Feudal Lords Of Finance

In some influential circles, these questions are now asked: What’s wrong with high levels of inequality in general, and with having very rich bankers in particular.  After all, human societies have survived the presence of extremely wealthy individuals in the past – in fact, some now argue, the presence of such a “new aristocracy” can finance growth and spur innovation.

This argument is deeply flawed along three dimensions.

  1. Such super-elites care very little for anyone other than themselves.  Certainly, there will be some charity – but remember that John D. Rockefeller’s greatest donations came after he had been dragged through the mud by some very persuasive rakers (Ida Tarbell).
  2. It is a mistake to assume that any country’s institutions (the laws, rules and norms that govern behavior) are fixed for all time.  In reality, institutions change all the time – partly in reaction to who has wealth and power, and what they are trying to do.  What are the odds that our financial super-rich will want to build democracy and strengthen the middle class?
  3. Can the rich and powerful really be counted on to save the system, or just themselves?  Go back carefully through the early history of the Great Depression (see Lords of Finance).  Certainly the big  New York players saved banks and securities firms that were seen to be part of their club (e.g., Kidder Peabody), but they – and the New York Fed – were not so inclined to save financial institutions they regarded as less than central (e.g., Bank of the United States), even if this meant thousands of people lost their life savings.

When the Bank of England’s Andrew Haldane speaks of a “doom loop,” he is describing the declining future for our middle class.  Powerful financiers, by and large, did just fine during the Great Depression.

By Simon Johnson

106 responses to “Feudal Lords Of Finance

  1. Feudalism was the norm for most of recorded history. We peasants had a decent run for the past few centuries, but that is over now.

  2. What’s wrong with high levels of inequality

    Just ask Marie Antoinette or Nicholas II.
    People tend to have very strong and passionate sense of social justice and fairness, especially if they feel that the tickle-down philosophy makes them trickled-upon by the super rich.

  3. Agoraphobic Kleptomaniac

    I’d love to know about what “influential circles” you are talking about here. Is this bankers talking about themselves, or have other people actually asked these questions?

    The American Dream + Aristocracy = collapse of the system. The two are mutually exclusive to a successful society, as we will learn if serious policy makers are asking such questions.

  4. Deeply flawed – indeed! History is repeating, we’re doomed, because we never learn.

  5. It’s high time an academic wrote about an issue like this. This shows that Mr. Johnson has got not only the prerequiste brain, but also the citizenship necessary to assist at the betterment of our world.

    This blog should be circulated among all academic elites who usually say they don’t talk politics when confronted by such thougts!

  6. People aren’t taking their right to vote seriously anymore. I think “us peasants” need to look in the mirror a little. Even the ones who get worked up enough to protest (teabaggers) don’t have the reading comprehension to get through the front section of the New York Times. They’d rather listen to Glen Beck and act on fantasy paranoia than deal with the REAL threats.

    That’s how guys like Phil Gramm leave office with the rest of their lives assured and pampered and the same dimwits who would have voted for them couldn’t tell you in 2009 what state they came from.

    When you go out and vote, you don’t check the name just because it has Republican by it and he said he wasn’t going to raise your taxes. You remember the basturd on the banking committee (Senate and/or House) who played footsie with the bank lobbyists and throw him out of office.

    Because if you listen to the fat closet-racist on a.m. radio who doesn’t like the President because he has brown-toned skin, and the banker reads 3 high quality newspapers per day, you’re probably not going to win the game at the voting booth, or life.

  7. Can't think of cute name

    From my lay point of view it seems like an aristocracy would be just as likely to squash as spur innovation. If a technical innovation can be integrated into their current business structure, then they may well provide the initial push to turn it into reality, but if the technology is disruptive to their business model, they can use their wealth to suppress it using the legal system and by influencing legislation and regulatory enforcement. Is there any empirical evidence that speaks to the relative influence of the pro- and anti-innovation forces of wealth concentration?

  8. Throw the bastards who play footsie with the bank lobbyists out of office? It’s a fine theory, but it’s really only applicable if you live in the district that bastard represents. But more importantly, voters face something akin to a prisoner’s dilemma. While your banking committee congressman may be corrupt, he has to pass favors onto your jurisdiction to get elected. For many, it is better to enjoy those favors and let the rest of the country vote out their corrupt representatives. Otherwise, you run the risk of voting out your own powerful yet corrupt representative, and seeing another district’s congressman assume the mantle of power and dole out favors to his constituents. Voters only benefit if all of us vote the same way, which seems unlikely.

  9. Plain and simple, the super wealthy elite are going to do what is best for them, just like everyone else does. They just happen to affect more people in the meantime.

  10. The historical record of our republic can be read to indicate that the government now, as always, is of the people, by and for those people whom the government is meant to serve.

  11. I would love to join a revolution against bankers. But that isn’t going to happen. The most we can do is continue to deny, politely or otherwise, that the system is run by and for bankers and related elites.

    Minimizing cognitive dissonance has been the best the American middle class can hope for since at least the 1970s.

  12. DakotabornKansan

    One cannot help but think of the great Roman satirist Juvenal’s scornful words, “Already long ago, from when we sold our vote to no man, the people have abdicated their duties; the people, that once bestowed commands, consulships, legions, and all else, now meddle no more and long eagerly for just two things — bread and circuses.” Just as the Romans lost the capacity to govern themselves by being so distracted by mindless self-gratification, we also have our “bread and circuses”…Michaele and Tareq Salahi, Balloon Boy, Tiger Woods, Jon and Kate, Sarah Palin and Levi Johnston, etc., etc..
    According to Juvenal, writing about the Rome of his time, it was hard not to write satire. It is hard not to write satire these days, when we and our government are so consumed with bread and circuses. We constantly satirize ourselves.

