Has the US become an oligarchy?

[The image above is linked to the one from the article "The Quiet Coup" described in this post.]

A new word is creeping into the vocabulary of Americans - oligarchy. Oligarchy used to be synonymous with Latin American countries. But in just the past few days the word has begun to appear in articles discussing the current US economic crisis. First it appeared briefly in the remarkable Matt Taibbi article in Rolling Stone titled "The Big Takeover". Now it has appeared prominently in a new article in The Atlantic by Simon Johnson titled "The Quiet Coup". While the title of the article itself is highly suggestive, the lead-in leaves no doubt as to the author's intentions.

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time. 

The author is not just another "conspiracy loving nutjob" like myself (I've been called worse), he is "a professor at MIT’s Sloan School of Management, [who] was the chief economist at the International Monetary Fund during 2007 and 2008. " I get the feeling he knows what he's talking about.

By the way, I think I've found the man to replace Tim Geithner as Secretary of Treasury. If we could get Simon Johnson in that position and Nassim Nicholas Taleb, the author of "The Black Swan", to replace Summers and Volker as Obama's economic advisor, then I would feel confident that Obama was serious about really fixing the economic problems facing this nation. That would be "change we can believe in" instead of the tired Clinton retreads that Obama has appointed to his "economic team".

In a section of his article titled "Becoming a Banana Republic" Johnson provides some background for how we got here. He is very careful to not lay the blame on one particular party or the other. Instead he makes it clear that both parties facilitated the policy changes that led us into this current economic quagmire.

But these various policies—lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits—such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside.

The financial industry has not always enjoyed such favored treatment. But for the past 25 years or so, finance has boomed, becoming ever more powerful. The boom began with the Reagan years, and it only gained strength with the deregulatory policies of the Clinton and George W. Bush administrations. Several other factors helped fuel the financial industry’s ascent. Paul Volcker’s monetary policy in the 1980s, and the increased volatility in interest rates that accompanied it, made bond trading much more lucrative. The invention of securitization, interest-rate swaps, and credit-default swaps greatly increased the volume of transactions that bankers could make money on. And an aging and increasingly wealthy population invested more and more money in securities, helped by the invention of the IRA and the 401(k) plan. Together, these developments vastly increased the profit opportunities in financial services. 

Next Johnson describes the unique nature of the financial oligarchy that has wrapped its tentacles around the American government and threatens to destroy our democracy and way of life.

Of course, the U.S. is unique. And just as we have the world’s most advanced economy, military, and technology, we also have its most advanced oligarchy.

In a primitive political system, power is transmitted through violence, or the threat of violence: military coups, private militias, and so on. In a less primitive system more typical of emerging markets, power is transmitted via money: bribes, kickbacks, and offshore bank accounts. Although lobbying and campaign contributions certainly play major roles in the American political system, old-fashioned corruption—envelopes stuffed with $100 bills—is probably a sideshow today, Jack Abramoff notwithstanding.

Instead, the American financial industry gained political power by amassing a kind of cultural capital—a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.

One channel of influence was, of course, the flow of individuals between Wall Street and Washington. Robert Rubin, once the co-chairman of Goldman Sachs, served in Washington as Treasury secretary under Clinton, and later became chairman of Citigroup’s executive committee. Henry Paulson, CEO of Goldman Sachs during the long boom, became Treasury secretary under George W. Bush. John Snow, Paulson’s predecessor, left to become chairman of Cerberus Capital Management, a large private-equity firm that also counts Dan Quayle among its executives. Alan Greenspan, after leaving the Federal Reserve, became a consultant to Pimco, perhaps the biggest player in international bond markets. 

I'm not sure I understand why Johnson chooses to downplay the effects of lobbying and campaign contributions from the finacial industry. I certainly believe that these play a major role in the power that the Wall St. bankers have over Washington. Without these contributions it would be less likely that Goldman Sachs alumni would be able to attain positions of power in the federal government. But Johnson's main point is that Wall St. seduced Main St. They had us all believing that they had all the answers - that as the uber-capitalists, they should be entrusted with the financial keys to the kingdom.

And we fell for it. We stared in awe whenever the prophets of Wall St. spoke. We fell blindly in love with their ideology of "greed is good". We poured money into their coffers through IRAs and 401Ks. We accepted on blind faith there wisdom of the markets. We worshiped at the altar of the Golden Bull of Wall St.

And we willingly became their sacrificial victims. Now it is our children's turn. Another trillion, another generation sacrificed to the greedy gods of Wall St. As the author says in a "primitive political system, power is transmitted through violence, or the threat of violence". It is true that there are no imperial soldiers (yet) marching through the streets, abducting our children and carrying them off to the top of some bloody sacrificial altar.

Oh America, "my country tis of thee, sweet land of liberty", please "let freedom ring" again.

Epilogue 

I was first alerted to this article by Rod Dreher's column "Crunchy Con". He posted an article there titled "The United States of Oligarchy". It's probably safe to say that Rod and I have many areas of disagreement. I gather from the name of his column that he is a conservative commentator, while I definitely tend towards the liberal viewpoint. Yet at this time of crisis, there is a consensus emerging that the old left-right debate is less important than standing up for what is right for our country. I'm sure he would agree.

And just as Rod does, I encourage all of you to read "The Quiet Coup" in its entirety. The preservation of our freedoms depends on an informed public. We all have a responsibility as citizens to not only become informed, but to also act on that information. Please call and email your government representatives and demand that they read this article as well. The American way of life that we love will quickly perish if we allow a new financial oligarchy to rise to power. In the words of Lincoln's Gettysburg Address...

It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced. It is rather for us to be here dedicated to the great task remaining before us -- that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion -- that we here highly resolve that these dead shall not have died in vain -- that this nation, under God, shall have a new birth of freedom -- and that government of the people, by the people, for the people, shall not perish from the earth.

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