Here's an interesting article by Luigi Zingales. In case you are interested in reading more of his writing, he has a book, "Saving Capitalism from the Capitalists", co-authored with Raghuram Rajan.
For those who do not have time to read the entire article, I've quoted some of the more interesting parts below: http://www.nationalaffairs.com/publications/detail/capitalism-after-the-crisis .... | American capitalism also developed at a time when government | involvement in the economy was quite weak. At the beginning of the | 20th century, when modern American capitalism was taking shape, U.S. | government spending was only 6.8% of gross domestic product. After | World War II, when modern capitalism really took shape in Western | European countries, government spending in those countries was, on | average, 30% of GDP. Until World War I, the United States had a | tiny federal government compared to national governments in other | countries. This was due in part to the fact that the U.S. faced no | significant military threat to its existence, which allowed the | government to spend a relatively small proportion of its budget on the | military. The federalist nature of the American regime also did its | part to limit the size of the national government. | When the government is small and relatively weak, the way to make | money is to start a successful private-sector business. But the | larger the size and scope of government spending, the easier it is | to make money by diverting public resources. Starting a business is | difficult and involves a lot of risk — but getting a government | favor or contract is easier, and a much safer bet. And so in nations | with large and powerful governments, the state tends to find itself at | the heart of the economic system, even if that system is relatively | capitalist. This tends to confound politics and economics, both | in practice and in public perceptions: The larger the share of | capitalists who acquire their wealth thanks to their political | connections, the greater the perception that capitalism is unfair and | corrupt. .... | ....finance in America. The proportion | of people with training and experience in finance working at the | highest levels of every recent presidential administration is | extraordinary. Four of the last six secretaries of Treasury fit this | description. In fact, all four were directly or indirectly connected | to one firm: Goldman Sachs. This is hardly the historical norm; | of the previous six Treasury secretaries, only one had a finance | background. And finance-trained executives staff not only the Treasury | but many senior White House posts and key positions in numerous other | departments. President Barack Obama's chief of staff, Rahm Emanuel, | once worked for an investment bank, as did his predecessor under | President George W. Bush, Joshua Bolten. | There is nothing intrinsically bad about these developments. In fact, | it is only natural that a government in search of the brightest people | will end up poaching from the finance world, to which the best and | brightest have flocked. The problem is that people who have spent | their entire lives in finance have an understandable tendency to | think that the interests of their industry and the interests of the | country always coincide. When Treasury Secretary Henry Paulson went | to Congress last fall arguing that the world as we knew it would end | if Congress did not approve the $700 billion bailout, he was serious | and speaking in good faith. And to an extent he was right: His world | — the world he lived and worked in — would have ended had there | not been a bailout. Goldman Sachs would have gone bankrupt, and the | repercussions for everyone he knew would have been enormous. But Henry | Paulson's world is not the world most Americans live in — or even | the world in which our economy as a whole exists. Whether that world | would have ended without Congress's bailout was a far more debatable | proposition; unfortunately, that debate never took place. | Compounding the problem is the fact that people in government tend | to rely on their networks of trusted friends to gather information | "from the outside." If everyone in those networks is drawn from the | same milieu, the information and ideas that flow to policymakers | will be severely limited. A revealing anecdote comes from a Bush | Treasury official, who noted that in the heat of the financial | crisis, every time there was a phone call from Manhattan's 212 | area code, the message was the same: "Buy the toxic assets." Such | uniformity of advice makes it difficult for even the most intelligent | or well-meaning policymakers to arrive at the right decisions. .... | We thus stand at a crossroads for American capitalism. One path | would channel popular rage into political support for some genuinely | pro-market reforms, even if they do not serve the interests of large | financial firms. By appealing to the best of the populist tradition, | we can introduce limits to the power of the financial industry — | or any business, for that matter — and restore those fundamental | principles that give an ethical dimension to capitalism: freedom, | meritocracy, a direct link between reward and effort, and a sense | of responsibility that ensures that those who reap the gains also | bear the losses. This would mean abandoning the notion that any | firm is too big to fail, and putting rules in place that keep large | financial firms from manipulating government connections to the | detriment of markets. It would mean adopting a pro-market, rather than | pro-business, approach to the economy. | The alternative path is to soothe the popular rage with measures like | limits on executive bonuses while shoring up the position of the | largest financial players, making them dependent on government and | making the larger economy dependent on them. Such measures play to | the crowd in the moment, but threaten the financial system and the | public standing of American capitalism in the long run. They also | reinforce the very practices that caused the crisis. This is the path | to big-business capitalism: a path that blurs the distinction between | pro-market and pro-business policies, and so imperils the unique | faith the American people have long displayed in the legitimacy of | democratic capitalism. | Unfortunately, it looks for now like the Obama administration has chosen | this latter path. It is a choice that threatens to launch us on that | vicious spiral of more public resentment and more corporatist crony | capitalism so common abroad — trampling in the process the economic | exceptionalism that has been so crucial for American prosperity. When | the dust has cleared and the panic has abated, this may well turn out to | be the most serious and damaging consequence of the financial crisis for | American capitalism. _______________________________________________ http://mccmedia.com/mailman/listinfo/brin-l_mccmedia.com
