Arnold Kling  

The Looting Classes

PRINT
Will Iceland's Volcano Boost G... Me on KQED-FM Forum...

Steven Malanga writes,


Consider the California Teachers Association...Soon after Proposition 13 became law, the union launched a coordinated statewide effort to support friendly candidates in school-board races, in which turnout is frequently low and special interests can have a disproportionate influence. In often bitter campaigns, union-backed candidates began sweeping out independent board members. By 1987, even conservative-leaning Orange County saw 83 percent of board seats up for grabs going to union-backed candidates.

The clearest beneficiaries of the financial bailout and the stimulus are the financial firms that designed and implemented sub-prime mortgage securitization and the public-employee unions that are bankrupting state governments. Christina Romer praises the former by saying,

The Federal Reserve had taken dramatic actions when the crisis began, and continued to find creative ways to unfreeze credit markets. The TARP legislation, though deeply unpopular, provided crucial ammunition for dealing with the panic.

For the latter, she speaks of the "devastation of state and local government budgets."

Of course, there are many who share her framing these issues. However, perhaps it is not so crucial to bolster a financial sector that was misallocating capital or to bolster a state and local government sector that has been captured by unions. Perhaps these heroic efforts undertaken in the name of saving the economy only served to reward the looting classes. Perhaps we have arrived at a point in this country where looting is the most rewarding economic activity. In that case, it will not take many years before the wealth available to loot starts to shrink.


Comments and Sharing


CATEGORIES: Political Economy



COMMENTS (16 to date)
Randy writes:

"Perhaps we have arrived at a point in this country where looting is the most rewarding economic activity."

No question, but what annoys me most is the propaganda through which the political class would also have itself declared honorable.

kebko writes:

Similarly, I find it telling that all of the census advertising is about being counted so you make sure you'll get your share of the federal loot. I swear that even I can remember a day when the census was about representation.

Contemplationist writes:

Absolutely correct!

The financial crisis/recession on its own would have sweeped away from power the looting classes on Wall Street, and the looting classes of unions feeding on state government troughs. There would've been acute pain for 2-3 years, but we would've emerged anew, refreshed out of the crisis. But now we are doomed to suffer slow decay for a decade. Japan, here we come

fundamentalist writes:

Good points! Not only is looting rewarded, it's deemed to be a good thing.

Curious writes:

"Perhaps we have arrived at a point in this country where looting is the most rewarding economic activity."

Has the price or prevalence lobbyists gone up recently?

Chris T writes:

"Has the price or prevalence lobbyists gone up recently?"

Once a group achieves political capture, lobbyists become unnecessary. Fear of the group is sufficient.

MKS writes:

No one who receives a check from a government should be eligible to vote for office-holders in that government, because it is a conflict of interests.

Federal employees should not be able to cast a vote for President, but should be able to vote in state and local elections.

State transportation and corrections workers should be able to vote for President, but not for Governor.

Municipal workers should be able to vote for President and Governor, but not for Mayor.

The only exception I envision would be retired military, who ought to receive federal checks and be able to vote in federal races.

Don Lloyd writes:

If the rich can be picked out as a class for special treatment, why not public employees, broadly defined?

Tax initiative :

Starting in TY 2011, the base year, all government employees, at all levels, shall be assessed a 25% Federal income tax surcharge. This shall also be applied to anyone else whose income is derived from taxes.

In subsequent years, the surcharge level will be adjusted depending on the change in the ratio of government spending to GDP, relative to the base year ratio. For every change in the ratio of 0.2%, the surcharge shall be changed in the same direction by 1%. The limits on the surcharge shall be a minimum of 0% and a maximum of 50%. The limits shall be reached if the spending ratio falls or increases by 5% respectively, relative to the base year.

Regards, Don

Outer Life writes:

Reminds me of the paradox of the parasite. For a parasite "success" can mean "failure." If a parasite succeeds too well it can kill its host which, for many parasites, means it kills itself.

