How Unregulated Finance is Killing Democracy

How Unregulated Finance is Killing Democracy



there's a favorite quote of mine in the book where Margaret Thatcher after she retires is being interviewed and the interviewer says what do you think your greatest accomplishment was and she thinks for a minute and she says my greatest accomplishment was Tony Blair and Blair adopted far more Thatcherite policies than he needed to I'm here today with robert kuttner the co-founder and co-editor of the American Prospect and a professor Brandeis University we're here to discuss his new book and democracy survive global capitalism to be published by Norton shortly thanks for joining us Bob thank you it feels to me like you're onto one big story it's about the whole fabric of our social system and whether our economics is enhancing our welfare as we're taught in our models on whether it's tearing apart the fabric of our society I'm trying in this book to connect a number of dots the the basic storyline is as follows during and after World War two the entire West had a very unusual social contract because there were counterweights to the power of Finance the power of capital in the form of democratically elected governments in the form of labor unions that made it possible to have this very unusual 30 year period throughout the West this wasn't just an American story where the economy grew nicely and it became more equal and this was not just an accidental product to some economic historians think of the rebuilding after the war this was a deliberate social contract if you will that was the result of some fortuitous events namely the Great Depression had discredited both the Republican Party and it had discredited standard economics the idea that markets are self-regulating and then after the war both the corporate right and the libertarian right were very weak and so you had left Catholic parties and Social Democrats in Europe you had the Democratic Party in the United States in a more left-wing mood than usual and so for 30 years we built and prospered from this unusual form of managed capital or as some have called it repressed finance empowered labor and that was a kind of social contract that was unprecedented either before or since and it was the result politically of this harmonic convergence of forces now this starts unraveling in the 70s and by the 80s the usual suspects are back in charge and they changed the rules and they use globalization to undo this social contract important point here it's not the only brand of globalization I get very fed up with the framing of this debate as are you Pro trade or anti trade are you Pro globalization or anti-globalization at Bretton Woods in 1944 john maynard keynes who knew the importance of a full employment form of managed capitalism at home deliberately structured the ground rules of the global economy so that international finance would not undercut the ability of nation-states to have a prosperous egalitarian form of capitalism that also gets shifted into a form of globalization that deliberately undermines these social contracts rather than reinforces them the last point what you get you get a backlash of course you got it backlash because when ordinary people are harmed and their aspirations are destroyed for 30 or 40 years what happens is not that the workers of the world unite what happens is you get support for neo-fascism you get support for the racialization of economic or evens and the demonization of the other and again just as the post-war story was hysteric this story is systemic and the same kinds of nationalistic dictators and false populist who were really in bed with the 1% are gaining influence everywhere mm-hmm let's go back to the 70s how it starts to come unraveled we've talked about Paul Samuelson warned economists in a paper he called international trade for rich countries which he delivered at the Chamber of Commerce the Swedish American Chamber of Commerce in 1972 Walter Wriston is credited with being the person who changed finance from something you did until 3 o'clock before playing golf right – a new dynamic creative innovative profit center within the economy and now we have what they call financialization what were the building blocks of stress that led to the resurgence of the usual suspects you describe Memorial it's very interesting some of this was random and some of it was deeply systemic because in a capitalist economy it is anomalous to have the kind of repression of the power of capital that we had during the post-war boom it took strong unions it took the war giving unusual powers to the state it took this very unusual period where real interest rates were negative during the during the 50s and 60s which meant that the Ron TA class the the asset owning class didn't do so well and everybody else did very well because the rest of the economy had very cheap capital costs so it's anomalous to expect that a capitalist economy would would continue even though this is very good for everybody else and did not deter innovation or entrepreneurship wreckin ama crowe –the so in the 70's you have this convergence of events first of all Bretton Woods collapses and Bretton which to some extent was an anomaly because as Robert riffin had long warned the dollar was not capable of being the de facto global currency and being the currency of the United States of America without courting inflation and then Bretton Woods might have been reformed but Nixon because of Watergate was otherwise engaged and was not the least bit interested in reforming Bretton Woods and then you had the the 1973 war Israel versus the Arabs and so while Nixon is preoccupied with Watergate and Bretton Woods is collapsing the dollar price of oil goes down because the dollar has been devalued and the Arabs are very annoyed at the West and so they see a moment in which OPEC can raise oil prices without being invaded because everybody else is otherwise engaged and they get away with it and the price of oil is quadrupled and then that cycles through the economy in the form of higher prices and we've come out of the Lyndon Johnson let let guns and butter after the race riots inflation Vietnam so there was pressure upward pressure on wages some inflation and a compression of profits and then which you might call this straw that broke the camel's back was the compression related to energy price squeezed on profits yes so you have a very turbulent unstable economy and you have the beginning of this anomalous stagflation