ladies and gentlemen welcome we're now having a meeting with the inet lecture i.e a set of meetings organized by the institute of new economic thinking this is an alternative to the economic mainstream and now we're going to give the floor to a political scientist who has a main approach to that of multidisciplinarity we're going to hear from thomas ferguson i am very pleased to say that i net lecture organizing these set of meetings in the general framework of the economics festival donated 120 scholarships for students to foster research in economics drawing inspiration from contamination and trying to make economics um to see that with the multi-disciplinary approach andy aldain robert mcchesney martial and rob jones have been so far involved and they're all sitting the board of the institute for new economic thinking the director of research projects and a member of its advisory board is indeed professor thomas ferguson i'm now going to read his resume he's also professor of political science he has a chair of the university of massachusetts and senior fellow at the roosevelt institute he taught us at the mit and the university of texas he published in the quarterly journal of economics international organization international status quarterly and the journal of economic history he also serves on the advisory board of the institute for new economic thinking he writes frequently as an intellectual for all topical subjects in the international debate for the halftime post cedlon and he is also contributed to um alternet he's the author and or co-author of several books including the golden rule and right turn together with rogers he's now going to devote himself to one of our central subjects among the different topics are covered by this edition of the economics festival the title of his presentation is the political parties of the world for the first world of advanced capitalistic econ economies the lecture by professor ferguson is going to show that based on one of the approach that he contributed to the development that of investment free of politics that unlike more conventional theories on the median voters there are different weights and counterweights when it comes to voting capacity and the possibility to influence the debate in liberal democracies there are a number of votes that way more than others there are decisions that are more influential than others these influences are lobbies groups financial elites representing again the very subject matter of today's presentation having said as much i'd like to give the floor to professor thomas ferguson very much milano um look i am very happy to be here not just because your city's beautiful and because it's sort of amazing to be in a place where you see pictures of economists hanging around as though it were you know a venetian festival or something but i have to confess i was raised i suspect as many here were as a catholic and if you know the peculiar history of the american catholic church it is just the case that um the spirit of the council of trent went with a special force into american catholicism after 1910 or so and in that sense i grew up hearing about trent trent trent all the time and so when i got here i had that peculiar sensation that i'd been living here all my life and you know i of course i also appreciate the irony uh that this is the place where in some sense the first effort to get europe to stay together blew up right i mean because that was the inner meaning of the first efforts in the council of trent then they went around and sort of took what i would call a cold war hardline uh on a religious doctrine well all right um at the same time i also have to confess it's pretty humbling to show up here i mean i speak several european languages i don't speak italian and what keeps flooring me is i run into people who speak four five and six languages making me as i sort of sit there with a couple just sort of just not so great so the only thing i can do in this is take refuge in what an arkansas politician back about 1910 said that if english was good enough for jesus christ it's good enough for me now i actually i think one more little regional anecdote yes i taught at the university of texas and there i admit i was influenced by my environment it's hard to convey to any audience like this when i was there was the early 80s and texas was still probably the energy capital of the world and its spirit was a mix of frontier and late model capitalism and you know you'd actually run into people in various bars who would actually say things like how many of the downtrodden did you trot on today uh but uh the story that i want to sort of just highlight because it does affect uh what my my main message here is a true story about an argument between a dean and a president of the university of texas and basically the dean said to the president they were contemplating some step and he said frank that's a conflict of interest and the president just looked at him and said john where there's no conflict there's no interest now that's where we get let me move to my first slide here well that didn't work okay now i want to talk about theories and evidence in of political parties in why said first world that was just casual i meant relatively rich countries i'm not trying to explain medium size medium countries or small ones where i regret to say in many cases what you actually have is a sort of not very subtle form of kleptocracy or something where the ruler just owns everything are nearly so um i'm sort of interested in what used to be called advanced capitalist societies i believe the term now is of choices of art is a free market democracies or something well whatever this is what i'm going to talk about but i want to take off after i i heard yesterday i want to sort of make this problem very concrete yesterday i heard a very good presentation very elegant um on the eurozone crisis and the focus of that presentation was on the european central bank and the main point uh it put before the house was well the bank's position vis-a-vis the countries in the eurozone was quite undemocratic because it was subject to no political authority and terrifyingly especially if you're a banker could not be compelled to redeem its promise to do whatever it takes to support the eurozone financial system and so the suggestion was that the eurozone political elites need to stop substituting bureaucratic integration for democratic integration and the analysis of the design of the system focused heavily on differences in unit labor costs now my reaction on this draws heavily on a couple papers at a recent inet conference on grenoble one was by service storm and cw mastopod there and the other was by arturo o'connell and in the background is just a the balance sheet recession notion developed by richard coop and you know my take is this analysis is not really very helpful basically i think if you look at the eurozone in those two papers with coup in the background you get a relatively straightforward approach to this which is especially after the crisis of the marked in germany german and other banks french american uk were looking for business and they had plenty of funds people were still making deposits so they met they sent a swirl of money into southern europe read peripheral europe and the wave looks a lot like the financial crises in latin america and elsewhere that have happened recurrently now my take and lots of other people's really nicely documented by storm and nastapad is this inflow of funds drives up wages especially