Financial Times: Is America the new Russia?

[Titaw]

After reading the headline you have already made your decision how you are going to respond, but read the article before you respond. It is a well written article and hopefully, it will open a few eyes.

Is America the new Russia?

By Martin Wolf

Is the US Russia? The question seems provocative, if not outrageous. Yet the person asking it is Simon Johnson, former chief economist at the International Monetary Fund and a professor at the Sloan School of Management at the Massachusetts Institute of Technology. In an article in the May issue of the Atlantic Monthly, Prof Johnson compares the hold of the “financial oligarchy” over US policy with that of business elites in emerging countries. Do such comparisons make sense? The answer is Yes, but only up to a point.

Click HERE for full article

[SkinsHokieFan]

Something that many conservatives need to reconcile is big business=big government

Haliburton during the Bush years. And now Wall Street runs the financial house of this administration.

Big business and big government have the same agenda, getting bigger and keeping their own power. We have seen it more and more lately

[Thirtyfive2seven]

How does big business = big government. i'm sorry but I'm lost on this analogy. The government, when larger, is monumentally more inefficient than any business. Can you elaborate?

[SkinsHokieFan]

How does big business = big government. i'm sorry but I'm lost on this analogy. The government, when larger, is monumentally more inefficient than any business. Can you elaborate?

Sure.

Today big business owns the government. There is no way to logically deny it

You have the same "captains of industry" (Paulson, Geithner, Summers, Rubin, Emanuel) who are running the show in Washington DC

Big huge business uses its ability to raise large sums of money to influence the government and how it spends its money

See Haliburton during the Bush years, see Wall St right now with essentially a 9 trillion dollar guarantee from the government and Federal Reserve

A big huge government is good for big huge business, more government contracts, more corporate subsidies (look at the farm bill) to how the rules are played (see the 2003 bankruptcy law, voted for by one Joe Biden as well) and basically more free money (paper companies changing how they produce paper in order to get subsidies from the government)

So yes, even though big business can do things more efficiently then big government, it still thrives on big government and needs a big government to maintain its stature.

The group that gets screwed royally is small business, people in the 250k-1 million dollar range

[Zguy28]

Sure.

Today big business owns the government. There is no way to logically deny it

You have the same "captains of industry" (Paulson, Geithner, Summers, Rubin, Emanuel) who are running the show in Washington DC

Big huge business uses its ability to raise large sums of money to influence the government and how it spends its money

Yes, eventually big business actually becomes the gov't in all practicality because of their influence.

[Big Blue Joe]

Sure.

Today big business owns the government. There is no way to logically deny it

Has there been a point in time when this wasn't true?

[PeterMP]

I've been thinking since the bailout, but from a slightly different perspective. If we HAVE to bailout companies because they got to big to fail, doesn't it make the most sense to regulate the size of businesses?

People have talked about all sorts of regulations (e.g. regulating the swapping markets), but there is always going to be some sort of new market or new approach to doing things, and the question is always going to be does it to be regulated, how, and how much.

Isn't the easiest thing to do just say, we aren't going to let you get above this "big" (where big becomes a measure of a couple of different things)?

You'd also diminisht the ability of any one company to influence government because of their size.

[jpillian]

I've been thinking since the bailout, but from a slightly different perspective. If we HAVE to bailout companies because they got to big to fail, doesn't it make the most sense to regulate the size of businesses?

People have talked about all sorts of regulations (e.g. regulating the swapping markets), but there is always going to be some sort of new market or new approach to doing things, and the question is always going to be does it to be regulated, how, and how much.

Isn't the easiest thing to do just say, we aren't going to let you get above this "big" (where big becomes a measure of a couple of different things)?

You'd also diminisht the ability of any one company to influence government because of their size.

Amen, brother. That exactly what I've been thinking lately.

Honestly, I don't know enough about anti-trust laws and their enforcement at this point to point any fingers. However, it FEELS like someone has been asleep at the switch (or in bed with big business) for some time now. I think the solution to a lot of our nation's woes is smaller businesses, and smaller government.

[Destino]

Has there been a point in time when this wasn't true?

Yes, before corporations were given personhood.

also big government is not the same thing as big corporations. Companies don't answer to you. They don't give a damn about your best interest on any level. It is not their job to think of things in terms of "best for america". They move and act purely in their own interests and the insterests of their investors. The more influence they gain the less voice Joe America has in his government. They grow to the point where failure topples the national economy and they install their own people in non-elected positions within the government. You can't vote them out.

Once they run the show, you do not. Want a great example? Immigration. Republican congress, republican president, illegal immigration continues as it always has. Now a full democrat controll and nothing changes. Nationally illegal immigration is a losing issue for any politician that in effect supports it. Even among democratic voters it's not popular.... and yet here we are with policy that encourages more of it. Guess who favors that?

[PleaseBlitz]

I've been thinking since the bailout, but from a slightly different perspective. If we HAVE to bailout companies because they got to big to fail, doesn't it make the most sense to regulate the size of businesses?

People have talked about all sorts of regulations (e.g. regulating the swapping markets), but there is always going to be some sort of new market or new approach to doing things, and the question is always going to be does it to be regulated, how, and how much.

