Is Tomorrow's Primary In New York Important At All?

Tomorrow is election day in New York. Reform-minded Democrats are threatening to do the impossible: upend the career of a very powerful conservative Governor, Andrew Cuomo but defeating him and his handpicked right-wing candidate for Lieutenant Gov., banking lobbyist Kathy Hochul. Cuomo-Hochul represent all the worst of an Establishment that has treated the public with disdain and contempt. Predictably, Hillary Clinton is campaigning on their behalf-- making it clear once again that she's, first and foremost every bit as much a servant of Wall Street and Big Business as any Republican hack. It's remarkable that Cuomo/Hochul can hope to get any votes beyond the 1% who they represent and serve. Not even the NY Times could muster the intestinal fortitude and hubris it would have taken to endorse either of them.

Over the weekend, distinguished MIT Economist and Elizabeth Warren economic advisor Simon Johnson, a member of the FDIC’s Systemic Resolution Advisory Committee, and a senior fellow at the Peterson Institute for International Economics in Washington, endorsed Zephyr Teachout, the progressive alternative to Cuomo. "Zephyr Teachout," he wrote, "is a compelling candidate for governor of New York. She understands how corporate capture has taken over too many of our political institutions-- and she has a very real and sensible agenda that would make a difference. She represents for New York exactly the same kind of opportunity that Elizabeth Warren offered-- and was taken up on by-- Massachusetts. Stop complaining and vote for Zephyr Teachout."

This past week, economics Nobel laureate and the former chairman of Bill Clinton's Council of Economic Advisers, Joe Stiglitz explained, once again, how capitalism as a system has been gamed, perverted and twisted out of shape for the benefit of an out-of-control plutocracy. Capital in the Twenty-First Century by Thomas Picketty has done so well-- and aroused the hysterical and impassioned animus of the far right so quickly-- because, he claims, it "lends further weight to the already overwhelming body of evidence concerning the soaring share of income and wealth at the very top." Much to the chagrin of the pet intellectuals employed by the plutocrats, Picketty's book "sheds new light on the 'reforms' sold by Ronald Reagan and Margaret Thatcher in the 1980s as growth enhancers from which all would benefit. Their reforms were followed by slower growth and heightened global instability, and what growth did occur benefited mostly those at the top."

[T]he increase in measured wealth does not correspond to an increase in productive capital-- and the data seem consistent with this interpretation. Much of the increase in wealth stemmed from an increase in the value of real estate. Before the 2008 financial crisis, a real-estate bubble was evident in many countries; even now, there may not have been a full "correction." The rise in value also can represent competition among the rich for "positional" goods-- a house on the beach or an apartment on New York City’s Fifth Avenue.

Sometimes an increase in measured financial wealth corresponds to little more than a shift from "unmeasured" wealth to measured wealth-- shifts that can actually reflect deterioration in overall economic performance. If monopoly power increases, or firms (like banks) develop better methods of exploiting ordinary consumers, it will show up as higher profits and, when capitalized, as an increase in financial wealth.

But when this happens, of course, societal wellbeing and economic efficiency fall, even as officially measured wealth rises. We simply do not take into account the corresponding diminution of the value of human capital-- the wealth of workers.

Moreover, if banks succeed in using their political influence to socialize losses and retain more and more of their ill-gotten gains, the measured wealth in the financial sector increases. We do not measure the corresponding diminution of taxpayers’ wealth. Likewise, if corporations convince the government to overpay for their products (as the major drug companies have succeeded in doing), or are given access to public resources at below-market prices (as mining companies have succeeded in doing), reported financial wealth increases, though the wealth of ordinary citizens does not.

What we have been observing-- wage stagnation and rising inequality, even as wealth increases-- does not reflect the workings of a normal market economy, but of what I call “ersatz capitalism.” The problem may not be with how markets should or do work, but with our political system, which has failed to ensure that markets are competitive, and has designed rules that sustain distorted markets in which corporations and the rich can (and unfortunately do) exploit everyone else.

Markets, of course, do not exist in a vacuum. There have to be rules of the game, and these are established through political processes. High levels of economic inequality in countries like the US and, increasingly, those that have followed its economic model, lead to political inequality. In such a system, opportunities for economic advancement become unequal as well, reinforcing low levels of social mobility.

Thus, Piketty’s forecast of still higher levels of inequality does not reflect the inexorable laws of economics. Simple changes-- including higher capital-gains and inheritance taxes, greater spending to broaden access to education, rigorous enforcement of anti-trust laws, corporate-governance reforms that circumscribe executive pay, and financial regulations that rein in banks’ ability to exploit the rest of society-- would reduce inequality and increase equality of opportunity markedly.

If we get the rules of the game right, we might even be able to restore the rapid and shared economic growth that characterized the middle-class societies of the mid-twentieth century. The main question confronting us today is not really about capital in the twenty-first century. It is about democracy in the twenty-first century.

There's a lot more at stake in Tuesday's New York primary than the mass media deigns to cover. And, clearly, Andrew Cuomo and Kathy Hochul are not on the side of the voters who are being asked to promote the careers each has developed in service to the hedge fund managers and financial manipulators of the ersatz capitalism Stiglitz is warning us about. Blue America endorsed Teachout/Wu because they will not be serving the special interests behind Andrew Cuomo and Kathy Hochul, special interests once traditionally assumed to be associated with the Republican Party, rather than the Democratic Party. It's why we talk so much here about the Republican wing of the Democratic Party, the Andrew Cuomo/Kathy Hochul wing. If you're a New York Democrat planning to vote tomorrow, just remember that the $87,000 legalistic bribe David Koch, of the notorious Koch brothers, gave Andrew Cuomo in 2011 did not come without strings attached-- strings around the necks of your children and grandchildren.