Financialization and Its Discontents: How Wall Street's Political Triumph Led to Economic Crisis
An Interview with Robert Kuttner
Robert Kuttner is co-founder and co-editor of The American Prospect. He is the author of The Squandering of America: How the Failure of Our Politics Undermines Our Prosperity (2007), Everything for Sale: The Virtues and Limits of Markets (1997) and five other books. Kuttner is a co-founder of the Economic Policy Institute, a progressive economic think tank in Washington, D.C. He is currently a distinguished senior fellow with Demos: A Network for Ideas and Action.
Multinational Monitor: You begin The Squandering of America by outlining several areas where the promise of the United States has been squandered--lost credibility in international affairs, the destruction of the natural environment, the ability of the economy to underwrite a broad prosperity. The book focuses on the economic squandering, and its connections to political failures. In broad strokes, what are the measures by which U.S. economic potential has been squandered?
Robert Kuttner: For 30 years, policymakers have reversed the [Franklin D.] Roosevelt revolution. With the dramatic increase in the influence of corporate America on both parties, policy has turned away from a more mixed or managed form of capitalism in favor of market fundamentalism. This, broadly, has taken five forms. First, a weakening of all kinds of government regulation, which in turn reinforces the economic power of business elites over workers and consumers; second, a weakening of trade unions and other worker counterweights to the power of employers, which has made employment less secure and worsened the income distribution; third, a failure of social policy to change with changing family realities, increasing the stress on working families; fourth, a trade policy that serves the interests of industry and finance rather than workers and consumers; and most seriously, the dismantling of the system of financial regulation--resulting in the current credit collapse and the risk of a second Great Depression.
MM: You argue the United States has evolved into a windfall economy. What do you mean by this phrase?
Kuttner: Well, it hasn't just evolved. This was the deliberate result of political influence of Wall Street. The rules have been changed so that insiders, such as operators of hedge funds, private equity buyout artists and even blue chip investment banks, can make overnight fortunes that bear no relationship to what they contribute to the nation's economic product. It's also a middleman economy, in which those who are essentially parasitic on producers of wealth take far too big a cut.
MM: Your hook identifies many factors undermining a strategy of managed capitalism that began in the United States with the New Deal and lasted through the 1970s. Why do you trace this process back to the 1970s, rather than the election of George W. Bush in 2000?
Kuttner: It was in the 1970s that the U.S. government began turning away from the New Deal and postwar system of managed capitalism. Deregulation--of airlines, trucking, natural gas, finance--and the broader ideology of deregulation really began with Ford and Carter. The first assaults on progressive income taxation began with tax changes in 1978. It was Carter, not Reagan, who first defined government as more of a problem than a solution, in his 1978 State of the Union address. This was also the era of the freeing of exchange rates to float, inviting new forms of international financial speculation. And as successive governments dismantled the mixed economy, this was consequently the era when the income distribution began to become more unequal. Of course, all these trends worsened under George W. Bush, but the direction was set in the mid-1970s.
MM: The leading factor on which you focus is the rise of financial speculation, and more generally the power of finance over the economy. In what sense does Wall Street now have more power than it did in the period of managed capitalism? …