  13. “The presence of such a new aristocracy can finance growth and spur innovation.”

    I guess the concept of using “other people’s money” no longer applies to our new aristocracy. When did they get religion?

    I can only imagine that they will “finance” growth with their own money when everyone else has none.

  14. In addition to the class issues raised by the creation of a new aristocracy are the nationalist concerns on individuals and firms. A transnational elite, as the neo-dependency theorists would describe it, may be far more willing to take their assets, investments and consumption to the Bahamas, Monaco or Panama now than they were ten years ago because communications and trade make it possible to live and do business there. They could simply not have an interest in making the US (or their home countries elsewhere) dynamic, democratic, or growing societies because they don’t feel a part of them anymore.

  15. Personally I would rather vote the corrupt politician out of office, even if he is doling out pork projects to my home state. In the long-term we all win that way. But your point is valid. It’s kind of the “he may be a bastard but he’s OUR bastard” kind of thinking. And that does happen a lot in the voting booths, no doubt about it.

    I think writing checks to yourself for doing nothing or writing checks to yourself for activities which don’t benefit society eventually catches up to you. We can see that with the state level governments in California and New York now. And really it’s just starting to catch up with us at the national level now. People just don’t see any connection to the benefits they’re getting and who paid for it. People with low-income jobs all their lives are screaming “I don’t want the government messing with my Medicare”. They don’t realize that Medicare IS a government program. All it really is is a welfare check in the form of an expensive pill/pills. They say they paid into the system. Fine, you paid into the system and you should be rewarded for that. But you forgot to realize that one of those pills the government paid for surpasses the hourly wage you made for most of your life.

  16. Can you provide some links or references for your concluding statement:

    “Powerful financiers, by and large, did just fine during the Great Depression.”

  17. Plutonomy was described by Michael Moore’s “Capitalism: A Love Story” with reference to the in-famous, and leaked, internal Citigroup memo of October 2005 (revisited in March 2006).

    The content and language of those memos are upsetting, appalling and dramatic, telling us how wonderful is a world where economic growth is powered by and largely consumed by the wealthy, happy few.

    http://mgiannini.blogspot.com/2009/11/plutonomy-and-good-bank-for-citigroup.html

  18. More concentrated wealth at the very top would make us resemble the developing countries Dr. Johnson advised while at the IMF. Look at how well income inequality works in Guatemala or Honduras.

  19. Plebeianswillrevolt

    “Always a reconing” I like my chances, mano-a-mano with Lloyd Blankfein :)

    _
    Dec. 1 (Bloomberg) — “I just wrote my first reference for a gun permit,” said a friend, who told me of swearing to the good character of a Goldman Sachs Group Inc. banker who applied to the local police for a permit to buy a pistol. The banker had told this friend of mine that senior Goldman people have loaded up on firearms and are now equipped to defend themselves if there is a populist uprising against the bank.

    I called Goldman Sachs spokesman Lucas van Praag to ask whether it’s true that Goldman partners feel they need handguns to protect themselves from the angry proletariat. He didn’t call me back. The New York Police Department has told me that “as a preliminary matter” it believes some of the bankers I inquired about do have pistol permits. The NYPD also said it will be a while before it can name names.

  20. usually it seem that most complain about others representatives without knowing of their own aren’t doing the same or worse. and most of my local politicians only had one line. ‘i am a conservative’.
    which means nothing of course

  21. Plebeianswillrevolt

    Funny, funny stuff! ……………. next, Goldman exec’s will be claiming the right of Prima Nocture.
    _
    Goldman Sachs Group (GS) is at the focal point of the American public’s rage against Wall Street — and probably for good reason. The firm’s former chief executives have populated the highest echelons of American government, which has turned around and given Goldman — and its partner in the current financial collapse American International Group (AIG) — billions of dollars in taxpayer money.

    Now, as bonus season draws near, Bloomberg News reports that nervous Goldman Sachs partners are arming themselves. According to Bloomberg, some senior Goldman bankers are applying for gun permits ahead of the holidays for fear of the public’s reaction once they start receiving their year-end rewards.

    It’s almost enough to make me feel sorry for these titans of finance. Goldman’s bankers have already been denied holiday celebrations and the freedom to gather together in groups of more than 12. And, of course, they are also being denied a chance to flaunt their wealth.

    It’s not as though Goldman hasn’t done anything to try to change the public’s mood. Goldman recently announced a $500 million fund intended to help small businesses through a combination of training and lending programs. Yet, the announcement hasn’t done much to soothe the public’s anger — an anger that I’m sure all of the hedge fund honchos that are set to out-earn Goldman’s partners are relieved to see targeted elsewhere.

    Once news of the final tally on Goldman’s bonuses breaks, the bank is going to face an even tougher public relations campaign. Goldman’s partners are expected to receive record bonuses this year. Some bankers fear a repeat of what happened in March to the AIG Financial Products employees who received $165 million in bonuses. Once word got out about the bonuses, demonstrators went to the employees’ homes and protested on their front yards.

    What Goldman execs need to remember is that the firm wouldn’t be doing so well if it weren’t for the public’s munificence. After all, $12.9 billion of the AIG bailout money went to Goldman. And it is still enjoying $52 billion in low-interest loans from the U.S. government to finance its trading profits.

