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The collapse of the world economy has rehabilitated a taboo phrase long banished to the fringes of political discourse in America: oligarchy. For generations the O-word has been used only by firebrands of the left or conspiratorial populists on the far right. So it came as a shock when the former Chief Economist of the IMF, Simon Johnson, published an essay in The Atlantic last April arguing that the United States was in the grip of a financial-political oligarchy that closely resembled the ones that lorded over dysfunctional developing countries. The title of the piece aptly conveyed Johnson’s sense of how dire this state of affairs is: “The Quiet Coup.”

Of course, for many in the mainstream of respectable political opinion, this seemed like rhetorical excess. The U.S. might have an establishment—although even this term still bears connotations of disreputable populism. But an oligarchy?

If the term “oligarch” is to be more than a slur, like “plutocrat,” then we should be clear about its meaning. An oligarchy is more than one of a number of interest groups or factions that fight and bargain in a system of Madisonian pluralism or take part in the cluster of elite battles over power that political scientist Robert Dahl calls “polyocracy.” In an oligarchy, a kaleidoscopic pattern of interest-group competition breaks down because of a central, swollen interest group that dominates politics and the media as well as the economy.

But if it is bigger than an interest group, an oligarchy is also smaller than an aristocracy. The members of an oligarchy may be nepotistic, but their parentage doesn’t dispose of their place in the hierarchy of power; that, instead, arises out of their positions in particular industries or organizations. An oligarchy, like the Mafia, can be simultaneously nepotistic and meritocratic.

A century after the House of Morgan dominated the American scene, is the United States now in the grip of a successor oligarchy?

Unlike the Mafia, though, an oligarchy is not a conspiracy. Indeed, quite the opposite: The members of the oligarchic elite do not need to operate in the shadows. They dominate all social institutions—so much so that they couldn’t effectively conceal themselves even if they wanted to. In an oligarchy, be it Russia or Mexico, the relatively small group of people who appear to be in charge actually are.

In this common, not-at-all conspiratorial set of definitions, “oligarchy” is merely a descriptive term, denoting an exchange of elites across specialized sectors—such as the financial and political classes—that in some cases amounts to their fusion in a single elite. Indeed, the signal defining feature of an oligarchic system is lateral mobility at the top. The flow of elites moves not just through one but a number of revolving doors, permitting ready entry into the spheres of politics, commerce and culture. This circular motion averts any notion of checks and balances or the work of elites being contained within separate spheres of activity and bound by a single code of professional ethics.

Defined in this way, oligarchy is more common in developing countries than in developed nations, since those societies suffer from a much smaller pool of talent. Since so few people in such social orders are educated or affluent, it’s all but inevitable that members of a small number of families will dominate all social institutions—even if both politics and the economy are perfectly open and competitive. The elite professor is the sibling of the minister and the novelist and banker—and indeed could well be a minister and novelist and banker himself at different stages in life. By contrast, developed societies with broad middle classes and high levels of education can create a large enough pool of talent to permit the formation of distinct, specialized elites in government, finance, industry, the media and the academy.

Scale, too, is important. “The iron law of oligarchy”—the term that German sociologist Robert Michels adopted to characterize the upward consolidation of elite power—takes hold more readily in a city than in a state or province; while state and provincial institutions are more apt, comparatively speaking, to breed oligarchies than a large and diverse nation-state would be. It is much easier for a cabal to take over a county than a country; and this explains why, although U.S. history has seen an abundance of local oligarchies, establishments and courthouse gangs, it’s rarely witnessed the formation of a truly national oligarchy.

Only a few economic sectors are in a position to capture or fuse with the state. They tend to be basic industries furnishing a critical component of the infrastructure for the economy and the public sector—a good like land, credit or energy. Energy-based oligarchies are common in petrostates like Saudi Arabia, Russia, Venezuela and Nigeria, as well as in some parts of the United States like Texas or Alaska. But it’s more common for oligarchies to gravitate toward their traditional foundation in landed and financial wealth. At critical points in American history, land, commodities and finance have supplied resources for the elites that were able to ratchet their way upward into oligarchy: the Southern planters before the Civil War were one such land-based group, and the finance capitalists of the late nineteenth and early twentieth centuries established an oligarchic hold over the paper economy of the Gilded Age.

