KRISTOF ON CRONY CAPITALISM

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EDITORIAL NOTE: I think Kristof hits the nail right on the head of the spinners — and I hope it leaves a mark. His hammer is the truth. The answer to the never asked question is of course we favor capitalism. It’s not the greatest thing since the wheel but it works far better than anything else we have come up with so far. What we oppose is Crony Capitalism which is what leads to oligopoly  — control of the government by a select few whose power from wealth alone has grown disproportionate to the opportunities that should be present for everyone.

On a good note, history shows that these cronies eventually turn on each other because, after all, the relationship is based upon money, not friendship. And their success is based upon a lack of morality, conscience or even willingness to obey the law, not from extreme competence and brilliance. If you look at the late Steve Jobs, Gates, Buffet, you see brilliance, creativity, and a great deal of wealth — but not measured in the trillions.

The object, lest we forget, is to have a society that actually works — i.e., one that gives us reason to stay together as opposed to dog eat dog. Fear works for a while but eventually fear leads to fracture. So unless we want the Untied States to dissolve into regional countries, we need to address those factors in our society that are simply not working. If safety, hunger and housing are not addressed then the society isn’t working. Yet we are quickly giving those up in the name of “austerity” when that is just code for the bankers saying “keep the money.”

For me, to say that the mega banks “earned” the trillions of dollars they stole and diverted is like providing  justification for genocide. In a word where there are only $50 trillion dollars worth of world currency, it is not possible that anyone could “earn” 1/3 of that. “Income redistribution” is a word used by bankers because they want to keep what they stole. Balancing of wealth throughout society through incentives and opportunity is what the rest of us are talking about.

The American public agrees by a wide margin. Bankers: your 15 minutes are up.

Crony Capitalism Comes Home

By NICHOLAS D. KRISTOF

Whenever I write about Occupy Wall Street, some readers ask me if the protesters really are half-naked Communists aiming to bring down the American economic system when they’re not doing drugs or having sex in public.

The answer is no. That alarmist view of the movement is a credit to the (prurient) imagination of its critics, and voyeurs of Occupy Wall Street will be disappointed. More important, while alarmists seem to think that the movement is a “mob” trying to overthrow capitalism, one can make a case that, on the contrary, it highlights the need to restore basic capitalist principles like accountability.

To put it another way, this is a chance to save capitalism from crony capitalists.

I’m as passionate a believer in capitalism as anyone. My Krzysztofowicz cousins (who didn’t shorten the family name) lived in Poland, and their experience with Communism taught me that the way to raise living standards is capitalism.

But, in recent years, some financiers have chosen to live in a government-backed featherbed. Their platform seems to be socialism for tycoons and capitalism for the rest of us. They’re not evil at all. But when the system allows you more than your fair share, it’s human to grab. That’s what explains featherbedding by both unions and tycoons, and both are impediments to a well-functioning market economy.

When I lived in Asia and covered the financial crisis there in the late 1990s, American government officials spoke scathingly about “crony capitalism” in the region. As Lawrence Summers, then a deputy Treasury secretary, put it in a speech in August 1998: “In Asia, the problems related to ‘crony capitalism’ are at the heart of this crisis, and that is why structural reforms must be a major part” of the International Monetary Fund’s solution.

The American critique of the Asian crisis was correct. The countries involved were nominally capitalist but needed major reforms to create accountability and competitive markets.

Something similar is true today of the United States.

So I’d like to invite the finance ministers of Thailand, South Korea and Indonesia — whom I and other Americans deemed emblems of crony capitalism in the 1990s — to stand up and denounce American crony capitalism today.

Capitalism is so successful an economic system partly because of an internal discipline that allows for loss and even bankruptcy. It’s the possibility of failure that creates the opportunity for triumph. Yet many of America’s major banks are too big to fail, so they can privatize profits while socializing risk.

The upshot is that financial institutions boost leverage in search of supersize profits and bonuses. Banks pretend that risk is eliminated because it’s securitized. Rating agencies accept money to issue an imprimatur that turns out to be meaningless. The system teeters, and then the taxpayer rushes in to bail bankers out. Where’s the accountability?

It’s not just rabble-rousers at Occupy Wall Street who are seeking to put America’s capitalists on a more capitalist footing.

“Structural change is necessary,” Paul Volcker, the former chairman of the Federal Reserve, said in an important speech last month that discussed many of these themes. He called for more curbs on big banks, possibly including trimming their size, and he warned that otherwise we’re on a path of “increasingly frequent, complex and dangerous financial breakdowns.”

Likewise, Mohamed El-Erian, another pillar of the financial world who is the chief executive of Pimco, one of the world’s largest money managers, is sympathetic to aspects of the Occupy movement. He told me that the economic system needs to move toward “inclusive capitalism” and embrace broad-based job creation while curbing excessive inequality.

“You cannot be a good house in a rapidly deteriorating neighborhood,” he told me. “The credibility and the fair functioning of the neighborhood matter a great deal. Without that, the integrity of the capitalist system will weaken further.”

Lawrence Katz, a Harvard economist, adds that some inequality is necessary to create incentives in a capitalist economy but that “too much inequality can harm the efficient operation of the economy.” In particular, he says, excessive inequality can have two perverse consequences: first, the very wealthy lobby for favors, contracts and bailouts that distort markets; and, second, growing inequality undermines the ability of the poorest to invest in their own education.

“These factors mean that high inequality can generate further high inequality and eventually poor economic growth,” Professor Katz said.

Does that ring a bell?

So, yes, we face a threat to our capitalist system. But it’s not coming from half-naked anarchists manning the barricades at Occupy Wall Street protests. Rather, it comes from pinstriped apologists for a financial system that glides along without enough of the discipline of failure and that produces soaring inequality, socialist bank bailouts and unaccountable executives.

It’s time to take the crony out of capitalism, right here at home.

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