As readers of this blog know, I am a fan of Simon Johnson and have written several blog entries calling his work to attention. His theoretical perspective is very interesting and definitely systems oriented. In todays Washington Post article, “U.S. Will Let Some Banks Repay Aid“, he once again consuls caution. All may not be what it appears to be.
Fat Cats (borrowed from http://groundnotes.wordpress.com)
As an IMF official Johnson’s job was to wrap his head around the economic systems of nations in dire straits in order to provide assistance that could predictably improve their situation. The one common denominator he found was that powerful oligarchies manipulated those systems in order to maximize their gains. Tampering effects rendered any theory-based reconstruction efforts ineffectual because the path of funds allocated for economic reconstruction were siphoned off or redirected in unpredictably cunning ways by oligarchs and regulatory efforts were consistently subverted. He said that in his practical experience, the solution always required the removal of assignable causes (my Deming-ese) by breaking up the oligarchies that are always emergent in order to clear the playing field, after which new oligarchies will emerge again. As the power of newly emergent oligarchies increase ever again, these too will need to be broken up to restore the “system”.
What is so very interesting is that Johnson sees that an economic system becomes unpredictable (becomes a non-system) once enough power is accumulated by self-interested parties for them to manipulate the system in devious and self-serving ways. In effect, oligarchical actors are system busters, not system builders. Johnson has advocated using the current melt-down as an opportunity to break up the massive and very sophisticated “to big to fail” oligarchical interests in order to bring stability and predictability to the Western economies.
In the moment, it is likely that the opportunity he saw is now lost. The financial industry, bailed out on the premise that they are “to big to fail”, has succeeded in forestalling serious efforts a busting their oligarchical powers. Current efforts at regulating their financial machinations are fast becoming window dressing. THEIR crisis is passed and they are once again hard at work manipulating the “system” in accordance with their “fiduciary responsibilities” to the corporation and the corporate shareholders.
In the meanwhile, small business failures, plant closures, and layoffs will continue unabated for some time to come. The problem of ongoing foreclosures is abated by government assurances.
Will things get back to “normal”? That all depends on who’s normal you are talking about.
