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Friday, July 17, 2009

Follow the money

“The Quiet Coup,” an article in The Atlantic by Simon Johnson, former chief economist at the International Monetary Fund and now a professor at MIT's Sloan School of Business, is a must-read for understanding where we are, how we got there, and roughly what we must do to get ourselves out of it. It's all about the power – who holds it, how they use it, and echoing Schumpeter's observation that there is always an elite that is more powerful than the rest of society, how much or little they are willing to share it. In a nutshell:

. . . . Naturally [for trying to solve the problems of a country applying for IMF help], the fund’s economists spend time figuring out the policies—budget, money supply, and the like—that make sense in this context. Yet the economic solution is seldom very hard to work out.

No, the real concern of the fund’s senior staff, and the biggest obstacle to recovery, is almost invariably the politics of countries in crisis.
Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise.

Economist Max Sawicky uses this article to make the point that it is not just the “irrationality of markets,” currently a popular formulation to rebut the notions of the dominant classical economists who failed so miserably to warn us what was coming, but the distribution of power. (Also courtesy of Kevin Drum:

Arguably, however, both ways of putting it are trying to accomplish the same purpose. The distribution of political power is a form of irrationality not acknowledged in classical economics that likes to elevate itself to the status of a true science, and discard the word “social” as in the messy social sciences, by treating the economy as a closed system of rational actors that is quantifiable and put under mathematical algorithms without consideration of the political environment in which it operates. Unquestionably, however, although the "irrationality" formulators may be on the side of the good guys, it lets the bad actors off the hook -- as in the classic "mistakes were made" excuse -- while the power-distribution perspective is far more trenchant as an analytical formulation and for getting us thinking in the right direction of what needs to be done.

As we lose all manufacturing, rely more and more on services to define our economy, and fall behind other advanced industrialized countries in healthcare, public transportation, public infrastructure and per capita wealth -- all the while, wallowing in the pride that we can blow anybody up that we want to -- we should ask whether it is a mere coincidence that this began occurring in earnest during the Reagan administration that re-distributed money and power back to the monied classes (and for that matter, embraced wholeheartedly the Military-Industrial Complex that his former party leader warned us about).

A successful democracy depends on having an elite that understands the necessity for its own long-term good of not hoarding the maximum possible of either wealth or power. Everyone thriving and feeling confident of the future is what makes for a successful social contract and a healthy economy that benefits everyone, including, ironically, even the wealthy themselves. We had that roughly from the late 30s through the 1970s. Since then we have lost it, and it is right-wing conservative philosophy that is directly responsible for that loss. It would be good for Obama to begin articulating that vision as the basis for the policies he is pursuing, rather than, as seems to be too much the case now, assuming that everyone gets it even though it has been undermined by right-wing governance philosophy for the past 30-plus years. It's time to identify that philosophy and its failures clearly, root it and get rid of it. We will continue to lurch from crisis to crisis in ever descending stages until we do.


Blogger boardshooter said...

An effective way to root out the conservative obstruction to progress would be to lay bare its dialectic revealing it's Moonieeque (as in Sun Yun Moon) dialetic and accompanying tactics. A good example of this was provided in the previous post referring to the claim by Boehner, GOP leader, that the Obama stimiulus package generated no jobs when he was corrected on the matter by his own state's Transportation Dept which cited jobs created.

11:32 PM  

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