In response to an FT article by Martin Wolf on 19th July 2016, entitled ‘Global elites must heed the warning of populist rage’
“If governing elites continue to fail to offer convincing cures, they might soon be swept away and, with them, the effort to marry democratic self-government with an open and co-operative world order” - Martin Wolf
Thank you Mr. Wolf. This is a welcome change from the tide of invective that has been flowing this past few months since the FT realized that making jokes wouldn’t make Trump go away. The rise of Donald Trump is not a bad joke, and neither is it an attempted coup by xenophobes and thugs – it is a symptom of something very real – a backlash against an egregiously loaded deck and a system of crony capitalism that is nothing more than socialism for the rich.
But you do not go far enough – not nearly far enough. The massive transfer of wealth that has been underway for decades, which accelerated exponentially in 2008, is not about ‘democratic self-government’, and has absolutely nothing to do with ‘an open and co-operative world order’. Indeed, the system of political economy that we have is irreconcilable with these ideals – decisions are made by politicians who are put in post by vested interests, monetary policy is set by unelected academics sponsored by and drawn from the same vested interests. In short, what we have is oligarchy, the results of which demonstrate the defining quality that always emerges from oligarchy – it is corrupt.
So, your list is a start. But for the elites to save themselves from being ‘swept away’ they need to do more – much more. The changes that are required will require the elites to reform themselves…to open up the system of governance to transparency, and apply the rule of law equally to all. Once again, the following areas need to be addressed:
1. Political reform – Nothing fundamental will change under a system of professional politicians and lifetime Congressmen funded by Wall Street and K Street
2. Banking reform – too big to fail is too big to exist. As is the system of revolving doors between the New York Fed and Wall Street
3. Reform of the military-industrial complex that we were warned about by President Eisenhower 55 years ago. We have a blatant system of cronyism, whereby senior officers at the Pentagon retire from commissioning military equipment and move straight to the C suites of the firms who make it
4. Monetary policy reform. We have a system of academic ‘nests’ that foster groupthink, filled with people who will do anything but admit their own mistakes. As an example of the damage this does I’d like to use a recent statement by former Fed Chairman Ben Bernanke as an example:
“The idea of negative interest rates strikes many people as odd. Economists are less put off by it. …The anxiety about negative interest rates seen recently in the media and in markets seems to me to be overdone. Logically, when short-term rates have been cut to zero, modestly negative rates seem a natural continuation; there is no clear discontinuity in the economic and financial effects of, say, a 0.1 percent interest rate and a -0.1 percent rate”
Ben Bernanke, "What Tools Does the Fed Have Left?” March 18, 2016
In the real world, there is a HUGE difference between a 0.1 percent interest rate and a -0.1 percent interest rate. The problem for Dr. Bernanke is that the discontinuity doesn’t appear on a spreadsheet – it is behavioral. Positive rates produce decision-making based on fundamentals and compounding. Negative rates produce decision-making based on the hope for a greater fool. There is of course a greater fool – the central banks themselves. But they are greater fools in more ways than one: Either they have no idea how foolish their theories really are…or…they are complicit with the massive wealth transfer that they are facilitating. Either way, these ridiculous policies are destroying the pricing mechanism and perverting capital allocation.
If this monetary madness does not stop, the result is inevitable – there will either be a deflationary bust, or the debt will be wiped away with an aggressive inflation that they will not be able to control. Growing our way out of this is no longer an option in a world where it takes a multiple of a dollar to generate a dollar’s worth of growth.
So I am glad to hear you addressing this from a position of taking responsibility rather than hurling insults at Donald Trump - but I believe that you, and the elites you refer to, need to address the fundamentals above and junk the platitudes as well as the invective. This will not be easy – you will risk upsetting people you know and have dealt with for years, people you sit with at Davos and Bilderberg – people who do very nicely from the corrupt system I have described above. If you are really serious about this, you will do that; and if they are really serious about reform, they will listen. Otherwise tell them to get used to the idea that electorates are going to chuck them out, or at least the lackeys that do their bidding.