One City

There is a major piece in this month’s Atlantic Monthly on politics and our economic meltdown, available here. It’s been getting a lot of attention, as the author is a very credible voice with alarming insights. Here’s the lede:
The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

I’ve bolded passages of Johnson’s argument that I find particularly striking:
Instead [of using violence or bribery], the American financial industry gained political power by amassing a kind of cultural capital—a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.
A whole generation of policy makers has been mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true. . . . Of course, this was mostly an illusion. Regulators, legislators, and academics almost all assumed that the managers of these banks knew what they were doing. In retrospect, they didn’t.
Throughout the crisis, the government has taken extreme care not to upset the interests of the financial institutions, or to question the basic outlines of the system that got us here. . . . The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late.
I support President Obama in general, and I was heartened by his progressive budget, and overall I think he will prove to be a fine leader in many respects. But I remain disappointed in his economics team, headed by Summers and Geithner, having had a strong sense from the start that they are incapable of making the kind of transformation changes that are necessary to wrest our economy (and nation) back from the oligarchy that has usurped it, as Johnson outlines. Perhaps, even with the right people, the Obama administration won’t have political capital to do what needs to be done. But I’d love to see him try, and I really doubt it will happen with Summers and Geithner in charge.

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