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October 14, 2012 9:17 AM Must-read op-ed of the day: “The Self-Destruction of the 1 Percent”

By Kathleen Geier

Financial reporter Chystia Freeland has an excellent op-ed in today’s New York Times. It concerns a very important subject, which is the way that, in highly unequal societies like our own, self-dealing elites destroy their economies and themselves by rigging the system to reward their own and closing off opportunities to talented outsiders and new ideas and influences. A calcified social structure and the equivalent of incestuous inbreeding among elites is the result, and it will eventually drain the lifeblood out of the economy.

Freeland points to 14th century Venice as a historical example of this phenomenon, and cites arguments by economists Daron Acemoglu and James A. Robinson about why states fail. According to Acemoglu and Robinson:

what separates successful states from failed ones is whether their governing institutions are inclusive or extractive. Extractive states are controlled by ruling elites whose objective is to extract as much wealth as they can from the rest of society. Inclusive states give everyone access to economic opportunity; often, greater inclusiveness creates more prosperity, which creates an incentive for ever greater inclusiveness.

Freeland argues that crony capitalism in the U.S. exemplifies the “extractive” model through the “tilting of the economic rules in favor of those at the top.” American crony capitalism, she says, works in two ways:

The first is to channel the state’s scarce resources in their own direction. This is the absurdity of Mitt Romney’s comment about the “47 percent” who are “dependent upon government.” The reality is that it is those at the top, particularly the tippy-top, of the economic pyramid who have been most effective at capturing government support — and at getting others to pay for it.
Exhibit A is the bipartisan, $700 billion rescue of Wall Street in 2008. Exhibit B is the crony recovery. The economists Emmanuel Saez and Thomas Piketty found that 93 percent of the income gains from the 2009-10 recovery went to the top 1 percent of taxpayers. The top 0.01 percent captured 37 percent of these additional earnings, gaining an average of $4.2 million per household.
The second manifestation of crony capitalism is more direct: the tax perks, trade protections and government subsidies that companies and sectors secure for themselves. Corporate pork is a truly bipartisan dish: green energy companies and the health insurers have been winners in this administration, as oil and steel companies were under George W. Bush’s.

I don’t by any means agree with everything Freeland says — for one thing, she’s far too sanguine about the virtues of markets, and for another, she respectfully cites the egregious Charles Murray (ugh!). But her essential point — that contemporary American elites, by acting exclusively according to what is in their interest in the short term by extracting our collective wealth for themselves and closing off opportunities for social mobility to others, are in the long-run sowing the seeds of destruction for themselves, our economy, and our society. Some of the smarter plutocrats like Warren Buffet understand this phenomenon and are trying to reverse it, but most of the rest of them are completely blind to it. Either that, or they simply don’t care; in the charming parlance of the Wall Street, it’s a case of “IBGYBG” — “I’ll be gone, you’ll be gone.”

Didn’t somebody once say about capitalists, “Give them enough rope and they’ll hang themselves?” Indeed.

Kathleen Geier is a writer and public policy researcher who lives in Chicago. She blogs at Inequality Matters. Find her on Twitter: @Kathy_Gee

Comments

  • SecularAnimist on October 14, 2012 10:18 AM:

    Not to worry. Once they have sucked the American middle class dry, they will move on to sucking the blood out of the emerging middle classes of China and India.

  • wheresthebeef on October 14, 2012 10:23 AM:

    More like "Give them enough rope and they'll hang us all."

  • SecularAnimist on October 14, 2012 10:31 AM:

    Freeland wrote: "Corporate pork is a truly bipartisan dish: green energy companies and the health insurers have been winners in this administration"

    That's absolute bullshit with regard to "green energy companies".

    Health insurers, yes -- Obama's embrace of the 30-year-old Republican policy, the individual mandate, entrenched the for-profit insurance corporations as the foundation of the American health-care system, and guarantees and subsidizes their profits at the expense of -- and to the detriment of -- the American people for the foreseeable future.

