Ken Ballweg was kind enough to point me back to a post I wrote for Talking Points Memo two years ago on my continuing obsession: The Interregnum. It is one of those periods that come along perhaps once a century, where “the old is dying and the new cannot be born”.And then Alex Bowles sent me a wonderful essay by Marc Chandler called Crisis and Instability–Searching for Terra Firma which makes much of the same argument.
This is similar to where we are now, in-between. What is at stake is not the capitalist system as such, but how it is organized; not just economics, but political economy. How will productivity gains be distributed? What is the relation between employee and employer? What is their relation to the state? What is the relation between industrial and finance capital?
And then I woke yesterday to this stunning analysis of the global political unrest that has shaken India, Israel, Great Britain, Egypt, Syria, Greece, Spain and now the U.S.
But from South Asia to the heartland of Europe and now even to Wall Street, these protesters share something else: wariness, even contempt, toward traditional politicians and the democratic political process they preside over. They are taking to the streets, in part, because they have little faith in the ballot box.
Alex calls it a crisis of legitimacy and I have to believe that is the heart of the issue. Writing about the rise of the Progressive Movement more than a century ago, Richard Hofstadter said it was an “effort to restore a type of economic individualism and political democracy that was widely believed to have existed earlier in America and to have been destroyed by the great corporation and the corrupt political machine.” This seems just as true today. If todays politicians in all parties are seen to have sold out to the highest bidder then a new generation begins to shun representative democracy and take to street protest. The Times quotes my friend Yochai Benkler.
“You’re looking at a generation of 20- and 30-year-olds who are used to self-organizing,” said Yochai Benkler, a director of the Berkman Center for Internet and Society at Harvard University. “They believe life can be more participatory, more decentralized, less dependent on the traditional models of organization, either in the state or the big company. Those were the dominant ways of doing things in the industrial economy, and they aren’t anymore.”
In 1991 when Francis Fukuyama published his book The End of History, he was confident that the combination of liberal democracy and free market economics was the final solution to man’s quest for a just and free political economy. Twenty years later we are not so sure. I have never suggested I knew how we get out of this Interregnum. I do believe that the role of money in politics has fatally corrupted our democracy and from reading the Times piece it is obvious that the citizens of Tel Aviv and Mumbai feel the same way. And because the democracy is corrupted, whatever fantasies the libertarians have about free markets are totally destroyed by crony capitalism. Marc Chandler suggests some things will need to change.
Capital markets will become more regulated and transparent. Whether directly with a financial transaction tax or indirectly through regulation, the cost is likely to increase and this will serve to slow the rate of growth. This applies to financial innovation as well. It is, like James Tobin once suggested, putting some sand in the too-efficient wheels of the capital markets.
The distribution of productivity gains has never been more lopsided in the United States, and the disparity has grown to extreme levels in other major industrialized countries. The cash register has to redraw the balance for economic as well as political reasons. The top 5% of America’s income earners account for almost 40% of all consumer purchases. If the new cash register is going to boost aggregate demand it must boost the base for consumption.
These are perhaps important ideas to fix the financial system, but ultimately as long the expenditures of $19 million on a single Senate campaign are characterized as “relatively modest”, we are in trouble. The fatal linking of money and free speech could kill this amazing 235 year experiment in government “of the people, by the people and for the people”. That would be the real end of history.