Isn't the easiest thing to do just say, we aren't going to let you get above this "big" (where big becomes a measure of a couple of different things)?

You'd also diminisht the ability of any one company to influence government because of their size.

Not all big businesses need to be bailed out, and many smaller sized banks have gotten bailout money. This isnt about the size of individual companies, its about not letting an entire segment fail and having it bring the whole house of cards down with it.

[PleaseBlitz]

Yes, before corporations were given personhood.

also big government is not the same thing as big corporations. Companies don't answer to you. They don't give a damn about your best interest on any level. It is not their job to think of things in terms of "best for america". They move and act purely in their own interests and the insterests of their investors. The more influence they gain the less voice Joe America has in his government. They grow to the point where failure topples the national economy and they install their own people in non-elected positions within the government. You can't vote them out.

Once they run the show, you do not.

Big government doesnt answer to the people eitheras a whole either. Congressmen/women answer to their constituents, not the American people in general. Business and government, its ALL about self-interest. A businessmans goal in a corporations to make money for the shareholders. A government officials goal is to keep their own job and win elections. Politicians dont give a damn about the best interest of the people, they give a damn about keeping their cushy jobs and gaining influence.

To put this in perspective, 2,500,000 people own shares of ExxonMobil (i just picked the company people think is most evil ).

Each Congressperson answers to approx 600,000 citizens.

[DjTj]

I've been thinking since the bailout, but from a slightly different perspective. If we HAVE to bailout companies because they got to big to fail, doesn't it make the most sense to regulate the size of businesses?

People have talked about all sorts of regulations (e.g. regulating the swapping markets), but there is always going to be some sort of new market or new approach to doing things, and the question is always going to be does it to be regulated, how, and how much.

Isn't the easiest thing to do just say, we aren't going to let you get above this "big" (where big becomes a measure of a couple of different things)?

You'd also diminisht the ability of any one company to influence government because of their size.

This is partly what the antitrust laws are supposed to do. If you get to a certain size and market dominance, the government will start regulating you pretty heavily. This should theoretically prevent companies from becoming "too big to fail" where they are the only provider of some commodity.

The problem with the mortgage bubble is that none of the banks were really operating a monopoly. They were highly competitive, but all pursuing the same (highly profitable but) failing strategy. When one bank fails, the other banks are supposed to be able to step in because they were presumably pursuing better strategies. Unfortunately, sometimes that doesn't happen, and you get market failure. It happens from time to time, and it won't be easy to regulate away ... sometimes **** happens and you just have to bail people out.

[PeterMP]

Not all big businesses need to be bailed out, and many smaller sized banks have gotten bailout money. This isnt about the size of individual companies, its about not letting an entire segment fail and having it bring the whole house of cards down with it.

No, but if they come close to failing they will at least make that arguement. In this case all of the big businesses have needed help, and if they were not so big, there would be more smaller businesses, which would likely give you more of a gradient with respect to likely failure, which I believe if nothing else would have made the bailout less expensive.

In general, I'm not at all convinced the whole segment would failing if there were more smaller banks.

[PleaseBlitz]

No, but if they come close to failing they will at least make that arguement. In this case all of the big businesses have needed help, and if they were not so big, there would be more smaller businesses, which would likely give you more of a gradient with respect to likely failure, which I believe if nothing else would have made the bailout less expensive.

In general, I'm not at all convinced the whole segment would failing if there were more smaller banks.

There were 8,430 FDIC-insured commercial banks in the United States as of August 22, 2008. 31 got bailout money. Thats .0036.

Also, please make the distinction between "big business" and "big banks." WalMart doesnt need a bailout. Microsoft isnt getting TARP money. ExxonMobil is doing A-ok.

[Larry]

I've been thinking since the bailout, but from a slightly different perspective. If we HAVE to bailout companies because they got to big to fail, doesn't it make the most sense to regulate the size of businesses?

People have talked about all sorts of regulations (e.g. regulating the swapping markets), but there is always going to be some sort of new market or new approach to doing things, and the question is always going to be does it to be regulated, how, and how much.

Isn't the easiest thing to do just say, we aren't going to let you get above this "big" (where big becomes a measure of a couple of different things)?

You'd also diminisht the ability of any one company to influence government because of their size.

I wouldn't automatically prohibit businesses getting larger than a certain size.

I do think the government ought to be discouraging it. (As opposed to their present status of rewarding it.)

I think that actually enforcing antitrust laws might be a novel idea.

I wouldn't mind some kind of progressive corporate income tax. Something really low, just not zero. (Say, a tax of 1% on all gross revenues over $1B.)

I keep remembering a quote I'd read about a decade ago, claiming that, just as there's a tendency on the part of militaries to prepare to fight the last war, that the political parties have aligned themselves around the last big economic struggle. And that the new conflict isn't business vs labor, it's big business vs small business.

[PeterMP]

This is partly what the antitrust laws are supposed to do. If you get to a certain size and market dominance, the government will start regulating you pretty heavily. This should theoretically prevent companies from becoming "too big to fail" where they are the only provider of some commodity.

