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Letter to the editor

It seems to me that The Chronicle’s report of my talk at Sanford School of Public Policy on Nov. 30 could benefit from a few clarifications.

First, helping homeowners avoid foreclosure during the recent financial crisis is hardly a “socialist” idea. The “Proposal to Help Distressed Homeowners” was actually formulated not by me but by economists of the research department of the Federal Reserve Bank of Boston, hardly a socialist institution. It would not have been very expensive either. Worth reading the details here.

The crucial point is that it would have saved millions of homeowners from suffering the humiliation of eviction from their homes. Actually, I would argue that helping one’s distressed neighbor in an emergency is in the spirit of most religious and cultural traditions such as the Judeo-Christian commandment to “love thy neighbor as thyself.” It would have been good politics also, because it would have lessened the popular resentment generated by pouring trillions into the financial sector while leaving Everymen on Main Street to fend for themselves.

In contrast, according to the Nobel-Prize winning economist Joseph Stiglitz, bailing out the big banks was the policy that reminds him of socialism. In an essay on Socialism for the Rich he argued that “the rich and powerful turn to the government to help them whenever they can, while needy individuals get little social protection.” In other words, the profits of the financial sector were privatized but the losses were socialized, leading to the accumulation of anger on Main Street.

Switching to the effect of globalization on the political process, the article I cited in the talk is by Dani Rodrik of the Kennedy School of Public Policy at Harvard University who warned us, as far back as 1997, that “in the absence of a concerted government response, too much globalization would deepen societal cleavages and exacerbate distributional problems.” And indeed, it did! In an essay published a couple of weeks ago Rodrik suggests, furthermore, that it is crucial to emphasize that globalization has a downside not only an upside.

In fact, ultimately it mattered very little how much good globalization did, how much wealthier we might have become, or how many poor people were lifted out of poverty in the developing world, inasmuch as simultaneously a large-enough segment of the U.S. population became so desperate and disillusioned about the system that after decades of suffering they revolted against the establishment and tipped the scales in favor of a strongman, who Mitt Romney, the previous Republican Presidential candidate, called “a phony.” So pointing to the dangers of inequality is hardly a radical idea; it is simple common sense. After all, even conservative Alan Greenspan, long-time chairman of the Federal Reserve, warned repeatedly that “income inequality [is] most dangerous”. Many others observers expressed similar thoughts, including Christine Lagarde, director of the International Monetary Fund: “Rising inequality and economic exclusion can have pernicious effects”.

Finally, anyone interested in contemplating the nature of democracy in America might start be reading an article whose lead author is professor of political science at Princeton University; it concludes that “the American public actually have little influence over the policies our government adopts. Americans do enjoy many features central to democratic governance…but we believe that if policymaking is dominated by powerful business organizations and a small number of affluent Americans, then America’s claims to being a democratic society are seriously threatened.” Note furthermore that it is rather unusual in a democracy that the winner is the candidate who receives 2.5 million fewer votes than his opponent and in which 90 million people failed to vote at all. So the upshot is that the winner has the support of little over a quarter (28 percent) of the citizenry he will lead. Well, if anyone wants to designate that sort of a system democratic go right ahead, but I wonder the extent to which Plato would agree.

- John Komlos, visiting professor


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