    (And yes, ACA supporters -- I realize that may be the price that we had to pay to enact the package of modest and limited regulations of their most egregious, murderous practices that constitutes the ACA.)

    But Federal support for "green energy companies" under the Obama administration has been trivial in comparison with a century of massive subsidies to the fossil fuel corporations -- which continue today -- and a half-century of massive subsidies to the nuclear power industry.

    And to call that support "pork" -- given its enormous benefits to the American people, and the urgent necessity of ending CO2 emissions from fossil fuels as soon as possible -- is an obscene lie.

    This is just another Koch-funded, fossil fuel industry talking point. The fact that Freeland is regurgitating it tells me that she doesn't know what she's talking about, and is just dutifully reciting Republican (which is to say fossil fuel industry) propaganda in an effort to establish her "both sides do it", false equivalency cred. That seems to be a requirement of all pundits who want to be published in the NYT.

  • Larry Reilly on October 14, 2012 10:34 AM:

    Someone found need to blow off the original headline, eh?

  • esaud on October 14, 2012 10:47 AM:

    SecularAnimist: I guess (Solyndra! Solyndra!) you don't watch (Solyndra! Solyndra!) Fox News (Solyndra! Solyndra!) at all.

  • Bo on October 14, 2012 10:50 AM:

    Extremely high individual and family wealth is the ultimate monopoly.

    The tipping point for our economy and society comes when the balance between this "one percent" and the middle class gets increasingly out of whack -- as it has in the past three decades.

    Much has been made of the fact that increasing taxes on the one percent won't address the deficit. While this is true, it is even more important to point out that increased demand for goods and services by the one percent will not fill the hole on the demand side of our economic "deficit". That's why this election and the future of the middle class is critical for the U.S.

    The one percent (and their waterboys in the GOP) apparently don't understand this. And that is what eventually will be the undoing of our country if a couple empty suits like The MittWit and Doogie Hauser win in November.

  • Shivas on October 14, 2012 11:01 AM:

    It is the conceit of the elites that they are better, smarter, and more deserving than the riff-raff and therefore all goodness should flow to them, money, educational opportunities, and political power. However, the US was founded and built by the disgruntled riff-raff that had seen that same shit go down in Europe and England. This country was not made great by rich elites, it was made great by the likes of Einstein and Marconi and Eli Whitney, people that had a chance in a land of opportunity.

    But that land of opportunity is rapidly closing its gates. The rich buy the politicians and game the system to lock up more and more resources for a small fraction of the population. What good does 90% of the wealth do when it is tightly bound in private hands? It is not creating jobs, in fact it is killing jobs because this capital has been removed from the system. If one person's wealth goes from $25 billion to $50 billion it does not necessarily take any more people to manage it. And the types of investments do not necessarily create jobs. Sell IBM stock and buying Microsoft stock does not create a single job.

    Taxing that money does create jobs, it puts money back into the system where it is used over and over again.

  • PTate in MN on October 14, 2012 11:21 AM:

    I agree with SecularAnimist that the statement "Corporate pork is a truly bipartisan dish" is a false equivalence. But the basic argument is solid, that an inclusive economy grows a nation and an extractive economy kills it.

    I am hopeful that this is another sign that the current economic assumptions driving US economy policy ("greed is good") are being re-evaluated. I've recently read that some economists are waking up to the fact that Paul Krugman has been right all along; a prosperous middle class is necessary for a strong economy. Inequality (an extractive economy) not only weakens the economy (by reducing the consuming power of the middle class) but also produces economic bubbles that further weaken the economy (because inequality results in vast amounts of excess wealth sloshing around for lack of investment opportunities.)

    So I am hopeful that the dots are being connected that will strengthen the argument that democracy demands greater economic equality.

