POLITICAL ECONOMY OF THE US STATE
ABSTRACT: Ferguson’s investment theory of party competition
posits that in a money-driven political system blocs of major
investors compete with each other to control the policies of the
state. Analyzing the competition in a ‘realist’ frame is thus useful
and yields interesting insights. We show how the theory allows for
a novel perspective on the gridlock in Washington and on the
stability of the neoliberal consensus.
Political Economy of the US State
Above [the market economy], comes the zone of the anti-market,
where the great predators roam and the law of the jungle operates.
This—today as in the past, before and after the industrial
revolution—is the real home of capitalism.
The Wall of Money
Political campaigns in the United States have
been overwhelmed by money. In 2012, the aver-
age House winner spent around $1.6 million,
while the average Senate seat cost $11.5 mil-
lion.2 White House races now cost a billion dol-
lars apiece. In the era of tele-democracy, money
offers a decisive advantage in electoral cam-
paigns. Indeed, the fund-raising advantage of
the incumbents is so acute that, despite unprece-
dented disapproval of Congress, more than 90
per cent of incumbents get re-elected. 3
Campaign contributions are not the
primary way money saturates American politics.
Political money slushes around the system from
all corners. In the 2012 cycle, even as campaign
spending crossed the $6 billion mark, outside
political spending unleashed by
exceeded a billion dollars. Moreover, moneyed
interests spent $8 billion lobbying Congress in
the five years from 1998-2002, more than $12
billion in 2003-2007, and $17 billion in 2008-
2012.4 Total lobbying expenditure outnumbers
campaign contributions by a factor of nine.
When the Obama administration moved
to support the Volcker rule that would forbid
FDIC-insured banks from speculative trading,
Wall Street mobilized a massive lobbying effort
to scuttle the proposal. The proposal died a
lonely death somewhere in the bowels of Capitol
Hill. Illinois Senator Dick Durbin quipped:
“they frankly own the place”—‘they’ meaning
the banks, and ‘the place’ being Congress.5
Sometimes, ‘they’ simply write the bill
reported on May 23,
2013, that an amendment to the Dodd-Frank
Act was essentially authored by Citigroup, with
entire paragraphs copied word for word from the
bank’s proposal.6 The week after the committee
vote on the ‘Citigroup amendment,’ House
Democrats’ fund-raising boss, Congressman Joe
Crowley, took the freshman Democrats on the
committee to meet with bank executives.7 The
lawmakers met with Goldman Sachs CEO
Lloyd C. Blankfein as well as Jamie Dimon, the
boss of JP Morgan, the two-and-a-half trillion
dollar gorilla on Wall Street. Dimon is reported
to have delivered something of a pep talk. All
seven freshmen Democrats on the committee
are already on the payroll of the New York
With so many Congressman clamoring to
be on the Financial Services Committee, it had
to be expanded to 61 members from 44 in 1980,
forcing the installation of four rows of seats in
the room that houses the committee.8 As Frank
Underwood, the fictional Congressman played
by Kevin Spacey, dryly remarked in the House of
Cards: “When the tit’s that big, everyone gets in
Big Pharma spent nearly three billion
dollars lobbying lawmakers in Washington in
the past fifteen years. In return, Capitol Hill
ensured that Medicare would not directly
negotiate prescription drug prices with
pharmaceutical companies.10 In the summer of
2012, a cache of emails between administration
officials and the drug lobby surfaced, exposing
the secret deal through which the idealist-in-
chief sold out to the very same interests he had
attacked on the campaign trail.11 The deal
included explicit commitments on a range of
policy desiderata of the pharmaceutical
industry.12 Obama agreed to kill the provision
that would’ve allowed the US to import cheaper
prescription drugs; surrendered the power to
negotiate drug prices for Medicare recipients;
and directed all his criticism at the insurance
industry, ignoring the role soaring drug prices
play in driving up overall healthcare costs. In
exchange, the pharmaceutical industry promised
political support for the healthcare bill, including
a $150 million advertising blitz coordinated with
the White House political shop.
