So says Matt Taibbi, in his audacious new article in Rolling Stone called, “How Wall Street Killed Financial Reform.” In it, Taibbi examines how cash from the financial industry swamped elected officials and regulators and thwarted any efforts to create meaningful financial reform.
While the details are appalling, Taibbi’s reporting gets at the heart of a much larger question. Why do so may Americans not trust the government to manage the economy? The answer, sadly, is because they shouldn’t.
When money has made government inseparable from the private sector, large corporations can act as owners the government. Our society has so denigrated the role of government that the pendulum has completely swung toward the unmitigated power of the private sector. As a result, the private sector can employ its profits to lobby for the dismantling of regulations or the provision of subsidies to itself. And we end up in a downward spiral.
Weak and corrupt government only feeds distrust among the public and lends legitimacy to the idea of simply dismantling government. It’s a self-fulfilling prophecy of government incompetence that’s been turbocharged by Hayekian pessimism. And it’s essentially how Wall Street was able to avoid any change in its behavior – even after helping to trigger a worldwide financial crisis. Just witness the $2 billion trading loss recently disclosed by J.P. Morgan, one the banks most opposed to any financial reform. Nothing has changed.
There is, however, another model to follow. As Adam Smith notes in The Wealth of Nations, society does not provide necessary public goods by relying on markets. The public sector must play a role:
“The third and last duty of the sovereign commonwealth, is that of erecting and maintaining those public institutions and those public works, which though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expenses to any individual or small number of individuals; and which it therefore cannot be expected that any individual or small number of individuals, should erect or maintain. “
So we can go with Hayek and dismantle our government structure in the nihilistic belief that it’s been corrupted beyond repair. Or we can listen to Smith and construct ways to invest in adequate public goods - not for profit, but so that people aren’t forced to live in a society that fails to even acknowledge the wellbeing of its members.
Comparative economic systems show that some nations are able to solve these problems. We are not doomed to a Hayekian nightmare. This is our choice.
What is your choice? What do you think needs to be done?