where you have both inflation and stagnation at the same time and you have a weak president in Jimmy Carter and so all of this serves to discredit the so-called Keynesian management of the economy they really were in Keynesian if there were centrists but the right in economics Milton Friedman and company in politics Ronald Reagan and company even though the 30s had completely discredited the idea that markets are self-correcting or a self-regulating this old idea gets another turn and so it gets resurrected at the level of ideology and a professional economics and it gets back in the saddle at the level of politics of course first with Thatcher and then with Reagan and then when these people get into power they double down on destroying the social contract of the mixed economy well this Lewis Powell memo that was written to the Chamber of Commerce before he became a Supreme Court justice I think late in the Nixon term almost paints the picture of where they're gonna go peaceably universities visa V government visa V the media to market a restoration of the house a strength of corporate power and the importance of markets and the importance of Finance well and it's you know better than I do and the last word that you said I think deserves to be italicized here it's finance it's not just corporation its financial capital its Wall Street it's the city it's banking and so you know banking in the 30s and 40s had almost become a public utility it was very very very tightly constrained in terms of what banks could do one set of regulations for commercial banks one for investment banks and I think it was Simon Johnson who pointed out that right after the war the financial sectors maybe twelve or thirteen percent of all corporate profits and on the eve of the collapse it's 46 percent so that's not because the financial sector is contributing that much benefit to the rest of the economy rather it's a leech on the rest of the economy but all of that economic power translates into political power and you get a self-reinforcing cycle the more political power they get the more they change the rules to their own benefit in your book you have a chapter on the decline of the senator left I actually call it the disgrace disgrace that's right and this is Schroder Clinton and Blair who were buddies who had the same analysis of what senator left parties how to do namely they had to become more like center-right parties and so when the collapse comes you say well where's the opposition party there is no opposition party because the things that led to the collapse whose fingerprints were on them well Clinton Schroeder and Blair they were co-conspirators in the deregulation and ultra financialization that had led to the collapse so when people start looking for a champion where do they look well they look to syriza in Greece except the rules are so rigged that even when a radical party gets elected the radical party is forced to be brought to heel because the austerity party your embezzlement system so much power you see the pressures on the center-left parties related to the rise of money politics that they felt like they had to build bigger and bigger war chests in order to play in the mass media and be suitable for election or do you think it's the changing balance of the structure of interests you mentioned the rise of finance what's driving them yeah their disgrace well it's both and of course Schroder Clinton and Blair have all become wealthy men they didn't have to become wealthy man I mean Jimmy Carter did not become a wealthy and so some of it I think is Vina allottee and corruption some of it is a feeling that yeah we got to get in bed with Wall Street to be financially competitive but Bill Clinton did not have to give Robert Rubin the power that he gave Robert Rubin you know I wrote a piece on Rubin in 2007 called fatal attraction about the Democratic Party and Robert Rubin and in researching that piece I went and I read every major piece that had ever been written on Bob Rubin this was the first unfavorable featured piece that had ever been written on Bob Rubin Rubin had the press eating out of his hand and there was that famous cover of Time magazine the committee to save the world right Greenspan and Larry Summers right so these people did they save the world know that cost the world 20 trillion dollars of GDP when their policies brought about the financial collapse so I guess in the book I try to link this story of how the social compact that used to serve ordinary people was done in and then how that led to the rise of neo-fascism and what we might do about it people have often said that capitalism gets a small Authority from being governed by democracy as the democracy how would I say is is increasingly exhibiting despair because it the economic system has not been responsive it becomes extreme it elects people like the people you're talking about around Europe like Donald Trump and the I think there's a great danger here that we may lose faith in democracy as the corrective mechanism no question about that and what I like about what I argue in the book is that democracy is being pummeled from two sides first as corporate capital financial capital increasingly makes the rules the compass of democracy to govern especially to govern the economy is being narrowed so you have trade deals that say we're gonna have a clause that allows you as part of a trade deal to argue that ordinary health safety environment labor regulation violate my right to do free trade under NAFTA or violate my right to do free trade under TTIP or whatever this is investor state dispute resolution it's it's removing from the province of democratic governance to a kangaroo court all kinds of issues involving the governance of capitalism so from one side and Dani Rodrik I think is the great spokesman for this viewpoint professor at Harvard from one side the takeover of the rules by the 1% is narrowing the ability of government to govern capitalism from the other side the reaction to that on the part of ordinary people is calling into question whether we even care about democracy itself and so you can see the domain of democratic government being shrunken and shrunken shrunken and we got it we got to take that back

38 thoughts on “How Unregulated Finance is Killing Democracy

  1. What was weak about Jimmy Carter?? That he used diplomacy instead of just bombing everybody like all the other precidents after him??? Like Regan that run like a chicken when his warships were attaked???

