Sunday, March 22, 2009

Socio-economic Rationality

President Obama has recently said, "I don't want to quell anger. I think people are right to be angry. What I want to do, though is to channel our anger in a constructive way."

The president, it seems, is trying to segue governance from emotion to rationality. I'm all for that, so let's take a look at what's needed. Our prevailing culture and our present institutions have betrayed the American people, fleecing them literally of trillions of dollars and subjecting them to serious economic dislocations as well.


Who are the villains of this catastrophe? It seems they are everyone from shameless white collar criminals to the wealthiest, best educated members of the corporate leadership, and their partners in crime, many of the politicians. Obviously, reining in such a powerful class will be a labor of Hercules but it is not impossible.

We are a nation of laws, so we must depend upon laws for a remedy. Clearly, cultural change could be of significant help but we cannot do a makeover of the human psyche overnight so we must depend upon laws. What are these laws to accomplish? I can think of several worthy objectives.

In the present economic crisis, the nation is being held hostage by a small number of financial corporations that are allegedly too big to fail. These are insurance companies, banks, investment banks and hedge funds. The solution to this is simple. Limit them each to only one of these activities and limit the size of all of them so that true competition can prevail: divestiture and size limits in terms of market share. There is nothing essentially new in these regulations - they have simply been abandoned under the influence of corporate lobbyists. We must renew them and, this time, make it stick.

The second important objective is to reduce the influence of corporate money and corporate lobbyists. The corporations, some of whom are the engines of prosperity, must have a place in our political life and their voices must be heard but they cannot be allowed to have a stranglehold upon the politicians' careers by means of financial favors. Strict regulation of these favors and of the revolving door between lobbying and government are needed. Publicly financed campaigns would be a big plus and, all things considered, would be a much better bargain than the present system.

Third, it would be very helpful to limit executive compensation. I am not speaking of the capital gains resulting from entrepreneurial activity but of compensation for work done in corporate management. Why is this important? Because you can't expect the
executives to determine their own earnings, as they now do through cronyism on their various interlocking boards of directors, without getting super-greedy about it. That is already an observable fact. OK, but why is that important? Because we need our young people to want to make the most of their talents, some of whom would contribute more of value as scientists, engineers, doctors, etc. Now, they are excessively motivated to swarm into business schools in the hope of living like oriental potentates and being REALLY respected for their wealth. No first rate nation can sustain itself for long with such a distorted value system.

I believe in you

Those are my modest suggestions for rationality. They do not diverge very significantly from Obama's rhetoric. I shall cry "foul" if he does not follow through.

Some may indulge in mock horror of "socialism" when exposed to these ideas but that is unsupportable. These are the ideas which can make entrepreneurial capitalism work in the national interest.

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