Yet again, with his now famous scowl and earnest delivery, Tom Friedman brandished his latest metaphor on "This Week with George Stephanopoulos" on Sunday, January 11.

"One of the things lost in this discussion is the fact of where this crisis started.  It started in the banks.  The banks are the heart of our system.  They pump blood to the industrial muscles."

He then went on to give us the conventional wisdom that money has to begin to flow to America's entrepreneurs in order to unclog those arteries.  But in James Galbraith's "The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too", Galbraith argues that the heart of our system lies elsewhere. It is the social contracts that government made with its people in social institutions created by the New Deal and The Great Society and even some institutions created by Richard Nixon. But these were attacked by the Free Market fundamentalists starting in 1981.   And what happened is that the social contract  is coming undone to the point where our system is now on life support.

-----------------
Galbraith and Keynesian ideas were kicked to the curb in 1981 by the Friedmanites.  He says the Friedmanites  delivered an "emotional, even a romantic aspect" to the conservative viewpoint.  No planning like the central planners of some Marxist state would dampen the freedom of capitalism.  No rules and regulations or such things as just prices and wages would clip the wings of the gods of capital.   Fly free, American eagle, fly free. 

Young economists like Galbraith were looked on as tired young killjoys boring everybody with their seemingly relentless attempts to help the poor and minorities and to fix inequality.  But inequality was where it was at, man.   The Chicago Boys were bad.  They were big and bad.  They swaggered and slashed their way to the top of the heap.  And they never rested on the seventh day and they looked around and declared that "Greed was good". 

So the three countervailing powers of the 1950's and 1960's, big business, big government and big labor fell apart.  With high interest rates the American companies began to perish and along with them went the demise of a union workforce.  But big government got even bigger as the military industrial congressional complex took more and more of our GDP.  Naomi Klein calls this the "rise of disaster capitalism".  So it was natural that the finance guys wanted back in on the action after being themselves kicked to the curb in the 1930s when they were told to behave and become boring lending institutions instead of the predators they had become in the 1920s.

Galbraith makes a case that the institutions of the New Deal and Great Society are occasionally attacked but are still intact.   He argues that the real casualty of the Reagan to Bush II years has been the demise of the great American industrial firm and the dispersal of their power.   As the technologists and researchers left the industrial firms to form their own companies, they left behind  weakened companies "transforming the large integrated enterprises from producers to consumers of scientific and technical research".  And some of the power was dispersed back to the financiers in Manhattan. Some power went overseas to Japan and Europe.

And some power started to shift  to a new predator class; an oligarchy.  Galbraith calls this

"...a financial countercoup: the return of banks--investment banks and commercial banks--to the apex of decision making, from which they had been displaced decades earlier by the crash of 1929." 

In Galbraith's father's book ""The New Industrial State", the banks were

"considered secondary to the large corporation...the banker too remote from the details of corporate operations ot control them effectively; the technostructure was fundamentally in charge..."

But high interest rates caused these firms to need money and so they had to go cap in hand to Manhattan and in came the terrible "short- termism" of pumping up your stock price.   If a company failed to reach its targeted price, it was punished by a  falling stock prices and probably a hostile takeover.  As more and more industrial firms fell, their technicians were dispersed as people were "laid off" to improve the stock price.   And so rose the technology sector.  At the same time, in the industrial firms weakened states,  the new predator CEOs came in and plundered them. 

And here's where another flim flam came in.  The policy makers and purveyors of conventional wisdom equated these guys coming out of the labs of the great companies as the rugged entrepreneurs of yesteryear like Henry Ford or Andrew Carnegie.  Sure there were a few but there were a whole lot of just plain technicians with a good sales pitch.  And money was thrown at them.  And the big salaries for CEOs in the tech sector then lend to what Galbraith calls "keeping up with the Gates".  Now it was assumed that all CEOs of all American companies should have huge salaries especially if they could behave like a tech whiz. So that led to an ordinary utility company being turned into  Enron. Things got all turned around.  The CEO like Ken Lay or Dennis Kozlowski of Tyco no longer worked for the company.  The companies worked for them.  The new, new thing turned out to be just another Ponzi scheme or shell game

"...the decision to link that pay [CEO] to the stock market rather than to corporate cash flow, the top brass gained an entirely different class orientation.  Instead of being company men, top executives became, first and foremost, members of a tiny circle of their own."

What followed was fhe idea that these members of this new class of CEOs were interchangeable and they moved around like "a game of musical chairs".  The game then became how much higher they could rise in salary above the other guy. How much could they give  in philanthropy and how many buildings and stadiums  could be named after them.  And then it became every man for himself.  And the looting began.   And the financial markets were incapable of policing all this.  They had too much power and not enough insight.

So, no Tom.  The banks are not our heart. Our heart is in our social contract with each other.  Our heart is democracy; the idea that we are all in this together and that the power resides not in Washington or Manhattan, but in the hearts and minds of the people who work and at the end of a long day, they rest and relax with family and friends.   And when they play games, they play by the rules.  It's people, Tom, not banks.

There is so much more in this amazing book.  Like his father, Jamie Galbraith stands all kinds of conventional wisdom on its head and we are the richer for it.  In the end for him it is all about good paying jobs for the people.  Banks are mere delivery systems and bankers are the delivery boys. 
At the end of the book he asks:

"What would be the impact on the dollar of a major change in American policy, away from predation and towards international security, toward domestic full employment and infrastructure renewal, and toward renewed technological leadership in the areas most needed by the world, such as climate change? " 

In other words what would be the impact of a U.S. "ruling"  the world not through military power i.e.  fear, but because of shared possibilities i.e. hope?