Word of the Day: Oligarchy

In America, we learn early in school about the great work accomplished by our Founding Fathers - the work of carving out a democracy in America. In the 18th century, we broke away from the British monarchy and forged a new country in an unspoiled, nearly empty continent. A few forward thinking and brave men created a vibrant democracy, where liberty and the pursuit of happiness were guaranteed by the one (white) man/one vote principle (which evolved over the years to add minorities and women to the roster of the enfranchised.)

Now, in the 21st century, it is being suggested that vibrant the democracy we read about in our schoolbooks has been overturned by an oligarchy.

One of the definitions the Merriam Webster dictionary offers for oligarchy is "a government in which a small group exercises control for selfish or corrupt reasons."

The May issue of The Atlantic carries a story called "The Coup" by Simon Johnson that defines our government in such terms. Simon, a former chief economist of the International Monetary Fund (IMF), feels that "the finance industry has effectively captured our government – a state of affairs that typically describes emerging markets, and is at the center of many emerging market crises."

In the economic work he's engaged in over the years, Johnson has observed that, "...inevitably, emerging-market oligarchs get carried away; they waste money and build massive business empires on a mountain of debt."

Which sounds depressingly familiar to the situation that a certain first world, global powerhouse finds itself in today - teetering on top of a towering mountain of debt hand-built by financial industry experts. The act of shaping the mountain of debt was highly profitable for a time; but as always with debt, the collector has come to call and there is no money for him to collect.

Enter the government.

Which, according to Johnson, seems to be following the traditional practices of emerging-market governments that find the principle businesses in their country beset with debt:

"Squeezing the oligarchs, though, is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, or—here’s a classic Kremlin bailout technique—the assumption of private debt obligations by the government."

In 21st century America, it seems as though finance has replaced journalism as "the fourth estate." Their needs became the nation's needs. The policies that favored the financial community became the nation's policies. A Reagan-era focus on deregulation created a well-fed financial community. They could trade, loan, innovate at will.

There was no one guarding the gate. Both the Republican and Democratic leaders bowed deeply to the new leaders of the free world.

And with no one guarding the gate, our financial leadership went mad for money. Johnson notes:

"From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.

The great wealth that the financial sector created and concentrated gave bankers enormous political weight—a weight not seen in the U.S. since the era of J.P. Morgan (the man)."

There is a well worn pathway that runs from Wall Street to Washington. Hank Paulson was a Goldman Sachs man. Robert Rubin went from Goldman Sachs to Washington to Citigroup. They are not alone in moving from Wall Street to Washington with ease.

Is it any wonder that the financial policies of Washington seem to favor the people who screwed up? They're all brothers, fellow Ivy Leaguers, followers of the creed that "you eat what you kill."

And when they killed the economy, the government made sure they remained very well-fed.


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