Tuesday, February 24, 2009

Legitimation: The Other Looming Crisis

While the news is filled with stories of the mounting economic crisis less attention is paid to what I call the legitimation crisis: the growing loss of public confidence in our economic and political leaders. Of course the two are connected, when the economy is growing our leaders look smart, when it falters they look fallible and replaceable. Part of the problem lies in the elites’ own response. They take the credit when things are going well but when things go bad they tend to deflect any criticism. It’s not our fault! Who could have seen it coming? Its unprecedented! But if leaders can only respond to the foreseen they are not really leaders and they deserve neither deference nor excessive payment. In other words they are like you and me stumbling along; neither masters of the universe nor geniuses. It then becomes more apparent that people in leadership positions are not there because of their greater intelligence but more the result of accident of birth, connections and luck. Their elite status is less a function of ability more a reflection of good fortune and useful connections. Another sure sign of their ordinariness is their inability to adjust to the new situation, whether it be senior executives justifying bonuses while their business are tanking while demanding for public monies or Cabinet appointees still persisting despite income tax records that reflect either incompetence or greed.

I have nothing against Timothy Geithner, a man considered a genius until his income tax returns were made public, or former Merrill Lynch CEO John Thain, a man paid lavish bonuses as his company lost billions, but their behavior reflects the arrogance and insensitivity of too many of America’s leaders.

The elite they did well in the growth years and look set to do well in the downturn. They seem to lead a different life from you and me. It is not just that they have more money but that their lives are protected from consequences. Their mistakes are not punished but seemingly forgiven in the political confirmation and executive compensation equivalent of endless do-over. Not so for the car workers laid off or state workers like me, whose wages are furloughed. No the lives of the US elite continue to go on in an endless succession of continued compensation and privilege. The notion of shared sacrifice vital in a democracy undergoing economic trauma is rendered obsolete by an elite permanently insulated from downturns.

We are becoming a nation led by a tiny insulated elite that seems unaffected by democratic political changes. A new administration, same kind of political appointments as wealthy Clinton retreads move from their lofty perches on boards and think tanks back into government and meanwhile ousted Republicans fill the vacancies left on the boards and finance houses. It is an endless revolving door as former political elites become part of the economic elite and transform back again. Cabinet nominee Tom Daschle did not seem to think that getting a free car and chauffeur was a taxable benefit. He must have assumed that is was just something he got as of a right when he entered the revolving door that leads from the Senate to a series of cushy economic positions and lucrative business appointments.

The difference between open and closed societies is that elites can be replaced or at the very least renewed with new talent. What is very disturbing is the shift towards a closed elite reflected in the rise of well funded political dynasties such as the Bushes, Clintons and Kennedys, but also embodied in the reality that as the middle class becomes more separate and more pressed for resources, they and their offspring find it more difficult to break through the class ceilings. You need money to make money, you need an expensive education to assure you of the right connections-- witness all the Harvard and Yale alums in the new administration-- and you need the residence and lifestyle that connects you with the other elites. As elites cocoon themselves in privileged lifestyles, they reinforce the connection between each other and reduce the entry of the rest. A number of serious studies show that social mobility, both intergenerational and short term, has declined in the US. Not only do the poor remain poor but also the middle-class now has less chance of joining the wealthy.

What made America so great, and so different from many other countries around the world was the level of optimism. It had many sources but chief amongst them was a sense that economic and political leaders are smart, relatively honest, share lives and shoulder sacrifices much like our own with the real opportunity that talented people can rise to the top. But when the elites are politically deaf and economically dumb, when their lives are so different from ours, their gains so high and their sacrifices so small, and when entry to the top is so restricted, then our belief in the system falters and our optimism fades. Economic crisis can be fixed with upturns in the business cycle and government stimulation. A crisis of legitimation is more corrosive and longer lasting, as it leads to a steady decline into cynicism and indifference. And that is something that even a trillion-dollar stimulus package cannot put right.