The third of several snips:
Philip Pilkington: So, if we accept that most inequality is generated through the finance sector, how do solve this problem? From what you say it appears that the entire economy is structured around this inequality. It seems that in order for policymakers to attack this they would have to target multiple points of the architecture simultaneously. Where would you start?
James Galbraith: In Argentina and Brazil, as I show in the book, inequality started to decline almost immediately once the financiers were knocked off their thrones. In Brazil the share of income passing through the financial sector was extraordinarily large, but over the course of twelve years and three presidencies, it has gradually been reduced, making room for expanded public services, improved social conditions and reduced inequality.
In the United States, the government has the power to bring the financial sector under control. It should use that power. Our problem is that the financial sector controls those parts of the government that set policy for finance. The banks are leading funders for presidential campaigns. The leading personnel in the Treasury and other financial agencies come from the banks, and if they do a good job (from the banks’ point of view), they can be confident that a lucrative sinecure awaits them, back at the banks, later on. This provides a very strong disciplinary effect on their conduct in office.
So – where to start? I’d start by breaking that link between the banking sector and the public sector.
One practical way would be to create a truly independent, effective and well-financed financial crimes enforcement unit, beyond the control of the political appointees at the Department of Justice, Treasury and the captive regulatory agencies. Also restore mark-to-market accounting and place the full control of audits and stress tests in hands that do not have an obvious conflict of interest viz. the results.