    I am afraid the guns won’t protect these Goldman partners. Perhaps a better weapon would be for Goldman to pay reparations for its role in securitizing sub-prime mortgages — as I suggested last month, maybe it could deposit five years of bonuses in a fund to help people who have been displaced due to foreclosure.

  22. Demo-cracy means People-rule. If the USA stops being a democracy, and all indications are pointing that way, there will be war. World war.

    The lesson European democracies have drawn from their confrontation with fascism (1914-1945) is that tolerance is counter-indicated, for the best outcome.

    There is no more reason to tolerate lunacy in the USA than there was to tolerate lunacy in Germany.

    Now, as far as aristocracy being more innovative, only people who are ignorant of history would say this. All the most democratic regimes (and those were long in western Europe) were most innovative. per the very justifications it uses for its rule, aristiocracy is forced to argue for conservatism.

    The main force of democracy is that it puts all minds in parallel, and thus has a much greater capacity to generate ideas.

    Patrice Ayme

    http://patriceayme.wordpress.com/

  23. Take a look at media conglomerates and their technical/legal hamstringing of modern computing technology in order to serve the end of keeping their antiquated business model running. They’re desperately fighting against forward progress in media distribution in order to maintain artificial shortages that their business model has depended on for a century now.

    Makes it really clear to me that the rich will do nothing for the benefit of anyone other than themselves ultimately. Even if 99% of the ultra rich do good, there are so few of them that the other 1% can really wreck progress and society for the normals like myself.

  24. You’re implying we might very well just get rid of them and get back to having a normal society. Don’t tease me with such pie in the sky dreams.

  25. The problem with huge levels of inequality is that most of the huge fortunes created in earlier times were done so through the ruthless use of power, both physical and economic.

    There are always going to be inequalities in wealth, as there should be in a system that rewards those willing to work harder and be smarter than their peers. The problem comes when the very wealthy begin to use their influence to corrupt our government, like what has happened since the Reagan years.

  26. What, help the public in a way that won’t bring additional profits next quarter and a larger bonus next year? Preposterous! Madness! Unthinkable!

  27. Agreed. Every third world country that clings to dictatorial aristocracies that doesn’t cave in to democratic thinking to some degree remains stagnant. Giving in to free thinking democracy almost universally brings progress.

  28. Since it’s in writing and I can’t hear your tone of voice, have you actually decided the grand experiment of American democracy is over? Or would you continue to try and push it forward?

    You’re a good thinker, Nemo. It would be discouraging to see you give up on it.

  29. Andrew the Great

    All FIAT money systems eventually fail.

    Democracy died in 1913.

    Americans won nothing in WWII, they simply defeated the Nazi’s and Jap’s–other dictatorships.

    Pauslon, Bush, Greenspan, Geitner, Bernake–all have commited crimes against the Constitution.

    Inflation destroys the middle class and they messed up destroying the housing market with their bubble.

    Ah, buy your guns, your going to need them.

    Fight Club’s are forming baby.

  30. The pragmatist

    Look at history and at much of the third world. Concentration of wealth in the hands of a few inevitably leads to social unrest, chaos and revolution. And along the way it subjects millions of people to poverty and misery.

    The big money on Wall Street may not run this country, but they have altogether to much influence on our government. They are as short sighted and self centered when it comes to politics as they are when running their companies. Long term stability and equity are in their best interests in the long run, but they only look at what is good for them right now.

  31. Respectfully, humbly — perhaps you could solicit some short essays from Petros G. Peterson, Henry Kissinger, a Rothschild, a Buffet, a Slim, a Rockefeller, a Murdoch, a Soros, and a Caruana or two on this topic?

  32. …a Tata, a Mittal… can we get a list of the wealthiest and/or most powerful individuals and “custodians” of large fortunes?

  33. Human beings are driven by a need for fairness and the current neo-feudal system does not deliver.

    The reasons feudalism was able to hold in the past (and it was far from stable if you read history books) the church that taught it was what god wanted, a defense pact from marauders and the stability of the system (Grandpa farmed, Dad farmed, I farm) don’t exist today

    Eventually, sooner than later it will collapse and be replaced.

    And they are not going to be able to divide the population indefinitely nor are they going to be able to count on their security guards or apparatus. The people than make up that lot are loyal to money so far, but once they are co-opted (and its happening fast) by new tribes, gangs and the new movements, the NF’s are done.

    If they are lucky, they can slink off into a comfy life. If not, well ..

  34. Donald A. Coffin

    I can’t help but think about the time I voted to oust a powerful-but-corrupt member of Congress (Dan Rostenkowski). He was ousted. After 2 years of a Republican non-entity, we elected Rod Blagojevich. Now, THAT was an improvement…

  35. what circle? do you have a link?

  36. To my knowledge, professor Johnson, himself a member of a certain elite in the country, is among the too few calling our attention to the need for a change in the way elites conduct themselves in the US. If you like, his is a call for redefining the social contract.

    I only wish he’d been more specific/gone deeper, but I trust that he’s working on something–take a look at his work in progress.

    Thank you, Simon!

    http://imotion.blogspot.com/2009/11/vox-populi-or-what-i-wish-i-wrote.html

    P.S. It looks like G.B. is considering some moves to limit the conditions leading to 2008, moves that are still vehemently resisted in the US.

  37. I just watched this long presentation. Noam Chomsky has an interesting style, but will little or nothing new to say.

    And why is his lecture titled “When Elites Fail?” Using Chomsky’s own style of presentation, elites have succeeded big time. Every one of their dreams have come true. Even the next crash is set into place and ready to go off. It seems to me the question to ask is “Why do those with noble hearts always lose?” I suggest that we are a society of cultures that have lost sight of noble goals that we the people hold in common.