  2. Has he been invited onto MSNBC, or are they afraid of this level of coherence and lucidity ?

  3. If our people refuse to vote do they really care about democracy. What could we do to encourage more participation? Vote on the 4th of July?

  4. We must entrust all our monetary and economic decisions to corrupt politicians in the pockets of big donors and career bureaucrats who answer to no one but those politicians (although they can often make lots of money in the industries that they once regulated). It's more democratic that way.

  5. Breaking News; thing that hasn't existed for over 106 years is killing a democracy that never existed in the first place.

  6. Wait… Wait… Wait… did he say the great depression was a result of the markets not being self regulating? The Fed caused the great depression. It would have been a pretty common recession otherwise. These are expected under the standard Chicago school of thought. Who the hell does this guy think he is fooling?

  7. Democracy is in danger because leadership in the US is dysfunctional. Whips and Leaders are the true crux of the corruption. A true disruptor in Congress. They were created during the height of Government corruption in 1899 (leaders) and 1900 (whips). They were NOT implemented by the framers of the Constitution or the Declaration of Independence. Congress is manipulated by Whips and Leaders to broker the bills in a profiteering manner to 501c's, corporations and other countries. The myth is Congress is a weak victim overpowered by the large money lobbyist. But the truth, Congress is the tyranny understanding they have a monopoly selling bills and are aggressive at it. You want a bill passed you have to come through them, so bring your American Express card. There is no defensible argument, Congress betrayed their Fiduciary duty. Whips and Leaders should have been eliminated with Antitrust in the early 1900's. Whips and Leaders front run our republic. This isn't a Democracy, it's not a Republic, it's a coup d'état and the Whips and Leaders are the party of guilt…. The most corrupt era of the US Government was in the late 1800's and early 1900's. It was when Americans were in revolt of our Government in collusion with giant monopolies (Antitrust). Names like JP Morgan , Rockefellers, Vanderbilt's, etc.. These guys bought and paid for the election of President McKinley. Then President McKinley implemented Whips and Leaders into our government to assist the large amounts of lobbyist money, campaign contributions and special interest group monies in a profiteering manner. It was a terrible, terrible time for America. Six months later in Presidents McKinley's second term of Presidency he was assassinated. Antitrust was finally passed around 1914 but they forgot to get rid of the corrupt Whips and Leader position that assist in this corruption. Benjamin Franklin said, “A Republic, if you can keep it.”

  8. The more a person know the more the person can feel worry but general people do not have any idea and that is alright I guess haha

  9. When some figure states that the world has created around 1,200 trillion value of money while the world actually produced around 50 trillion value of products and services then we all can see the problem of financialization haha

  10. It is so so true that unregulated finance is killing democracy. But who will be the one to regulate finance and its powerful network of small but superhub? This has been my question since last financial craziness of 2008. Add on to this is the communism and socialism where public is small to no important compared to the government or people in control of policies. All of shit in financialization starts along with the growth of communism/socialism through communist china and socialist russia. Any correlation? Try connect the dots and the pictures will be clear haha

  11. You yanks use “kangaroo court” a lot more that we Australians do, maybe it’s cultural cringe on our behalf.

  12. So bright yet so flipping stupid! Leave people alone and innovation will flourish! And btw we live in a republic!

  13. Dunce doesn't explain how the government imposed Federal Reserve monopoly creates boom bust cycle, doesn't define capitalism or democracy, and never admits taxation is theft or how capitalism has created the greatest wealth for the many. Sad!

  14. This is still way too reactionary. It's putting forth democratic-capitalism, which by definition, can never exist. It's on par with Xi's "dictatorial democracy." It makes no sense. The New Deal was not nearly radical enough. Isn't that obvious? It should be. It is to me.

  15. I've been reading Griftopia by Matt Taibbi which touches on this as well.  When I saw this video, I thought youtube was stalking me…

  16. He finally used the word "Neo-Fascism" which is the governing process that the whole world banking system has forced on the world population. Welcome the the New World.

  17. This guy is delusional. The corporate-nexus started with FDR. LIBERALISM HAS NEVER BEEN FRIENDLY TO DEMOCRACY, EQUALITY, OR JUSTICE

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