Chris Dillow asks why politicians seem to be so hopeless today. I tend to think of this as a consequence of the great divergence, the gapping-out of inequality across the developed economies since the 1980s. Why? Consider this guy. That’s right – an eccentric billionaire, giving away fivers!
This used to be a stock cartoon-strip trope, almost certainly an atavism from the Edwardian first age of globalisation via the institutional history of DC Thomson. But by the time the Thomson comics popularised him in the 1930s, his days were already numbered. WW1 saw the UK Gini coefficient radically cut back. It recovered in the 1920s, but never quite hit the same heights, and fell steadily thereafter. Interestingly, the Chamberlain managed economy seems to have done a surprising amount of the work of the great compression.
The chart is from this excellent post. That was then, though. Now the monster is baaack. One of the most interesting, and damning, features of the great divergence is its weird fractal quality. As well as the 1% streaking ahead of the 99%, the 0.1% rocketed ahead of the 1%, and the 0.01% even more so. Payoff structures in the FIRE sector, board-level executive compensation in Forbes 2000 companies, and a whole lot of other ways rich people make money displayed the same fractal hockey-stick pattern.
I think our explanation might be in here. Marx wrote that the state was nothing but an executive committee for managing the common affairs of the bourgeoisie. For many years you could operationalise this by saying that conservative parties’ material basis rested on their ability to get enough company directors and top managers to contribute their time and money to the cause. Conservative politicians therefore faced a mechanism of responsibility with multiple triggers. They needed to keep the directorate, in general, happy rather than suck up to one single individual actor. This is harder.
Extreme right-tail inequality has essentially destroyed this mechanism of responsibility. There are now quite a lot of private fortunes around whose discretionary spending power is large compared with the cost of political campaigning. Although US politics is notoriously expensive, the unit-size is still less than a billion dollars. Also, as Donald Trump demonstrated, it turns out to be possible to save on some of the biggest line items, like TV advertising and political consultancy. Rather than needing to make credible commitments to a significant fraction of the directorate, political entrepreneurs can now concentrate on finding themselves a couple of big individual donors who share their special interests or particular obsessions – eccentric billionaires, in a word. It is easier to suck up to one man’s ego than it is to please a conference centre full of subtly different economic interests, and the best way to do so will often be to flatter his eccentricities. (His? Very often, but ask an Australian about Gina Rinehart.) This is a structural reduction in political accountability. Worryingly, countries like the UK where politics has been kept cheap by regulatory intervention are more rather than less vulnerable to this.
It may even be the case that the set of potential donors is more likely than the wider population to be crackpots. Very large financial wins are associated with either contrarian choices – short when everyone else is long, or hopping onto Apple when everyone else wanted Nokia – or making the same choice as everyone else, but in size. Both amount to a greater appetite for risk. A lot of people who like taking risks are like that because they are crazy. Another large group of the risk-loving are like that because they are so soaked in privilege they don’t need to care. Neither group are likely to know when they are wrong, one out of craziness and the other out of complacency or mediocrity.
Over the long term, risk-loving individuals ought to crash and burn, but in a high inequality economy, there is another option – you can cash in your chips…and try your crazy theories in politics. The representatives of Mill’s “stupid capital of the country” have been replaced by the representatives of its crazy or rather, unaccountable or autocratic capital. Interestingly, Dwight D. Eisenhower noticed a similar phenomenon with regard to Texan oil investors, maybe not dissimilar in their payoff structure or politics to today’s creepy VCs.