Quote of the Day: “Behind the ostensible government lies an invisible government owing no allegiance and acknowledging no responsibility to the people.” –Teddy Roosevelt
If you are interested in the state of our economy and how we are to fix it you owe it to yourself to read “The Quiet Coup” written by Simon Johnson, one of the men charged with rescuing the economies of other nations in the past decade as chief economist of the International Monetary Fund and now a professor at MIT. The article was published by “the Atlantic” and is linked here (link).
Or you can rely on my synopsis. First, as always, I wanted to know “the Atlantic’s” bias. I assumed it was a liberal magazine and it may well be. I’ve never read anything else from it. But according to my research-i-pedia the publisher is a self described “open minded neo-con.” If neo-con he is, he proved himself open minded by putting this important work by an economist experienced in the area of saving national economies into the public domain. Speaking of the economist, I have already told you his previous job title. In connection with his work for the IMF, he speaks of working with Russia, Ukraine, South Korea and Indonesia among others. He was called upon by these nations to implement procedures to save their banking systems and thus their economies at large. In the first paragraph he captures my attention by describing the IMF and himself as the last entity/person a country will turn to when there is no other recourse because they know he give them the good advice that they do not want to hear. It’s much like what lawyers do on a smaller scale each day with our own clients.
Johnson is very clear about which political party deserves the blame for the economic crisis we are in–both of them. As one reads the article, it is easy to pick out phrases or sentences that will appeal to one side of the typical political debate in America. For the right winger looking to justify his outlook there is “Almost always, countries in crisis need to learn to live within their means after a period of excess.” Classic conservative theory there–spend less than you take in. Don’t overextend. The lefty may latch onto “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.” TB’s disdain for and blame laid on the powerful elites is well documented and I can tell you after reading the article the first time this is the sentence that stood out most. But when you get past pithy arguments and examine facts you are forced to accept that conservative politicians do spend more than they take in and do not live within their means and at the same time liberal politicians are corrupted by the powerful elites in the same way conservatives are. Without rewriting the article, suffice it to say that Johnson posits a compelling case that President Obama’s economic team is from the same corporate lineage, subject to the same influence and making the same mistakes that President Bush’s team did. Put another way, they are all either bought off by or under the control of the financial industry. These modern day robber barons are at the root of every visible dying tree that we regular folks like to point to as the “real” cause of the crisis. Here’s an excerpt that I found telling:
Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.
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.
And one more excerpt:
From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.
When the word “overreaching” is used, it can lose its meaning without context. That second excerpt is the context in which the accusation of Wall Street’s “overreaching” can be understood. The article contends that above all else our economy has been left in the hands of an ultra-powerful oligarchy who have no agenda save their own enrichment, and that their actions, whether done under the auspices of Democratic or Republican initiatives are the cause of our current predicament.
In his conclusion, Johnson browbeats the Obama administration for lacking the political courage to do what is necessary to end the current crisis and open the way for true recovery in the future. Republicans will enjoy this part. But what he says must be done will turn that pleasure on its head–nationalize the banks, a truly left wing idea. Only temporarily though. Once the lending markets recover the banks should be sold back to private entities and then the final step must be taken. There must be no more institution that is too big to fail. They have to be broken up. If genius is defined as the measure of how much someone agrees with you, then I can confer that status on Johnson for his description of this: “The Obama administration’s fiscal stimulus evokes FDR, but what we need to imitate here is Teddy Roosevelt’s trust-busting.” Eric Cantor, Haley, Jeb? Are you listening? Barack, Joe, Geithner? Dare we hope?
If I’ve done a poor job inspiring you to read this on your own, let me add that the alternatives to breaking the oligarchy, according to Johnson are more than a little frightening. If you think the state of things is just a slightly increased, but normal downturn, the article argues forcefully that you are wrong and that the worst may be yet to come. Is it right? I can’t answer that. But going back to my day job and the way I think in it, if I were trying a case where the issue of what is to become of our economy was before a jury, the first thing I would do would be to hire the most knowledgeable and experienced expert I could find and get his opinions. This Johnson guy looks like one of the experts I’d be likely to call.
That sounds like a really interesting read to me. I dig the TR bit, I was thinking about him the other day for that exact reason. Thanks for the heads up on that article.
The guy has a blog too. Can’t remember if I got the link off the article or by googling his name, but its really informative and has a lot of commentary by other academic types. A very different explanation of things and set of observations than what I’ve seen on TV or the regular news websites.
Glad you found it interesting Irv.
Nerds are usually the best people to talk to about this kind of stuff, and MIT is full of them. Plus, these people study this stuff, I don’t, so I usually will rely on them as opposed to most people on T.V.
I’ve been a subscriber to The Atlantic for years. I’ve never noticed a particular bias, which is why I always read it.
This article is on my list of things to read.