construction wages and and and then fuels a bubble now the wage rise is a consequence of the capital inflow it's not that everybody's rushing off to live way beyond their means um and you know in this view the whole eurozone crisis derives from a failure to restrain the banks um put it another way uh when you're talking about design flaws in the euro start with the failure to have any uh effective control over banks or to sort of put it as i do with the right of the eden of a big integrated market that people were the vision here of sugar plums dancing in their heads was in fact unprepared for the godzillas and king kongs that were looming over the landscape the too big to fail banks now and in the question period there was a really good question that came and oh by the way did you notice that the countries bailed out the banks what's so democratic about that i mean these were supposed and uh let me just show you a little point from a paper i did with rob johnson you can see the political structure sort of matter the dark colored dots are countries that took some penalties out of the banks the ones with holes there sort of looking like donuts on the lower left and bottom are countries that ask for almost nothing or in some cases nothing initially now the later responses were sometimes different but the point was you could see there are some political structure differences if you looked at voter turnout and the percentage of socialist deputies in the parliament you have to accept my characterizations of uh which of these you know in some sense made the banks pay but it's it's not very hard you do get some kind of a clear separation but my real message here is not uh that people haven't been paying attention to this it says that nobody did very well i mean at most i mean the germans are right now trying to sell the 25 percent share of commerce bunk uh that they took uh but that's you know the commerce bank folks they too are still in business okay now this is where i wanna see if you now fast forward to the eurozone i would characterize the european crisis quite differently it's just that the countries took over the private debts of the banks not all of them they're still out there some places a lot of them but they did that blew up the country debt to gdp ratios and frightened investors so the european central bank rescued both the investors um and the banks and the countries with that outright monetary uh transaction policy the and the point is simply well the central banks of the uh of the countries buy the country debt the investors the countries are reassuring the banks live on the rest of you aren't so lucky i mean there's effectively ordinary europeans don't get much in the way but bailout to me and to my colleague peter timmon where we were working on this question last month look europe seems to us quite like in 1930 that is to say uh nothing's really been resolved except this time the banks appear to be safe but there's no real growth impulse and as some talks yesterday vividly illustrated many countries had debt to gdp ratios that are going up not down um this what's scary about this is that in this type of situation you're just sort of sitting there like an ocean liner with all its lights out and no power in the ocean waiting for a shock in that type of situation we know what happens this should be now much easier to sort of comprehensible after the recent european parliamentary elections what you get is a very simple rule was is true in many countries in the uh 30s it's true now which is you get in out out in political oscillations where who's ever in power gets voted out they roll somebody else in when they continue with the same austerity policies they go back out after four or five years all the swamp creatures start coming out and you get the center political centers just dissolve that process is clearly far underway in europe now and so the reason i want to talk to deliver the talk i want to now is i think you need to sort of learn to talk about banks um it's like is there something wrong with the political analysis that just about everything i see and everything i read i'm not claiming that the american version of this is much better but there is some work on the question but in if you look at politics and journalism uh pretty much everywhere in europe i think i i the europeans were all agreeing with me last night so i don't think i've actually missed uh that much stuff when you the basic analytical approach people take to analyzing elections just about is this what political science and economics calls the median voter approach forget all that stuff it's just think of it as some form of election where the voters sitting somewhere in the middle of the distribution where you get the most votes settles the election they all they mean to be saying there is some version of plurality or majority rules which depends on the exact rule i i've always i've written and said there's a huge problem with that position it's not very difficult to figure out what it is it relies on the view that you know everything you hear is all there is to say and the problem is is that no political position before the electorates can be uh presented unless it can be financed um and you know at the bottom of this when you look at it is when you look at the classical democratic theories like mill or lock in the sort of english tradition what you'll typically see is that they sort of take it for granted that you know the electorate whoever out there is voting and in lock it's hardly anybody in mill on the other hand it's many more people is that it's pretty easy and cheap to sort of get political information reach a decision and that folks just sort of know somehow pretty fast how to do everything and understand it um my take is that's a huge problem it's plain wrong uh and so uh you gotta actually deal seriously with if you like the costs of democracy and this comes very quickly to a simple story either you find some way to pay the costs of democracy in a way that in fact either all of us pay a little or a few folks pay a lot and they end up with most of the power in the system so that power passes by default to organized interest groups and major investors or but i sometimes say in my slogan on this now i under i agree that the u.s is the case study of this but it's the u.s is unfortunately showing the rest of the world the way there i think um political parties these days are mostly bank accounts uh and and not a whole lot else so the question is is how do you organize analyze political parties that's what i want to talk about just briefly uh and let me just start i'm gonna this is a bit of a jaw breaker but hey this is an economics festival and i'll come back at it fairly simply fast what you want to do is try to imagine uh if you like blocks of investors which could be people investing vast amounts of time typically they are not i assume all of you know the by now it's as far as i can tell it's a cliche even over here the sort of dwindling turnouts in just about everybody's form of election in every country at every level in the u.s we're used to that we have a history of voter turnout that looks like coney island that is to say a roller coaster in many cases going down i mean people won't believe this but it is true between about 1900 and 1950 or so turnouts in elections in georgia ran about six to seven percent of the total electorate no more i mean anyway that you're you're not anywhere near that and our voter turnouts are typically uh a lot higher than that but still way short typically