Aug 2, 2011

The influence of financial elites

John Quiggin says the critical issue facing America is clawing back some of the money going to the top one percent; in effect, the super-rich have about the only good-sized pot of money out there, and if we're going to have reasonable public services, by gum the rich are going to have to pay for most of it.

Yglesias, on the other hand, says this focus is too narrow:
But a lot of the political dialogue I see online seems to consist of a slightly strange form of class resentment in which intellectuals, nonprofit workers, or public servants express bitterness about the high incomes of businesspeople whose lives they don’t actually envy. No doubt that are millions of working stiffs in America who really do envy Clarence Otis, Jr.’s life and career starting with many of the 180,000 or so other people working for Darden Restaurants. But by the same token, there are millions of Americans who envy the lives and careers of lots of other people who have “good jobs” that are good for reasons other than very high headline salaries. My job, for example, strikes me as a pretty damn good one even though my earnings are meager compared to the NYU professor. I don’t want to quit it and go work on Wall Street. That would be horrible. And it suggests to me that the questions of inequality and privilege in the United States are more complex than a simple chart of the income distribution suggests. What’s needed is to broaden the number of people with access to better lives across multiple dimensions.
These guys look to me to be talking past each other.  I would agree both that taxes on the rich, particularly on capital gains and other loopholes, should be drastically increased to pay for decent services and there are a lot of problems that are simply the result of foolish or inefficient policy—the war on drugs, for example.  But for my money the critical issue about ungodly wealth concentrations at the very tippy-top is what they mean about political influence, particularly in the financial sector.  I've just finished Fukuyama's The Origins of Political Order, and one of the themes running through the book is how societal collapse is often a result the state being unable to resist elites' efforts to entrench themselves and collect increasing rents from manipulating the political system.  It's what got the Mamluks, the Ottomans, old Hungary, Ancien RĂ©gime France, and Imperial Spain, among others.

A lot of liberals are well aware of the unfairness of having a huge and increasing share of national wealth going to a Russian-style oligarchy, but what we are less aware of is: that concentration of influence can destroy a country.  In some cases, elites prevent the state from responding to a changing environment.  In pre-revolutionary France, Louis XVI, facing deep financial and economic problems, attempted to institute reforms under Turgot and Malesherbes, but nobles forced them out, paving the way for the French Revolution.  In other cases, elites hamstring the state so badly that it cannot even defend itself, which is what did for the Kingdom of Hungary in 1241 when it was conquered by the Mongols.  In essence, elites can behave so selfishly that they pull the temple down on everyone's heads including their own.

Obviously, we're not going to be conquered by the Mongols.  The most hazardous domain today—not coincidentally, the area where elites have basically complete control—is the financial sector.  With the drastic acceleration of the flow of information the internet has brought, financial bubbles can be inflated at a staggering rate.  In 2000, subprime mortgage lending was $130 billion per year, $55 billion of which made it into bonds; in 2005, $625 billion of subprime lending was packaged into $507 billion worth of bonds.  That towering pile of imaginary money crashing down is what caused the Great Recession.

Basically, my point is that if America doesn't get a good firm grip on the throat of the financial sector, there's not going to be a prayer of decent public services, or anything else worth a damn.

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