Les Leopold
Posted: June 11, 2010 08:34 AM
Is there a Global War Between Financial Theocracy and Democracy?
Senate and House conferees are about to reconcile a financial reform bill that is virtually designed to institutionalize "too big to fail." And when they do we'll lose another battle in the ongoing war between global financial markets and democratic nation-states.
This war has been going on for decades -- but democracy hasn't always been in full retreat.
The New Deal Conquest: During the Great Depression democratic forces gained the upper hand in the war. We realized that financial markets, which are driven by the largest banks and financiers, had to be tightly controlled. We knew that global speculation on currencies only deepened the Depression and had to be strictly limited. We knew that an iron curtain was needed between commercial and investment banking to protect Main Street depositors from market madness (that was the Glass-Steagall Act). And most importantly we knew that the key to preventing economic upheaval was to limit the wealth of the super-rich and to increase the wealth of working people through progressive taxes, Social Security, wage and hour laws, and the promotion of unionization. The Bretton Woods agreements forged by the Allies during WWII set up strict rules for global finance, rules that kept financiers in check for more than a quarter century.
And it worked pretty damn well. As economist Joseph Stiglitz points out, this era saw only one financial crisis (Brazil, 1964), and working people in western democracies made huge gains. Since the era of deregulation took hold in the late 1970s, the world has suffered over a hundred financial crises and middle-class incomes have stagnated.
The Deregulatory Counter-Offensive: By the late 1970s, bankers regained the advantage through the spread of a new faith in self-regulated markets. The economic apostles of unfettered markets lobbied against progressive taxes, unions, and social welfare programs. The new orthodoxy was: Let the elites collect the money--they'll invest wisely (instead of consuming), and all boats will rise. This near-religious revolution rapidly spread through the economic and policy establishment. Regulations were dismantled right and left, and the revolving door between government and Wall Street started spinning. The American financial catechism ruled the world. And on Wall Street, the money tap was open. It did not trickle down.
This war has been going on for decades -- but democracy hasn't always been in full retreat.
The New Deal Conquest: During the Great Depression democratic forces gained the upper hand in the war. We realized that financial markets, which are driven by the largest banks and financiers, had to be tightly controlled. We knew that global speculation on currencies only deepened the Depression and had to be strictly limited. We knew that an iron curtain was needed between commercial and investment banking to protect Main Street depositors from market madness (that was the Glass-Steagall Act). And most importantly we knew that the key to preventing economic upheaval was to limit the wealth of the super-rich and to increase the wealth of working people through progressive taxes, Social Security, wage and hour laws, and the promotion of unionization. The Bretton Woods agreements forged by the Allies during WWII set up strict rules for global finance, rules that kept financiers in check for more than a quarter century.
And it worked pretty damn well. As economist Joseph Stiglitz points out, this era saw only one financial crisis (Brazil, 1964), and working people in western democracies made huge gains. Since the era of deregulation took hold in the late 1970s, the world has suffered over a hundred financial crises and middle-class incomes have stagnated.
The Deregulatory Counter-Offensive: By the late 1970s, bankers regained the advantage through the spread of a new faith in self-regulated markets. The economic apostles of unfettered markets lobbied against progressive taxes, unions, and social welfare programs. The new orthodoxy was: Let the elites collect the money--they'll invest wisely (instead of consuming), and all boats will rise. This near-religious revolution rapidly spread through the economic and policy establishment. Regulations were dismantled right and left, and the revolving door between government and Wall Street started spinning. The American financial catechism ruled the world. And on Wall Street, the money tap was open. It did not trickle down.
Les Leopold: Is there a Global War Between Financial Theocracy and Democracy?
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