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Saturday: This song is for you, Simon Johnson

Simon Johnson, former chief economist of the IMF, professor at MIT and blogger at baseline scenario and WaPo’s The Hearing, has written another excellent post on the financial industry’s walking dead.  In Zombie Oligarchs, Simon lays out why these guys, interested in self-preservation only,  just continue to feed but don’t improve entrepreuneurship in the world:

Some new entry and productive reallocation of talent is possible in this situation.  For example, John Mack is saying that pay caps mean his bankers are leaving – among other things – for “other industries”.  But the G20 policy of stabilization-through-rollover, at the national and corporate level, means that incumbents’ implicit subsidies actually go up.  The environment for starting businesses in the US has not completely collapsed, but it has also definitely not improved.

So we get to keep many of our oligarchs, but relative to the recent past they will hunker down.  You might be fine with that – although remember that it does not prevent reckless risk-taking and an increase in your taxes down the road.  Larry Summers says this happens only twice per century, but his own argument is that we have moved away from the kind of financial system that was built in the mid-20th century.  If we’ve gone back to the wilder days of the 19th century, the cycles could be quite different (look at the NBER’s data).  If the US has really become more like an emerging-market-with-a-reserve-currency, that is also not encouraging.

We’re looking at a near term dominated by the existing economic power structure.  The remaining big banks (in the US) and big banks/corporates (elsewhere) are made invincible by campaign contributions, political connections, and everyone’s reasonable fear of a great depression.  It will be hard for outsiders to challenge that structure effectively – either as new companies or with new ideas.  But you won’t see a great deal of innovation, investment, and growth coming from these survivors.

In light of current events, I think this song is very timely.  This one’s for you Tom, er, Simon.

14 Responses

  1. No matter how much you feed ’em, zombies still want to eat your brains.

  2. OT, but watched my local news yesterday, and they closed schools in Comal County (next county over from us) due to several swine flu cases, and were recommending that daycares voluntarily close also (many did.)

    There were parents on the news who were frustrated, because if they work, and there is no school and no daycare, how are they supposed to go to work? They weren’t complaining or mad. They understood the need for it (schools are being cleaned and disinfected), and agreed it had to be done. But the economic impact of this, if this happens frequently, could be huge – many parents simply cannot go to work if there is nowhere for the children to go.

    That’s an angle that I haven’t heard discussed much, but it’s a legitimate concern. If this thing spreads, and schools and daycares close for a week or more, a huge chunk of the workforce may have to stay home as well, straining already struggling businesses who will have to pay sick leave for the parents, plus wages for whoever can cover their slot, if anyone.

    • P.S. Not around much – we move Tuesday, and I am in the throes of packing.

    • …will have to pay sick leave…

      “The percent of Washington companies providing sick-leave benefits for full-time workers has dropped from 56 percent to less than 38 percent. In the hospitality and food service industry — the folks who serve your meals in restaurants or give you a bag of Big Macs at McDonald’s — eight out of nine full-time workers have no sick leave. For part-timers, it is even worse: 24 out of 25 don’t get sick leave.”

      That’s the kind of short-term business greed that doesn’t pay help “…a study published in the Harvard Business Review found employees coming in sick most likely cost companies more than all their other health costs.”


    • I think it may have been Biden or Obama who said something to the effect that they hoped employers would be understanding/accommodating …. in reality, I don’t think the government is taking any steps to ensure that the parents who stay home to take care of their children are not penalized in some way.

      • Spot on, they haven’t and they really should outline some common sense guidelines. They should even try to structure some guidelines for allowing a grace period for payments for those that don’t have access to sick days/sick pay or vacation use for these unforeseen events.

  3. Hmmmm:

    Vice President Joe Biden will headline the American Israel Public Affairs Committee’s annual conference, which begins tomorrow in Washington, D.C., a source at the group said.

    The announcement that Biden will speak Monday morning comes a day after a victory for the group and the pro-Israel community; the Justice Department decided to drop charges of mishandling classified information against two former AIPAC staffers.

    The conference, a chance for AIPAC to flex its unmatched Beltway muscle, is expected draw 6,500 people, and a phalanx of top officials of both parties. Other speakers include Senate Foreign Relations Committee Chairman John Kerry, Newt Gingrich and Los Angeles Mayor Antonio Villaraigosa, as well as congressional leaders Steny Hoyer, Dick Durbin, Eric Cantor, and Jon Kyl. The event typically draws more members of Congress than any outside a joint session or State of the Union.(emphasis added)

    Whether you approve, disapprove or don’t care either way, I don’t think anyone can honestly say that the “Israel lobby” has little or no influence in Washington DC

  4. […] Having identified that viewpoint in myself, I see how much it colors my view of life.  Take the economic crisis, torture, rendition, fair pay, NIHI, health care, global warming, tainted food supply, or […]

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