Over time, the Southern plantocracy ripened into a national oligarchy. If modern Russia is a petrostate, the antebellum U.S. was arguably a cotton state, with cotton counting for half of American exports during much of the first half of the nineteenth century. Southerners dominated the federal government from the election of Thomas Jefferson in 1800 until the election of Abraham Lincoln in 1860. During much of this period the Southern planters were able to impose their will on the parties they did not control—the National Republicans, the Whigs, the short-lived American party—as well as the parties they dominated—Jefferson’s Republicans, the Democratic Republicans and the Democrats. Not only were they able to force the rest of the country to acquiesce in a balance of free and slave states in the Senate that gave their outnumbered section a veto on federal policy, but between 1836 and 1844 they were even able to impose a “gag rule” on the discussion of slavery in Congress.

They were able to do all this for a simple reason: They threatened to break up the union if they did not prevail. Here we see the chief source of informal oligarchic power—a credible threat to destroy the system unless the oligarchs get their way. When Americans outside of the North called their bluff, the Southern oligarchy carried through with its threat to destroy the United States—and, if not for the refusal of Britain to intervene in the Civil War, it might have succeeded.

The second major American oligarchy, that of the Gilded Age robber barons, likewise drew much of its influence from its power to shut down the system if necessary. Consider the financial trust at the heart of the numerous cartels of the era—the House of Morgan. By the early twentieth century, this ultra-elite group of financiers possessed a far greater capacity to mobilize resources and act effectively than did the underdeveloped, archaic federal government. When J.P. Morgan organized his fellow capitalists to rescue the U.S. economy during the crisis of 1907, the lesson wasn’t merely the need for a U.S. central bank, a need eventually met by the creation of the Federal Reserve. Morgan’s show of strength dramatically demonstrated that the state was utterly dependent on the private sector—not a competitive private sector made up of many different elites, but a small and dominant group: an oligarchy, in other words. Just as it took a Second American Revolution to crush the power of the Southern planters, so it took the New Deal—a less violent but equally epochal Third American Revolution—to shatter the power of America’s financial oligarchy.

Or should we say America’s first financial oligarchy? A century after the House of Morgan dominated the American scene, is the United States now in the grip of a successor oligarchy? Simon Johnson thinks so: “The great wealth that the financial sector created and concentrated gave bankers enormous political weight—a weight not seen in the U.S. since the era of J.P. Morgan (the man). . . . But that first age of banking oligarchs came to an end with the passage of significant banking regulation in response to the Great Depression; the reemergence of an American financial oligarchy is quite recent.”

Johnson was not the first to draw a parallel between the Morgan era and our own. A year prior to the 2008 collapse, Lloyd Blankfein, CEO of Goldman Sachs, boasting about the success of the financial industry in eliminating New Deal-era barriers to the consolidation of financial services in a small number of universal banks, confidently told the New York Times that “if you take an historical perspective, we’ve come full circle, because that is exactly what the Rothschilds or J.P. Morgan were doing in their heyday.”

The metaphor of the octopus has been abused by conspiracy theorists, for whom this or that social institution are mere tentacles of an octopus identified with the Jews, or the Freemasons, or the Bilderbergers, or the Council on Foreign Relations. As invertebrates go, however, the octopus—or, to use Rolling Stone reporter Matt Taibbi’s description of Goldman Sachs, a “great vampire squid”—is as good a metaphor for an oligarchy as the leech is for the run-of-the-mill interest group. A group is an oligarchy only if its tentacles reach into most elite sectors, not just one or two.

For that reason, it is not enough to demonstrate a revolving door leading from the U.S. Treasury Department to Wall Street and back again. After all, most federal agencies have used the same kind of portal to join the regulated to the regulators. To be sure, the incestuous relationship between Goldman Sachs in particular and the Treasury Department is well documented; countless articles and exposes have pointed out that Bill Clinton’s Treasury Secretary Robert Rubin was a former co-chairman of Goldman Sachs while George W. Bush’s Treasury Secretary Hank Paulson had been its CEO. Obama’s Treasury Secretary Tim Geithner appointed an aide, Mark Patterson, who was a former lobbyist for Goldman Sachs. Paulson appointed Neel Kashkari, a former Goldman vice president, to oversee the Troubled Asset Relief Program (TARP). If ever there was a case of “regulatory capture” of a government agency by the industry it is supposed to regulate, it is found in the near-fusion between the Treasury Department and “Government Sachs.”