    The current financial mess is not going to be corrected on Wall Street or in Washington. It will be corrected on the Main Streets of our cities and towns. We will adopt a local way to do business based on physically real investment value and morally worthwhile personal integrity. We must gang up on and support only the banks in our town that will adopt rules that make sense to we their customers.

    If your town wants banks that gamble, fine. I want the bank in my town to do business much the way banking was done 40 years ago: with a separation of commercial and investment banking. My bet is that my town will have solid support for that principle. If your town succeeds with gambling banks and mine fails so be it.

    As town persons enforce market control over banks, other cities and towns will follow. The majority policy that prevails will be a good and successful policy. The greater society will in time have a way to make rules for the nation based upon real consensus rooted in successful working examples. We have nothing to gain by waiting for the next crash. One need only read the intelligent comments on this blog to feel the impending doom that is on its way.

    We are in an age of too much talk and not enough action. Common sense is the tree that grows physically strong because it is deeply rooted into the Earth.

  38. This is the last, best (and pitiful) defense of aristocracy. “Oh, maybe they spur innovation!?”. At least you said it nicely, asking as a question.

    As if innovation, stated simply, is such a greater good it outweighs the clear evils Simon presents.

    Our innovations in health care are in some sense obvious “goods”, but if only 0.5% of Americans can afford to enjoy them, was it worth it at all?

    This is unconscious elitist thinking in action. For society as a whole, results count. The number of poor, the number in jail, the number who don’t get an education and realize their full potential, these matter more than the awesome things my iPhone does (though I do love it dearly).

    As a flaming liberal, I’m willing to trade my iPhone for my poor neighbors across town to have a good school, clean food and water, and basic healthcare, so they can be productive members of society along with immodest me.

    The elitists can’t bear to part with anything the aristocracy has acquired for them, so they scrounge for an excuse to continue the system that benefits so few at great cost to so many.

    It’s sad, the middle ground -where the benefits are spread enough that everyone gets a little improved, even while a few achieve far more on their own merits – is not so far away, but there are no current incentives to get there. Only to be selfish and cheat.

    I used to think that education should be the progressive’s top priority. It is clear to me that massive campaign finance reform is a necessary pre-cursor. Save that, only bloody revolution will bring change.

  39. Whats the point? Are you going to urge politicians to take their money from them and give that money to everyone else? Is that what America and democracy is all about?

    Our government was designed with checks and balances against corruption and tyranny that is the only thing I care about. Every member of our senate and congress are currently corrupt – they pick a dollar value of pork each year and agree to split it up amongst themselves based on seniority. Nowhere in the constitution is there an allowance for federal money to just be spent like this on anything. This is organized crime. In theory having so many representatives it can’t happen since the others would in their self interest refuse to vote on wasting your tax money on someone else’s pork.

    That is the problem. A billionaire is not the problem and is under no obligation to give away his money or save the system or anything else you are implying. We all should look out for ourselves – and under that philosophy we should be stopping the government from stealing and throwing away our tax money.

  40. In the 70’s professions became businesses. Now everyone takes pride in the money they make and the power they have rather than taking pride in their professionalism. This is a hard one to undo.

  41. Two points:
    From the point of view of the ‘aristocrats’, extreme concentration of wealth doesn’t seem to have worked out all that well in history. Look at all the banana republics that have withered from inefficiencies and nepotism. For all its problems, I think globalization will be pretty harsh on any country (us right now) that allows too much concentration of wealth.
    From the point of view of the working classes, I don’t think they will stand for it. In a democracy, especially one in which the citizenry is as heavily armed as it is in this country, there are too many ways for the security of the aristocrats to be disturbed. As the wealthy used to say, “Taxes are what we pay so the masses don’t come with pitchforks and take everything.” Of course that was back in the fifties when the top marginal tax rate was 90%.
    The combination of globalization, technology and terrorism, domestic terrorism, just makes it unlikely that radical inequalities will exist for very long.
    Maintaining an orderly society is very much in the interests of the ruling class. We have both become the richest society on earth and maintained law and order for an enviably long time because the aristocracy shared back a little more of the wealth.

  42. Well someone obviously doesn’t want us to remain a wealthy, orderly, lawful country.

  43. Blagojevich was booted out of office, yes??? The system still works if people stay knowledgeable on the issues. Usually there is at least one decent person on the ballot. Ask Al Gore about the other choices on the ballot in Florida in 2000. He could probably tell a story about that.

    Voting also doesn’t just mean voting for a guy because he will be the best to you as an individual, responsible voting means voting for the guy/girl who will help society progress. I am VERY pro-union. Rostenkowski was pro-union. But if I thought he was “on the take” I would have voted the SOB out of office even before the scandal broke.

  44. Disagree, somewhat. We are a Republic, not a Democracy, thanks to the wisdom of our Founding Fathers. We elect representatives to vote for us in the legislative bodies; as Ted K notes above, this is also not a perfect system (though I think term limits would address Congress’ Too Connected To Fail issue).

    If our system breaks down, I think civil war is more likely than world war. And I’d point to relativism and its PC ilk for destroying our civic sense, which in better days taught us who we were as a people.

  45. Funny post.
    Yeah, let them keep on doing what they’ve been doing and there will be a bloody revolution. I know highly intelligent people who are ready to take to the streets. I’m talking college faculty types and not your garden variety militia dudes. Those Wall St. bastards better straighten the hell up…

  46. I would think it creates tax-revenue instability.

    With wealth under the control of a few people, the flow of money varies from year to year; it’s invested for capital gain, which is taxed at a much lower rate and varies based on market trends.