Big Oil made a neat trillion in profits in
the past decade.13 This powerful industry has
almost single-handedly sought to contain
environmental legislation.14 The industry has
been a stalwart supporter of the Republicans in
the neoliberal era. However, it was recently
reported that the oil lobby has sought to work
with Obama, now that he has shown a more
favorable stance on hydrocarbons—in light of
the shale boom.15
With corporate coffers overflowing with
cash, every new legislation summons a virtual
army of lobbyists.
more than three thousand lobbyists converged
on Capitol Hill to influence immigration
reform.16 Many of these lobbyists work for
private prison companies such as Corrections
Corporation of America and the Geo group,
whose revenues and profits depend on the mass
incarceration of illegal immigrants.17
The competition between rival blocs over
policy goes beyond party competition and
permeates the entire edifice of the juridico-
regulatory regime. For instance, the paper of
record reported this summer that Goldman
Sachs had essentially taken over aluminum
warehouses, moving the metal around to dodge
regulations against hoarding.18 In the aluminum
market, the “premium”—the cost of physical
aluminum above the futures price—has risen
from $93 to $265 per ton this year. MillerCoors,
a brewer, complained to the Senate that its
supply chain had been hampered by the long
queues to take delivery of the metal from
warehouses owned by Goldman and others.19
This battle pits the banks and the aluminum
smelters against brewers and other end-users,
illuminating at the micro-local level the central
feature of the political economy of US policy,
‘politics as organized combat’ between rival
Political Economy of the US State
The Price of Policy
Total corporate profits after tax in 30-
year-period 1983-2012 amounted to $20 trillion.
Yet, total political spending was only around $50
billion, a quarter of a percentage point. Even by
extrapolating the heightened current rate of, say,
four billion a year over thirty years, we only get
0.6 per cent.21 Let me not belabor the point.
Such levels of political spending are pocket
change for big firms. This is certainly puzzling
since lawmakers on your payroll are surely a
good investment. How then, is there so much
excess capacity in the war chests of US firms and
Suppose there is a decisive constituency
over a policy space. That is, a bloc of deep-
pocketed investors with a vital interest at stake,
facing limited opposition from other blocs.
Examples that immediately spring to mind are
military firms for the Pentagon budget, banks
over financial regulation, oil majors over
environmental legislation, pharmaceutical
companies over prescription drug prices, and so
on and so forth. Facing little competition from
other major investors, such decisive
constituencies will enjoy ‘market power’ against
lawmakers. Political entrepreneurs have little
choice but to compete for their patronage, which
the price of policy. As long as the
policy space remains uncontested, the price of
policy will be low and the policies themselves
will be consistent and predictable.
Over highly-contested policy space, where
major blocs of deep-pocketed interests find
themselves pitted against each other, we will
observe balancing behavior: Coalitions will form
between blocs to secure policies in their interests
and defend them against their rivals. The price
of policy will tend to rise, along with policy
uncertainty. The larger the policy space that is
contested, the more instability we will observe in
a party system.22
The Rise and Fall of Party Systems
As opposed to a political theory in which
political entrepreneurs position themselves in
the policy spectrum to appeal to voters resulting
in state policies that reflect the preferences of the
median voter,23 the investment theory of party
competition posits that candidates for political
office and political parties appeal not to voters,
but to investors, who are the primary
constituency.24 According to Ferguson,
Parties are more accurately analyzed as
blocs of major investors who coalesce to
advance candidates representing their
The policy platforms of political parties reflect
the interests of their major investors, which
minor investor-voters are virtually incapable of
affecting.25 As the costs of political campaigns
have skyrocketed in the era of tele-democracy,
the logic of money-driven political systems has
become ever more applicable. Once the central
premises of this theory have been digested, a
revised approach to party competition and policy
formation in the United States immediately
Several party systems can be distinguished
historically, which we shall conveniently label by
the year of critical realignment. The Early
Republic system of 1812 was dominated by
southern planters in alliance with northern
mercantile interests. The system of 1860 was
dominated by the nascent Republican Party
which was a coalition of railroad and northern
industrial interests.26 By the turn of the century,
the railroads had gone into terminal decline and
bigger players—oil, steel, and finance—had
emerged on the scene, who would dominate the
system of 1896. Similarly, a new cast of powerful
actors emerged in the aftermath of the First
World War: multinational firms, whose interests
were directly opposed to the traditional
protectionist bloc.27 Policy formation became so
contested that the Republican Party
disintegrated by 1928.
