Arnold Kling  

David Brooks Provokes

The Substantive Precedent in t... Walter Block on Capitalism...

with this:

The free-market revolution didn't create the pluralistic decentralized economy. It created a centralized financial monoculture, which requires a gigantic government to audit its activities.

Yesterday, during my talk at Campbell University, I also used the term monoculture to describe our financial elite. However, I included the New York Fed, Treasury, and Ben Bernanke in this monoculture. They all talk to one another, vet one another, and agree on way too much. What you can take away from books like The Greatest Trade Ever and The Big Short (the latter I have not read) is just how different were the personalities of those who connected the dots in the financial system from the personalities of those in the monoculture. I guarantee you that the hedge fund managers who bet against subprime mortgage securities would have been even less likely to be trusted by Tim Geithner or Henry Paulson than by bank CEO's.

I describe elite finance, including both regulators and big bankers, as like an exclusive country club. The club members cannot conceive of anyone outside of the club as having any valuable knowledge or important function . They are sure that saving their club is the same thing as saving the U.S. economy.

The rest of Brooks' essay is even more provoking. He praises British writer Philip Blond, who favors "radical transformative conservativism." Gag. Blond's solution for overly concentrated power is this:

reduce the power of senior government officials and widen the discretion of front-line civil servants, the people actually working in neighborhoods. He would decentralize power, giving more budget authority to the smallest units of government. He would funnel more services through charities. He would increase investments in infrastructure, so that more places could be vibrant economic hubs. He would rebuild the "village college" so that universities would be more intertwined with the towns around them.

I wish Brooks would read my other book, which offers a more libertarian perspective on the problem of dispersed knowledge and concentrated power. Or maybe he should just read Snow Crash, to which I made some references during my talk that were appreciated by at least a few people in the audience.

Brooks really likes the elite. He is disturbed by people who resent the elite. I also like the elite (that is, I would enjoy sitting down to dinner with a Larry Summers or a Barack Obama). But I am disturbed by what the elite believes.

For Brooks, the elite is relatively sane and the Tea Partiers are beserk. I think it's the reverse. Again, read my book. I believe that the essential point to understand about where we are today is that John Kenneth Galbraith's New Industrial State gets something exactly right and something else spectacularly wrong.

What Galbraith gets right is that large organizations must use bureaucratic planning. Hence, giving more power to "front-line civil servants" would be a disaster. They would be even less accountable than high-level planners for the success or failure of their work. Entrepreneurs need to be in their own businesses, with their own well-being on the line. You don't want to encourage entrepreneurial behavior among people who are writing checks using other people's money.

What Galbraith got wrong was his view that the economy had no use for entrepreneurs at all, and that it would forever be dominated by the likes of Union Carbide, U.S. Steel, International Nickel, and Johns-Manville (members of the Dow Jones Industrial Average in 1959, and now either deceased, merged out of existence, or relatively insignificant today). Galbraith wrote when the industrial economy was at its peak, or shortly afterward. The information economy works quite differently.

In this information age, the Progressives may be as threatened with irrelevancy as the industrial labor unions that they romanticize about. I think even most progressives recognize that it would be crazy to put a central control point or regulator in charge of all Internet content. Well, the economy as a whole shares the same complexity and dynamism as the Internet--indeed, the economy is in some sense merging with the Internet. So a highly-regulated economy is just not where trends are suggesting we should go.

At a point in history where the trend has been toward the diffusion of information, already the concentration of political power is creating anomalies, crashes, and mismanagement. Yet for now, the elite responds to this historical trend favoring diffusion of power by trying to grab more and more power for monopoly government in general and for Washington in particular.

David Brooks represents the elitist view, which is that the threat to social order comes from the libertarian streak in American society. Instead, the elites these days should be quoting Pogo: "we have met the enemy and he is us."

Comments and Sharing

COMMENTS (18 to date)
Doc Merlin writes:

Right on!

Matt writes:

Any chance of a Kindle edition of Unchecked and Unbalanced at some point in the not-too-distant future?

ziel writes:

I liked Brooks' column a lot - interesting take - but I liked your post even better.

