January 24, 2011
Recent cracks in the oligarchy
(For previous posts about the oligarchy, see here.)
I wrote earlier about how cracks appeared in the oligarchy during the late stages of the Vietnam war. In that case, the oligarchy split between those businesses for whom the war remained a good thing because their businesses directly benefited from the war effort, and those for whom it was a bad thing because the people and resources that might have benefited them were being drained away to service a war that seemed to have no end. In the current situation, while the pressures due to an over-extended military are still there, the split in the oligarchy is more likely to occur between the financial sector and the manufacturing/agricultural sector because the financial sector is increasingly being seen as a parasite that produces little of value but instead becomes bloated by sucking the blood out of the productive sectors of the economy, all with the active collusion of the government. These cracks in the oligarchy are being widened by its out-of-control rapacity, as sectors within it seek to advance at the expense of others. This intraoligarchic competition to see who can enrich themselves the most will likely less to its own downfall.
Even some establishment journalists like Frank Rich of the New York Times have noticed how things have gone way too far in favoring the financial sector:
The obscene income inequality bequeathed by the three-decade rise of the financial industry has societal consequences graver than even the fundamental economic unfairness. When we reward financial engineers infinitely more than actual engineers, we "lure our most talented graduates to the largely unproductive chase" for Wall Street riches, as the economist Robert H. Frank wrote in The Times last weekend. Worse, Frank added, the continued squeeze on the middle class leads to a wholesale decline in the quality of American life — from more bankruptcy filings and divorces to a collapse in public services, whether road repair or education, that taxpayers will no longer support.
The Obama administration seems not to have a prosecutorial gene. It's shy about calling a fraud a fraud when it occurs in high finance… Since Obama has neither aggressively pursued the crash's con men nor compellingly explained how they gamed the system, he sometimes looks as if he's fronting for the industry even if he's not.
We can expect to see this 'wholesale decline in the quality of American life' continue because the oligarchy is demanding it. As Chrystia Freeland writes in an article in the January/February 2011 issue of The Atlantic titled The Rise of the New Global Elite:
The U.S.-based CEO of one of the world's largest hedge funds told me that his firm's investment committee often discusses the question of who wins and who loses in today's economy. In a recent internal debate, he said, one of his senior colleagues had argued that the hollowing-out of the American middle class didn't really matter. "His point was that if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that's not such a bad trade," the CEO recalled.
I heard a similar sentiment from the Taiwanese-born, 30-something CFO of a U.S. Internet company. A gentle, unpretentious man who went from public school to Harvard, he's nonetheless not terribly sympathetic to the complaints of the American middle class. "We demand a higher paycheck than the rest of the world," he told me. "So if you're going to demand 10 times the paycheck, you need to deliver 10 times the value. It sounds harsh, but maybe people in the middle class need to decide to take a pay cut."
Whether one agrees with the sentiments expressed or not (the case that there should not be such a great disparity between the average person in America and the rest of the world is perfectly defensible), what is interesting to notice is how these private individuals are casually planning the future of the world and how to distribute its resources, with the expectation that governments will go along with their decisions. Governments are followers of the oligarchy, not leaders.
But how much can the oligarchy push their agenda on the world without pushback? Freeland suggests that they may be overplaying their hand.
But if the plutocrats' opposition to increases in their taxes and tighter regulation of their economic activities is understandable, it is also a mistake. The real threat facing the super-elite, at home and abroad, isn't modestly higher taxes, but rather the possibility that inchoate public rage could cohere into a more concrete populist agenda—that, for instance, middle-class Americans could conclude that the world economy isn't working for them and decide that protectionism or truly punitive taxation is preferable to incremental measures such as the eventual repeal of the upper-bracket Bush tax cuts.
The lesson of history is that, in the long run, super-elites have two ways to survive: by suppressing dissent or by sharing their wealth. It is obvious which of these would be the better outcome for America, and the world. Let us hope the plutocrats aren't already too isolated to recognize this.
The transglobal divide between the very rich and the rest of us will lead to popular unrest. This is more likely to happen in the US because while inequalities in other major emerging economies like China, India, Russia, and Brazil are also increasing, there is still an improvement in the average standard of living of the people in those countries. China, as just one example, is investing heavily in new infrastructure, creating a vast network of roads and high-speed rail to name one big item. Similar movement is visible in the other emerging markets. It is in the US where inequalities are increasing while average standards of living are either stagnating or declining and infrastructure is decaying as the anti-tax zealots demand cuts in government spending at federal, state, and local levels.
The popular perception (right or wrong) is that these other emerging countries are modernizing while the US is decaying, which is why the US is so unstable.
Next: The US as a destabilizing threat to the transglobal oligarchy.