    In the article, I was also struck by Thomas Jefferson's boast that "The great mass of our population is of laborers; our rich, who can live without labor, either manual or professional, being few, and of moderate wealth. Most of the laboring class possess property, cultivate their own lands, have families, and from the demand for their labor are enabled to exact from the rich and the competent such prices as enable them to be fed abundantly, clothed above mere decency, to labor moderately and raise their families." According to the author of the article, for Jefferson, "this equality was at the heart of American exceptionalism: "Can any condition of society be more desirable than this?"

    So economists and historians are starting to figure out that the extractive economy is bad for nations and the founding fathers valued economic equality. What remains is for politicians to recognize that government plays an important role in achieving equality, for American citizens to recognize that Republicans are nothing but stooges for people who want to destroy the US, and for someone to restrain the corporate-owned media propaganda.

  • jprichva on October 14, 2012 11:30 AM:

    This only underscores my belief that the only real solution to this political impasse is firing squads.

  • SecularAnimist on October 14, 2012 11:35 AM:

    esaud wrote: "Solyndra! Solyndra!"

    An examination of the reality of the Solyndra case -- and of the highly successful DOE loan guarantee program of which it was a very small part -- demonstrates exactly how WRONG Freeland's ludicrous nonsense about "pork" for "green energy companies" is.

  • DisgustedWithItAll on October 14, 2012 11:40 AM:

    Who doesn't already know this?

    It's just agonizing to have to sit and watch, knowing the disaster is going to take place. There is nothing you can do to stop flat-out blunt selfishness, to stop full-bore stupidity of not only the congenital variety but the learned kind.

    It's too late. It's happened. Cowardice always loses. Wallflowers always lose. The meek never inherit the Earth. There's only one thing that can stop it. And that isn't going to happen.

    If you don't have malignant, soul-destroying hate in your heart for what is happening, for those who brought it about, and those who failed to stand up to it, you were and are part of the problem.

  • SecularAnimist on October 14, 2012 11:42 AM:

    PTate wrote: "But the basic argument is solid, that an inclusive economy grows a nation and an extractive economy kills it."

    "Green energy" -- which is to say, renewable energy techologies like wind and solar, along with efficiency technologies -- is the very ESSENCE of an inclusive economy, and the very ANTITHESIS of an extractive economy.

    Remember what Solyndra (for example) was doing: developing innovative, low-cost, mass-producible photovoltaic materials that would enable individuals, small businesses, farmers and municipalities all over America to create and control their own energy sources. (And the only reason that Solyndra failed was that conventional silicon PV became, unexpectedly, dirt cheap in a very short time.)

    An economy where pretty much any and all of us can generate our own energy is about as "inclusive" as it gets.

    There's a reason why such a huge percentage of the financial backing for Romney and other GOP candidates, both directly and through super PACS, in this election is coming from fossil fuel interests (which are surely the very definition of "extractive").

  • c u n d gulag on October 14, 2012 11:45 AM:

    Hmm...
    Isn't there a more recent example than Venice?
    What is it?
    I can't remember.
    Something about some revolution somewhere.

    WAIT!
    I REMEMBER!!
    FRANCE!!!

    That didn't end well for their upper classes either, as I remember it.
    They lost their heads after the lower classes lost theirs.

    Don't start the revolution without me.

  • jjm on October 14, 2012 11:58 AM:

    That business owner who wrote his employees that if Obama raises his personal taxes he'll fire them all is a possible example. What it demonstrates is that he isn't actually making his real money from his business, but from the profits upon profits he has invested elsewhere. So he could kill that company and still be enormously wealthy.

    The answer: occupy his shut down factory, like those early Chicago area people did--window manufacturers as I recall. Start the whole ownership thing over.

    After all the people who are in 'business' today have not one iota of interest in their businesses. They're just one of their many revenue streams and can be dispensed with.

  • golack on October 14, 2012 12:40 PM:

    wheresthebeef got it right!!!

    Civil war not only ended slavery, but indentured servitude...

    The Great Depression ended the Guilded Age....at a great cost to many workers...

