Democracy in America, once championed by the likes of de Tocqueville, has given way to a plutocratic oligarchy that owns the country lock, stock, and barrel.
The U.S. financial system entered a new era on Jan. 6 with the confirmation of Janet Yellen as chairwoman of the Federal Reserve. Yellen, the first woman to win confirmation in the central bank’s 100-year history, and the first Democrat to win confirmation since 1983, easily won enough Democratic and Republican votes to take the helm come the next meeting of the Fed later this month.
Yellen’s elevation may be revolutionary in terms of feminism, but in many respects she is a conventional candidate in most every way except her gender. Prior to her confirmation, for instance, Yellen served as vice-chair of the Fed’s Board of Governors, and before that she was President and CEO of the Federal Reserve Bank of San Francisco, Chair of the White House Council of Economic Advisers under President Bill Clinton, and Professor Emerita at the University of California, Berkeley’s Haas School of Business.
Yellen has also been compared to Ben Bernanke, her former boss at the Fed, for taking what some have called a non-ideological, scholarly approach to economics. Widely respected, in recent speeches she has been viewed as being supportive of the Bernanke Fed monetary stimulus program and critical – though by all accounts mildly and reasonably – of Washington’s inability to use fiscal policy to steer the U.S. economy successfully. What’s more, her marriage to George Akerlof, a well-known American academic who hails from the so-called ‘New Keynesian’ branch of economics, suggests she is well familiar with the arguments of this pro-interventionist brand of economic thinking.
All this suggests that Chairwoman Yellen will be positively predisposed to using at least some of the Fed’s power to reduce joblessness, meaning that for the time being the country’s central bank could be somewhat less focused on price stability and the concerns of Wall Street and more concerned with the fortunes of Main Street and that of average Americans. How this new focus may work in practice, however, has yet to be demonstrated, and given the Fed’s recent decision to begin ‘tapering off’ purchases of mortgage-backed securities and other financial-market assets in 2014, we could be in for a spell of monetary tightening, not loosening.
Yellen, then, is by all accounts a relatively safe choice that has received widespread support throughout the Washington policy and New York financial establishment. Indeed, given that even one of her ideological opponents – Alan Greenspan – widely respects her and the fact that she was able to sail safely past the likes of Ted Cruz in the Senate suggests she is not about to rock too many boats, too hardly, too quickly. If the Fed does in fact turn to be more concerned about America’s sluggish job market, expect it to be gradual and marginal, at best.
What isn’t about to happen is more radical change of the type that many on the left and the right have been hoping for since the Fed-led bailout of Wall Street during the great financial crisis of 2008. Although it is of course too early to write off Yellen’s stewardship of America’s powerful central bank, her alleged academic mindset, mild-manner, and familiarity with the financial elites that actually run the country suggest we shouldn’t get our hopes up too much. After all, we should remember that Yellen is something of a consolation prize for that lot. If the financial elite had truly had its way, it would be Larry Summers, formerly Clinton’s Treasury Secretary whose policies are widely seen as having significantly contributed to America’s current economic malaise by those on the left, and not Yellen leading the Fed.
So a victory of sorts for those seeking to claw back the Fed from the clutches of hardline neoliberals who are closely associated with Wall Street banks, financial speculation, Clintonian centrism, and the globalization of corporate capitalism. Yellen will be an important voice at the Fed, but unless she comes out swinging against the big banks and the corrupt speculation that passes for business on Wall Street these days she will be, at best, a voice, albeit a loud one, in the wilderness. Expect the continued financialization of our economy and Wall Street’s domination of it, therefore, to continue apace.
To understand why, just take a look at a recent working paper released by an analyst at George Mason University’s Mercatus Center. Put bluntly, the paper demonstrates that holding all other factors, such as bank size or exposure to the market equal, the more a Wall Street financial institution lobbied the U.S. government in the 10 years prior to the 2008 bailout, or the more an institution employed ‘politically connected’ individuals, the more likely that institution was bailed out once the crisis hit.
Indeed, according to the paper’s calculations, lobbying meant banks were 10-to-16 percent more likely to be bailed out than banks that didn’t lobby. What’s more, said banks were in debt to the Fed for longer periods of time – meaning they took longer to repay the Fed and the Treasury’s largesse – and were indebted for greater amounts. For bankers who deal in the hundreds of millions and billions, such easy terms meant a financial boon for those who were connected the Washington.
While the paper’s author does say that an explicit quid pro quo between lobbying Wall Street financial institutions and the political system was unlikely, the effect was to nonetheless provide a form of political insurance for these firms that allowed them to take on greater risk than they might otherwise have done. This is, then, if not a direct form of crony capitalism then one too close to make much of a difference. Wall Street, quite simply, owns Washington.
This finding suggests that what is really the problem in America’s economy is something Yellen, whatever her point of view, can do little about – the incestuous relationship between the political system, policy-making institutions, and America’s powerful monied interests. After all, though the Fed may have bailed out the banks in a way that favored politically-connected firms, it is not the central bank that is handicapping America’s recovery by hamstringing the government via thoroughly debunked trickle-down austerity measures, cutting off unemployment benefits, cutting food stamps, or otherwise sticking it to America’s poor and unemployed. Congress is doing that, not the Federal Reserve.
As for why, that too is easy to answer. Money, on a vast scale, has infected our political system and as result even left-leaning candidates for higher officer are forced to kowtow to the wealthy elites who benefit massively from the continuation of the status quo. Over the decades the force of this money has created a political playing field so tilted against the interests of most Americans that their opinions, let alone their votes, literally do not matter to the folks sitting in Congress.
The truth is that democracy in America – once championed by the likes of de Tocqueville – has given way to a plutocratic oligarchy that owns the country lock, stock, and barrel. So good luck to Yellen. As the Fed’s first female head, her tenure will be revolutionary. Unfortunately for the rest of us, it’s not going to be nearly revolutionary enough.