Steve Randy Waldman had a much remarked-upon piece about how policymakers choose to have recessions and depressions, because they have been captured by an elite rentier class. It becomes much easier to understand the decisions made in government with this perspective.
We are in a depression, but not because we don’t know how to remedy the problem. We are in a depression because it is our revealed preference, as a polity, not to remedy the problem. We are choosing continued depression because we prefer it to the alternatives.
[...] the preferences of developed, aging polities — first Japan, now the United States and Europe — are obvious to a dispassionate observer. Their overwhelming priority is to protect the purchasing power of incumbent creditors. That’s it. That’s everything. All other considerations are secondary. These preferences are reflected in what the polities do, how they behave. They swoop in with incredible speed and force to bail out the financial sectors in which creditors are invested, trampling over prior norms and laws as necessary. The same preferences are reflected in what the polities omit to do. They do not pursue monetary policy with sufficient force to ensure expenditure growth even at risk of inflation. They do not purse fiscal policy with sufficient force to ensure employment even at risk of inflation. They remain forever vigilant that neither monetary ease nor fiscal profligacy engender inflation. The tepid policy experiments that are occasionally embarked upon they sabotage at the very first hint of inflation. The purchasing power of holders of nominal debt must not be put at risk. That is the overriding preference, in context of which observed behavior is rational.
I don’t even think Waldman would say this is a particularly novel critique. It merely applies Occam’s Razor to the documentary evidence of the past several years. We have had tools at our disposal to create a faster recovery, on both the economic and monetary side. And we didn’t do it. But when we could protect banking interests from inflation, or when they came looking for a handout, the political class leapt into action. So it’s a banal point, but of course also a deeply crucial one.
And it’s reinforced by this discovery from Felix Salmon, who finds in a new book from David Rothkopf the two architects of deregulatory policies on the financial sector, Larry Summers and Robert Rubin, being totally lacking in remorse about their role. Here’s Summers:
The arrogance of power comes through loud and clear here. Summers and Rubin did their business, and they will never admit to being wrong. And in fact, it worked out pretty wonderfully for them, so why would they make such an admission? They served their masters well and were rewarded for it. They see their interests as aligned with the interests of the financial industry. And the industry made out just fine. So why be remorseful?
Creditor losses simply matter more to the people who rule the country than individual suffering and misery. It’s a worldview. We cannot wake up one morning without a Goldman Sachs. Waking up without a middle class is a trifle. Welcome to life in late plutocracy.