When I watch the public furor over the ruling party’s attempt to “toughen” regulations on the financial industry, I get the same feeling I often have in a theater: Good show but it’s not real.
There’s something eerily ritualistic about the current occupant of the White House berating Wall Street for its irresponsibility and proposing new regulations, while his targets send a swarm of lobbyists to Washington to keep the regulatory overhaul from getting out of hand. (History says they’ll be on good terms with the regulators in any case.)
This may sound outrageous. In what sense could it be said that the advocates of new financial regulation and the big financiers are on the same side? In this sense: Neither side would wish the other to disappear. Each is integral to the existing political economy (call it what you will), and neither would want it to change in any significant way. They are “indispensable ‘enemies.’”
Roderick Long has it right when he says,
We might compare the alliance between government and big business to the alliance between church and state in the Middle Ages. Of course it’s in the interest of both parties to maintain the alliance — but all the same, each side would like to be the dominant partner, so it’s no surprise that the history of such alliances will often look like a history of conflict and antipathy, as each side struggles to get the upper hand. But this struggle must be read against a common background framework of cooperation to maintain the system of control.
We have a system that’s a mix of government and “private” control. (It’s not truly private because the control entails force-backed guarantees, barriers to entry, and the like.) But it’s an unstable mix. Sometimes those who want more formal government control get the upper hand, while at other times those who want more “private” control elect their people to office. So the mix can change. What doesn’t change is that some mix of the two will exist, as opposed to an unalloyed political economy based on freedom and free exchange. The battles are at the margin.
As Long writes elsewhere, the people who run the system con the public by portraying the marginal disputes as fundamental struggles. What’s really an internecine argument over where to move the line is represented as a monumental battle between Unfettered Capitalism and Enlightened Progressivism, or some such pair of misleading terms. Long writes,
Corporate liberalism functions via a façade of opposition between a purportedly progressive statocracy and a purportedly pro-market plutocracy. The con operates by co-opting potential opponents of the establishment; those who recognise that something’s amiss with the statocratic wing are lured into supporting the plutocratic wing, and vice versa. Whenever the voters grow weary of the plutocracy, they’re offered the alleged alternative of an FDR or JFK; whenever they grow weary of the statocracy, they’re offered the alleged alternative of a Reagan or Thatcher. Perhaps the balance of power shifts slightly toward one side or the other; but the system remains essentially unchanged.
This is why the alleged radical Barack Obama can be elected president and we still find economic policy in the hands of establishment “corporate liberals” Larry Summers, Tim Geithner, Paul Volcker, Christina Romer, Ben Bernanke, and Robert Rubin. You could see it coming, though: Obama got more Goldman Sachs-connected money than John McCain in 2008.
There’s been some controversy lately over whether it is appropriate to call the Obama administration a “regime.” It’s appropriate in my view so long as you’re also willing to talk about the Bush and Reagan regimes. But what we really should be talking about is “the permanent regime,” the underlying system that endures despite changes in White House occupants.
If you have doubts about any of this, imagine some top Wall Street operator calling for elimination of the Federal Reserve System and the banking cartel it administers. Imagine him endorsing repeal of all federal and state banking regulations and their replacement with free banking and market-based money. Imagine him testifying on behalf of an end to all implicit guarantees, bailout promises, and the “too big to fail” doctrine. If you can’t imagine it you have begun to grasp the nature of the actual political economy in which we live.
The latest financial crisis cannot have had roots in the free market because no free market has existed in finance, banking, or housing for a very long time. Its roots rather are in the government-business management of money and banking, and the political agenda imposed on a willing mortgage industry (among other things). So prevention of another crisis can hardly be found in new regulation by unaccountable bureaucrats who will necessarily lack the knowledge required to modulate risk systemwide without stifling innovation and progress.
Wall Street acted according to the incentives generated by the corporatist political system. That’s why it’s so absurd for Chris Dodd, Barney Frank, and Andrew Cuomo (among others) to stand in judgment of Wall Street. They were principals in creating the incentives that made recklessness appear rational and even compatible with the political agenda being pursued. Yet they continue to occupy perches of power.
Wall Street’s blame lies not in behaving according to the incentives created by Washington – what should we have expected? — but in actively supporting a cartelized financial system that feathers its nest at the people’s expense while sheltering it from the disciplining gales of free and open competition. A coherent, sophisticated, and liberty-oriented populist response would consist of a repudiation of Washington and Wall Street.