Why Save The Bankers?: And Other Essays On Our Economic and Political Crisis
By Thomas Piketty
Translated from the French by Seth Ackerman
Houghton Mifflin Harcourt
212 pages, $26
By Michael D. Langan
Thomas Piketty is the French economist and author of the influential best-seller “Capital in the Twenty-First Century.” Few seem to have read this work, because of its difficulty. “Don’t be so Piketty” complainers might stammer. But the author can hardly do otherwise.
Economics is complicated.
Americans should take note that Piketty is on the side of income equality, something lost to about 99 percent of us while we were otherwise semi-employed or unemployed.
Piketty is France’s foremost economist and professor at the Paris School of Economics and is also associated with the London School of Economics’ International Inequalities Institute.
He wrote these essays, “Why Save The Bankers,” a selection of monthly columns– mostly for the French newspaper Libération – that date from the collapse of Lehmann Brothers in 2008 right up to the recent ISIS attacks in Paris. His purpose: “to help readers decode the world debt crisis” and not surprisingly, to describe how recent growth has found its ways into the pockets of the wealthy.
Along the way Piketty makes clear the connection between economic instability and extremist violence, his publisher tells us. Do we really need to be told of such a connection? I think I knew this in my sleep. Finally, we get a list of steps that the West must take to “rein in” capitalism, which Piketty describes as “profoundly unstable and in-egalitarian.”
Good luck with this project which ought to include more arraignments. (Crooks almost never get punished in banking scams.) Even for optimists, yanking the collar of only the more stupid crooks is about the most the international banking regulators can hope for. Oversight by international financial agencies is in woefully short supply.
Let’s take a look at a few of his columns.
First, keep in mind, as translator Seth Ackerman writes in his notes, that many of the characters and events in these pieces would be known to the French reader, but not to the Americans. That gives too short shrift to U.S. business readers, but it’s a good caution.
Also, a number of the essays deal with European Union matters, the structure of the European Council, and the so-called Eurozone crisis. You may be tempted to skip these, but in fact, the interrelation of international banking is so great that “skipping” anything in this volume would be a mistake.
In his Preface, Piketty lays out his rationale for the book. He writes, “I tried to understand the new role of central banks as they sought to avert a collapse of the world economy … but toward the end of the period, one question began to eclipse all the others: Will the EU be able to live up to the hopes so many of us have placed in it?”
As he reviews how the financial crisis grew, he notes: “Let’s review. Starting in the 1980s, a new wave of financial deregulation and an outsized faith in self-regulating markets descended on the world.”
A universal comment by now: What a mistake! This self-regulation was like asking the fox to watch the chickens. Common sense got beaten up by greed and self-indulgence with this stupid decision.
(Self-regulation was a big deal in the ’80s. Remember President Reagan handed off the control of pollution to states during that period. How states could administer penalties to polluters from other states sending poisons across their boundaries from various directions remains a mystery shrouded in a cloud of murk.)
Regrettably, one column, “Why Save The Bankers,” written Sept. 30, 2008, may be all we have space for in this review. Remember that the banking crisis reached a climax 15 days earlier, when Lehmann Brothers filed for bankruptcy.
Piketty notes that this period witnessed a series of unprecedented government interventions aimed at restoring stability to the markets. “A package called the Troubled Asset Relief Program (TARP) proposed a $700 billion bailout, and billions more of dollars in below-market loans and credit guarantees extended by the U.S. Treasury and the Federal Reserve.”
Reasonably, Piketty asks whether these moves marked the beginning of a new era in interventionist economic policy. My query: Did he really have to ask this question? Wasn’t it obvious? In fact, not.
Piketty’s reply is a good one. He notes that the speed and pragmatism of the U.S. government was a good thing, but that it was too early to say whether it signaled the return of the state on the economic and social scene. Remember: the final net cost to the taxpayer is his caution.
In fact, as our author notes, these kinds of interventions in the financial sector represent a continuation of policies and doctrines already practiced in the past. Historians will remember that the crash of 1929 brought capitalism to the edge of the abyss because the Federal Reserve and other public authorities let the banks take a dive by refusing to inject the liquidity needed to restore confidence and growth.
Piketty reminds us that Franklin Roosevelt was far more brutal to economic elites than our present spate of leaders. Roosevelt raised the tax rate on highest incomes from 25 to 63 percent in 1932, then to 79 percent in 1937, 91 percent in 1941, before moderating his views, probably influenced by bank lobbyists and forgetfulness on the part of the U.S. citizens.
Our author has a prescient remark about how times have changed as he wraps up this piece. He notes that “In the current ideological context, where the right to collect bonuses and golden parachutes in the tens of millions without paying more than 50 percent in taxes has been elevated to the status of a human right, many will judge these policies primitive and confiscatory.”
Ever the realist, Piketty says there was a bright side to this rip-off. Can’t think of one? Here’s our man’s take: these practices “had the particular virtue of drastically reducing corporate executives’ incentive to dip their hands into the till, beyond a certain threshold.”
I’m not sure I’d call that virtue.
Given the globalization of finance (and even more opportunities for elaborate rip-offs), it will take time to devise a complete reworking of accounting disclosure rules, and “relentless efforts against tax havens.”
Look for more financial crises to come, given the inadequate oversight of criminal behavior internationally.
Michael D. Langan worked for various entities of the federal government in Washington, D.C. over a 20-year period.