    The Great Recession??? Very modest reform--still far to much money in gaming the system. The collapse of the financial system would have been catastrophic--but without a wholesale makeover, and cleaning out all those who participated in knowingly creating the problem, and they knew they were doing it, there's no real change this time. Some criminal cases are being filed now, but I fear the ill-gotten gains are wintering in the Cayman Islands...

  • Chad on October 14, 2012 12:54 PM:

    I hate to admit that I fully agree with DisgustedWithItAll, just because it is hard to confess one's cynicism so early on a Sunday morning. But s/he is correct.

    I've been railing against inequality since the 1990s, when it was my pet issue (and focus on my senior thesis) at an elite college. Things have only gotten much, much worse since then. And although inequality is now part of the national conversation (if only minimally and only on the political left), nothing at all is being done to address it. In the meantime, things continue to worsen economically, and a repugnant Randian ideology calcifies on the right, quite remarkably entwining itself with the fundamentalist fervor of evangelical Christianity.

    The fundamental issue, as I see it, is that the vast majority of people -- including very intelligent, well-intentioned political elites, as well as the less-privileged constituencies whose interest they purport to advance -- are so blinded by capitalist ideology, that they fail even to appreciate the basic nature and intractability of the problem. Until that happens, the best the left can hope for is politicians like President Obama, who is indeed a bulwark against an encroaching plutocratic dystopia, but a weak and ineffectual one.

    So what should one do, given the above? As I see it, there are three options, none particularly commendable: (1) for those with a reasonable shot of becoming wealthy, suppress any egalitarian impulses or sense of empathy and claw your way (by whatever means necessary) into the upper echelon of income earners; (2) for the remainder, suppress any feelings of personal responsibility or sense of social solidarity and exploit the government (by whatever means necessary) for any and all resources you can extract from it; or (3) "check out" and just hope that climate change or another world war finishes us all off as quickly as possible.

    (Incidentally, I am currently somewhere between option (2) and option (3).)

  • bos'n on October 14, 2012 12:57 PM:

    Well actually, a self dealing elite can last for a pretty long time, look at imperial China. However, a lot of humiliation and bloodshed was in the cards once the 99% had finally had enough. Read any history of China's last 150 years,

  • Anonymous on October 14, 2012 1:03 PM:

    I neglected to mention in my previous post that of course, imperial China did not look anything like the egalitarian society the United States has fancied itself for most of its over 200 years of existence. And one should point out that the rigid social hierarchies and suppression of individuality in ancient China had nothing to do with race and everything to do with keeping people in their 'place.'

  • TCinLA on October 14, 2012 1:18 PM:

    You don't have to go back to the 14th Century to see it, you could see it in action over the past years in Roger Corman's movie company. Even people not in Duh Biz know how Roger is legendary for giving guys like Jack Nicholson and Francis Ford Coppola and Robert Towne and James Cameron - among many many others - their first shot. That hasn't happened in the past 20 years, and this system is what is responsible for it.

    Up to 20 years ago, you could drive into the parking garage over there, and it was full of clunkers. People joked about whether their car would get them home that night. But everyone there was getting PAID (a pittance, but "enough"), and if you were good at what you got hired to do you got to keep doing it and you got to learn along the way, and people who had to work for a living could do it. I did it. Then 20 years ago, the Ivy League discovered Hollywood and "fillum school", and all of a sudden you had these kids with trust funds volunteering to work for free as "interns." And within a matter of only a few years, the clunkers in the garage were replaced by 323 BMWs and Mercedes 190s and such, and outside of a few senior supervisors, the place was populated with "interns" (hey, you get smart people who will work for free, you have to be crazy to say "no", yes?). It happened everywhere. And all of a sudden, working class shows like "Roseanne" disappeared because "writers write what they know" and these kids had never worked a day in their lives. They had nothing to offer but warmed-over TV shows and remakes of movies they'd liked when they were kids, and the comic books they'd read.

