Conservatives Love Socialism… When it Comes to Socializing Their Losses

20081201-socialismConservatives claim to hate socialism. In most (if not all) cases, it’s because of one of two things:

  • They don’t actually understand what socialism really is, or
  • They mistakenly confuse socialism or socialist leaning policies for fascism, communism, and/or Leninism.

To be fair, these people shouldn’t be confused with well educated citizens, economists, and pundits who truly believe that Austrian based economic policies work better than Keynesian based ones. While I may disagree – and have discussed the reason why at length in at least one previous article – I honestly believe it’s important to distinguish between those who make an educated decision to support an economic ideology, and those who dislike something simply because they don’t really understand it.

With that being said, the truth is that conservatives actually love socialism. Especially when it’s financially beneficial for them – like when it comes to socializing their financial losses. In other words, when it comes to profits, any and all regulations, laws, and/or taxes that may decrease a company’s gains (even slightly) are “socialism run amok,” and are “anti-capitalist” and “un-American.” However, socializing losses via Chapter 11 bankruptcy is seen as a perfectly acceptable way for a company to save their failed business.

Before I delve into the latest example of this phenomenon, I should briefly describe what bankruptcy is and how it functions. Bankruptcy is a legal way for a debtor to obtain relief from debt, through either the discharge or restructuring of the debt. By definition, bankruptcy is always associated with financial loss. When a company’s outstanding debts exceed their profits, such that the company is no longer financially solvent and can no longer pay back their creditors, the creditors claims must somehow be absorbed into the country’s economy. Enter bankruptcy – a system designed to deal with insolvency in an efficient manner. Bankruptcy determines how such losses will be “socialized,” i.e. redistributed among all of the parties involved – including, banks, shareholders, creditors, bondholders (which further includes taxpayers if the U.S. government is a bondholder of the company), and current and former employees of the company.

Take for example Freedom Industries. Freedom Industries is the company that caused 7,000 gallons of methylcyclohexane methanol, or MCHM – a chemical used to treat coal during its preparation process – to spill into the Elk River. The spill caused 9 West Virginia counties to declare states of emergency and left over 300,000 West Virginian’s without water for several days. Many people, myself included, have reasoned that the spill was a direct result of a lack of regulations on chemical storage facilities in the state, due to the coal industry’s fierce lobbying against regulatory schemes. In fact, less than a mile away from where the spill occurred, directly across the river, hangs a billboard claiming that President Obama and the EPA are killing jobs through regulations (click into street view and rotate the map and you’ll see it); regulations meant to prevent a disaster like this from occurring and protect citizens from unsavory business practices by companies looking to maximize profits at the expense of a clean water supply. I mean, it shouldn’t surprise you that the facility where the spill occurred was not subject to any regulations or oversight whatsoever in terms of the storing of this caustic chemical, because, socialism you know?

But this is where it gets interesting. Less than a week after the spill occurred, Freedom Industries filed for Chapter 11 bankruptcy, thereby effectively redistributing (“socializing”) their losses. So let me get this straight… Regulations that may have prevented the spill are evil socialist policies that cannot ever be enacted, but redistributing the losses of your failing company is perfectly fine. I think I get it now. On second thought, nope, not really seeing how that makes any logical sense. Freedom! Freedom against redistribution – unless we are redistributing our losses. Freedom against regulation (except regulations we wrote), unless of course we are about to get sued for failing to maintain our chemical storage facility – even though we weren’t required by law to do so, but of course would have done so anyway because, well, because the free market dictates we should (right) – in which case, sure why not hide behind a regulation that could protect us against court judgments. Oh yea, did I mention that? By filing for bankruptcy, Freedom Industries could potentially protect itself from court judgements against it. Like, say, a money judgment in favor of someone who got sick due to the chemical spill.

As the father of capitalism, Adam Smith, once said:

“The interest of [businessmen] is always in some respects different from, and even opposite to, that of the public … The proposal of any new law or regulation of commerce which comes from this order [from the businessmen] … ought never to be adopted, till after having been long and carefully examined … with the most suspicious attention. It comes from an order of men … who have generally an interest to deceive and even oppress the public.”

Or, in this case, the proposal by businessmen to not be subject to any laws or regulations at all, “ought never to be adopted, till after having been long and carefully examined,” for it comes from an order of men who generally have an interest to put the public water supply at risk and then redistribute their losses to the rest of us while claiming to hate socialism.



The information in this article is provided for general informational purposes only and is not intended to be legal advice. The law changes frequently and varies from jurisdiction to jurisdiction. Being general in nature, the information and materials provided may not apply to any specific factual and/or legal set of circumstances. No attorney-client relationship is formed nor should any such relationship be implied.

Image via John Sherffius

Ilyssa Fuchs

Ilyssa Fuchs is an attorney, freelance writer, and activist from New York City, who holds both a juris doctor and a political science degree. She is the founder of the popular Facebook page Politically Preposterous and a blog of the same name. Follow Ilyssa on Twitter @IlyssaFuchs, and be sure to check out her archives on Forward Progressives as well!


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