Multiplying scandals suggest our system is leaving a lot of us out.
Ever wonder why some countries are so much better off – economically orders of magnitude better off – than other countries?
It’s easy to assume some sort of cultural backwardness or even moral deficit to explain, say, Burundi as compared with, say, Norway. But Daron Acemoglu and James A. Robinson make a case for what they call inclusive institutions – political and economic structures that, according to Jared Diamond’s review of their book Why Nations Fail, give people incentives to be productive, as opposed to absolutist and extractive institutions which “force people to work largely for the benefit of dictators.”
Right now, as we note Woody Guthrie’s 100th birthday and watch another Middle East dictator scramble to survive, seems a good time to make a quick check of our own economic system and see how inclusive it really is.
The good news: we still value inclusiveness. When institutions managed by the 1% (like the stock market) lose their inclusiveness, their openness to participation by the rest of us, with the accompanying promise of the possibility that we will succeed – we call it scandal. Insider trading, rate-rigging, etc. – they do get our goat.
The bad news: scandal’s rampant. As “scandal after scandal rocks the financial sector,” MarketWatch notes that “(m)any investors have lost confidence in the system and are hiding under their beds, while those still playing wonder if there is any chance of winning what many perceive to be a manipulated game.”
The New York Times reports that hedge fund managers are getting the inside scoop; their “practice of trawling for analysts’ shifting views is systematic and growing on Wall Street”; firms aren’t holding to their “policies stating that research is distributed to all clients simultaneously,” policies meant to keep them in line with regulatory rules that govern the release of information by research departments.
Speaking of releasing information, we heard in recent days of futures brokerage Peregrine Financial Group’s collapse after revelations that $215 million in customer funds went missing while its CEO flew about in his own jet.
And it’s not as if investors who steered clear of Peregrine are making a lot of money elsewhere. The Street reports that over the past two decades, the average investor earned a chunky 2.1%. That’s compared to an inflation rate of 2.5%. You do the math.
Of course, there’s Libor. ‘Nuff said.
Meanwhile the credit card companies are up to their old tricks.
So are the payday lenders, charging enormous fees and interest to the people who can least afford it.
All of which brings us to today’s poster boy for the privileged Cloudcuckooland class: Mitt Romney. As Jon Stewart put it the other night, nobody cares that Romney’s rich; what galls us is his obvious cluelessness about how his wealth, and the way he makes it, net him enormous benefits and advantages from the government, advantages denied the little guy. Romney’s refusal to release his tax returns prior to 2010, the stories about his Swiss bank accounts, and his absurd claim to have “retroactively retired” at the time he took a “leave” from Bain Capital are turning rapidly scandalous.
So let’s not imagine we live in a land of truly “inclusive institutions.” So much of the inclusiveness is just on paper. No, I wouldn’t want to go and live in Burundi, but neither am I under any illusion that we Westerners live in a utopia of opportunity and fairness.