on european constraints anyway what i want to do is talk about how do you do this for a little bit and frankly my pitch is i think it's time the europeans get into analyzing political systems in some different way uh because i don't think we can go on like this if you if you cannot find a way to analyze the power of banks and other large firms in both countries and the european union as a whole this is going to be the second well this time i guess it won't be trento but here in trenton we'll be talking an effect about why europe dissolves again because i'm certainly not trying to tell you that you know i think people should pull out of the european union or anything like that i'm saying that if the if you can't figure out a way to get a serious analysis of power then probably the european union will come to a political shock i'd bet faster than most people on that and if i had to guess my candidate would be france as so often in european history but never mind anyway um i i'm going to just drop a couple of things i want to talk let me just ask you to imagine this i think the first problem what what particularly stymies most sort of people coming from europe in some forms of political analysis is they're used to thinking in terms of political party systems that have labor on one side and then business groups on the other for a while in sweden it was like heavenly made that because the there was a labor a labor party sometimes called itself a socialist party and for a while the business party actually took the name the bourgeois party you know it's hard to tell anybody there you just don't need to tell anybody much about that the problem is is that that approach is pretty foolish now we learn this in the united states in many cases it's foolish we learn this very simply in the united states because until the new deal there were no interesting political forces of labor in american history after the new deal it's perfectly obvious that the democratic party had a tie to labor it was also equally obvious if you ever looked at even the roosevelt cabinets or his political supporters or the political money that they weren't mostly about labor and by the time lyndon johnson and john kennedy were president well the johnson cabinet is a perfect example of what i'm talking about it was basically just an endless array of multinational business executive i think there was one labor guy in the cabinet for much of the period but this was some kind of very strange business labor party and it flummoxed a lot of folks it's not hard to understand if you've got a weak labor uh situation then you'll find some businesses go into coalition with them if you want to sort of work out the theory of this i think you can sort of see what on average might be an important case which is hey it's the people who are in capital intensive industries where labor doesn't matter much as costs that really are the type you're most likely to see when you do a statistical study this that's what you find um and then you can imagine you can cross so if you had a ma in in europe today it's perfectly obvious that most of the labor parties have long ago de-radicalized i mean that the socialist parties i mean in france there was always this funny thing the socialists weren't socialist going back probably to the 1880s uh but hey the socialist parties are now in many cases simply obvious business parties sometimes factions sometimes a patronage i would accept the analysis that says because some of the european parties have due structures that those parties are somewhat more independent but everybody knows the dues don't cover the real costs of this there was a great little book called the labor party plc public limited company by a guy who sort of showed you how the british labor party was hollowed out in many cases you can do this i mean in france it's political clubs uh that are important and largely unrecorded in um in britain tony blair established an office that while the party didn't take much money from businesses blair's office did uh before he was becoming while he was in his campaign to become prime minister and so on and so forth my point is you've got to start talking about politics and money now i uh a minute i want to show you some things you can do with this but let me make a couple of qualifications i take the point that the evidence can be hard come by though i've worked in the french and the uh british and the german records and i think there's enough data there in all of those that people could do things they just don't do it there moreover we know from the last 12 or 15 years people have learned how to use rocket science advanced statistics um you can do so called event analysis this was actually pioneered by a colleague of mine at the university of texas and he couldn't get the paper published for ages just to tell you the flavor of it what he was doing was looking at cases where politicians died unexpectedly and what he because asked be unexpected what he found is the firms they were close to their stock dropped that afternoon for a lot of folks they've never quite taken just how integrated this business is but lots of people have done event analyses now of uh politics and corporations and if you can't find any other evidence try this one but before i sort of go on about the stuff i want to talk about which is actual political money i want to just a couple of things here i want to warn you this is from a diagram again that rob johnson and i put together for a paper the thing you want this is the salaries of regulators and regulated and this sends you know a really interesting message on financial regulation right this is over time and i think you sort of get it right off which is that the regulators make much less than the regulated guess what that does it tends to turn the regulated into the people who then try to hire the regulators uh now you know in france bank supervision virtually canonizes this the people in the ministry of finance go on to run the banks that's one reason i think french bank supervision is terrible for a very long time but in the u.s it was put to me by a former regulator they function as employment agencies for the regulated that's scary enough but take my point here which is this has nothing to do with directly political money at all if you're looking for any general factor that's important here it's sheer inequality and i think this is actually becoming everywhere in the world a major factor put bluntly at the top as salaries pull away from the rest of the population everywhere the government structures at the top tend to emulate the very top of the private sector i mean it is quite striking if you look at u.s presidential libraries most folks for who were president of the united states had none at all franklin roosevelt left a small library with a small legacy now you get in the last three or four presidents with very lo i mean what i'd call an edifice complex very large libraries and i believe the obama target for the obama library is 500 million dollars which he's trying to raise while he's in office for that anyway um so i i'm far from telling you that this is just a problem of political money in a narrow sense and let me just make another point let's look at the spectrum of political money for a second and um i'm quite struck just sort of look through the spectrum for a second here in the u.s this is declared in other cases it is not always but you can sometimes find it most german members of parliament are allowed to take seats on boards and things and get paid for it i