I’ve been obsessing a bit about plutocracy. “The American Interest” magazine’s current issue is devoted to the topic. Yet there are some oddities that give me pause.
For instance, lower and middle classes feel more resentment toward upper middle-class folks like doctors and lawyers than they do toward the insanely wealthy like Bill Gates, Warren Buffet, Mark Zuckerberg, pro athletes and my personal bugaboo, the finance industry. The finance industry, typified by Goldman Sachs, is responsible for most of the statistics Bernie Sanders lamented in his little rant late last year about the widening income and wealth gaps.
For another, the Tea Party surge seemed directed more at government that might regulate excesses than it is at the excesses themselves.
For yet another, almost nobody seems to be talking about taking the “too big to fail” and busting them up until they’re small enough to fail, though the survivors of the last cycle are bigger than ever and only a fool, in my opinion, would believe that regulation of hypertrophied financial institutions will eliminate another bubble burst/bailout combination.
Now an introspective one. Do I rail against financiers hypocritically?
After all, in my day job, I’m a lawyer, and I defend my profession against critics by saying that they don’t understand how we keep a complex society functioning with relatively little bloodshed.
Financiers defend their profession, essentially, by saying that critics don’t understand how finance keeps a complex, high-tech economy, in need of capital to achieve economies of scale, functioning.
There is some truth in the financiers’ defense. But I think I’m not a hypocrite.
I don’t see how 40% of our economy needs to be “the financial industry” as we ship manufacturing abroad. I can’t see how we can thrive just selling each other hamburgers, thinking that we’ll forever have The World’s Coolest New Ideas when smart people abroad are getting high-tech exposure realizing those Cool New Ideas for us.
In other words, I think the finance industry is a Ponzi Scheme, a giant chain letter we’re writing ourselves with the complicity of government and economists (as Doug Masson Tweeted yesterday, ”‘It is difficult to get a man to understand something when his salary depends on his not understanding it.’ -Upton Sinclair”). The finance industry created complex instruments like mortgage-backed derivatives partly to obfuscate (hide the truth) and keep the scheme going.
We are so blinded by our pursuit of higher standards of living that we’ve seriously deluded ourselves about sustainability, and Big Finance is the poster child for that. The easiest example to understand was the coastal frenzy to flip homes – to buy, fix up a little, and then sell a home in a year for 20% profit – when homes were selling for prices beyond the sustainable reach of homebuyers. In other words, they could only buy for the short term in expectation of the profit on the flip. Coastal Joe Sixpack, making $80,000 per year, could not really afford to settle down in an $800,000 home. But nobody seemed to notice. I didn’t notice (but we didn’t have flip frenzy around here).
I predict more bubbles, more bursts, and more bailouts if we don’t change our ways soon, and the new GOP Congress is marginally less likely to lead that change than the Democrats would be, though both are very deeply compromised – “bought men (and women),” whose sole, pathetic gesture toward integrity is to “stay bought.”