Between January and September 2009, the financial services industry spent $10.6 million in contributions to politicians. The lion’s share, more than $7.7 million, went to Democrats. Among individual politicians, Democratic Senator Chuck Schumer of New York got the most—$1.65 million, nearly twice what any other senator received from the industry. “In addition to collecting money for himself,” Politico notes, “Schumer has helped [Kristen] Gillibrand, the state’s junior senator, get her share of industry dollars”—in the amount of $886,000. Wall Street also showered campaign contributions on Senate Majority Leader Harry Reid ($814,000) and Senate Banking Committee Chairman Christopher Dodd of Connecticut ($603,000). Each of the parties is funded by its own traditional interest groups—plaintiffs attorneys and unions in the case of the Democrats, and small business and extractive industries in the case of Republicans. But with Wall Street dominating the fundraising for both parties, the financial sector is clearly acting in the manner of an oligarchy.Even so, viewed only in terms of these overlapping directorships and agency appointments, the Goldman case only shows that the financial sector is an extremely powerful interest group. But if one plows on further, the evidence from campaign finance records considerably strengthens the case for oligarchy. During the 2008 election cycle, Barack Obama’s first, fourth and fifth largest private sector donors, when universities are excluded, were Goldman Sachs, Citigroup and JPMorgan Chase (Morgan Stanley was thirteenth). Goldman Sachs, Obama’s largest private contributor, was also John McCain’s fourth largest.

The case is a bit more muddy, though, when we descend a bit from the commanding heights of politics and the economy and look at the media and nonprofit sectors. There’s not yet a strong media tentacle of the financial services octopus. The mainstream media have always had concentrated ownership—GE and Murdoch today, the three networks in the past—but a Goldman or J.P. Morgan network has yet to be founded.

Nevertheless, the business press in both the electronic and print media are deeply compromised—and indeed co-opted—by uncritical coverage of the finance sector’s interests. This is not necessarily evidence of corruption or control. Reporters generally “go native” to maintain access to their sources—be they in the White House, the military or Wall Street.

After Taibbi published a slashing attack on Goldman Sachs in Rolling Stone, it wasn’t hard to see just how thoroughly financial reporters had adopted the protective coloration of their beat—to the point of turning on a member of their own professional caste. Columnists for Slate’s “Big Money” were particularly sycophantic. One “Big Money” columnist, Heidi N. Moore, devoted two columns to attacking Taibbi. The first: “Will Everyone Please Shut Up About Goldman Sachs? The bank has a culture that works. So what?” (July 29, 2009). The second: “Matt Taibbi is Just Plain Wrong: Goldman Sachs may be bad, but it’s far from the worst.” (August 6, 2009).

On July 16, 2009, “Big Money” columnist Mark Gimein weighed in with “Yes, We Do Need Goldman Sachs: Trying to ban ‘obscene’ profits is a bad idea.” He denounced Taibbi for “a comprehensive exercise in conspiracy mongering”:

Goldman haters like to weave a narrative that connects the dots between Goldmanites and former Goldmanites who are supposed to rule the world in a one-degree-of-Goldman-Sachs fashion. The list expands until, as Taibbi himself says, it becomes a list of everything, like those lists of members of the Trilateral Commission and the members of the Council on Foreign Relations so beloved by an earlier generation of conspiracy theorists. The guilty-association parlor game is always a fun game to play and invariably yields terrific results—Matt Taibbi’s Goldman Sachs investigation appears in Rolling Stone, the magazine that started the bogus vaccine-autism scare! The very same magazine responsible for dozens of young children needlessly dying of measles! The anti-Goldman lobby associates with child killers!

Of course, for such histrionics to be remotely applicable in analogizing the Goldman-Treasury link to magazine journalism, Gimein would have to show that Rolling Stone was in a position to exploit policy blinds pots in the Centers for Disease Control to create astronomical profits—and that numerous former Rolling Stone editors were either appointed surgeon general or were key gatekeepers for federal research grants earmarked for the study of the alleged connection between autism and the flu vaccine. But of course, that is to reject the game of asserting clever, fake contrarian sweeping judgments where the evidence to support them is nonexistent.

