Oligarchy in America – The Power of Money

Story by 3Sigma in April 2009
Hosted by Mark Hersch
Information by Simon Johnson, former Chief Economist of the International Monetary Fund (IMF)

Oligarchy = People with disproportionate power and influence

At last someone, namely Simon Johnson, former chief economist of the International Monetary Fund (IMF), has unmasked the power behind the throne that has plunged you, me, and the rest of the world into economic chaos. Johnson draws upon his substantial experience with the IMF to lay bare the causes and consequences of the current economic debacle.

Johnson is no ideologue with an anti-capitalist axe to grind. His knowledge and experience are as practical as it gets. Since 1944, the IMF has been the world’s rescuer of last resort for developing countries teetering on the brink of economic collapse. The IMF is a quintessential ”tough love” agency in which the medicine it offers in the form of huge bailout loans are always accompanied by short-term conditions that are agonizingly painful for the nations being rescued.

In the matter-of-fact tone of a true professional, he tells us that it is now the global economy that is teetering the brink of economic collapse. The causes are the same as for developing countries, but the consequences are infinitely greater.

“The conventional wisdom among the elite is still that the current slump ‘cannot be as bad as the Great Depression.’ This view is wrong. What we face now could, in fact, be worse than the Great Depression-because the world is now so much more interconnected and because the banking sector is now so big.”

Johnson’s article provides both examples and explanations for our situation and I suggest reading it several times to get the full impact of what he is telling us. Most importantly he attributes our current situation to the actions of real people, just like me and you.

Here’s the short version.

1. In the ebb and flow of social interaction, some people inevitably gain economic and political advantage. The reasons and means by which such advantage occurs vary, but the luck of the draw—being in the right place at the right time—always has something to do with it.

2. People who gain economic and political advantage will act to sustain and enhance that advantage through the exercise of disproportionate power and influence. These people become an elite—an “Oligarchy“.

3. In the past, oligarchies maintained their status through the use of raw power but in our current age, they have pursued their disproportionate advantage by using information age methods and political influence to engineer a system of belief in which their advantage comes to be perceived by the rank and file population as both natural and good. The “greed is good” ethic becomes a social norm.

4. As oligarchies use their power and influence to shape public policy in ways that favor their interests, their single-minded avarice ALWAYS leads to excesses in the which the imbalances they seek to maintain precipitate systemic collapse. They kill the goose that laid their golden eggs and everyone suffers.

(W. E. Deming explained that maximizing any single aspect of the system will always sub-optimize the system as whole. Maximization is a system destroyer.)

5. To correct the imbalances that an oligarchy has created, the oligarchy must be broken up, but the members of the oligarchy will not accept that. They will use all means at their disposal to preserve their advantage and previlidge. If necessary, they will cut off their noses to spite their faces. Everyone loses!

Johnson says that because oligarchies tend to emerge in every society, people must have the political wisdom and will to regulate their system in ways the prevent oligarchies from growing too powerful and their enterprises “too big to fail”. We must manage our system with the aim to optimize the whole of our social, economic, and political relations. If we use our brains, optimization is possible.

Today, Johnson tells us, we are in the midst of a collapse. The people who constitute our current oligarchy are using every tool in their kit to maintain their advantage by obfuscating causes and solutions. If they prevail, the current collapse will become a disaster of unprecedented proportions.

The solution? Break up the oligarchy now. Nationalize the banks. Break them into smaller units. Regulate risk taking in finance. Use progressive taxation to mitigate the accumulation of undue power and influence.

In his words…

“A whole generation of policy makers has been mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true.”

“Wall Street’s seductive power extended even (or especially) to finance and economics professors, historically confined to the cramped offices of universities and the pursuit of Nobel Prizes.”

“As more and more of the rich made their money in finance, the cult of finance seeped into the culture at large.”

“Our future could be one in which continued tumult feeds the looting of the financial system, and we talk more and more about exactly how our oligarchs became bandits and how the economy just can’t seem to get into gear.”

(OR).

“Under this kind of pressure, and faced with the prospect of a national and global collapse, minds may become more concentrated.”

It’s as simple as that.