    And with wealth concentrations, there’s less spread around in income, which is a more stable revenue stream.

  47. The historical difference between our time and the past is the level literacy, education and our access to information and knowledge via the internet :) Perhaps a Black Swan here that bodes well in the evolution of democracy.

  48. My problem is that everything of meaning to us as citizens has been captured and is being manipulated to the benefit of the super rich and super powerful.

    There are no Ida Tarbells, or even Walter Cronkites, and power has captured everything that nobility can help. And, it seems that we live in an undereducated, declining society (where the air waves are dominated by a media obsessed by selling commercial time — including the news media — otherwise why would the Salani’s and Desparate Housewives capture so much popular attention).

    We no longer live in a democracy, but something resembling France pre-revolution, or a third world country. The genocide is only beginning — with the 45,000 Americans who die each year because they can’t access adequate health care. No, we are living in a plutocracy, where all political fora are controlled by a captured media, a captured Congress and White House, and oligarchs in Health Care, Energy, Finance, etc.

    How will this story end? First, power/money will become even more concentrated, and, when the Afghan war ends, there will be many unemployed and disgruntled military, who are trained and armed to take things back. And, oh, by the way, this will be the result of the control exerted by the Military Industrial Complex, which charges us a million dollars for every deployed soldier to fight to protect our rich and powerful citizens. Note that there’s no more draft, after all, why would the rich and powerful want to chance risky war to their draftable heirs.

    It is a scary country, if we still believe in freedom and justice for all. They exist here, but certainly not for all.

  49. Well, well…. this as dark as I have seen comments go on Baseline… history is indeed repeating itself… as I’ve said before, we are witnessing The End Of The American Century… our founding fathers established this county under the auspices that they didn’t want to leave one aristocracy to establish a new one… and it has worked pretty well for a time… but as Thomas Jefferson wrote “any govenrment that can take care of you is strong enough to take everything from you”… we are heading towards a tipping point… and when it falls, it will fall hard and fast.

  50. We might have had an Ida Tarbell… Mark Pittman, but he just died.

    http://forums.wallstreetexaminer.com/index.php?showtopic=848731

    (Is Stiglitz trying to be funny here with his “shocking”?

    Or not. He could have been just another flack.

  51. > Powerful financiers, by and large, did just fine during the Great Depression.

    They certainly didn’t starve, but was the inequality in society not much reduced after Great Depression (1929-1939) and WWII?

  52. Well spoken Teotac.
    The predatorclass is tossing kindling into a fire that though unseen now, is raging beneath the timbers and will soon enfulf everything.

    Push enough people to the bitter edge of hopelessness,- flaunt outrageous fortunes robbed and pillaged from, and gleaned of the backs of the poor and middleclass, – imagine there are two sets of laws, one for thefew, another for themany, – and wantonly glorify heartlessness, greed, and obdurate disregard for the unwashed masses as a badge of honor, – and there will be blood.

    Andrew the Great is correct. The predatorclass is going to need guns, because the poor and middleclass are well armed, locked, cocked, and ready to rock, and growing increasingly pissed. All it will take is one little unforgivable spark, and the unseen raging fire will explode into a conflageration that will burn everything.

    In a world where there are no laws, – there are no laws for anyone predators!

  53. Can't think of cute name

    Agreed regarding the moral relativism bit. It seems without strong religious beliefs, many are trapped by the idea that rational beings should do anything to get ahead, and only be dissuaded by the realistic threat of punishment. Intellectually I’m probably a relativist, but I still try to do the right thing, perhaps because of upbringing or brain chemistry. Or maybe it’s because I know (intellectually) that society will collapse (bad for me) if the only inducement to follow the law is the threat of punishment, and that my best hope for getting others to play by the rules is to do so myself (and make it apparent that I am doing so). Prisoner’s dilemma and all that.

  54. Hillbilly Daryl

    Or, they could skip the hassle of gun ownership and go straight for a Blackwater/Xe protection contract utilizing former special forces mercenaries. Or, they could just buy Blackwater/Xe if they don’t already own it……

  55. Can't think of cute name

    I think several commenters will soon be hearing from the FBI . . .

  56. some guy in a cube

    Embrace your inner indentured servitude, and get back to work you slackers!

  57. Campaign reform doesn’t even need to be massive. Just make corporations equal to an individual in terms of how they may financially contribute to a campaign.

  58. Just look up the uber-rich mogul-families (Morgans, Rockefellers, Carnegies, etc) from the 1870-1920’s, and most of them are still considered rich today. Not all are, but there are enough to make a point.
    There’s a fine discussion going on, lets not kill the mood by asking someone to produce receipts…

  59. Cheer up Nemo. It’s all cyclical. You know, like after slavery comes emancipation…

  60. Disagree strongly. Strong religious beliefs makes a population vulnerable to dictatorship -it’s Gods will. Have you ever listened to Christian Conservative media? Goebbels himself couldn’t have trained them any better. Those who think rationally, especially if they are not TOO religious or explicitly not religious, have a better perspective of the big picture because the eventual outcome is always in doubt. The pious already know the ultimate outcome and surrender the now for the hereafter.

    How about we set religion aside for this venue?

  61. Soldiers (et al) take an oath to defend The Constitution from all enemies, foreign and domestic. Not to defend the President, the Dollar, the Flag, The Commonwealth of Virginia, Goldman freaking Sachs, etc., but the Constitution.

