Can disaster capitalism be far behind?

On Tuesday, New York Governor David Paterson said in a speech that he will call the New York legislature back on Augut 19 in order to respond to what he considers to be a budgetary emergency. He said that the state’s deficit is now pegged at $6.4 billion and called on lawmakers to cut state spending just as New Yorkers are cutting their own budgets due to higher costs. “The fact is, we confront harsh times,” he said. “Let me be honest. This situation will get worse before it gets better. ”

Apparently, the pain from the mortgage crisis is now being felt at the state budget level; Wall Street is in New York State, after all. But why is Paterson sounding alarm bells now? Traditionally when governors cut legislators’ vacations short, it’s a political ploy to take incumbents from an embattled party off the campaign trail. So some might see this as Paterson sabotaging Republicans in the State Senate.

In the current circumstances that would be a happy thought. If that were the case, the public and the state’s legislators could all get back to the business at hand—enjoying the summer.

The problem is that this time the emergency may become real. There are many reasons that the budget is out of whack. We can point to the long period of decline that has led Albany to become a circus of lobbyists orchestrating second- and third-generation politicians raised on pork barrel spending, with the proverbial three men in a smoke-filled room ultimately making all the important decisions. Of course, we wouldn’t want to forget about the state’s public authorities that are on track to become responsible for some 90 percent of the state’s debt, if projections hold.

Again, however, none of this would necessitate an early return to Albany under normal circumstances.

But these are not normal circumstances. In the same week in March that the Eliot Spitzer scandal broke, another story went largely unnoticed. The Federal Reserve decreed that $500 billion would be disbursed to contain the damage from the mortgage crisis and prevent it from spreading to foreign markets. This injection of capital was intended to calm the markets and quiet all the doomsayers calling for more regulation. One of the beneficiaries of this free market sagacity was the Carlyle Group’s European hedge fund, Carlyle Capital. The Carlyle Group is of course, closely allied with the Bush family. Even with that cash injection, however, the Fed could not keep the hedge fund from imploding.

While pundits enjoyed countless hours of analyzing “the Sheriff of Wall Street,” his hypocrisy, and the shame of his wife and family, the vultures swooped in for yet another “mission accomplished” moment. The people entrusted with running this country have been busy exploiting it instead.

Things may be different with this state budget and perhaps more to follow. The debt bomb we’ve been warned about for years may be about to go off, and just as there were plenty of people in line to capitalize on 9/11, there will be plenty of folks looking to gain from a state meltdown as well.

In her latest book, Shock Doctrine: The Rise of Disaster Capitalism, Naomi Klein outlines the untold history of Milton Friedman’s so-called free market economic movement. She examines how Friedman’s disciples from the University of Chicago schemed to force their system upon third world governments around the world, from the implementation of right wing military coups in Chile and Argentina through the disastrous neocon reconstruction experiment in Iraq. China, with all its human rights abuses, is of course the greatest Friedmanite success story.

It could never happen here, though. Or could it?

In the midst of real and manufactured emergencies, Klein reminds us that the “Chicago Boys” are always waiting in the wings with desperate measures that would never see the light of day under democratic regimes. Now, as ailing, post-industrial communities like Buffalo quietly slide into a sort of second world status (with major league sports teams intact), residents are beginning to get a feel for some of the economic “shock therapy” known for regressing its victims into the fetal position.

As one of the first American test tubes in the free market lab, Buffalo has had both its city and county democratic governments subverted by “financial control boards.” These control boards are state authorities and, as such, exist as long as the terms of whatever debts they are able to generate, which means that they are likely to endure for quite some time indeed. This strategy of contrived emergencies followed by control board takeovers was spearheaded by local free market disciple and M&T Bank CEO Bob Wilmers. What has Paterson done in the last two months? He’s crowned Wilmers as his new economic czar, vetoed legislation that would have put Western New York’s control boards into dormancy, and he’s called for a property tax cap that would cut state revenue at a time of record deficits. Is the Buffalo experiment about to go statewide?

Middle-class folks like to comfort themselves with the media’s favorite control board euphemism: “adult supervision.” How quickly we forget that the politician who coined that term, former New York State Comptroller Alan Hevesi, needed “government supervision” to chaffeur his wife around in a limo. Under free market logic, that scandal wasn’t an ethical failing on Hevesi’s part; it merely served as more evidence that government needs to be hollowed out and then imploded.

While Western New York government is still nowhere near small enough for admirers of local activist Kevin Gaughan, a step back to look at the big picture gives a very different outlook on New York State’s current “debt bomb” crisis. This emergency may provide a golden opportunity for the enforcement of draconian free market measures that would pull the carpet out from under the working poor in upstate New York. From public education to healthcare, the targets of opportunity are numerous and rich for the privatizers.

What would happen if the state stopped payment on checks to municipal governments? Well, we know that from our experience with the city and county crises that local politicians would argue a lot, they’d draft budgetary solutions in private (in flagrant violation of the open meetings law), and in the end they might have to borrow money.

This time there’s a catch. What if the municipal bond market starts to feel some of the ripple effects from the ongoing mortgage crisis? Could the cupboard be bare this time? To publicly ask these questions is almost heresy because the markets are driven by public perception and no elected official would want to be responsible for creating a panic. However, since no one can predict where the bottom of this thing is, it’s prudent to chart a fiscally responsible course, right? What could be more prudent than to reward powerful corporate interests in Albany at the expense of what remains of our “far too generous” social safety net?

And if things really do go to hell in a hand basket, doesn’t it make sense to think of your family first, protect your own political career, capitulate to the overwhelming market forces, and live to fight another day?

So far, Paterson has made plenty of moves to appease the right. Even before he was sworn in as governor, he was forced to admit infidelities in his marriage, to prevent them from becoming tabloid fodder. They have him in their cross-hairs and he knows it. Let’s say that Barack Obama—who seems to be advocating some kind of vague, free market lite policy—gets elected and Hillary leaves the Senate to take a position in the new administration. Guess who was being groomed to take over her Senate seat when her candidacy for the presidency was at its height?

Paterson may be kowtowing to Republicans in order to survive until a special election. He may also be positioning himself to run to the right of the presumptive Republican nominee, New York City Mayor Michael Bloomberg. Either way, Paterson has not exactly been the liberal standard-bearer that pundits had predicted. Missing from his speech on the state budget was the idea of increasing taxes on the wealthy.

In fact, the Working Families Party, in anticipation of the governor’s newfound enthusiasm for Republican-style economics, issued a critique of the situation stating that for over two decades, “…New York State has cut the tax rate on the wealthiest 1% of New Yorkers by more than 50%. Our top marginal tax rate is now lower than in California, New Jersey and ten other states. If we had merely kept in place the high income tax surcharge from 2003 we’d be well on our way to solving the state’s budget problems. You can’t give away the store without ending up in a hole in hard times.”

What Paterson does remains to be seen. He has called the legislature back to Albany. How will we know that things are getting better? Perhaps because they’re getting worse. After all, as the governor said, things will get worse before they get better.