In some influential circles, these questions are now asked: What’s wrong with high levels of inequality in general, and with having very rich bankers in particular? After all, human societies have survived the presence of extremely wealthy individuals in the past--in fact, some now argue, the presence of such a “new aristocracy” can finance growth and spur innovation.
This argument is deeply flawed along three dimensions.
(1) Such super-elites care very little for anyone other than themselves. Certainly, there will be some charity--but remember that John D. Rockefeller’s greatest donations came after he had been dragged through the mud by some very persuasive rakers (Ida Tarbell).
(2) It is a mistake to assume that any country’s institutions (the laws, rules, and norms that govern behavior) are fixed for all time. In reality, institutions change all the time--partly in reaction to who has wealth and power, and what they are trying to do. What are the odds that our financial super-rich will want to build democracy and strengthen the middle class?
(3) Can the rich and powerful really be counted on to save the system, or just themselves? Go back carefully through the early history of the Great Depression (see Lords of Finance). Certainly the big New York players saved banks and securities firms that were seen to be part of their club (e.g., Kidder Peabody), but they--and the New York Fed--were not so inclined to save financial institutions they regarded as less than central (e.g., Bank of the United States), even if this meant thousands of people lost their life savings.
When the Bank of England’s Andrew Haldane speaks of a “doom loop,” he is describing the declining future for our middle class. Powerful financiers, by and large, did just fine during the Great Depression.
[Cross-posted at The Baseline Scenario.]
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COMMENTS (2)
Massive inequality and centralized control of wealth is also not healthy, long term, for the wealthy. Cf. France 1789, Russia 1905 and 1917, etc.
Now, one can argue that past revolutions have been about political, not financial, concentration of power, but the distance between the two may not prove to be that great in the end. I at least wouldn't count on it being so.
Massive inequality and centralized control of wealth is also not healthy, long term, for the wealthy. Cf. France 1789, Russia 1905 and 1917, etc.
Now, one can argue that past revolutions have been about political, not financial, concentration of power, but the distance between the two may not prove to be that great in the end. I at least wouldn't count on it being so.
Point 1. They care very little for anyone other than themselves. Probably true, but not unique. For example, have we seen any evidence over the past year that UAW members care for anyone other than themselves?
Point 2. Things change. Again true, but where is it written that they can't change for the better? Does Johnson think Ida Tarbell et al anticipated the post-Depression/post WW II social fabric?
Point 3. The first interest of members of a "club" is always to save themselves. But, the real test is whether the desire to keep others out of the club is almost as strong as self preservation. Back in the days of Lords of Finance a lot more attention was spent on keeping aggressive, tal ... view full comment
Point 1. They care very little for anyone other than themselves. Probably true, but not unique. For example, have we seen any evidence over the past year that UAW members care for anyone other than themselves?
Point 2. Things change. Again true, but where is it written that they can't change for the better? Does Johnson think Ida Tarbell et al anticipated the post-Depression/post WW II social fabric?
Point 3. The first interest of members of a "club" is always to save themselves. But, the real test is whether the desire to keep others out of the club is almost as strong as self preservation. Back in the days of Lords of Finance a lot more attention was spent on keeping aggressive, talented climbers out than nowadays.
Income inequality is increasing because the laboring class is facing a lot more competition from abroad than during the "good old days". That, not employer avarice, is the main cause of wage suppression. The major employers paid more to their workers when they weren't facing global competition and boards paid their key executives less for the same reason. Wake me up when somebody figures out how to turn the clock back.
As for banking salaries, most of our "best and brightest" always opt for what they perceive as 1) the big payoff, 2) the sure thing, or, best of all, both. When I graduated from college nearly half a century ago engineering was the brass ring. Then law. Now investment banking. Sometimes the "right choice" has turned out to be a wrong choice (I wonder how many of today's young lawyers are as happy as I was when I followed that calling?).
I think our future depends, first, on shoving as much education as possible down the throats of our people as possible. The young person who can't get, or can't accept, as much education as possible faces a bleak future. Second, the one thing the well-off and the not-so-well-off have in common these days is insecurity. We need to spend more of our education effort on teaching self-discipline now than we used to; instead, we spend less.