“So we have ended up, after three decades of worshipping free markets, with a system in which the single most dominant players in setting asset prices are central banks and in which financiers are much bigger receivers of government largesse than any welfare cheat could dream about.” Did Bernie Sanders utter this statement? Or Elizabeth Warren? In fact it issued from a column by that staid defender of free markets since 1843, The Economist magazine (or “newspaper,” as they refer to themselves). The “Buttonwood’s Notebook” column of that esteemed publication included this statement in a fascinating general review of the malaise that infects the world economy and its attendant financial system. Buttonwood’s column especially focuses on the growth of the financial industry and its ill effects on the real economy. It cites various economic studies that show that the financial services world has far exceeded its usefulness as a value creating business, and now exists and grows by means of economy killing “rents,” meaning it has the ability to extract money from the rest of the economy (that is from the lower 99%) through monopoly.
In the same vein, the Economist has just posted a chart (see above) showing that the wealthiest one percent of the world’s population now hold as much wealth as the other ninety-nine percent of its inhabitants. And the trend lines are not encouraging, as they show this phenomenon is accelerating.
At its heart, this is an ideological crisis, but not in the sense most people imagine. The crisis we face is not simply due to the ascent of neoliberal ideology, nor to the massive expansion of government that conservatives claim inhibits positive market forces. The crisis we face comes from the very notion that the moribund ideologies that arose in the context of 19th century struggles between capital and labor contain a logic that can explain the problems we face in the information age.
To be sure, arguments on both the current political left and right contain useful perceptions, but as the Economist article points out, there is no general existing economic theory that explains what is really going on. People, and thus the economy, do not act in accordance with economic models. The ideologies and economic models used to describe the world are not as useful as their proponents contend they are. Economists struggle to find an economic theory as revolutionary and insightful as Quantum Theory has been for physics, or the Theory of Evolution has been for biology and zoology (or even behavioral psychology). Economists have failed in this quest, in part because the scope of the problems we face is not adequately explained in the struggle between free markets and government intervention. An aspect of the problem is simply the contention between centralized and local finance, and with respect to energy between capital intensive versus distributed energy production.
The scaled capitalization of energy production is characterized by further concentration of wealth. Imagine the possible effect on local economies if energy transactions remained largely local. Imagine if the value of gasoline, other fossil fuels, and electricity remained in local economies and were not funneled every day to the large financial institutions that even the Economist admits lead primarily to wealth concentration. However, there is little attention paid to this paradigm by economists, even “micro economists.” Among academic economists, those of the “micro” variety mainly examine the tiny bits of macro paradigms. In a digital age where Amazon and box stores dominate sales, this is understandable. But energy is one area that cries out for accurate micro-economic analysis. Such analysis could reveal the very positive, and locally multiplied effects, of getting our energy for transport, home heating/cooling, water heating, etc directly from sunshine and the winds. Green energy represents a great hope, perhaps our greatest hope, that the insidious concentration of wealth can be forestalled short of political and environmental catastrophe.
Perhaps the revolutionary ideology that can finally enlighten the economists and the rest of us is the still unscripted ideology of economic populism, where local and concentrated capital comes into a healthy balance.
Worryingly, the big banks we all have come to resent are moving rapidly to finance capital intensive energy projects that follow the old, failed model, the model that removes wealth from local hands. A clear example of this are the power purchase agreement solar installations on home rooftops, instruments financed by Wall Street. Such agreements have the potential to be packaged and marketed, possibly following in the footsteps of the mortgage instruments that led to the mortgage crisis.
Counter trends, like the Community Choice Energy movement in California are struggling against strong corporate political headwinds emanating from Wall Street. Not just the economy, but the earth itself, appears to ride on the outcome of these struggles.