The onset of the Great Depression set the
stage for a major transformation of the political
economy of Washington. The novelty of the
Democratic coalition in the system of 1936 was
that, for the first time in US political history, it
included as a major investor someone outside the
business community: organized labor. However,
unions were not the dominant investor in the
Democratic Party. Alongside them were much
more powerful players—internationally-oriented
investment banks, tobacco, global oil majors,
multinational firms, and high-tech industrials—
firms whose wage bills were an insignificant part
of their overall costs, and were thus tolerant of
the somewhat labor-friendly policies of the New
The system of 1936, the ‘New Deal’
regime, was characterized by Keynesian
management of the macroeconomy, centrality
and autonomy of the great corporations, and
financial repression. With banks subservient to
industry, leaders of industry underwrote an
informal compact with a residually powerful
working class, epitomized by the Treaty of
Detroit. In the presence of rapid growth in
productivity, wages rose impressively and
progressive taxation financed increasing welfare
spending. The post-war policy invariants of the
system—fixed-exchange rates made possible by
the quasi-public international financial order,
ceilings on interest rates mandated by
Regulation Q, expansion of the welfare state,
and Keynesian management of the
macroeconomy to maintain high employment
rates—reinforced each other, were co-
dependent; and were, in the final analysis,
predicated on the competitiveness of US firms in
The Neoliberal Counter-Revolution
The neoliberal counter-revolution has its origins
in the reemergence of global finance with the
eurodollar market in the City of London that
undermined the quasi-public international
financial order of the early post-war period.29
Thus freed-up, capital flows undermined the
Bretton Woods system of fixed exchange rates
that had already come under pressure with the
onset of inflation in the late sixties.30 By 1975,
the center countries—the United States,
Germany, Japan, and the United Kingdom—had
to abandon fixed exchange rates and relinquish
capital controls under pressure from unregulated
The stagflation crisis of the seventies
exposed the inability of Keynesian policies to
stabilize the macroeconomy. The structural
crisis—the secular decline of profit rates and
global market shares of US manufacturers facing
relentless Japanese competition—caused a
precipitous decline in the wealth and revenues of
the upper classes as a whole.31 The share of
wealth of the wealthiest 1 per cent of Americans
halved during the seventies.32
The decisive moves towards the neoliberal
order took place when the Senate, the House,
and the White House were all controlled by the
Democrats. As the dollar plunged in 1979, a
panicked White House was cornered into
appointing a known monetary hawk, Paul
Volcker, to the Federal Reserve. Volcker
immediately started delivering the bitter
medicine. He kept raising interest rates in a bid
to kill inflationary expectations, with total
disregard for employment and the fortunes of
industry. The long-term effect of the Volcker
shock—what Duménil and Lévy call ‘the 1979
coup’—was to decisively alter the balance of
power between finance and industry, as the sky-
high interest rates led to a massive transfer of
surplus from industry to finance.33
The macroeconomy continued to
deteriorate during the rest of Carter’s term.
With unprecedented inflation rates eroding the
value of their savings, a variety of groups started
clamoring for the removal of interest rate
ceilings mandated by Regulation Q. Congress
passed the Depository Institutions Deregulation
and Monetary Control Act of 1980 that
deregulated interest rates—the central pillar of
the New Deal order that had for decades
regulated the economy with ‘hydraulic
efficiency.’34 This was all for naught, as far as
Carter’s prospects for re-election were
concerned. There were no short-term solutions
to be found for the stagflation crisis and no way
for Carter to save himself as the election
approached. Ferguson describes the critical
realignment of 1980:
The atmosphere of intensifying crises
enormously advantaged the only political
party for which massive welfare cuts were
thinkable – the GOP. Multinationals
which were perfectly prepared to support
Democrats during the New Deal era
abruptly cut off their support, or
intensified their commitment to
Republicans. At the same time so did the
traditional protectionist bloc. Not
surprisingly, the first result was confusion,
as all sorts of “New Right”, “Old Right”,
and “neoconservative” cultural and
political entrepreneurs competed to tap
the rivers of cash that rapidly began
flowing. Under the inflexible pressure of
political deadlines, however, a more or less
articulate compromise emerged in the
candidacy of Ronald Reagan
Writing in the immediate aftermath of the
primary battle, Ferguson notes Reagan’s
modulation of his policy platform to attract
major investors.35 In particular, the candidate,
hitherto the flag-bearer of the nationally-
oriented traditional protectionist bloc of the
GOP, moved decisively to the internationalists.
On the floor of the Republican Party convention
itself, the crowd was first treated to Jesse Helms
attacking Henry Kissinger and the un-American
Eastern Establishment Internationalists.
Ferguson describes what happened next:
Only a few hours later, millions of
Americans watched in stunned disbelief as
the world's most famous multinational
foreign policy analyst, the chairman of the
international advisory committee of the
Chase Manhattan Bank, consultant to
Goldman Sachs, director of the Council
of Foreign Relations and [the] Atlantic
council, member of the Bilderberg
steering committee, senior fellow of the
Aspen Institute, consultant to the
National Broadcasting Company, and
Trilateral Commission executive
committee member materialized again at
the center of the Republican Party.
