Thursday, July 10, 2014

This is not a democracy: How the Supreme Court allowed the 1 percent control

From Salon:

When the Supreme Court decided money is speech, it unleashed an equality-destroying monster

Friday, Jul 4, 2014

Paul Krugman, a 2008 nobel laureate in economics, characterizes the 160 years between the “Wealth of Nations” and the Great Depression as the time in which a new faith manifested: “[A]n extensive body of economic theory was developed whose central message was: Trust the market.” Krugman calls faith in the market the “basic presumption of ‘neoclassical’ economics.” The story of this faith is the story of many twists and turns—nothing less than the history of American capitalism.

The Great Depression and John Maynard Keynes’s calls for government intervention—including changes in fiscal policy and public works projects—diminished collective trust in the market. But shortly after the Keynesian revolution, Milton Friedman led a new push against government intervention under the guise of monetarism. Krugman describes the 1970s, Friedman’s moment, as a time when “[d]iscussion of investor irrationality, of bubbles, or destructive speculation had virtually disappeared from academic discourse,” replaced by “the ‘efficient-market hypothesis.’” That hypothesis “held that as more stocks, bonds, options, futures, and other financial instruments were created and traded, they would inevitably bring more rationality to economic activity.” There was an emerging consensus that prices in the market were a reflection of full information and that the market produced the right goods for the right people at the right prices— i.e., people could not beat the market and the market allocated resources without wasting them. The implication, as Justin Fox points out, is that “markets possessed a wisdom that individuals, companies, and governments did not.”

Although Friedman was a complex figure, it is fair to say that he was a leading proponent of the view that markets were “better, and far more accommodating of human liberty, than government.” He was, in his own words, “deeply concerned about the danger to freedom and prosperity from the growth of government.” Friedman understood his own work as a response to the “readiness to rely primarily on the state rather than on private voluntary arrangements to achieve objectives regarded as desirable” and noted that his contrary position had for long been associated with a “small beleaguered minority regarded as eccentrics.” He labeled as a “flash of genius” Adam Smith’s discovery that “the prices that emerged from voluntary transactions between buyers and sellers . . . could coordinate the activity of millions of people . . . in such a way as to make everyone better off.” “The price system,” concluded Friedman, “is the mechanism that fulfills this task without central direction.”

This faith in markets—-markets as wise, efficient, free, and in any case better than government—was bolstered in 1976 when Friedman was awarded the Nobel Prize. That same year, the Supreme Court converted the ongoing celebration of market wisdom into judicial reasoning in what would become one of the most important constitutional law opinions of all time.

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