Bankers Or Politicians – Who Is The Puppet Master?

I missed this post by Tyler Cowen which he wrote some time ago and only stumbled upon it recently. He reviews the Simon Johnson/James Kwak book 13 Bankers, sort of, as he makes the point that big government is our root problem, not big finance.

This analysis bears on one of the main policy recommendations of Johnson and Kwak, namely to break up the big banks so they cannot soil Washington with such powerful lobbying and privileges. I believe this recommendation will not achieve its stated ends and that Washington would find another way to assemble privileged financial institutions – no matter what their exact form — within its ruling coalition. Breaking up the large banks would be striking at symptoms rather than at root causes, namely the ongoing growth of political power and the reliance of that power upon an ongoing inflow of capital.

If you do wish to break or limit the power of the major banks, running a balanced budget is probably the most important step we could take. It would mean that our government no longer needs to worry so much about financing its activities. Of course such an outcome is distant these days, mostly because American voters love both high government spending and relatively low taxes.

Still mulling this over but I find myself much taken by his thesis. Take a minute to read the whole thing.

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