    Is bankrupting the Constitutional government of the USA (however flawed) considered a belligerent act? If trials should become necessary for violating Article 3 Section 3, will it be possible to get a fair one? These are interesting times, unfortunately…

  62. Nothing will change unless people stop identifying themselves by things such as skin color and eye shape. Such tendencies have become well worn ruts of identity thanks to thorough indoctrination within the public education system- no accident.

  63. The only thing capitalists have ever feared is expropriation. Protesting bonuses … go ahead, they love it.

  64. Even animals have a sense of fairness, and will stop playing a game if they think it’s unfair. It seems to be an inherent biological trait.

  65. The problem is not that we want the billionaire’s money.

    The problem is that the billionaire is using his wealth and influence to influence law and policy.

  66. Plebeianswillrevolt

    No, Gib – Jab (that’s your new name you coward), this is still America, there is still a constitution, freedom of speech is still a right, YOU, can go live in China, they have a cute name for you, …. communist. This is all over the internet, Don’t say how you really feel, the FBI, CIA, Secret Service, blah blah blah will be coming to arrest you. They can’t even keep party crashers out of the White House. Goldman exec’s have made the threats against me by carrying guns. I don’t own a gun, but if (God willing) a “Gold Man” was to point a gun at me, he would be served that gun for lunch, and he would die of lead poisioning.

  67. As Rambo (fourth edition) put it:

    When You’re Pushed, Killing’s As Easy As Breathing”

  68. …there was/is discussion from the Supreme Court deciding whether or not the Court should give the entity “corporation” the same rights and status of an “individual” vis-a-vis reforming campaign contributions to both parties… didn’t the broadening of the American middle class grow out of government policies more so than say from old wealth to the Nouveau riche. I think Dr. Johnson mentioned somewhere that he, himself, was not a Socialist but from the limited time I have to read over some of his writings, he does present another interesting observation worth pondering in good detail (a lot depends on the audience and forum one can emphasis their political leanings ;-)……….

  69. In some influential circles, these questions are now asked: What’s wrong with substance abuse in general, and with having addicts in particular. After all, human societies have survived the presence of mind altering substances in the past – in fact, some now argue, that tripping on acid can spur innovation.

    Ah, the lengths junkies will go to to justify thier addiction and avoid rehab. Don’t despair people (this is a very gloomy thread) they will either go into treatment or they will self destruct. Either way they won’t be around much longer.

    (By the way, the first and third links in the OP both go to the same paper)

  70. The current middle class was created by the rise of industrial production and the subsequent unionization that pushed up wages to the point where factory workers could afford an upper-middle class living.

    Now that our political overlords have agreed that free trade is more efficient, that middle class will slowly atrophy into a large mass of part-time service workers catering to the needs of finance and highly-skilled service workers.

    However, this won’t devolve into feudalism, because in the end most of our elites actually depend on middle class consumption. How many university professors would we need in a world without a middle class? How many doctors? How would mutual funds make a living without the suckers that run large pension funds? No, we’ll get a political response. I’m not sure whether it will be progressive, but we’ll start to redistribute wealth soon.

    The country needs its Hoovers so that its Roosevelts can “make the change” that this country needs. Sorry President Obama, but you’re a Hoover, not a Roosevelt.

  71. Can't think of cute name

    Agreed for the sake of civility, except that I’d like to assert that culture (in general) plays a big role in the de facto rules of the economic game, and the perception of those rules. I’ll be sure to use the word ‘ethics’ in the future.

  72. Brilliant and succint argument to supplement the existing literature on inequality’s link to other bad outcomes. It’s time that we stop looking at the quality of institutions or of democracy as “fixed effects” on growth. These institutions are not God-given, and can change (for better or worse).

  73. Fair enough.

  74. Good point. Also, recorded in literature by Dickens in Great Expectations:

    “My sister’s bringing up had made me sensitive. In the little world in which children have their existence whosoever brings them up, there is nothing so finely perceived and so finely felt, as injustice.”

  75. “What’s wrong with having very rich bankers?”

    Nothing. Very rich Welfare Queens is a different matter.

  76. One solution is campaing finance reform. This would include free airwave time for campaign advertising for those candidates at a certain threshold. This will decrease the need to raise enormous sums. But the Supremes have not supported this and Congress is not pushing it.

    I agree regarding philanthropy mostly (this is my profession and am associated with some of the names mentioned). However, some very good things have come from philanthropic support regardless of motivation. Today,however, philanthropy is often discredited, EXCEPT! when conducted by a noted business person. Everyone else is feckless. Having government spur innovation doesn’t seem to have the support of the populace any longer either. (Philanthropy’s role often was to demonstrate innovation and have government or the nonprofit sector adopt what worked; this has broken down.) It does seem that most people have fully embraced the idea that government is incompetent, corrupt, etc. (and with what we have witnessed in finance, Katrina, is that wrong?)

    How to build back the social buy-in? How can that be done when news is degrading and disappearing? Most news now is purely for enterntainment purposes. Is this blog far off from that?

    Hard to lead a social change movement from a blog that is read by such a microscopic proportion of the populace. Maybe it’s the only place to start.

  77. I think the title was meant to be ironic. Elites clearly fail just for the taxpayers not for themselves.

    There was also a good article in the FT a few months back ( http://www.ft.com/cms/s/0/a2f1d132-bab3-11de-9dd7-00144feab49a.html ) on “plutonomy” – a word they invented to describe economies powered (and controlled) by a rich elite, such as the US and UK”

    I saw many similarities in the documentary The Corporation, which can be viewed here: http://video.google.com/videoplay?docid=3203253804055041031&ei=5q4WS9XWC4vGqwLsspCrDQ&q=the+corporation&hl=en

    I did not have the chance to read Johnson’s paper on institutional causes (yet), but from his blog posts he is definitely correct. All of these negative externalities and gross inequalities could be made better and potentially fixed by designing our institutions better.

