The International Monetary Fund’s former chief economist recently described one of the world’s leading economies as fundamentally unsound because the political process is captured by financial firms. But he wasn’t talking about just any banana republic. He was talking about the U.S.A. In the article “Why Some Countries Go Bust”, Adam Davidson discusses a new book in which economist Daron Acemoglu argues that “the wealth of a country is most closely correlated with the degree to which the average person shares in the overall growth of its economy”. In other words, economic inequality is itself predictive of economic decline. The book includes historical studies showing how “fairly open and prosperous societies can revert to closed and impoverished autocracies.”
It’s hard to read these sections without thinking about the present-day United States, where economic inequality has grown substantially over the past few decades. Is the 1 percent emerging as a wealth-stripping, poverty-inducing elite?Well, maybe. . . .Simon Johnson, the former chief economist at the International Monetary Fund, told me that financial firms have so thoroughly co-opted the political process that the American economy has become fundamentally unsound.“It’s bad and getting worse,” he told me. Barring some major shift in our political system, he suggested, the United States could be on its way to serious economic failure.
The book’s authors, too, expressed pessimism about the future of the United States, reportedly saying that Congress is too heavily influenced by the wealthy, and the advent of super PACs has only given elites more power.
Our free market system relies on competition and innovation. But that breaks down when successful economic interests can use their financial resources to elect politicians who can be counted on to enact laws to protect incumbent corporations from upstart innovators. When a company can obtain special regulatory breaks or tax treatment that its emerging competitors cannot, it’s not just unfair — the vitality of the whole economy suffers.