Here we have societal parasites who have over recent decades succeeded too well. Their host is now in critical condition. I expect those that are adaptable (such as bankers) will find new hosts, while those less adaptable (civil servants) will be more vulnerable.

Mark Brady writes:

"The only exception I envision would be retired military, who ought to receive federal checks and be able to vote in federal races."

If you believe currently serving members of the military should not be able to vote in federal races, why make an exception for retired military, whose pensions are not funded by their own contributions out of current wages but are in fact funded by current taxation and borrowing?

SydB writes:

"Of course, there are many who share her framing these issues. However, perhaps it is not so crucial to bolster a financial sector that was misallocating capital or to bolster a state and local government sector that has been captured by unions."

I believe what you propose is cutting off one's nose to spite one's face.

Me: Nose-less faces are kind of gross. And economies without financial sectors and state/local governments are, um, Somalia.

infopractical writes:

"I believe what you propose is cutting off one's nose to spite one's face.

Me: Nose-less faces are kind of gross. And economies without financial sectors and state/local governments are, um, Somalia."

You read Arnold as suggesting an immediate and sudden shift to total anarchy?

Funny, I reread the post and thought it was just about allowing poorly run areas of the economy to correct themselves...by simply not subsidizing them. What did I miss?

Tom writes:

"Perhaps we have arrived at a point in this country where looting is the most rewarding economic activity."

I think we got there a good while ago -- Michael Milken made $550 million in 1986, for illegally exploiting a legitimate need for better allocation of capital in the financial system. It's gotten worse -- and more brazen (though not always illegal) -- in the ensuing quarter-century.

It may seem like a distinction without a difference, but I think the aim of exploitation of the employee unions is typical pay and extreme security for minimal effort, while the financial sector types seek maximal pay (regardless of security) for typical effort. I find the former somewhat less despicable, for some reason.

Ano writes:

When criminals take hostages, one common strategy is not to give in, even if they start killing hostages, on the grounds that "we don't negotiate with terrorists."

The main reason why the technocratic elites supported TARP and federal aid to state and local governments is that they sincerely believed that doing so was the only way to avert unemployment going up to 15% or so and staying above 10% for much longer than it did.

Mr. Kling, it seems that you are saying one of two things, and I would like to know which one:
(a) Whatever bad things would have happened without TARP and the stimulus bill are a price we have to pay to avoid letting the looting class gain at the rest of our expense. In other words "if they kill the hostages, it's on them; we do not negotiate with terrorists."
(b) Bad things would not have happened if we had resisted the call to bail out the financial system and to engage in fiscal stimulus. Unemployment would not have been higher, for longer, than it already is. The people claiming the sky would fall have been captured by the looting class. In other words "they're bluffing; they will not kill the hostages, so we don't have to negotiate with the terrorists."

Is one of these two options a fair summary of what you're saying here? If not, what are you saying?

kevin writes:

Ano, I believe he's saying the crisis would have been more acute (higher unemployment, more wage cuts, etc.) but also would have been quite survivable. By rewarding the bad guys, we improve the odds that we will have to go through all of this again.

PD Quig writes:

What if we had instead used the trillions we spent on TARP and the other 'facilities' (don't you love that word?) to give all depositors a 100% guarantee of principal? What if we had let the perfectly serviceable bankruptcy courts sort out the rest? A lot of Wall Street would have been deservedly wiped out while Main Street would be doing okay. Deflation is not so bad for the little guy.

I'm thinking that we would have truly affordable housing and would be at the 7th inning stretch of this mess instead of the bottom of the 2nd. TPTB have placed their whole stack of chips on double zero: a bet that through extend and pretend all the insolvent banks can earn their way out of insolvency. All the chips that might have been used to build innovative businesses or rebuild survivors with decent vital signs, are sitting idle on the stack awaiting the almost certain outcome of the wheel. We watch transfixed while the ball spirals round and round, but we know the odds of nothing blowing up and causing the .GOV bubble to burst is probably about the same as the roulette bet: 37 to 1.

Comments for this entry have been closed
Return to top