John Harris has an excellent article
in the Guardian, listing the number of politicians in the UK and EU
who have retired to lucrative jobs, often in the financial sector. He
links that directly to popular distrust of our ruling elite. I want
to make the same connection, but via a slightly more elaborate but
perhaps more worrying route.
First, let’s think about the financial crisis. The damage caused by
that crisis has been huge, and not just because of the recession it
caused. In many countries it seems to have permanently reduced the
growth in productivity, meaning that compared to a world in which it
did not happen we are permanently poorer by a large and growing
amount.
Now as an economist I get a lot of stick about my profession failing
to predict this crisis. But economists have not been reticent in
thinking about how to prevent the next one. The fundamental weakness
of the financial sector is the relative absence of capital (equity)
compared to other companies. But the adjustments forced on banks
since the crisis have been marginal, and certainly not enough to
prevent another crisis.
It is natural to ask why. You might think that getting very tough
with banks would have been politically popular? Measures could have
been phased in to avoid any short term damage to lending. So why have
politicians, and the senior civil servants who advise them, been so
tentative? (For that matter, why don’t we change
the way multinationals are taxed?)
Or if we go to the Eurozone, the decision to stop Greece defaulting
in 2010 was the result of fear that the European banking system was
too weak to cope. The consequence was crippling austerity for Greece,
and bailing out European banks by the back door using Troika loans to
Greece. You might think that European politicians would as a result
be particularly keen to ensure that this kind of thing would never
happen again, but there too action has been very limited.
If we were talking about the United States, the answer to why the
financial sector is treated with kid gloves despite the problems it
has caused would be obvious: the financial sector provides a huge
amount of funding for politicians to spend getting
elected/re-elected. In Europe that does not happen so much. But the
expectation of financial reward for good behaviour in the form of
employment after a politician retires may be just as effective an
incentive.
So any distrust that
people have in our ruling elite and the political system that
supports them is not some irrational form of envy. Politicians retiring to lucrative jobs is not inevitable and largely harmless. It is a form of corruption. It strikes at the heart of why we had a financial crisis which has made almost all of us a great deal poorer, and why little has been done to prevent another. The main beneficiaries of the public's reaction to economic hardship and elite corruption may be the likes of Donald Trump and Marine Le Pen.