  78. We can walk with our feet. The way Americans can express their feelings is to leave the big banks a clear message. The message is Good bye! They will not go out of business. That is not the aim. The aim is to make it clear they are not where we place our business anymore. They had and lost it. It was there’s to lose and they did. Saying Good bye is appropriate. We have can sit in judgment of them. We (you) pay fees to be able to judge them. Doing business locally is beginning to look a lot more important than ever. It’s now about developing local, long-term, quality jobs. So, where do you move your account? Of course I would like you to have my experience, at a credit union that is convenient for you. If you would like to consider this more, I have found a site that will help locate credit unions in your area. Here is a link: http://www.creditunion.coop/cu_locator/quickfind.php .

  79. Here’s a quote from a Bloomberg article where another expert comments on TBTF in regards to the danger of large banks in Europe, especially when they are located in countries with smaller economies. IMO the US and Europe need to reach an agreement on how to break up TBTF financial institutions because technology/financial engineering has allowed TBTF’s to all tie themselves together by webs of debt/derivatives/CDO’s/ etc. so that when 1 falls it destabilizes them all.

    “The credit crisis shows that large institutions pose too great a risk to their home countries, especially in Europe’s relatively small economies, said Tom Kirchmaier, a fellow at the London School of Economics, who lectures on finance and corporate governance.”

    “Breaking up banks that are too big to fail has, in my view, a lot of merit,” Kirchmaier said. “If we were to have another systemic shock and one or more of these very large banks would fail, I have serious concerns whether some of the smaller countries would be in a position to absorb the losses for a second time.”

    http://www.bloomberg.com/apps/news?pid=20601109&sid=aRDrzOAWRekc&pos=11

  80. my dream, my vision….hundreds of thousands of unarmed citizens laying siege upon the Goldman Sachs building. Peacefully surrounding the place – no one allowed to enter, for however long it takes for their empire to crumble. A peaceful ending to the vampire squid and a victory for true Capitalism and representative democracy.

  81. As it happened, Hitler and his disgusting company were weaving “God” in many of their major discourses. The SS had “Gott mit Uns” (God with Us) as their fundamental slogan, forged on their buckles.

    In the 1950s, the US Congress adopted many of the Nazis’ ideas about God, including “In God We Trust”.

    PA

  82. We can’t add the Queen of England, among the tycoons anymore, because she was greatly nationalized recently…

  83. Exact. The army, and especially the officer corps, could be asked to pay attention if the Constitution was violated a little too much… That is what their oath is for.

  84. I am actually one of the rare academics studying (financial) elites, although based at the other side of the pond.

    See also: http://standplaatswereld.nl/2009/09/21/bonus-on-the-beach/

  85. If the super rich elites can setup the system so that they can win either way, when the economy is good and when it’s bad, then what’s to stop them from making things bad for workers when it suits them? Clearly, these elites have benefitted from this present situation: labor costs have been lowered, and asset are priced lower and so are easier to purchase.

  86. “our elites actually depend on middle class consumption”

    Not neccesarily. If the elites can do well or even beeter for themselves without a middle class here in the US then thay’ll get rid of it. The last time the elites in the “developed” world “needed a middle class” was when the markets theire companies sold into were restricted to those same develpoed countires. Thanks to globalization, since the 70’s, that’s no longer true. If only 20% of 7 billion people are “middle class” that’s still .4 billion middle class consumers and they can be pread evenly across the world. The elites would prefer a mostly impovershed worrkforce because it’s cheaper and easier to control.

  87. Are these wars of “necessity”, a necessary distraction?

  88. History records a succession of elites achieving and maintaining power through one scam after another. Religion worked for thousands of years. Darwin put a crimp in that one and the elites came up with economics. Words like growth and innovation have no moral content. What has grown most since WWII have been squalor and ignorance. Look at any major city and you will see the future. Economists process numbers. How many people know what GDP is? If housewives turn to prostitution you get an increase in GDP. Sell a trillion cigarettes? More GDP. When the public begins to realize that every statement by every fat cat and politician is propaganda and nothing else, the country will have a chance for rebirth.

    What we need more of are decency and relative equality. What we get more and more of is bu****it and platitudes.

    Those still puzzled about the financial meltdown ought to read a very simple book called Looting of America, by Les Leopold. He explains exactly what happened and what must be done about it. To understand whether you need the book, ask yourself what a CDO squared is. If you cannot answer this question you have no idea what has happened.

  89. That’s really a brilliant idea. I actually thought about that myself.

    What baffles me is that nearly nobody seems willing to go down that road. Massive peaceful protests have been shown to work for the civil right movement and for ending the Vietnam war. Granted, reforming finance is less glamorous. But it sure is as vital.

