Over the last few days it has slowly emerged that banks have been taking advantage of distortions in the aluminium market to squeeze billions of dollars out of consumers. Rather than being held accountable by working people, another corporate monolith is taking them to task.
Like the devil in Good Omens who causes an hour long tailback on the M25 and sends more souls to hell than any of his colleagues tempting priests, a tiny evil to everyone has much worse consequences than a great on an individual. Everyone was affected, but one rich man took the stand because he was annoyed. There’s something wrong with that picture.
One problem with holding banks to account for their misdeeds is that they’re so damn complicated. This FT Alphaville piece is required reading on the Goldman Sachs’ aluminium fandango. I’ve only made it through twice, and neither time in one sitting. And I’m still not sure I can tell my contango from my backwardation.
In summary, it became more profitable to warehouse vast quantities of aluminium than to use it. So banks sat on the aluminium and prices remained elevated (although down from their pre-crisis highs) and as supply became less secure, the risk of bankruptcy and the redundancy increased.
I mention this not for it’s inherent interestingness (are you still here? Well done. Have some porn, while you still can – NSFW obviously), but because it helps illustrate what’s wrong with politics. Watching the Senate Banking Committee‘s hearing on the aluminium market manipulation, Matt Yglesias approvingly mentions that it is taking a brewery to bring a bank to account.
The thing that jumps right out at you is that up on the dais you have Timothy Weiner, global risk manager for MillerCoors LLC, talking about how he would never question the free market but the banks are out of control in this instance.
Yglesias points out that politics consists of powerful vested interests holding one another to account and preventing excess. He also points to the success retailers have had versus the banks in reducing the charges they incurred whenever someone paid by card. Sadly Matt paints too rosy a picture.
James Kwak discussed this presciently two weeks ago. Daron Acemoglu and James Robinson, mensches both, published this article discussing something I’ve discussed lots and lots. Economic power produces political power and power determines policy. It’s a self-referential loop. Wealth is power, power wealth.
Despite this being head-interface-with-desk obvious there has been a tendency to ignore this stubborn fact. Reducing market distortions and improving efficiency was treated as a good even if it resulted in a concentration of power. This is where Goldman Sachs, aluminium, beer cans and MillerCoors come in.
Kwak, Acemoglu and Robinson all point out that even if the destruction of unions was “worth it” it still involved removing a powerful counterweight to the wealthy. In their phraseology unions help create and sustain inclusive political and economic institutions. Without this counterweight a concentration of wealth leads to a concentration of power even if that wasn’t the intention.
Rather there being a powerful institutional group standing up for our rights, like unions, we are protected ineffectually by the wealthy. But only when they want to and when it’s in their interest to rock the boat. The wealthy have an interest in maintaining their class privilege and it takes a pretty severe threat for someone to break ranks. As evidence, I submit the last forever.
I’m under no illusions about the reality of unions. They did look out for their members and they did retard innovation and they often left behind those truly most vulnerable…and yet they coexisted with the great post-war prosperity and liberal revolution. Whatever the flaws of the union movement they make a better people’s champion than MillerCoors. Eurgh.
For a long time, we’ve moved towards more efficient institutional arrangements and it’s paid off to a degree. But this has a cost. Yesterday we saw a beer company moan a bit to powerful people. As a result it is today more likely that banks will receive suitable regulatory oversight. Welcome to postmodern politics.