Amidst otherwise strong coverage of the growing debate around the nature of finance and the power of big banks, a surprisingly high number of journalists continue to misuse the word “populism”.
For example, in an article on criticism of bankers at Davos, the Wall Street on Saturday morning reported that President Sarkozy of France delivered a “populist broadside” when he said,
“That those who create jobs and wealth may earn a lot of money is not shocking. But that those who contribute to destroying jobs and wealth also earn a lot of money is morally indefensible.”
The implication, of course, is that some politicians are pandering to “the people” vs. “the elites” – part of a long-standing theme in some interpretations of democratic political conflict. While elites invest and engage in productive activities, the argument goes, plebians from time to time demand excessive income redistribution or punitive taxation or other measures that would undermine productivity and prosperity.
Or, as President Obama said in March 2009, “My administration is the only thing between you and the pitchforks.”
Such language reveals a complete misunderstanding of our current situation. (Matt Taibbi has this right, but doesn’t go far enough.)
The problem we face is not that the broader population wants pointless or destructive revenge on a financial elite that has done well. Nor is it the case that, if left largely to its own devices, our major banks will guide us back along the path to sustainable growth.
The consensus technocratic assessment is simple: We are smack in the middle of a doomsday cycle of repeated boom-bust-bailout (our version; the Bank of England’s take). The core issue – banks considered “too big to fail” – was not resolved in or after the crisis of 2008-09; if anything, as these banks have increased in size, the problem is now worse. We are therefore doomed to run headlong into another crisis.
This view is increasingly the developing consensus of most economists, many people active in financial markets (e.g., judging by reactions to this piece), top policy analysts from right and left, clear thinking central bankers, and pretty much anyone else who follows the news. Elites are deeply split along pro- and anti-big bank lines. Most people who do not have a conflict of interest – i.e., don’t work for big banks or the administration – want to see the most dangerous parts of our financial sector reined in and made safer.
Even leaders of the global nonfinancial business elite begin to understand what has happened and what comes next.
The fact that dramatic banking reforms would be popular does not make them populist. It merely means that a broad cross-section of our population has woken up to part of our appalling reality. Sure, they are angry – but with good reason, and the remedies they seek are entirely appropriate. Most of our elites are on the side of the broader population on this issue; only the diseased heart of Wall Street holds out.
Unfortunately, for whatever reason, the Obama administration remains convinced that merely tweaking our existing regulations is the only responsible way forward. Even their new “Volcker Rule” increasingly looks like superficial rebranding without new substance.
This will go nowhere – except to sad, unnecessary, and complete defeat in the November midterm elections.
By Simon Johnson