Still, the United States is not yet Vladimir Putin’s Russia: Journalists are not being knee-capped for criticizing Goldman Sachs or JPMorgan Chase. It’s only when we turn to the nonprofit world—and particularly the think tank sector—that we can apprehend just how fully the financial sector operates as an intellectual oligarchy.

Robert Rubin, the central figure of the Wall Street wing of the Democratic Party, is the founder of the Hamilton Project at the Brookings Institution—named for Rubin’s long-ago predecessor as Treasury secretary. Alexander Hamilton, who, ironically, favored the kind of economic nationalism that neoliberal Democrats like Rubin repudiate. While housing former Clinton and future Obama appointees like Larry Summers, Jason Furman and Peter Orszag, the Hamilton Project has aggressively promoted the ideology of neoliberalism that has shaped both the Clinton and Obama administrations. Neoliberalism is really a form of moderate conservatism. In the words of Larry Summers, who began his career working happily for Ronald Reagan’s Council of Economic Advisers, “any honest Democrat will admit that we are now all [Milton] Friedmanites,” a canny post-Reagan inversion of Richard Nixon’s renowned declaration that “We are all Keynesians now.” The only “liberal” aspect of neoliberalism is the chastened Democratic support for a slightly stronger safety net with the political goal of reconciling workers to the disruption caused by deregulated markets. Otherwise, neoliberalism is a variant of free-market fundamentalism, combining the “Washington Consensus” policies of trade and financial liberalization in global economic policy with deregulation of industry in general and the financial industry in particular.

As is well known, during the Clinton administration, Rubin and Summers blocked attempts by Brooksley Born, head of the Commodity Futures Trading Commission, to regulate derivatives, arguing that regulation might spook the markets. And along with a broad constituency of industry leaders and lobbyists, Clinton-era financial regulators enthusiastically supported the dismantling of Glass-Steagall, the New Deal-era law that separated investment banking from commercial banking, enabling a few “financial supermarkets” not only to swell to immense dimensions, but also to gamble with the money of ordinary depositors.

Something has changed profoundly when Mexico and China are no longer nations but “markets.”

The collapse of the world economy might have discredited the markets-first worldview of neoliberalism and its boosters; instead, it has, if anything, prompted the neoliberal consensus to close ranks and fortify its federal backing. Unlike the Roosevelt administration and its Democratic allies in Congress in the 1930s, the Obama administration and today’s Democratic leaders view Wall Street as their major constituency, rather than as a threat to the public interest. Led by Summers and Geithner, the Obama administration dismissed proposals early on in the crisis to nationalize insolvent financial institutions, electing instead to bail them out at taxpayer expense. The administration’s proposals for “reform” of the financial markets are so feeble—a macroprudential or “super-duper” regulator, higher capital requirements—that they have drawn widespread scorn. Reform ideas that would challenge the wealth and political power of Wealth Street’s major surviving players—a new Glass-Steagall that would separate commercial from investment banking, the application of antitrust to financial institutions—are limited to the Democratic Party’s marginalized progressive wing. The sole champion of a new Glass-Steagall act, for instance, within the Obama White House is former Fed chair Paul Volcker, who now heads the largely honorific Economic Recovery Advisory Board—and is so far out of the reigning Washington debate over economic policy that he rarely even bothers showing up in his own office, according to a recent report in the New York Times.

Barack Obama, who owed his primary victory over Hillary Clinton and his general election victory over McCain in large part to the Wall Street money that he mobilized, appears to view the world from the perspective of his major donors and advisers. In an interview with Bloomberg News in September, Obama protested: “Why is it that we’re going to cap executive compensation for Wall Street bankers but not Silicon Valley entrepreneurs or N.F.L. football players?” As Paul Krugman responded, “Tech firms don’t crash the whole world’s operating system when they go bankrupt; quarterbacks who make too many risky passes don’t have to be rescued with hundred-billion-dollar bailouts.” On the anniversary of the collapse of Lehman Brothers, Obama gave a speech on Wall Street calling for reform. Not a single CEO from a leading bank attended. If they feared being given offense, they were mistaken—Obama blamed the victims and the victimizers equally. “It was a failure of responsibility that led homebuyers and derivative traders alike to take reckless risks they couldn’t afford to take. It was a collective failure of responsibility in Washington, on Wall Street, and across America that led to the near-collapse of our financial system one year ago.”

