G.L.Piggy [at] gmail.com
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Last year, Tyler Cowen wrote a piece that we can apply to the current disagreement over whether Occupy Wall Street is properly directing their anger at Wall Street versus the Government. In short, I agree with Cowen:
The context for this question is the “public choice” analysis in Simon Johnson’s and James Kwak’s enlightening new bestseller 13 Bankers. Johnson and Kwak make a major step forward in describing our recent financial crisis as a fundamental problem in political economy, namely by pointing their fingers at an unholy alliance between banks and the U.S. government. Much as I admire their analysis and exposition, I see the problem a bit differently than they do. Whereas they see banks as the puppet master and our government as the fool, I wonder whether it is not more accurate to think of the government as running the show.
Perhaps the strongest piece of evidence for the financial sector dominance of U.S. political economy is the recent bailouts. Yet it’s instructive to ask which other groups have received bailouts in the last fifteen years. The list would include Mexico and the numerous countries which have borrowed from the largely U.S.-created International Monetary Fund, such as Indonesia. They are hardly dominant forces of influence in Washington. It was China who made out like a bandit from the bailout of the mortgage agencies, and the validation of their debt issues, but again the Chinese are not in charge.
There’s a different way to think about the bailouts, namely that the U.S. government stands at the center of a giant nexus of money raising, most of all to finance the U.S. government budget deficit and keep the whole show up and running. The perception at least is that our country requires the dollar as a reserve currency, requires New York City as a major banking center with major banks, and requires fully credible governmental guarantees behind every Treasury auction and requires liquid financial markets more generally. Furthermore the international trade presence of the United States (supposedly) requires the federal government to strongly ally with major commercial interests, just as our government sides with Hollywood in trade and intellectual property disputes. To abandon banks is to send a broader message that we are in commercial and political decline and disarray, and that is hardly an acceptable way to proceed, at least not according to the standards of the real Washington consensus.
In other words, it’s our government deciding to assemble a cooperative ruling coalition – which includes banks — at the heart of its fiscal core. It’s our government deciding who belongs to this coalition and who does not, mostly for reasons of political expediency and also a perception – correct or not — of what is best for the welfare of American voters. If we don’t in this year “get tough” with banking regulation, it’s because our government itself doesn’t want to, not because of some stubborn recalcitrant Republicans.
Ask yourself the simple question: who has both the guns and the money, including the ability to print new money at zero cost? It’s Washington, not the private banks.
It goes without saying that banks and the government have a symbiotic relationship. But symbiotic reltionships require one entity to set the table – to lay down the framework in which the relationship exists. In this way, the Big Banks require the U.S.G. more than the U.S.G. requires – in the strict meaning of the word – the Big Banks.
I’d go all out and say that the U.S. Government uses the U.S. financial industry as a weapon of war against other nations. The Government falls in bed with whichever industry seems to bolster its world leader status. During the Cold War, the Boeings, Northrup Grummans, and Lockheed Martins served at the apex of the military-industrial complex. Given the general disdain for war (notwithstanding the many wars that the U.S. is currently involved in), the military-industrial complex has either diminished to a degree, the populace has given up on trying to control it, or it has become better at hiding its activities from the public. Either way, the United States could not dominate with missles, jets, and nuclear weaponry. They had to seek out less inherently violent industries to maintain superpower status.
So financial services can be seen as a non-aggressive means of maintaining worldwide dominance – something in which the U.S. Government has a vested interest. By having countries operate in U.S. dollars, by having them participate in our New York-centralized financial districts, we hold dominion over them. They are playing by U.S. rules. In the grand scheme, banks are merely the most palatable tool for this end game.
Because I think of the U.S.-Bank symbiosis in these terms, I can’t help but hold #OWS with a little bit of contempt. Being a leftist movement, they would rather attack the folks handling the money, running it through their counting machines, getting down and dirty, rather than the Boss Man whose support they hope to gain. The #OWS are merely competing against the banks for more government help and attention. They are all rent-seekers hoping to be useful to the government; the #OWS and the constituency it aims to support are just not as useful to the government at this point as the banks are. If they make enough noise and tear up enough stuff, that all might change.