noticed that some people who seem to think that inet they call i mean somebody in a handle's blot actually had the gall to write well their uh net is a uh some kind of front for international finance i'd like to see honda's blood start to cover political finance the way i do and if you know any hondals block correspondence you can take that challenge back to them anyway the uh at any rate if we get lots of payments to political figures uh u.s political administrations essentially everybody that goes into the white house as an advisor has some of these my favorite was a white house economic advisor who claimed to he was being paid just under a million dollars by an investment firm for advising on philanthropy those of you who think about this for five seconds will realize when was the last time you saw anybody get paid a million dollars for philanthropy as an advice capacity that's pretty obviously a polite way of uh keeping somebody in circulation until they can put them on sort of like the payments that were formally signed by the last treasury secretary from citigroup uh which said you know if you go into public life you can keep the cash that we're and that you're going to get in a bonus well anyway um lobbying money's huge now i understand the european countries all have different systems of lobbying in the in particular in france or in germany it's somewhat narrower you also all know that in brussels the american system has taken hold and it is everywhere coming in as far as i can tell in every country though where you have an a ministry formally as it were inviting folks to lobby it restricts that a bit but not much we now see think tanks i think everywhere in europe some of those do some thinking there are more tanks in my opinion than uh thought um we know that in the united states some good studies have been done on charitable grants especially most corporations have charities now it turns out that they have a funding tendency to be especially interested in projects frequented by the spouses of for instance congressmen and women it's a lot of money there is the famous many lawyers fees as george stigler said ages ago the great thing about having a lawyer or paying a lawyer is that you can pay them for something legal and you know that's the end of it a point i want to make the business of stock tips has gotten really quite interesting there are some good papers on this though there is some conflicting evidence but one great paper by alan zabrowski and his colleagues showed you that the highest rates of return in recorded history over about eight or ten years were for u.s senators that not george soros not warren buffett not anybody could rank with those folks in the way now i mean if you think about that five seconds you understand what i'm really telling you and what zabrowski was telling you uh which was they're just being handed stock tips and you know you can take that home that's not election money uh there okay and finally there is formal campaign spending a lot of public uh relations spending and as somebody pointed out after a talk i gave here and i added it to the list yeah there are a lot of media companies that give book contracts the murdock empire has done tons of that they were giving chinese politicians american politicians and some asian politicians as well as british politicians contracts for large books they may or may not deliver the book but they get the money now i get challenged all the time can you show that any of this stuff matters and so i introduce my favorite graph i admit this thing in terms of any orthodox political science approach just shouldn't be there and my challenge to younger researchers here is i lay odds you could do this uh for in european in some european parliamentary elections in particular i think the data is a may be available for france i know i've been down in that office and looked at them but what i do here is with my colleagues now i should say this is not just my work at g chen and paul jorgensen work with me and we publish this we run democratic money the percentage of money to democrats in the u s house races on the bottom and then you know running up the top is the vote margin you know at both ends you get zero and 100 running with no opponents basically what you're seeing there is about the closest straight line relationship you'll ever see now there is a technical objection to this that you can do which is to say well you know maybe they're just giving the money to popular people or something like that now there's a couple approaches to this first of all it becomes more unbelievable as you go from election to election and what we found is that in every election we've looked at you get this linear relationship you also get it for u.s senate elections and we know that holds for something like a 24-year period the uh but more broadly what you'd like to do in us in a situation like this is you'd like to introduce an instrumental variable uh to give you a control the problem with instrumental variables in political science is basically everybody ends up staring at each other as in econometrics in general and asking themselves do you think this is plausible or not this bothers me so we are actually my i actually found a thesis that works with latent instrumental variables and my colleagues and i are probably four days away or so from doing that we need a spatial version of this because although hardly anyone analyzes u.s house elections in spatial terms they are in space and i mean for those of you who are in the statistics you should understand immediately spatial auto correlation is a problem anyway what this shows you is that house elections for the united states likely are i mean what the qualification i just said hugely money driven is my um and uh this is a little terrifying because house elections get some coverage i actually think what this is a warning about local elections where they get no coverage and as perhaps some of you know in the u.s it's obviously less welded less far along here in italy where i can see people actually still reading newspapers i can't believe it here i mean i were like six or eight of them in the hotel i'm in and they seem actually to be read this doesn't happen in the united states much but the where a lot of towns have no newspaper at all and i suspect in local elections you've got a true zoo but at any rate the house elections look like that the senate elections look like that though with wider scatter and in the presidential elections are a little different they're a one-off so let me talk a bit uh i want to just quick focus here i'm almost done but the i want a quick focus on what u.s presidential elections look like and here what i want to show you is a size breakdown of of contributions now i should caution that you know there are a lot of these size breakdowns floating around out here this is probably the only one you want to believe the problems are overwhelming in consolidating u s election statistics and my colleagues and i solved this problem which i don't think anybody else has by basically taking computer programs designed for things like massachusetts general hospital where they have to admit all kinds of patients with name changes trying to standardize names isn't an overwhelm it's just a single person's contribution may have 20 different name variants with different addresses for example anyway we do this my point is simply what's total money look like below 250 it's in the ninth 2012 case where obama obama and romney were the candidates the um you can see the dif where's