A very interesting piece in the New Yorker explores the way that finance has begun to swallow up capitalism, sucking money, talent, and bailouts into its orbit, while doing a mediocre job at its most socially beneficial function: raising capital for productive enterprises. Increasingly, big banks engage in trading for clients and themselves through the prop desk, while doing much less (and earning much less) from ordinary finance activities like raising capital for companies to expand, invent, and distribute whatever it is they make.
It’s become increasingly clear to me why European conservatives have harbored a certain suspicion of capitalism. In addition to destroying traditional societies–especially agricultural ones–the big bank capitalism of the last 150 years has often allowed a small group to accrue great power, its leaders have shown little attachment to one or another nation-state, and speculative bubbles of one kind or another have often crashed creating great harm to innocent bystanders, including most recently American homeowners. Where ordinary businesses, even big ones, rise or fall on their merits, banks are closely tied to big government players and have obtained bailouts and other special favors, while in effect holding the government and the broader society hostage through their infamous powers in the bond market.
Americans of all stripes have long believed in some version of free markets. But equally dominant in our history is a suspicion of “eastern finance,” as represented in such movements as the National Grange, the support for various protective tariffs in the 19th Century by nascent industries, and the anti-trust movement of Teddy Roosevelt. Those Americans knew that banking, at best, was supposed to be a modestly paid middleman, and not the hyperdominant player it has become of late (and had become in Europe in the late 19th Century under the Rothschilds et al.).
The post Great Depression era of a smaller, less dynamic, and thereby more stable banking and finance sector appears in many ways superior to the present. And conservatives should avoid a knee jerk support for free markets among fair-weather-friends of capitalism that benefit from various government largese including access to artificially low interest rates, FDIC insured deposits, and most recently the TARP. If Obama were a more serious person and not a dilettante stuck in the ideas of his youth he’d hire guys like Jeremy Grantham and Paul Volker to come up with appropriate regulations to prevent speculative bubbles and other abuses of finance. Instead, he is selling last year’s model and ignoring most of what goes on on Wall Street to our collective detriment.