    20 years ago I used to go to the movies every Friday, to see what was new, what was good. Nowadays, if I go to one movie a year in a theater, it's amazing. I was talking about this to Roger when we ran across each other this past summer, and he said the same thing. I talked about what I said in the paragraph above, and he agreed. Guys like the ones I listed above all had to work, they didn't have trust funds, and not one of them could "break in" nowadays, the way the system is set up. (Not to mention the studios are nowadays owned by corporations who hire these little shits who would rather make widgets than movies - thank god for basic cable). But there you are, the destruction of creativity through the loss of access.

  • bos'n on October 14, 2012 1:27 PM:

    I feel globalization has hastened the development of our winner take all society. The 'job creators' no longer need prosperous American consumers to finance their fortunes. The elite of any country feel more of a kinship with other elites of any country than the particular one they may have been born in. With affirmative action and other initiatives, we in the US allow cherry-picked minorities (the Obamas) to join the elite, leaving the rest of their ethnic group in the back of the pack. I'm not saying that affirmative action is bad, or that people like the Obamas are encouraging this development, I'm just saying that's what has happened. We no longer seem to be a society working for the common good, it's every man for himself.

  • Anonymous on October 14, 2012 1:30 PM:

    Disgusted With It All said: "If you don't have malignant, soul-destroying hate in your heart for what is happening, for those who brought it about, and those who failed to stand up to it, you were and are part of the problem."

    Totally agree. Same with Chad.

    If you want to see the ultimate result of this system, go read about the fall of the Roman Republic, particularly the fate of the Gracchi, who tried to re-establish the basis of equality in the Republic. But the patrician class had so corrupted the Senate that the people were happy to see the "populist" Julius Caesar come along and overthrow what had been. And life only got far worse and completely unequal in the Empire.

  • TCinLA on October 14, 2012 1:31 PM:

    Disgusted With It All said: "If you don't have malignant, soul-destroying hate in your heart for what is happening, for those who brought it about, and those who failed to stand up to it, you were and are part of the problem."

    Totally agree. Same with Chad.

    If you want to see the ultimate result of this system, go read about the fall of the Roman Republic, particularly the fate of the Gracchi, who tried to re-establish the basis of equality in the Republic. But the patrician class had so corrupted the Senate that the people were happy to see the "populist" Julius Caesar come along and overthrow what had been. And life only got far worse and completely unequal in the Empire.

  • c u n d gulag on October 14, 2012 1:33 PM:

    On the plus side, we won't likely have a caste system, like India once did, or else I'd be an Untouchable.

    Just serf's and our masters.

  • TCinLA on October 14, 2012 1:36 PM:

    With affirmative action and other initiatives, we in the US allow cherry-picked minorities (the Obamas) to join the elite, leaving the rest of their ethnic group in the back of the pack.

    This is total and complete bullshit, and you are a fucking moron for saying it.

    For any "Obamas" who "benefit" from such a non-existant system, look at how many "Romneys" there are.

    If you live in Massachusetts, I'm sure you'll be voting for your boy Scott Brown, you drooling moron.

  • SecularAnimist on October 14, 2012 1:59 PM:

    Freeland wrote: "The economists Emmanuel Saez and Thomas Piketty found that 93 percent of the income gains from the 2009-10 recovery went to the top 1 percent of taxpayers. The top 0.01 percent captured 37 percent of these additional earnings, gaining an average of $4.2 million per household."

    Of course, it doesn't help that the One Percent -- in the form of a half-dozen giant corporations -- have near-totalitarian control over virtually all of the mass media from which most Americans get most of their information, and use that to relentlessly hammer the 99 Percent with corporate propaganda.

    Which is why, when you go to a general-interest, "public square" site like Facebook and look at the comments from ordinary people, you will find so many who believe that the situation that Saez and Piketty describe is wonderful and just and the embodiment of "liberty" -- even though they themselves are being absolutely screwed by it -- and that returning Federal income taxes to Clinton-era rates (which were at the time the lowest tax rates for the ultra-rich in history) represents Maoism.

