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By Joe Campbell
June 2nd, 2009

Marc Ambinder discusses what he terms “Obama’s New Capitalism” in a recent piece. He asserts that the administration is “rewriting the rules of capitalism” but goes on to not discuss what these rules are. Which is fine – Ambinder’s piece makes some good points. One which I’ve made before is that Obama has not been violating the Rule of Law with regard to his GM and Chrysler interventions as his conservative critics allege:

Note that, aside from threats and suasion, the administration hasn’t done anything. The bondholders (with notable exceptions) agreed to these two deals. No laws have been broken. Everyone has sacrificed. And the unions have already given up a great deal – and, in doing so, put their trust in the administration.

I had written earlier:

These authors make a big point of the fact that Obama is abrogating contracts – but this objection is a bit silly. Obama is not a party to these contracts – and thus has no obligation to honor them personally. The Contracts clause of the Constitution – the Law which it is being alleged Obama has broken – was meant to constrain the individual states rather than the President or even the Congress. Congress was in fact given the power to abrogate contracts through bankruptcy proceedings in the Constitution. Obama – in intervening in the case of Chrysler – helped to negotiate an out-of-court settlement of the matter. Out-of-court settlements happen all the time – and are welcomed by overburdened judges who see it as better to allow all sides to come to an agreement rather than having to order them to agree.

To call this a violation of the Rule of Law is disingenuous at best.

What these authors are right to be concerned about is the concentration of power that undermines the system of the Rule of Law – as the government’s role in backstopping the finance and auto industries leaves it with enormous leverage.

Ambinder’s point that the UAW is putting a lot of trust in the Obama administration by accepting these deals is well-taken.

But I look forward to reading (or perhaps writing) the piece that Ambinder’s title seems to promise – explaining what amendments to the capitalist system have been wrought in the final days of the Bush administration and in these opening days of the Obama administration. We obviously don’t know everything yet – as that big piece of legislation which attempts to regulate the purported roots of this financial crisis has not been drafted to my knowledge.

But I can make a few educated guesses about the shape of this capitalism. So far anyway, institutions that are too big to fail have now combined into even larger institutions. It seems unlikely this will reverse. These enormous institutions now seem to have a implicit government backstop. This will need to be dealt with either with more regulation of such institutions – or by breaking them up into smaller pieces. It seems that in the future new financial instruments will be regulated more closely – and hopefully traded over some public exchange. Obama seems to want labor forces to have a greater role in running corporations – which is a relatively unique prospect in American history – and one that if it catches on could be revolutionary. At the moment, this depends on how well the UAW is able to handle its ownership stakes in Chrysler and GM – but one can see this creating either an advantage or a disadvantage competitively. There is also the issue of systematic risk – and finding a regulator responsible for monitoring this. Perhaps most significantly – the federal government has explicitly accepted what has long been its implicit promise to keep economic growth going.