Conservative pundit George Will is consistently arguing in favor the myth of markets being efficient and self-correcting. Greed is a good thing because those who are too greedy will “eventually” get their come-uppance in efficient, free markets – just like monopolists will finally fail if they don’t meet their customers needs. The only thing preventing markets from being “free and efficient” is government interference. Oh, and banish the idea that businesses might be working towards imperfect markets that serve to their advantage.
So in the case of the recent capital meltdown, not only Lehman and Bear Stearns should have been allowed to fail but also AIG, Citigroup, MerrilLynch, Wachovia, WaMu, Wells Fargo, and any other “too greedy” as designated by George and/or friends. George seems to be blithely/blankly ignoring the small fact that after Lehman failed both the stock and capital markets had stopped working too. George is in effect saying risk an economic catastrophe maybe only four times worse than the Great Depression for the sake of preserving free and efficient markets which, by the way, are deeply flawed and accordingly had completely seized up.
Also George conveniently forgets to mention the fact that markets failed to work because the investment community had not only dismantled all the previous regulations but they had created huge multi-trillion dollar shadow markets dealing in complex derivative products which still have minimal transparency, are extremely hard to value, and have allowed financial firms to use extremely risky leverage ratios ranging from 30 to 1 to 70 to 1 in trading in these much less than free, fair and efficient shadow derivative markets. In effect, George’s free and efficient market are an allusion – merely a reference to what should be but hardly can be said to exist at all save in his own mind.
The upshot is that these shadow markets led to general financial markets failure. It was quite dramatic and traumatic as these derivative instruments failed [and they did so infamously many times in 2007-2009] so that even a 5% downturn could and did wipe out all the capital of a highly leveraged firm [think Lehman or AIG for starters]. In sum, George Will’s free, efficient, transparent and self-correcting financial markets is a fiction that had been largely dismantled by the Too Big Too Fail banks and other financial institutions over the past 25 years with most of the dirty work being done in the last 10. So as soon as George Will or one of his conservative intellectual ilk [think the Heritage Fund or the American Enterprise Institute] start talking about restoring freedom and efficiency to markets, especially financial markets, then you will know the light bulb has gone off in their heads.
Why Mention the Fiction of Free and Efficient Capital Markets
Because the Supremes just voted to institute a Bautocracy. A Bautocracy is government where one man one vote is corrupted by voting based on whose got the most money. In a controversial and distinctly partisan 5-conservative Supreme Court justices versus 4-liberal Supreme Court justices decision, the Court voted to make corporations equivalent t0 people. The conservative Supreme Court justices’ logic is, like George Will’s, patently false because it removes all restraints on campaign financing and gives disproportionate political leverage to a select few. Apparently corporations [any group, for that matter] are the same as individual people. But they are not.
The mistaken logic, like George Will’s, is unfortunately elementary. Corporations [any group, again] are composed of many employees/members and may well be sustained by a wider array of suppliers, customers and shareholders. Yet the head of a corporation can now act unilaterally and use the profits and goodwill of the corporation without sanction by its many stakeholders to support a specific political point of view without any limit to the amount or duration of the support. Worse this support can be sustained without the approval of its stakeholders with perhaps the exception of the board of directors [another very small, select group. So one or a small group of people are able “to express themselves politically” with only the amount of the group or corporations assets acting as a limit.
The following are 7 additional reasons that this decision in favor of money having a greater than ever voice in American elections is simply and tragically wrong:
1)The distribution of wealth in the US is markedly skewed towards 5% of the population.
Source: Prof. G. W. Domhoff, Sociology Dep – Univ of California
Note what the data shows – the top 1% of the US Population has 42% of the financial wealth in the whole of the US while the top 5% of Americans have more than two thirds of all the financial wealth in the country. We have chosen to emphasize financial wealth because that is more easily deployed than net worth in making political contributions. So with this decision the Supreme Court is granting much more political power to the top 5% of the US population. This bill gives that group disproportionate political power.
2)Corporations have great wealth to use – approximately $1trillion of Undistributed Profits every year.