The Uses of Adversity

Such anodyne talk of financial crimes without perpetrators is reassuring indeed to the big-donor base of today’ s Democratic party. But it points up a much broader distemper in our public discourse. Where Theodore Roosevelt spoke plainly about “malefactors of great wealth” and his cousin later decried the obstructionist reflexes of “economic royalists” during the height of the New Deal, the present generation of Democratic leaders appears constitutionally unable to call economic predation by its true name.

This suggests a factor that marks the ultimate measure of oligarchic domination: The process known as “cognitive regulatory capture” has moved out of the narrower orbit of the Treasury Department and the Federal Reserve and has quietly overtaken most of the American political and intellectual elite. During the Bush years, libertarian conservatives mounted a failed crusade to supplant “the welfare state” with “the ownership society” in public discourse, and their allied push to partly privatize Social Security proved politically disastrous. But in the broader scheme of things, the ideologues of the market have succeeded as arbiters of usage and semantics, transposing many of their foundational assumptions into what German sociologists (who else?) call the Lebenswelt or “life-world.” For example, what used to be called “developing countries” are now commonly referred to by a term that originated among investors—emerging markets.” Something has changed profoundly when Mexico and China are no longer nations but “markets.”

And increasingly, that usage has drifted upward in the global economic order, with developed nations such as the United States forfeiting their standing as republics or nations in official discourse for the more clinical and bloodless conception of them as markets—more fully emerged and fearsomely scaled than their counterparts in the erstwhile developing world, but markets nonetheless. This seemingly small shift in terminology stands out in especially stark relief when compared to the twentieth century’s ideological rivalries among nations: During the world wars and the Cold War, the United States and its major democratic allies defined themselves by contrast with “totalitarianism” as “the democracies.” Especially during the Cold War, the global battle between political freedom and political unfreedom gained far more currency than the more technocratic characterization of the conflict as a mere struggle between two rival economic systems, capitalism and communism or socialism.

Following the Cold War, the Clinton administration, as part of its evangelism on behalf of “globalization,” defined the foreign policy strategy of the United States as the mission to “enlarge the circle of market democracies.” This curious formulation implied that the rival model was not the authoritarian or totalitarian state, but “non-market democracies.”


Indeed, the Clinton administration applied the Washington Consensus—which then, as in the present Democratic era, favored privatization and liberalization of market regulation for the United States as well as for the inhabitants of what are now called “emerging markets.” Declaring that “the era of big government is over,” Clinton collaborated with the Republican Congress in destroying one New Deal era federal entitlement, Aid to Families with Dependent Children (AFDC), and came close to proposing partial privatization of Social Security. Rejecting the single-payer approach to social insurance of New Deal Democrats from Roosevelt to Truman to Johnson, Clinton proposed a health care reform that, like Obama’s later plan, was so deferential to the private sector that it was strangled by its own contortions. And Vice-President Al Gore was identified with the fad of “reinventing government,” which for the most part meant the privatization and outsourcing of government functions—a trend that culminated under George W. Bush with the costly and often lawless privatization and outsourcing of war in Iraq and Afghanistan. In short, from the Seventies to the present, a sort of New Deal in reverse took place, with the blessing of Democrats like Carter, Clinton and now Obama. Deregulation, combined with deliberately lax oversight, reduced the effectiveness of government in the realm of finance, even as it liberated the financial industry to revive practices known only from the history books during the middle of the twentieth century.What is a non-market democracy? For that matter, what is a market democracy? At the height of the New Deal, during the Thirties and the Forties, it was fairly standard practice to refer to the United States and similar advanced industrial nations as “mixed economies,” combining to varying degrees socialism. competitive capitalism, and state capitalism or utility capitalism. Even though the United States never nationalized major industries or banks, as Western European democracies did at times, it combined capitalism with socialism, via social insurance programs like Social Security and Medicare. To define the United States not only as a democracy but as a “market democracy,” as the Clinton administration did, was to imply that America’s home-grown version of social democracy was as illegitimate in the New World as the brand of social democracy incubated in Europe.

