Following the latest rescues of big banks at the same time the Federal Reserve is warning of a recession that could put more than a million Americans out of work, economists, historians and market commentators are drawing comparisons to previous eras of global capitalism when the government and the banking sector were more officially entwined.

As the Fed responds to the current wave of profit-led inflation by punishing not firms and their managers but workers and employees through the labor market, some are even saying that the age of capitalism is dwindling.

“We all came together,” a tie-less JP Morgan CEO Jamie Dimon told CNN last week, referring to his bank’s ostensibly civic-minded bailout of rival bank First Republic at the behest of Treasury Secretary Janet Yellen.

“I may have been the first phone call but everyone was on every call talking about ideas and what works, and they’re all patriots and want to help,” he said.

In a free market, a weaker bank like First Republic that didn’t successfully manage the rising interest rate environment would have simply been allowed to fail.

Dimon’s statist tone about the relationship between government and high finance came right as the welfare protections provided to the public in the wake of the coronavirus pandemic were being dismantled and allowed to lapse.

These included expansions of a tax credit that lifted millions of children out of poverty as well as boosts to Medicaid and food stamps for the poor.

JPMorgan Chase & Co. Chairman and CEO Jamie Dimon answers questions during a House Financial Services Committee oversight hearing of the largest U.S. banks on Sept. 21, 2022.

Back to the future for latest ideas about market structure

In the wake of precedents set by the 2008 bailouts that resulted in the Dodd-Frank regulations, which were themselves a renewal of the older Glass-Steagall laws that followed the Great Depression also set off by a market crash, financial commentators have justified the state interventions with appeals to concepts of “mercantilism” and “dirigisme.”

Both of those are older economic models in England and France predicated on more direct state control of finance and capital.

Some historians told The Hill these concepts are apt.

“Mercantilism, to a lesser degree, dirigisme, although in some ways that’s a preferable term because I don’t think it has the historical specificity that mercantilism has, [applies],” Daniel Sargent, a historian of public policy at the University of California, told The Hill.

“I think we’ve clearly entered an age in which government, certainly in the United States, is working the levers of economic control much more proactively than in recent historical experience in order to advance a combination of geopolitical and domestic political purposes,” he said.

The dynamics of a free market, in which poorly run businesses simply fizzle out to make room for better enterprises to emerge and grab market share, run contrary to these trends.

Sargent cautioned that he was skeptical of claims that the U.S. economy has deviated seriously from a historical baseline, because private finance and government have had various degrees of interrelations for centuries.

Why did the banking bailout need to happen?

Other academics told The Hill there was no need for such high-brow concepts and that high finance should simply be brought to heel for the risks it poses to the physical economy.

“This is just bailing out the big banks and saying, ‘OK, go ahead, do what you’re doing,’ and we’ll just continue to bail them out. That’s not ‘dirigisme.’ That’s not ‘mercantilism.’ That’s just good old-fashioned, plain bailouts,” Gerald Epstein, an economist at the University of Massachusetts Amherst, told The Hill.

Meanwhile, pension reforms in France that finally blasted their way through the Constitutional Council on Friday have sparked an enormous protest movement. It even saw some opponents at the office of private-sector pension management firm Blackrock, which was stormed in the manner of the Bastille.

Major pension reforms have also been underway in the U.S., where the passage of the Secure 2.0 retirement legislation gave major perks to the rich just as Republicans are aiming to put new work requirements on Social Security and Medicaid, the demand of which threatens a default on U.S. public debt.

‘Greedflation’ meets unprecedented capital flows

Earlier this month, an investment banker at Société Generale warned that the ability of firms simply to take more money from consumers during the current inflationary cycle that’s now coming to an end could be hastening the end of capitalist social relations.

“The end of Greedflation must surely come,” said strategist Albert Edwards, as reported by Fortune Magazine. “Otherwise, we may be looking at the end of capitalism. This is a big issue for policymakers that simply cannot be ignored any longer.”

Edwards said price controls similar to the ones enacted by the Nixon administration should be considered, though his comments are likely geared more toward Europe where inflation is higher than it is in the U.S.

The United Nations has been warning about the dangers of the increased capacity of self-interested price-setting since last year, distinguishing the latter inflation caused by price setting from an earlier wave triggered by supply chain disruption.

“Inflation is proving a stubborn adversary due to persistent supply-side factors and excessive markups by large corporations, particularly in food and energy markets,” the United Nations Conference on Trade and Development warned Wednesday.

“With global growth decelerating during the fourth quarter of 2022, the world economy has begun 2023 in a more fragile state than the optimistic accounts were suggesting,” U.N. economists said.

“With the conflict in Ukraine continuing into 2023, major financial, investment and strategic decisions are clouded by geopolitical uncertainty and risks of economic insecurity,” they warned.

“The collapse of the crypto exchange FTX in November 2022 and a string of bank failures in Europe and the United States in March 2023, raise the spectre of financial contagion in an already slowing economy.”

So what becomes of the free market?

Where all this leaves the ideology of free marketeers is uncertain, but some economists think a productive direction for the political economy may lie in the conditions set up during the post World War II period, when a more robust social safety net undergirded a more tightly disciplined financial sector.

“Part of this earlier kind of system that came out of the Second World War [had] many governments [including] the French, the Germans, South Koreans, and the United States to have pretty strict financial regulations,” Epstein said.

“These included, for example, interest rate ceilings, and the banks had a maximum interest rate they could charge,” he said. “There were also usury laws in many states in the United States, for example, limiting how much banks can charge for loans, customers and so forth.”

Whatever the future holds for subsidized financial capitalism, it is certainly scandalizing traditionalists.

“This is wrong,” Republican presidential candidate Vivek Ramaswamy wrote in the Wall Street Journal over the rescue of depositors at SVB. “Silicon Valley entrepreneurs want to move fast and break things, but we shouldn’t let them break public trust as a long-shot maneuver for a special bailout. That isn’t how capitalism works.”

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