3)Corporations [and many other organizations/groups]have a very poor record of governance. No less an authority than the Economist [often very sympathetic to business] points out the fundamental flaws in corporate governance:
each of these examples appears to point to the same, welcome conclusion: that the imbalance in corporate power of the late 1990s, when many bosses were allowed to behave like absolute monarchs, has been corrected. Alas, appearances can be deceptive. While each of these recent tales of chief-executive woe is a sign of progress, none provides much evidence that the crisis in American corporate governance is yet over. In fact, each of these cases is an example of failed, not successful, governance….where he is undoubtedly right is in arguing that corporate America has done a lamentable job of governing itself.
The following reference only confirms the worst:
In an era in which the central debate in corporate governance circles is that between the traditional model of stockholder governance and the progressive model of stakeholder governance, it is always a shock to discover the extent to which some corporate executives cling to the positively regressive notion that they are accountable to neither stakeholders nor stockholders. The latest example is profiled in this recent article in The New York Times: Managers to Owners: Shut Up.
This same observation could be extended to other groups – such as unions or public interest groups, but the emphasis here is on corporations which have by far the most money to deploy.
4)Corporations [and other groups] are not individuals but collectives which have many disparate opinions, beliefs and specific political sympathies. But corporate and other group leaders have been given the leverage to deploy and speak as if there was one voice when there is not. Given the sorry state of governance within corporations in particular [see point (3) just above], corporate CEOs now have the power to leverage their political viewpoints not out of their own funds but from the wealth of many which may not agree with CEOs and top executives on. Instead, CEOs get to “speak” with false unanimity. The Yale Law School picks up this argument here:
when corporations are allowed to spend general funds on electoral advocacy, stockholders may have money they invested in a corporation used for political advocacy they oppose. Dramatic changes in the amount and types of U.S. stockholding have occurred in the past several decades that should heighten this concern, making it more compelling than ever, particularly in combination with the related concern about the corruptive influence of corporate money in politics. Overruling Austin and McConnell could clear the way for the nation’s largest for-profit corporations to electioneer with general treasuries amassed from investors who did not intend the money to be used for political purposes and who will not likely obtain relief.
In sum, groups, collectives and corporations are falsely given by the Supreme Court the same free speech rights as individuals as if they always acted and spoke with one, unanimous voice. This is the fundamental flaw in the Supreme Court decision which is analogous to George Will’s mythological fair, efficient and perfect markets. Markets and Corporate Governance are both badly flawed.
5)Corporations and other groups can too easily disguise their political maneuvers. By contributing to lawyers, lobbyists, and/or political action groups – already lax disclosure laws can shield the source of corporate or group contributions. So for example voters would never know that People for a Democratic Union advocating that Stephen Brown should be elected to the Senate got the bulk of their money from a corporation [or other group].
6)Foreign corporations and interest groups now will have a strong political voice in US politics. As noted in point (5), lobbyists, lawyers, and other political action groups could take unlimited monies from foreign sources, mix it with domestic contributions and effectively disguise who is contributing to a campaign to say allow for selling US technologies and patents to foreign interests or any of thousand of other causes of interest to foreign sources.
7)The opportunity for “no cost” political blackmail is considerably enhanced. Now that there is no limit to corporate contributions, a lawyer or lobbyist could say politely and discretely to a Congressman or Senator ” if you vote for any combination of these bills my backers will spend whatever it takes to have you unseated.” Then only if the Senator or Congressman “votes incorrectly” do the monies have to be spent. For those that say this is fictional nonsense …. call them liars or at best, naifs.
So the conservative Supreme Court Justices lead by Chief Justice John Roberts have made a catastrophically wrong judgement against good government in the US. Its bad enough that the US has to fight two wars, cope with dysfunctional financial markets and top tier players; reign in out of control financial and health care costs matched up against the most savvy of industry lobbiests; find jobs in the face of China doing to the US what it is doing to the World – working overtime to set up monopoly industries with mercantilist pricing policies; cope with an energy crisis that has complex national security considerations; solve a nuclear proliferation crisis withRussia and China in the catbird seats with their UN vetos and willingness to force the US to spend astronomically on defense rather than education, environment, energy plus health care improvements and reforms. Now to this list of problems, the conservatives on the Supreme Court have added the problem of severely dysfunctional voting influence in federal, state, and local elections. I cant decide which is worse, the conservative Supreme Court decision to not count all the votes in the 2000 Presidential election or giving corporates and other groups unlimited, moneyed voting influence.