The problem with the mortgage bubble is that none of the banks were really operating a monopoly. They were highly competitive, but all pursuing the same (highly profitable but) failing strategy. When one bank fails, the other banks are supposed to be able to step in because they were presumably pursuing better strategies. Unfortunately, sometimes that doesn't happen, and you get market failure. It happens from time to time, and it won't be easy to regulate away ... sometimes **** happens and you just have to bail people out.

I'd actually be curious because in terms of the mortgage swap market it always seemed to me that you could in fact argue that AIG was acting essentially as a monopoly (i.e. they had little to no competition).

Again, related to my comment with respect to PB, I think you get more of a gradient when you have more smaller companies.

We've actually seen something similar in Pharma that I've written about before. Essentially in the 90s, all big Pharmas put a bunch of money into something called combinatorial chemistry. Accross the board, it was a failure (last I looked one drug had made it to phase 3 of clinical trials).

You look at the auto industry and see the samething (repeatedly). I'd be curious if anybody can give examples where an industry that isn't dominated by a few big companies, but has a larger distribution (I can't think of any).

I don't think the laws as written take into account technologies role in the size of companies. It used to be due to communication and transportation issues that companies stayed smaller. I think that's changed so you've seen a shift to bigger companies. I think it has resulted in a couple of different issues. One of them is this issue with respect to a couple of big companies all pursing the same bad policy, and then that having an effect on greater society.

I think an arguement can be made that isn't good for society, and maybe we need to address that issue, even if that means putting more of an artificial barrier (even than the current anti-trust laws) in place to control company size. Clearly, monopolistic potential isn't the only thing capable of harming greater society.

[PeterMP]

I wouldn't automatically prohibit businesses getting larger than a certain size.

I do think the government ought to be discouraging it. (As opposed to their present status of rewarding it.)

I think that actually enforcing antitrust laws might be a novel idea.

I wouldn't mind some kind of progressive corporate income tax. Something really low, just not zero. (Say, a tax of 1% on all gross revenues over $1B.)

I keep remembering a quote I'd read about a decade ago, claiming that, just as there's a tendency on the part of militaries to prepare to fight the last war, that the political parties have aligned themselves around the last big economic struggle. And that the new conflict isn't business vs labor, it's big business vs small business.

Okay, I actually came across to strong with prohibit. I could imagine a "too big" fund (paid into by the "too big" companies) that then could be used to do certain things, including setting a piece of it aside (yes, I'm dreaming that Congress would actually ever collect money and not spend it), with the idea that it could be used to bailout the too big boys in the future if needed.

[Larry]

Amen, brother. That exactly what I've been thinking lately.

Honestly, I don't know enough about anti-trust laws and their enforcement at this point to point any fingers. However, it FEELS like someone has been asleep at the switch (or in bed with big business) for some time now. I think the solution to a lot of our nation's woes is smaller businesses, and smaller government.

I'd say that one of the big examples of what's wrong with our current system involves Microsoft's conviction on antitrust charges.

(At this point, lots of people are rushing to their keyboards, preparing to chew me out because I'm obviously jealous of Microsoft's genius and their superior products. I've never been able to figure out whether those people don't know what Microsoft was convicted of, or if they think that I don't know.)

At least as I understand it, it's not illegal to have a monopoly.

(And as a side note, I'd say that the computer industry has seen a lot of profit specifically

because

Microsoft gave every application developer a single platform to develop for. That the computer industry's growth is at least largely

due

to Microsoft's monopoly.)

What is illegal (at least as my High School teacher explained it to me) is acting like a monopoly. For example, using an existing monopoly to attempt to secure another monopoly. Or, charging grossly different prices in places where you have a monopoly vs places where you don't.

What Microsoft was convicted of was using their monopoly on Operating Systems to attempt to gain a monopoly on web browsers. They did this by forcing people who bought their operating system to buy their web browser as well, of taking certain subprograms which were essential to the operating system, and claiming that they were part of the web browser, (so that they could then claim that "well, if you remove the web browser, then Windows doesn't work!"), and of threatening customers that if they sold computers with other browsers (which customers wanted but Microsoft didn't) installed, them Microsoft would raise the price that they paid for Windows.

They were convicted of violating antitrust laws.

And then, there was a change of administrations. And the position of the prosecution changed to asking the convicted corporation which punishment it would like to receive.

Granting, I haven't seen any updates on the case in years, but the last I'd heard, the punishment that Microsoft was proposing for itself was that they continue doing the same things that they were convicted of, and that they pay a fine. But that they pay the fine, not in actual money, but in the form of donating software to educational institutions which currently aren't using Microsoft products.

(One area of computing where Microsoft's monopoly was weakest was in academic areas, where Linux was widely used. This was not only an area where their monopoly was weak, but Microsoft doesn't want America's colleges to be graduating programmers who have experience with Linux.)

In short, they want to pay their "fine" by giving away a product whose marginal cost is about 10 cents, but to claim they're donating at retail price, to a customer who currently isn't part of their monopoly, but who they want to become part of it.