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.