And as we gaze out further on the Washington Consensus that drives the conceptualization of domestic policy, we find a still more insidious adaptation of financial thought in the notion of “human capital.” Just as “market democracy” replaced “democratic republic” as our dominant national self-image, so has the formation of “human capital” replaced “education” as one of our chief prescriptive social aims. Since the eighteenth century, most Americans had viewed the purpose of education as political—to inculcate the critical thinking and the knowledge necessary for citizens to play their parts in preserving a democratic republic from the machinations of demagogues and tyrants. But in the late twentieth century, the language of the corporate boardroom and the consulting firm replaced the language of Lockean republicanism. The individual was a firm, and the child was a start-up. Teachers were venture capitalists tasked with the mission of how best to invest “human capital” in a classroom full of fledgling enterprises competing with billions of other human firms in the new, borderless global marketplace.

Never mind that in reality, four-fifths of the U.S. workforce toils in the domestic service sector, engaged in activities that can only be performed in the United States and are immune to foreign competition. Never mind that, according to the Bureau of Labor Statistics, most of the jobs to be created within our borders require only a high school education plus brief on-the-job training. To continue in the vein of our age’s overmastering market rhetoric, policymakers regard such data as lagging indicators. In the financialized discourse of post-Cold War America, the human capitalist has supplanted the citizen, to be equipped with tools by the investor-state and then sent out to flourish or fail in competition with legions of unseen rivals in the new global economy.

Just as banks and other financial institutions are stuffed with toxic financial products like subprime mortgages and credit default swaps, so are the minds of educated people in the United States and around the world now filled with toxic intellectual products: “emerging markets,” “market democracies” and “human capital.” We have witnessed the financialization not only of the American economy but also of the American mind.

Toxic Avengers

If this gradual financial takeover of the Lebenswelt is not the sign of a full-fledged American oligarchy, it is, at the least, a deeper oligarchic drift within American society. It no longer would be sufficient to liberate politics and the real economy from the domination of the crippled but still bloated and abusive financial sector; the challenge ahead is to discard theories and vocabularies that make financialization seem natural—and therefore effectively invisible.

During the nineteenth and twentieth centuries, when the planters and the finance capitalists issued their ultimatums in their plays for greater power, the American people responded by strengthening the central government to render it less vulnerable to intimidation. The Southern slaveowners could credibly threaten an antebellum federal government with a tiny, incompetent army and no national banking system. The national government that emerged between 1861 and 1865 was a far stronger, sturdier institution. As a result, we haven’t heard much from secessionists since General Lee surrendered to General Grant at Appomattox.


A century ago, the incompetence of the federal government in dealing with a modern economy was revealed in the most humiliating way by J.P. Morgan’s rescue of the financial system. Once again, the response to oligarchy in the first half of the twentieth century was to expand federal authority—and to cut finance down to size, to the point that it was more or less a boring utility during the post-war Golden Age of American capitalism that lasted until the Seventies.

Today, as in previous eras, a too-feeble government faces an economic oligarchy that can threaten to shut the whole system down if it does not get its way. What else does “too big to fail” mean? The Obama administration has argued that the federal government lacked the manpower and resources to supervise the bankruptcy of major Wall Street funds and other financial institutions.

If the problem is a lack of government capacity and not merely political will, then the solution should be obvious: Create that capacity. The crash of 2008 provided an opportunity to right-size America’s financial regulatory regime, while downsizing and trimming an out-of-control financial industry.

Unfortunately, the capture of the Obama administration and both parties by Wall Street already may have ensured that the political system has missed that opportunity. It is increasingly likely that there will be insufficient reform, followed in time by another debacle—and, perhaps, another opportunity for reform. If the next opportunity is not to be missed as well, then reforms that go to the root of the problem—such as a new Glass-Steagall-style division of retail banking from investment banking and speculation, along with the replacement of revolving doors with firewalls between the financial industry and its regulators—must be at the center of the debate and not on the sidelines.

But reform will fail unless it is accompanied by the liberation of thought and language themselves from the semantic hegemony of market fundamentalism. We must insist that we live in a country, not an economy; that while our economic system is and should be predominantly capitalist our society is liberal and our form of government is democratic; and that maintaining a republican community depends on the health of a broad and independent middle class, not on the wealth of a tiny investor elite. Most of all, we must think as well as act as though we belonged to the nemesis of an oligarchy: a citizenry.