the big cash here it's in the thousand to ten thousand the ten thousand to a hundred thousand in the uh above 100 000. my conclusion you just add all those together and everybody tends to come out uh with the majority of their cash coming from what i'd call the one percent now we can all argue about what the one percent is there are all kinds of criteria if you take an economist magazine article of some years back they wanted to use a threshold of about 350 000 new york times put in a claim for about 500 000 never mind all that crap these are just details uh what what actually the real story here is if you can i think if you can do contributions over 500 bucks uh you're probably belong in the one percent but if you don't just use the thousand to ten thousand uh and i i have to conclude that uh american politics is a game of the super rich this now this stuff includes corporate contributions for a variety of ways we just don't we just don't have time to go into that i want to look at some breakdowns in a minute i want to add a word there is also some non-itemized money not shown in that table i thought i brought the table but i didn't don't don't look at table three here uh look at me for a second more and then you know i understand my children long ago said to me dad you have the perfect radio face so then you can go look at that but i just need your attention on this point there is a you can add up the unitimized contributions and we did it and what you find is pretty interesting when you sum all the united contributions um which means contributions from small they're less than 200 dollars when you do that you find the democrats have about twice as many as the republicans but even under in obama's case it adds to only about 35 of his cash meaning all the stuff i just showed you when you sum it all up uh you still get that same one percent dominance uh out there on the other hand you know i'd offer this as a caution there are a lot of folks walking around saying you know the that effectively or ordinary folks have zero impact in elections i'm a little cautious about that because of those the sum totals there they're not zero when they go to zero you'll know it and it's beginning to us to look like they're close to zero in many congressional elections but in the presidential race you can still get some money from ordinary people now this then leads to my main plea to european researchers and everybody else i'm not going to spend a lot of time analyzing american politics or i don't want to do it but like the way i have liked to work for many years is you take you break out the big business contributions from everything up um i'm telling you that's not an assumption i think you can make a case that the large firms dominate if you don't do it your way it's fine but do it but the point i want to make here is you can see how much how hyperactive as it were the big business firms are the all means the whole sample of business which is the entirety of all contributions and everybody we can identify we didn't do any sampling here we took the federal election commission numbers put them all together and did it from scratch my point is yeah the large firms are really super active but i would also note this which so many people believe i have a very hard time especially talking my italian friends out of this who are convinced usually rightly that there's some peculiar fix going on in most italian electoral uh machinations which is it's not the case that all businesses contribute equally to everybody it's not even uh logically plausible that they could do that though that's another argument um the point is is that there are real differences between firms where you where this method becomes really interesting and really powerful and where you get stuff you can see no place else is if you take the contributions apart by sectors but you can take it you can go way down inside those sectors too i just hey i got a table and i want to stop but if you look uh at there uh look at the input you can see a number of things from this i will just ask you to believe this this is actually out in an article in the international journal of political economy so i guess my pitch is read my article my that in my article and my colleagues don't read my lips but here i am so if you look at coal mining paper chemicals oil utilities these folks are giant polluters they're overwhelming and you can see the sort of split between obama and romney and you can say where i have big business only under those the this is a really interesting result if you have the feeling and you know which would admittedly if you were paying any attention which can be tough in american campaigns but if you're paying attention to what people say it was just obvious that the republican nominee and all of his friends simply hated the idea of regulation of pollution and the democrats by contrast obama who i am not a big fan of but he did one thing really right that was kind of historic which was when he uh saved when the administration saved general motors they actually told the and helped along the chrysler merger obviously of interest to italians the with fiat the he also insisted that they accept a vast increase in mileage standards for automobiles that broke an oil company car company kind of cartel which had been in place really since for about 35 years with no progress at all on that because i i will tell you having done this recently i had to give a lecture on climate change and industrial policy it is perfectly obvious that mileage standards really do affect pollution levels in countries i'm not trying to tell you that everything is wonderful if you have them just go to the us in a big city or go to china and take a deep breath and you'll sort of get the point but they do matter anyway um i actually think i will stop here there's plenty more that could be said out of this table here let me just try to summarize my point you've got to give up this pure focus on elections results where you're simply like doing regressions of voters you you've got to just stop doing a rhetorical analysis of campaigns you actually need to look at where the money comes from not just in the campaigns but how it goes to folks i am very struck by the enormous numbers of corruption scandals floating around essentially in just about every european country i mean since since i landed about two weeks ago in this place like the head of the ump france had to resign for yet another scandal they go all the time and it's perfectly obvious to me that as you go to the society in which the one percent make more and more and more of whatever there is to make and still understanding that there are very large differences across countries in this your political systems are becoming highly distorted when you're talking about the euro you need to remember that if you hear people talking to you about what do we need in the form of euro regulation or democracy and they're not able to mention the word banks or they don't have if you're talking about democracy i mean the european parliamentary rules on conflict of interest are outrageously weak everybody knows it um and people exploit it you've got to get serious about money in politics or you know what happened you know four or five hundred years ago at the first council of trent when europe broke apart it will break again thank you thank you very much professor thomas ferguson for this very lovely portrait of contemporary democracies and the role of make money and big business into them especially connections with politics and