  90. We’d love to get back to work some guy in a cube. Got any suggestions that don’t involve WallMart or McDonalds, or other forms inservitude and slavery? Millions of you fellow Americans and I would love to hear them. FBI???? If only we were so lucky to only have to worry about the imbeciles in the FBI. The FBI is proof positive of the many manifold inept FAILURES of US intelligence. We know the socalled government spy’s on innocent Americans without due process or any constitutional restraint, and is ready and eager to unleash a wild array of weapons on it’s citizens when they get the green light. We know and accept this horrible reality. The fools and incompetents at the FBI are the least of our worries. That said, America’s hypersuperiorness has already been shattered and undermined in Iraq and Afghanistan, wherein the worlds most advanced most well funded, best trained, best armed, most technoligically advanced, and most lethal warfighters in the history of the world – after eight long years of combat – are incapable of defeating enemies with no air or sea power, no major major armored force, and no military industrial complex whose, – primary weapons are AK-47’s, RPG’s, and IED’s. You are living in the oldworld can’t think of cute name. You imagine an all powerful government and an all powerful omnipotent untouchable predatorclass sanctioned by the heavens to reign supremist over everyone else on earth. Events of the last eight years, politically, economically, militarily, and morally should alert you to the fact that all the kings horses and all the kings men, cannot put Amerika back together again. There will be a balancing and reckoning!!!

  91. An Elite is justified if it has a demonstrably useful talent above that of the masses. In ancient egypt, knowing to read, write and do math was certainly a rare and useful ability.

    Nowadays, they tell us that the ability to take bold, calculated risks and have charisma (“leadership qualities”) is something only rare people possess.

    Well, is it so?

    Remember, democracy used to be out of the question when the masses were illiterate and could not form an intelligible opinion about domestic and foreign state-wide affairs. Now they are more educated, and many of them have sound judgments. What about the allocation of economic resources? Shouldn’t we all be forced to study some basic finance and entrepreneurship skills and be allowed to do what all the financial elite is doing?

  92. Charlie Cooper

    “my dream, my vision….hundreds of thousands of unarmed citizens laying siege upon the Goldman Sachs building. Peacefully surrounding the place – no one allowed to enter, for however long it takes for their empire to crumble.”

    To do this, we have to start talking face-to-face with the working-class people who are jobless, underemployed, etc. We have to build a movement thru which people demand good, green jobs. See my article in 12/3/09 Baltimore Sun: http://www.baltimoresun.com/news/opinion/oped/bal-op.jobs03dec03,0,2055928.story

  93. “If a technical innovation can be integrated into their current business structure, then they may well provide the initial push to turn it into reality, but if the technology is disruptive to their business model, they can use their wealth to suppress it using the legal system and by influencing legislation and regulatory enforcement.”

    Good point. Here is an example of suppression:

    Conventional water heaters are wasteful of energy, radiating a lot of it away just to keep a certain amount of hot water available. In addition, if you have a large enough family, you can easily run out of hot water when you need it. When I was living in Japan some decades ago, my shower had an attached gas heater that heated water on the way to the shower and otherwise was turned off. Water was heated only when it was needed, and I never ran out of hot water. Economical and efficient. When I returned to the U. S. I could find no such heater.

    Today, however, I have a portable dishwasher that heats water on demand and costs around $100. I also have an on demand water heater for the house. Unlike the Japanese unit or the dishwasher, it costs thousands of dollars. The reason is protectionism in the form of regulation. I understand safety concerns, but if my dishwasher is safe, why can’t I get on demand hot water for my shower for 5 – 10% of what I had to pay?

  94. El gobierno de los ricos, por los ricos, para los ricos.

    :(

  95. “For all its problems, I think globalization will be pretty harsh on any country (us right now) that allows too much concentration of wealth.”

    Geez, robby, where do you think the concentration of wealth comes from? Doesn’t globalization have a lot to do with it? Globalization weakens the control of governments over their own economies and makes smaller governments pawns of multinationals. The East India Company was a multinational. How much did it do to alleviate wealth inequality in either Britain or India? How much has ITT done? Citibank? United Fruit? The list goes on. Globalization feeds off of cheap labor, and not only wants to keep it cheap, but to make it cheaper.

  96. Didn’t the New Deal have a lot to do with the reduction in inequality?

  97. The ancient Greek pagan writer Plutarch observed (and historians have repeatedly validated) that societies grow increasingly unstable as the wealth gap widens.

    If the present is any indication (90 to 95% of the nation’s assets reside with the top 1%) then we may be approaching a tipping point where the proverbial “peasants with pitchforks” (or “with guns” as today’s proxy for pitchforks) may rise up.

    Let us hope that cooler heads prevail and the mega wealthy can see past their greed and grasp the historical lessons staring them in their faces.

  98. And so now Baseline has been reduced to a simple class-war instigator?

    Well in that case let me then argue instead that all rabble about bankers, oligarchs and Feudal Lords of Finance is just a manoeuvre to distract us with while they infiltrate communism through the door of financial regulations.

    1. The Committee of European Banking Supervisors aim to raise the quantity and quality of liquidity buffers by forcing banks to hold significant amounts of “high quality” government bonds”.

    2. The current Basel regulation permits banks to lend to the government with a zero percent capital requirement, compared to 8 percent when lending to an ordinary citizen.

    Are these neo-central-planners building a new wall? With the governments and their special triple-A rated comrades on one side of it and all the rest of us the Pöbel on the other?

    http://www.theaaa-bomb.blogspot.com/

  99. Exactly PA. Thee are people in the US that advocate for Christian totalitarianism – Fascism for Jesus. This is what I fear could happen here should a worst case scenario occur.

  100. This one has, and is waiting for events to unfold…

  101. Last year’s election doesn’t seem to have changed anything.

  102. Would the recently armed crooks at GS open fire on the crowd?

  103. Horsehockey. Communism doesn’t work and everyone knows it. That and the US gov’t (including the oligarchs) do not have the means to control an armed and angry population. However, I’d take socialism in a minute if the sole alternative was a fascist dictatorship.

  104. Yeah, the years 500-1000 A.D. were great for innovation…