ensure it will only be about communal survivalism. We have between now and two decades. Armor up.

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Cant Stop the Macedonian Signal's picture

It looks like two different kinds of fascism. The establishment is neo-fascist in a corporatist, elitist, top-down authoritarian way; the right-wing populists are neo-fascist in a racist yet anti-elitist, bottom-up kind of way--some of the time. The problem is that the right-wing populists don't seem to me to have a very coherent philosophy, or, if they do, they don't seem to understand it very well, or maybe just don't express it very well. It seems to boil down, often, to: my tribe (white working people with conservative views) has been fucked over, and I'm pissed, and I'm gonna take it out on (almost) everybody else who isn't me. (It varies as to whether the rich, mostly white, corporate business world gets blamed or remains venerated).

The major exception to this seems to be the libertarians, who do have a coherent philosophy: one that, IMO, doesn't work very well for human survival, but it is coherent. I'm unsure as to whether and when they fit into the neo-fascist mold. Libertarianism often has unacknowledged racism at its heart; so it often seems to depend on whether racism or anti-authoritarianism is more important to the individual libertarian.

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The part of John Edwards could easily be played by a burnt out light bulb.
--strollingone

The issue is patriotism. You've got to get back to your planet and stop the Commies. All it takes is a few good men.
--Q

Morire de cara sol.
--Jose Marti

Meteor Man's picture

@Cant Stop the Macedonian Signal
The problem with contemporary libertarians is that they are not civil libertarians; their entire focus is on property rights and economic liberty without government interference.

Libertarians also used to oppose military adventurism. A good example of a principled libertarian is Justin Raimondo at Anti-war.com:

http://original.antiwar.com/author/justin/

I generally agree with your analysis of left wing and right wing fascism being flip sides of the same coin.

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"They'll say we're disturbing the peace, but there is no peace. What really bothers them is that we are disturbing the war." Howard Zinn

Cant Stop the Macedonian Signal's picture

We persist in thinking that this reaction is organic and self-propelled:

Not surprisingly, the many have reacted. To the chagrin of those who look to the democratic left to restrain markets, the reaction is mostly right-wing populist. And “populist” understates the nature of this reaction, whose nationalist rhetoric, principles, and practices border on neofascism.

and it isn't always. Manipulations of this culture are going on, and have been going on since at least 1983, with a fair degree of sophistication. It seems the same thing is happening in the rest of the world that marches under the United States' aegis, but I don't have enough knowledge of other countries to know whether they have bad faith actors engaging in social engineering or not. I'd bet, however, that the same social engineers who work on us, many of whom reside in the CIA, probably began their work in foreign countries and only brought it home later.

It's big business to encourage people away from left-wing thought. Like most big business, it isn't left entirely to the little guy to determine what's being bought and sold.

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The part of John Edwards could easily be played by a burnt out light bulb.
--strollingone

The issue is patriotism. You've got to get back to your planet and stop the Commies. All it takes is a few good men.
--Q

Morire de cara sol.
--Jose Marti