  • Crusty the ex-Clown on October 14, 2012 2:19 PM:

    Still holding my long position on tar & feathers
    & rails...

  • David Perry on October 14, 2012 2:55 PM:

    I am a professor of medieval Venetian history. This reading of the Serrata is exactly the opposite example. That doesn't mean the main argument is wrong, but it's exactly evidence of ways that even rigidly hierarchical societies can maintain paths toward class movement.

  • bos'n on October 14, 2012 4:08 PM:

    My comment only meant to point out that we allow for certain minorities to join the elite, without really doing much so the larger populations' lives improve. Sasha and Malia Obama will join the Romney children in their ivy league paved path to secure futures, but for the vast majority of American children, life remains much the same. I don't begrudge the Obama girls their privileged status, I think their parents earned it, but I would like to see the good life for all Americans. Your comment about Scott Brown reminds me that legacies and affirmative action might have the unintended consequence of denying future Elizabeth Warrens a place at a good university. Please don't bring up her Cherokee roots, I've defended her already on this site and I don't think it's ever been shown she benefited from checking a box on some form years ago. I believe she has Cherokee ancestry, and for all her life she has been judged as the blue-eyed blonde she appears to be. Affirmative action has nothing to do with her. My point is, although we have worked to allow a bit more variety in who gets through the eye of the needle, we haven't made the eye much easier to get through for most. Actually, it's quality of life more than opportunity which concerns me. I'd like for all Americans to have healthy, safe, enjoyable lives. It might be better for them to have attractive places to live, walk, shop and visit than to have money for a new I-pad. I don't know the answers, I just know that if you're not wealthy, life is somewhat precarious, and even for the wealthy, life seems to mean constant, empty striving and consumption.

  • Leopold Von Ranke on October 14, 2012 4:17 PM:

    I thought the article just reiterated basic economics. The absence of demand from a shrinking pool of buyers in a broad market means everyone loses, eventually. Who knew? Try Adam Smith. A difficult read, since he's all over the place all at once, but worthwhile.

  • bos'n on October 14, 2012 4:29 PM:

    Christia Freeland's article makes many good points. She points out that both Obama and Clinton enrolled their children in private schools. Obama did go to a good private school in Hawaii, but Bill Clinton had to make do with Arkansas public schools. Does our present society lock out young potential Bill Clintons? I would hate to think that. It's interesting that she writes about the Serrata of Venice, I can remember an ancient relative musing years ago about New York's 400, a list of the robber barons' era, the last time we had such social inequity. We got back on track somehow, perhaps we can do it again.

  • Stella Barbone on October 14, 2012 7:48 PM:

    Another relevant book is Kevin Phillips' American Theocracy. He was writing about the GWB administration, but the current situation is just an extension. He started with the engineering innovations that led to the rise of the Spanish empire, followed by its progress from an emphasis on creatong to the rise of the financial industry and their associated bubbles (spices and gold!) and finally its descent into a rigid theocracy that taught that the rich were rich due to God's love. The Spanish were supplanted by the Dutch who followed the same trajectory (tulips!) and then the British (railroads!). Weirdly, the U.S. seems to be following the same course....

  • Dirty Davey on October 14, 2012 9:40 PM:

    Re: 'In the article, I was also struck by Thomas Jefferson's boast that "The great mass of our population is of laborers;[...] Most of the laboring class possess property,...'

    Mr. Jefferson seems to be overlooking a rather large population of laborers who did not legally even own THEMSELVES, much less property etc.

    The early 19th century US was a society in which white men were more equal than in Europe. It was not egalitarian.

  • Cugel on October 15, 2012 12:15 AM:

    "It is an amazing thing, the feeling of security in which all those tenants of the highest stories of the social edifice were living when the revolution broke out. In all naivete of spirit they were discoursing on the people's virtues, greatness and loyalty, of their innocent joys, when the year 1793 was hanging over them: a comic and terrible sight." -- Alexis de Tocqueville, The Ancien Regime and the Revolution.