BB-Idaho writes:

Having lived and survived both worlds, "Galbraith wrote when the industrial economy was at its peak, or shortly afterward. The information economy works quite differently.", the former
was America at its best. As Kevin Phillips has repeatedly observed, the information (service) economy is but self-important fluff, moving money around, destroying the middle class and creating no wealth. Just sayin...

R. Richard Schweitzer writes:

Brooks seems to be among those who believe that organizations are "created" by "organizers."

There is another more empirical view that societies spontaneously generate organizations, and dispose of them spontaneously.

Are there DIS-organizers who arrange those dispositions?

Brooks needs a dose of Douglas North

Troy Camplin writes:

There was a free market revolution? When? I must have missed it. Perhaps he's talking about the crony capitalism that we have right now. Now THAT is a true monoculture. But that's what we expect when increasingly there is little difference between government and economy -- especialyl when the overlap in major players is as great as it has become.

Matt C writes:

> Brooks really likes the elite. He is disturbed by people who resent the elite.

Yes, Brooks is distilled essence of Authority Knows Best. Really, that appears to be the drumbeat of all the mainstream media these days. It's depressing.

> Hence, giving more power to "front-line civil servants" would be a disaster.

Well, I have to needle you a bit. Isn't this pretty close to what you were arguing for in finance about a year and a half ago? You wanted regulators to have the power to punish whoever they liked, whether their target had broken any rules or not. You thought that would stop the problem of Wall Street exploiting legal loopholes and playing regulatory arbitrage. Have you changed your mind about this plan yet?

Kenneth A. Regas writes:

Galbraith's thesis was that the American and Soviet economies were more similar than different, because both required central planning, in the US by the boards of General Motors, etc., in the USSR by government bureaucrats. Reading it in 1973 I didn't know whether to laugh or cry, it was so ludicrous. This was an era when books like Vance Packard's The Hidden Persuaders had many Americans believing that advertising made everyone puppets of big corporations (many of which later "inexplicably" vanished).

So I don't think Galbraith was right about the industrial economy of his heyday any more than he was right about the so-called information economy of today. Successful markets were messy and dynamic then and are still so today.

david writes:

All I can say is, Arnold is going to be massively disappointed with how the Internet and the 'information economy' unfolds from here.

The Internet began as a deeply decentralized network, but the reality of returns to scale and network effects means that people flock to a relatively few large websites. We already have the online equivalent of Wal*Mart on the web: Facebook, which combines a mediocre e-mail, instant messaging, forum, video and photo service into one site. Yes, there are long tails but these long tails exist in individual business offerings; the actual distribution of businesses is relatively short-tailed. Ebay offers a long-tailed distribution of items, but it's all in Ebay! Thirty companies account for thirty percent of all traffic as of late last year and this trend of centralization is continuing apace.

Relative mobility and pace of change means that maintaining a position at the top will be extraordinarily difficult. But it is easier than ever to just regulate whoever is in the top spot: the short-tailed distribution of businesses means that there are relatively few to deal with, plus the ease of applying regulations to exchanges automatically than via paperwork.

If you are a libertarian, expect to move to a period of greater and greater regulation, not less. Libertarians who read Galbraith tend to dismiss him for failing to predict Reagan, Japan, and financialization, but remember that Galbraith's stance was not that the triangle of big business, big labor, and big government was necessarily good, but that it was reality and we should deal with it. And the incentives driving the economy towards this outcome have only been delayed, not nullified; we already see the steady formation of information-age professionals into 'associations' that do everything that unions once did, less the social stigma.

Robert Bell writes:

Arnold: "which offers a more libertarian perspective on the problem of dispersed knowledge and concentrated power"

I'm a little unclear on the phrase "libertarian perspective" here. Sometimes "perspective" means looking at things a different way in a positive sense, other times it is a normative or aesthetic label.