elections so there's a mic available so if you want to raise questions just raise your hand if you want to ask questions just reach your hands and you'll be given the mic there's somebody asking for the floor at the bottom of the hole you already said that your presentation your lecture would be based on the north american perspective and we quite understood that but as some point you said that yesterday you let's listen to a lecture on the eurozone and on the possibility to have the european central bank lend money to safeguard the euro and the euro eurozone i believe that this is only the case that this is certainly something that the european central bank could do then you referred to the breaking up of the eurozone you said that the politics have to be wary to avoid that but do you think that lobbies that are so powerful within european democracies and as well as in the world democracies do you really think that lobbyists would advocate the breaking up of the eurozone that would go against their own interests i shouldn't think so what do you think do you think that bobby's would be for that i personally don't believe this is the case then the second question concerning banks european banks had problems with the derivatives because as pushed forward by the lobbies and corporations in the us and i don't see how anybody would profit from the explosion of the eurozone i agree with you when you say that lobbies might try to make their own business and to profit themselves as is the case for north uh european democracies um vis-a-vis the um the big businesses what would you like to do what do you think i think that you can answer okay um okay let me just try to answer that i'm gonna i don't wanna cut the question down inadvertently but as i take it the question is what do i think is the situation with european big business uh in the eurozone now let me just say this depends on the country first of all there in the uk which admittedly is not inside the euro but in the eurozone uh sorry in the single market as it were the um there was a letter published in the daily telegraph just about a week ago where a block of very prominent businessmen basically they were all men too by the way they effectively said in a hardly veiled language that if the prime minister cameron didn't come down hard on the eu they'd moved to the uk ip now you can say to me that's not the core of the eurozone i agree but that's a really interesting case where you see a party emerging with some electoral success really appealing basically as far as i can tell against immigrants and everything else i don't see that there's and and obviously implicitly trashing austerity they don't have too much to say about that um the uh there for sure is some interaction between big business and these newer parties is emerging um in the eurozone itself i don't think i'd ex i would not expect many big businesses now to sort of go for that where you have a problem is where you could see this discussion say back in 2011 in 2012 there were several large german business heads who were beginning to talk about let's throw grease out they actually said it just like that saying it'd be too bad then that whole discussion was stilled when merkel sort of who waved wandered back and forth said no let's not do that um and then of course came the rocket we'll do whatever it takes business i i think right now everybody in all the big firms in europe are pretty scared but they're not probably nobody going to move to afford to try to knock it down the question is what happens later now i am not claiming although i actually agree with schuyler i think the front nasty and all in france is a fascist party as the german finance minister said just about three days ago the but lots of things were unthinkable early in the great depression for many big businesses i mean you can if you doubt this look at my piece with joachim vote in the quarterly journal of economics in 2008 you can see exactly what i'm talking about in the end uh as the situation got worse and the historical alternatives began to narrow themselves down and as the political center dissolved then you get big businesses taking really strange positions i mean my advice is don't ass i mean i wouldn't treat the european union the way yeah we all used to treat unbreakable phonograph records you know which was uh believe they're unbreakable and don't worry about it i mean the advice is don't throw it on the floor you might be surprised so i think no now i wouldn't worry but i'd worry later i mean that there is in i mean i'm not kidding folks i think it is obvious that if you do not do something to relieve austerity on a large scale the french electorate is going to become very strange and it might not be fundamentally an electoral problem france has a long history of such explosions thank you i will ask in english if you don't mind right i don't mind yeah so very interesting data i have two questions one is i really thank you for your consideration about europe but the first question is based on your analysis what has changed in the usa policy uh historically when more and more the the big company have influenced the politics because if there is no change then maybe there will be no changes in europe so you have not said what sort of change the other question is um well i think this is the major question because then we can go back to europe and try to understand uh what what can happen in europe okay um as i take that you want to know what difference does it make to the u.s i wasn't trying to do a full analysis of the u.s i was trying to show you what you can do with data if somebody will make the effort um now in the case of the u.s i have a long paper on congress it's while there are the latest versions coming out in the book it's easy up on the web uh if you say well i gave it an inet conference it's up there um if you type thomas ferguson inet congress it will almost certainly come up what i try to show you there what is that the current partisan gridlock in the united states owes virtually nothing to disputes among the citizenry and differences of opinion and it doesn't owe much to gerrymandering either which is rewriting election districts which is another favorite thing it owes a lot to stalemates among large firms i mean basically i think the paralysis of congress and frankly of close to paralysis of the american government over the last 20 years is very plainly tied up to differences within big business i mean we simply can't argue this now but at least i'm absolutely clear uh on what i think is driving what uh in that and so uh then the question is well what about europe i look let me just make the point very simply um if you believe that your interests are identical to either the one percent or large firms you don't have to worry uh about uh the phenomenon i'm talking about but i mean look most people would actually i mean i think it's pretty pathetic almost every european uh younger person i meet in the whole of the south spain portugal greece and even italy they're all asking me questions like how can i come to the united states it's like for you're looking here at an almost lost generation of people i mean it's pathetic the youth unemployment situation you know you don't need me to tell you was it 49 in spain right now um i mean you've got to get a government in there that is going to pay attention to these problems if you don't you're not going to solve it there's nothing i can't see any impulse in the european economy right now that offers any real promise of this i mean the