A ruthless [financial system] of all that exists...
Will recent events result in a more decentralized, robust system that more closely approximates what Interfluidity describes?
Lolz. Yeah right. (By which I mean: this is not the trajectory that things are on right now, although it could be.) Every policy effort thus far has gone in exactly the opposite direction — more centralized, hence less robust — which is part of the reason I’m so “emotional” about these goings-on. The opportunity for change created by the crisis has been squandered, or rather exploited by the surviving behemoths to become even more behemoth-y.
Consider: the top four banks in the U.S., and, I think, the world, are J.P. Morgan, Bank of America, Citigroup, and Wells Fargo. J.P. Morgan absorbed Bear Stearns and Washington Mutual, Bank of America absorbed Countrywide and Merrill Lynch, Citigroup tried and failed to absorb Wachovia, and Wells Fargo actually did absorb Wachovia. (Also: PNC absorbed Nat City. Barclays absorbed the shell of Lehman Brothers.) And it is widely believed that one of the main purposes of the government’s investments in various banks (under the TARP) is to encourage them to consolidate — i.e., to buy up smaller banks, which tend to have more obvious problems than biggers banks.
Does that sound like decentralization? No. It sounds like the government, led by elements of the Bush administration but abetted by Congress, is fostering the creation of an even more perverse system than the one we have now, a system in which every financial institution is encouraged to become “too big to fail” as soon as possible. And notwithstanding the temptations of superficial populism, it kind of makes sense that the government would prefer to deal with the smallest number of big entities when it comes to negotiation the latest round of guarantee & bailout. “Recall” the words of Brad DeLong (from 1997):
The corporation in America is valuable to the government because it can be called upon to do more than its own private purely economic tasks. From the perspective of the modern government, the corporation is the government’s principal tax collector. The corporation collects the government’s income and sales taxes for it. Withholding for income taxes and point-of-sale collection for sales taxes make the paying of taxes largely automatic. The government would have an infinitely more difficult time collecting anything if it had to deal with each individual for his or her entire tax bill either for income or for sales taxes.
Indeed, there is no one that the Internal Revenue Service fears more than the independent contractor: the person who does not work for a corporation, and with whom the government must deal directly in order to collect taxes. So the IRS tries as hard as it can to force independent contractors into being someone’s employees. It desperately wants collecting, withholding, and monitoring compliance with the tax law can be their employers’ job—and not the IRS’s.
The corporation provides an increasingly large share of social insurance benefits—largely at the government’s behest. Large majorities of Americans and their politicians believe—at least after the end of political advertising campaigns—that American citizens ought to have social insurance services and benefits: health insurance, dental insurance, pension benefits, and so forth. But large majorities of Americans and politicians also fear—at least after the end of political advertising campaigns—big government: for most politicians, proposing to socialize medicine or proposing large increases in social security taxes is a quick ticket out of one’s office in the Capitol or the White House and into a better-paying but much lower-status job arguing that oil companies are overtaxed or that Bengalis are selling an unhealthily large amount of textiles to U.S. customers.
So how can politicians and voters both have big government-like social insurance programs without having big government? By inducing or ordering corporations to provide them. Pensions? The government promises to reduce the total taxes paid by corporations and by workers by roughly thirty-three cents for every dollar that corporations and workers shift out of current wages and into invested funds to provide post-retirement benefits. Health? The government offers the same deal: if corporations and workers will shift two dollars out of current wages and into purchasing health insurance for the workers’ families, the government will contribute a third dollar by reducing the total taxes paid.
It’s a lot easier to enforce “stricter” banking regulations and oversee extensive financial guarantees when “Three banks — JPMorgan Chase, Bank of America, and Wells Fargo — are set to control about one-third of all bank deposits in the United States.”
This sort of lazy, fat, sluggish, yet “decent” corporate-state economy is one version of the caricature of Europe that Americans are rightfully scared of becoming. It’s also something that some on the “Left” often seem to hold up as The Goal. Sadly, I’m not entirely sure that Obama doesn’t agree.