I think that Clayton Christensen's "Innovator's Dilemma" idea is a good starting point - in certain situations large, planning-based, elite heavy institutions essentially always trump small entrepreneurs, in others cases the reverse is true. I don't see this as a perspective so much as identifying stylized facts.

bjk writes:

When Morgan Stanley was going down, the CEO said "what about the 20,000 jobs?" Nobody asked about the customers. Maybe the customers would have benefited from new competitors and business models. Lehman was bought by Barclays, and Barclays used the acquisition to promote electronic bond trading. The best way to reduce bankers bonuses is through competition. The model of Obamaism is the Waxman takeover the cigarette industry, which created a government-licensed monopoly.

Frank writes:

1. You assign primary responsibility for the financial crisis to regulatory changes, especially those relating to capital requirements. I do not see how, on this account, the crisis was mainly due to increased dispersal of information--that relevant information was more dispersed in 2008 than it was in 1990 or 1970. Nor do I see how the changes that would in retrospect have prevented it (especially higher capital requirements) are usefully described as the diffusion of power.

2. You object to Brooks' claim that the monoculture was created by the free market. What do you think created it?

Against the Grain writes:

Your thesis below is one of the most important ideas that I have heard.

"I describe elite finance, including both regulators and big bankers, as like an exclusive country club. The club members cannot conceive of anyone outside of the club as having any valuable knowledge or important function . They are sure that saving their club is the same thing as saving the U.S. economy."

I would extend it to almost all elite groups. Leading to the question why do industries think like that and what are the incentives or means to get around this limited thinking.

Thank you Dr. Kling.

John Thacker writes:
The Internet began as a deeply decentralized network

The Internet began as a centralized ARPANet backbone, replaced by the centralized NSFNet backbone. It was then succeeded by a small number of Tier 1 backbones.

We heard the same complaints then that you're making now. Somehow, every terrible time of centralization and a small number of private companies taking over in its day is now a golden age to which we'll never return now. It's amazing how civilization is always declining from the good old days. Medieval times must have been paradise indeed.

David writes:

I hate the elite for the elite first hated me. I'd have more respect for them and their 'divine right' to rule if they weren't my enemies. Since they are, their supposed 'competence' isn't inclined to make me hate them less, indeed were they more effective, I would hate them more.

Loof writes:

According to Arnold:
For Brooks, the elite is relatively sane and the Tea Partiers are beserk. I think it's the reverse.

So, in reverse: the Tea Partiers are relatively sane and the elite are beserk. While opposed to elitism, I think elites are relatively sane; the Tea Partiers can be relatively insane, if not inane.


Troy Camplin writes:

The problem with the elites is that they think they know what they do not and cannot know. Socrates addressed this problem, but nobody seems to have learned anything in the past 2300 years or so. The problem with the elites is that they are ignorant and won't admit their ignorance. They might know something about one or two small things, but that doesn't mean they know everything about everything. And it is impossible to understand anything more complex than you are and, since the economy is more complex than any human being (being emergent from the interactions of billions of human beings), it is impossible to understand and, thus, to control or regulate. When all the elites admit that they don't understand the economy, society, culture, the arts, or how the brain works, then I will trust them. Until then, they are untrustworthy.

Hoover writes:

Brooks quotes Blond on Liverpool.

Indeed Liverpool had something like an indigenous local culture. But it also became the stage for wholesale corruption in local government, as did several English provincial towns during the 60s and 70s (summary here).

The problem can be reduced to two opposing views of accountability. Having experienced these local scandals, New Labour believes accountability must come from the top, and has centralised accordingly.

In contrast the new philosophy of the conservatives believes accountability comes from individuals, and they plan to decentralise to let people reap the benefits.

All things being equal, the conservative approach ought to return us to a world of decentralised mafias, unaccountability and corruption. But they believe a social transformation is underway that will allow us to escape that danger. In essence, that transformation consists of transparency thanks to FOI, the internet, and a less deferential attitude to the elites.

It's a good idea. But success isn't certain. It will clash with reality in several ways: For example, the EU is a centralising state and legislates in areas too numerous to mention. Local communities don't lose their cohesion just because government centralises, they also lose it because people move around so much - see for example Putnam's Bowling Alone.

Whatever its chances of success, it's as important to us to vote Gordon Brown out as it is to you to get rid of Obama. So I'm going to give it a chance.

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