only thing i can see is that folks might do quantitative easing which could be read as a sort of very crude way to depreciate the currency for a while that's a trick that can't go very far and if you look at the japanese depreciation uh and what happened and the way they sort of had to stop it you can sort of see some of the limits of that in a weak demand world economy competitive depreciations are not the way to go so i i actually think it's a longer discussion i don't want to dismiss the question but that's my answer uh first of all thank you for your very interesting presentation in one of the graph that you showed us we could see that one of the problem is that regulators earn much less than regulated people does that am i right to think that if this that graph basically implies that um one of the potential solutions would be to put restrictions on how rich people can become in the country so that they don't get more powerful that the government so i take it you want a view on that all right now yes now let me put it this way i i might i myself think that when well they've been doing comparisons of the average humans wage average production workers wage in the say in the 60s compared to the chief executive officer of the firm they worked for it was about 25 to 1 in the 1960s at points in tooth in the 21st century it got up to something like 400 to 1. it bounced down when i last looked to something about 220 to 1. now i have to tell you that there is a piece of me that when i i think you know maybe isn't 200 to 1 enough for any human but on the other hand i actually think your problem is probably not regulating individual incomes you need to get incomes up for the population and then i actually the line i push now i admit this could sound like pie in the sky uh and i you know my usual caution that i tell people if you want a happy ending guaranteed to see a disney movie the but i i suspect you could do a lot of things to make democratic procedures more robust in particular this if you have serious public financing what was said to be for a long time in the literature incidentally on european parties to be the case and is plainly no longer the case i mean i don't i don't think any european any major european political party now lives on either money from the state or its members at least at the top the stuff has been hollowed out too much but uh public financing of elections really does make it possible for people who want to do the right thing to do it they have zero chance if they are as a friend of mine for instance works in congress and he was trying to get round up some representatives to vote and he told me when he asked them to come they said one guy said look i've got a dial for dollars this is going to cost me two hours of fundraising to actually show up for a meeting to discuss a piece of legislation i mean those of you who are sort of interested in opportunity costs can sort of do this calculation when you look at the totals you can divide by the number of days in the year i mean you get these fantastic numbers how much you have to raise as a congressman or woman how much as a senator and you know it's truly a lot of money so i mean my take is you you have to deal with the public financing story i certainly would try to i insulate and professionalize regulators uh and and i i would just stop this process of going from the government to private interests i mean i i think it's just unbearable the way tony blair has for example exploited his position ever all over the place but the same with the clintons or any number of other politicians and you know i'd put an end to that i really would i think they don't have to run for president nobody has a constitutional right to cash out of their office and do for look at you look at the case of bernanke ben bernanke left the fed uh within about two weeks he'd earned something like two hundred thousand dollars in a dinner uh thrown by seven uh hedge fund or private equity folks uh tim geithner is doing the same thing and geithner you know handed out so much cash to folks he'll be raking in for the next uh 30 years just the aig deal alone but this stuff should be stopped uh and i mean that that i think would would help uh but again this is not a perfect solution it is a warning that if you continue with if you have a kind of alexandrian hierarchy in society where ordinary people are barely able to make their ends meet and can't earn you know like just say they need to be able to find regular work at a salary that expands at some reasonable level any situation you've got where you can't do that you're looking at a potentially pathological situation where the cash concentrates at the top i mean that's what you've got in both the u.s and western europe right now let me ask a theoretical question your message was that big business is disenfranchised much of the voting public and if it were possible to have a proposition be brought to the voters that campaigns should be financed publicly rather than privately then that should gain a majority why does this not happen and is it necessary for there to be huge conflicts of interest in the media in order for the present situation to perpetuate itself all right people hear that question um question is about if it's so obviously sensible to have public financing how come you don't have it um and whether what about conflicts in the media all right let me tell a few true stories here first of all there is in the u.s right now a sort of active public financing movement um there are sensible versions of that that won in some states and i in maine arizona had one for a while but i think it got repealed there's a couple others and i do think that that's had some impact uh but the national movement is pretty strange i've had a few frank what they used to call in before 1989 in the old soviet block frank and comradely discussions uh with people who claimed um that the to be in favor of public financing in particular various wealthy folks who said oh we're really in favor of this and then i talked to them about what they were in favor of and i found that they were essentially a number of people some of whom were quite fabulously rich said yeah we should stop corporations from contributing but they thought there should be no restrictions on individual donors i mean i didn't have to be very smart to sort of see that would make the folks i was talking to the largest single donors in the united states um i actually don't favor that type of approach my sense is is that there is a very deliberate effort in the democratic party to make some kind of band-aid reform here but that the the obvious move and i think it actually would would pass in the united states it would require a constitutional amendment but i actually think if it would you could get it through the both houses of congress it would get ratified i think this most the population sort of sees it you need to alter the constitution to make sure it's clear that a reasonable effort to restrict spending in elections is not unconstitutional there are a few drafts of that around you're not going to see that one and an awful lot of money is spent misdirecting folks right now i do notice in western europe in for instance in the case of i mean there are all kinds of folks various french socialist mayors and things like that getting up and they were all denouncing that wealth tax which i thought was stupid uh it was too high that hollande put on that you know what's gerard de pattier de camped first to belgium and then to russia as i recall there but i