Peter Orszag’s new job at Citigroup is one of those under-discussed stories that makes me glad I read blogs. It also makes me depressed because I’m struggling to envision a plausible solution to the problems of regulatory capture and the revolving door between government and the financial services industry. You can imagine better policies arising in a lot of areas – farm subsidies, for example – if we magically removed certain political constraints, but even if you were given free rein to remake the United States’ political system, the problem of regulating an incredibly complicated financial sector would still be pretty tough to figure out.
If you’ll permit me to simplify things for the sake of brevity, the standard progressive view of the financial sector is that we need more and better regulators. This is complicated by the fact that regulation – particularly regulation that involves opaque financial practices – is complex and therefore vulnerable to companies gaming the system. Former high-level Administration officials accepting jobs at financial institutions that were just bailed out basically exemplifies these concerns.
The libertarian/conservative rejoinder is that less regulation equals less opportunities for politically-connected firms to hijack the system. As a safeguard against future financial meltdowns, I find this unsatisfying for a number of reasons: First, attempts to describe the roots of the financial crisis solely through the lens of government intervention sound pretty silly. And second, if the regulatory and administrative superstructure of government is fatally compromised by insiders and corporate lobbyists, are we sure we can successfully deconstruct that system from within? I think this is part of what liberals are getting at when they suggest the conservative movement is basically a front group for rich people and big business: sure, you might make election year noises about limited government, but genuinely populist conservative impulses take a backseat to corporate interests in a political and regulatory environment dominated by insiders. In other words, the Tea Party will never beat Goldman Sachs at its own game.
There’s another consequence of the revolving door phenomenon that really bothers me. My brother, who happens to be a recent college graduate, made an off-hand remark the other day about how nobody finds a job without an ‘in’ or a personal connection. At face value, this is faintly ridiculous: a white, upper-middle class kid with a degree shouldn’t be complaining about tough career prospects. But it’s a sentiment I’ve heard from many of my peers in the 20-something, college-educated demographic, and I can’t help thinking that Orszag’s new job is another data point in a line of policies and events that – while perhaps defensible individually – have created a prevailing narrative of influence/personal connections trumping ability/merit/worthiness. Maybe I’m reading too much into a few tossed-off remarks, but I’d venture that an entrepreneurial society depends to some degree on a culture that downplays influence-peddling and emphasizes individual achievement (my co-blogger, Jason, recently put together a seminar on how language and public perception created some of the preconditions for modern capitalism). This is all wildly speculative, of course, but I kind of wonder if a deluge of uncomfortable stories about corporate bailouts and political insiders could eventually sap some of this generation’s entrepreneurial vitality.
In conclusion, I am very nervous and have no easy answers. Merry Christmas.