  • James M on October 15, 2012 1:02 AM:

    @bos'n on October 14, 2012 1:27 PM:

    "I feel globalization has hastened the development of our winner take all society. The 'job creators' no longer need prosperous American consumers to finance their fortunes."

    Right on! It is funny: I have been following globalization since the late 80s and I have found that very few of the touted positives were realized but all of the negatives were! They include:

    1. A 'race to the bottom' for the cheapest labor sources around the world
    2. Increased inequality and falling living standards in the industrialized countries
    3. The loss of high quality manufacturing (and now knowledge-based) jobs
    4. Weakening of the authority of nation states.

    One of the most prescient (and also widely panned) anti-globalization books was The End of Work by Jeremy Rifkin (1995),which argued that globalization and technological advances would result in fewer absolute jobs in manufacturing and other sectors.

    'Oh no-technological advances always create jobs, not destroy them.', was the answer of the 'experts' and the pundit class, but Mr. Rifkin turned out to be exactly right! One of the reasons for the lack of outrage concerning growing inequality is that many well-educated and professional people consider themselves to have immutable membership in the system (And knowledge workers had been fairly safe up till now). However, as lots of graduating college and grad students and lawyers/middle-managers are now discovering, that ain't necessarily so!

  • Jim on October 15, 2012 9:53 AM:

    I believe 'The Dictator's Handbook' by deMesquita and Smith better explains this phenomenon in both technical and non-technical terms.

    Collecting as much wealth as possible is the life goal of just about everyone. For leaders to attain power they must buy the support of the people they need to rise to the top with the wealth that group desires. As long as they deliver that wealth to those people then they will remain in power forever. It only matters who your essential supporters are in the coalition that can put you into power and keep you there. Ergo politicians identify who their coalition is, what they desire, and then try to deliver it.

    For example, Republicans need the to 1% to pay for ad campaigns because they can no longer expect majority votes otherwise. So they get Citizens United through the courts and agree to pay off the top 1% in huge tax breaks and loopholes as long as the top 1% agree to pay for the campaign ads necessary to stop democracy and keep Republicans in power. Buying off Congress may cost the same as paying for universal healthcare but only the former is an investment in the top 1%'s own power.

  • Shane Taylor on October 15, 2012 12:11 PM:

    Generally, I am not a huge fan of Francis Fukuyama, but his review of Why Nations Fail was good, and it is relevant here. Fukuyama said the authors "have done a great deal over the years to focus the attention of both theorists and policymakers on institutions, and to shape the emerging consensus on the importance of politics to growth within the economics profession." This was all well and good. But their neat little dichotomy of "inclusive" and "extractive" obscures more than it clarifies.

    "Since each of these broad terms (inclusive/extractive, absolutist/pluralistic) encompasses so many possible meanings, it is very hard to come up with a clear metric of either. It also makes it hard to falsify any of their historical claims. Since more real-world societies are some combination of extractive and inclusive institutions, any given degree of growth (or its absence) can then be attributed either to inclusive or extractive qualities ex post."

    Fukuyama said the authors offered little more than a "slight of hand" when they tried to apply their dichotomy to China's recent history.

    http://blogs.the-american-interest.com/fukuyama/2012/03/26/acemoglu-and-robinson-on-why-nations-fail/

  • Robert Solano on October 22, 2012 10:00 PM:

    three are around 20 million jobs in the USA that no American wants their American children to do when they grow-up. Are we going to create a permanent working class of these jobs based on race or national origin? That is the real problem in America. Who is going to be "lower class"?

  • brian t. raven on October 28, 2012 10:13 PM:

    How different is this from what Mancur Olson was saying? Vested interests suffocate an economy until they're swept away. This allows fresh insights, new people, energy, etc. to make the next leap forward for the common good.