Does Wall Street control the government?
Tyler Cowen offers some interesting thoughts on whether the financial sector dominates the U.S. government:
Perhaps the strongest piece of evidence for the financial sector dominance of U.S. political economy is the recent bailouts. Yet it's instructive to ask which other groups have received bailouts in the last fifteen years. The list would include Mexico and the numerous countries which have borrowed from the largely U.S.-created International Monetary Fund, such as Indonesia. They are hardly dominant forces of influence in Washington. It was China who made out like a bandit from the bailout of the mortgage agencies, and the validation of their debt issues, but again the Chinese are not in charge.
There's a different way to think about the bailouts, namely that the U.S. government stands at the center of a giant nexus of money raising, most of all to finance the U.S. government budget deficit and keep the whole show up and running. The perception at least is that our country requires the dollar as a reserve currency, requires New York City as a major banking center with major banks, and requires fully credible governmental guarantees behind every Treasury auction and requires liquid financial markets more generally. Furthermore the international trade presence of the United States (supposedly) requires the federal government to strongly ally with major commercial interests, just as our government sides with Hollywood in trade and intellectual property disputes. To abandon banks is to send a broader message that we are in commercial and political decline and disarray, and that is hardly an acceptable way to proceed, at least not according to the standards of the real Washington consensus.
In other words, it's our government deciding to assemble a cooperative ruling coalition - which includes banks -- at the heart of its fiscal core. It's our government deciding who belongs to this coalition and who does not, mostly for reasons of political expediency and also a perception - correct or not -- of what is best for the welfare of American voters. If we don't in this year "get tough" with banking regulation, it's because our government itself doesn't want to, not because of some stubborn recalcitrant Republicans.
Agreed. There are discrete issues where the relevant obstructions are being erected by Senate Republicans. But so far as the general approach to Wall Street goes, that's been primarily set by the administration, for much the reasons Cowen offers.
To say that a little more clearly, there are elements of the financial regulation bill that have a lot to do with fights between Democrats and Republicans. Whether the Consumer Financial Protection Bureau is housed at the Federal Reserve, or whether there's a $50 billion liquidation fund, for instance. But the type of financial regulation bill we're arguing about -- one that doesn't break up the big banks, or set sharp capital ratios, or fundamentally reform the way the financial sector does business in non-crisis periods -- is the product of the attitude the government takes toward the fundamental worth of Wall Street, which did not change drastically when the Bush/Paulson team gave way to the Obama/Geithner team.
That attitude reflects the government's perception of Wall Street's importance to the American economy and to American power, and its sense that dramatic reforms that substantially change the industry would likely make things worse rather than better.
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