Ferguson failed to recognize the coming to
power of this bloc, arguing that “what the
Reagan victory represents most, in fact, is not
critical realignment, but an almost equally fateful
” Hindsight is twenty-twenty of
course. Knowing what we know now, we can
easily discern the birth of the system of 1980.
The decisive moves towards the system of
1980—the appointment of Volcker to the
United States Federal Reserve and the
deregulation of interest rates—had already taken
place before the general election. Ronald Reagan
was to consolidate and stabilize a system that
was already in place before he got to the White
The system of 1980 is characterized by a
hegemonic bloc led by big banking firms in
alliance with multinationals. The vital interests
of this bloc are embodied in the globalist-
Political Economy of the US State
neoliberal consensus over trade, monetary,
financial, security, and foreign policies.36 The
core elements of the globalist-neoliberal
consensus are: Freely-flowing global capital
markets, monetary management of the macro-
economy, fiscal restraint, unconstrained financial
sector, muscular foreign policy, stringent global
investor rights regime, austerity for the masses
whenever the fiscal situation requires further
belt-tightening, low taxes on capital, benign
neglect of offshore banking secrecy jurisdictions,
and so on and so forth.37
The Hegemonic Bloc of the System of 1980
A rather under-appreciated aspect of the reign of
Wall Street is the primacy of finance over
industry. The Chandlerian firms were incubators
of long-term value run by an autonomous
managerial elite.38 The autonomy of these great
corporations depended on their ability to self-
finance their expansion with their internal
surpluses. The uncertainty in the cost of capital
and foreign exchange, induced by the
deregulation of currency markets and interest
rates, forced these firms to disgorge their
surpluses to capital markets. Many were simply
taken over by Wall Street. Financiers pooled
their resources into private equity firms to
amplify their firepower; seizing control of
industrial firms reeling under the impact of the
high cost of capital and the strong dollar.39 For
the first time, the stock market became a market
for corporate control. US firms responded by
reorienting themselves towards the stock market,
in what amounted to a ‘Copernican revolution.’40
CEOs now dutifully report to Wall Street
analysts every quarter.
The great merger wave of 1897-1901
created a ‘unity of interests,’ so that
policymaking became considerably easier; as in
1909, when J.P. Morgan fine-tuned the tariff bill
from his yacht by telegraph. A similar process
unfolded in the aftermath of the great merger
wave of 1983-1986. The strong dollar and sky-
high interest rates were in the interest of Wall
Street, which had vast sums invested overseas
and in the bond market. On the other hand, they
were devastating for industrial firms.
Nonfinancial firms pushed in vain to bring down
the mighty dollar for years.41 As the merger wave
crested, a decisive section of the financial sector
acquired an interest on the other side of the
equation. This created the political momentum
for the so-called Plaza Accord of 1985, whereby
the United States negotiated a depreciation of
the dollar against the Japanese yen and the
German mark. As Robert Brenner notes in his
authoritative economic history of the period,
“the relief was immediate.”
Unlike other major investors, Wall Street
has usually kept a bipartisan portfolio of
politicians on its payroll. This is because
financial interests can be found on both sides of
any equation. For instance, an investment bank
may have a stake in a nuclear energy firm while
another in a gas company, pitting them on
opposite sides in the tug-of-war over energy
policy and environmental regulation.
The Logic of Money-Driven Political Systems
In the framework of the investment theory of
party politics, blocs of major investors compete
with each other to control the policies of the
state. The goal of each bloc is, first and foremost,
to defend its vital interests. Blocs mobilize
resources and try to recruit allies when they
compete over policy with rival blocs. We will
borrow the logic of balance-of-power theory
from international relations and apply it within
the investment theory of politics.42 This is
natural since neorealism is just market theory
applied to international politics in the first
place.43 As we will see, such a strategy will be
useful in teasing out the logic of money-driven
To wit, a political system consists of
highly-organized societal actors called blocs that
compete over state policy. Blocs worry about
defending their vital interests and balance more
powerful blocs by increasing their mobilization
efforts or seeking alliances with other blocs. One
may restrict attention to the most powerful blocs
of the system without loss of generality, since
minor blocs are incapable of influencing policy
in any significant way. Blocs care much more
about certain subsets of the policy spectrum than
others. That is, they occupy a specific ‘territory’
in the policy spectrum. