Is the Economic Crisis a Sin?

MIT economist Simon Johnson was skeptical about the power of economic oligarchies in Western democracies—until he served as chief economist of the International Monetary Fund and got a close look at the symbiotic relationships between economic elites and their governments. Now he says that America's finance industry has effectively captured its government. In the U.S. the two career tracks of government and high finance are melded together, which is problematic when the oligarchy screws up and the economy implodes.

There are significant differences between the South Korean and Indonesian crashes of 1997, the Malaysian crash of 1998, Japan's lost decade, the recurrent crashes in Russia and Argentina, and our current meltdown. But they have in common the most important thing: a financial oligarchy that rigged the game in its favor, built an empire on debt, overreached in good times, and brought the house down on everybody. When the house collapses, elites do what they always do: they take care of their own. To get a different result, a nation has to take control of the problem and break the grip of the oligarchy. Otherwise you muddle along in a lost decade of your own, further entrenching the oligarchy.

Johnson's analysis is compelling on the latter point, which grimly explains why the U.S.'s economic-recovery plan has focused on bailing out Wall Street. But his prescription is straight out of the IMF playbook: find a bottom, clear out the clutter, get the fiscal and monetary houses in order, and shake up crony capitalism. There is always going to be an oligarchy, he says, so the best we can do is to shake it up from time to time. To this end he recommends new antitrust laws, though he cannot say what they would look like.

If we take the existing system for granted, Johnson's prescription is about the best we can do. If we democratize economic power and the process of investment—expanding the cooperative sector, investing in full employment and green technology, strengthening social market sectors that serve the needs of communities, and creating public banks—we get better choices. People work harder and more efficiently when they have a stake in their company. Economic development that does not harm the earth's environment requires dramatically expanded cooperative and public-bank sectors.

If we can spend trillions of taxpayer dollars creating "bad banks" or "aggregator banks" to save capitalism from itself, we ought to be able to create publicly owned good banks to do good things. Public banks could finance startups in green technology that are currently languishing and provide financing for cooperatives that traditional banks spurn. They could be financed by an economic-stimulus package, or by claiming the good assets of banks seized by the government, or both.

There are alternatives to a system that stokes and celebrates greed and consumption to the point of self-destruction. The Social Gospelers said we must believe that to be saved. Certainly we must believe it to get something better.

Dorrien Is Reinhold Niebuhr Professor Of Social Ethics At Union Theological Seminary And Professor Of Religion At Columbia University. An Episcopal Priest, He Is The Author Of 13 Books, Including The Recently Published Social Ethics In The Making.

© 2009