don't nobody is effectively making the case i think that i just made in any way that anybody can hear it much now on the question of conflicts within the media there's a problem you know what it is as well as i as i do uh you're dealing with a corporate media run by this really big business i mean this media is now some of the biggest business there is and you know i would add if you doubt this just look at the stuff that comes out on the murdoch uh empire and its relations with british politicians in the last i mean the stuff there is just unbelievable in the degree of detail and sort of fine tuning that goes on back and forth there you know to expect a media like this to tell you a serious limitation on uh campaign finance it's just not gonna happen i mean it's like um you know i'll i'd expect water to flow uphill before i'd see that but for all that i think the public opinion case is actually pretty favorable i think most people are really sick a big money in politics i also think that's true i mean almost everywhere i go in europe people are complaining that their politicians are corrupt which they're almost always right on that and they may not necessarily they don't some they need sometimes some discussion of how do you make the link between public financing and ending corruption uh but you know they i think they mostly get it this is one where i think the public is very far out in front of effectively all the leaks now some work that is quite clearly uh derivative from some stuff i've written in the u.s has been published where they show you on public opinion if the if the middle class and the poor agree on something and the upper income groups don't it does not go through congress i actually think you can find substantial support below the level of one percent in other words a fair number of wealthy folks when you actually do direct polls of the super rich ben page has a nice piece on this you find they are very conservative indeed on political finance i mean they re they really don't want to be restricted uh and so i'm sorry on this one dennis i fear there's not it doesn't take much in the way of a conflict of the media they only have to have that attitude that i was quoting at the start of my talk where there's no conflict there's no interest they've got a conflict and they've got a big interest i only have one question in american universities is there anybody interested in studying alec barton and dick cheney that special special model of influence in politics well there is actually a paper out by some improbable folks at i think mit on chaney's case um or is that columbia i have to remember which um there is some uh i just haven't had time to do it i actually wanted to do uh an analysis i i like lots of other people remember the case not of cheney but when the day geithner was announced as treasury secretary it was like santa claus had come into new york the market rally was enormous but it turns out now there is a paper on that and firms that were close to geithner went up way more than average so the answer is not absolutely sure who did the cheney paper there is one i my memory on that one was that i didn't agree with the way they did it and they had a peculiar result but yeah there's a there is some research uh not a lot i'm sorry but this is really the last the last question because we we spent more time than usual i was just wondering what you thought about the connection between austerity ideology and the idea of demolishing public funding from for parties and for politics since this is a very up-to-date the public debate in italy as the the main what is said is we're we have we have public funding and it's pretty big for our politics and so the now the question is if whether to abolish it because using a rhetoric of the fact that it's a waste of public money and and a lot of time it brings corruption and all that stuff thank you okay um here's my i recall ren i might be wrong and you can correct me but i recall renzi actually talking up this campaign too on changing those i would regard that stuff with the greatest skepticism i i wouldn't i though there's a point though behind the ladies question that actually needs a comment it is true that the european systems generally put more public money into elections or into parties the parties as i did mention often also have some fairly heavy dues i was talking to a french socialist the other day and she told me that she put in 250 bucks a year and party dues that's a lot of that that's some real money the thing is uh what i noticed i noticed it back in the 80s sort of casually but it's clear to me that the leaderships don't work on the basis of those but it's sort of like one wants to compare the european party systems now almost to like lemon socialism uh back around 1960 in britain that is to say you got a lot of badly performing firms living on state cash uh that don't act like they should um the reason is is that they're just the campaigns all need more every time you turn around you just take the latest campaign scandal in france what's that 100 million i think and that's not madame bettencourt's cash for sarkozy these campaigns cost more money than they say they cost i think that is obvious in italy and as i sort of study the i mean i'm around enough that i get i think some fairly good sense for folks the lifestyle of the average euro leader these days and it's not quite at a ceo level but that's the standard to which they actually compare themselves in aspire and one way or the other they try to find the cash and i am extremely interested to watch the way blair emulates the clintons and other i mean i was doing a little informal survey of like what happens to danish prime ministers and you know the answer is not that much but that's denmark and denmark has an altogether less unequal society than most yet got you know 22 percent of the vote went to the right-wing party in the last euro election but hey that's only 22 my sense is is that in societies much by larger income disparities the politicians are all comparing themselves to ceos and they actually are going to find the cash there was a wonderful tape of of a local election candidate in arizona who got actually indicted because she got taped and she had was just a fabulous line she said i need the money i want to live the good life and she i think went to jail i'm sorry to say i think this has taken hold in europe i actually think the accounting here is bad uh the campaigns cost more periodically this finds out and it's not enough you you get like in front in france you get these political clubs cash ends up in there the folks in the clubs get the money it doesn't show us campaign cash at all uh they're also any number well look in germany essentially all the the conservative mps members of parliament uh seem to have two or three or four corporate directorships a fair number of social democrats have that too um there are all kinds of schemes um you know it depends on each country there's a guy named hans von arnim that has really got a pretty good study of money in the german system though i completely disagree with his remedies uh but you know i mean this this i think the situation is rapidly becoming impossible uh and if people don't do something in a hurry they're going to completely lose control of those states i think we should put our hands together for professor ferguson thank you very much professor ferguson and would like also to thank the institute for new economic thinking and i wish you all a success with the economics festival thank you you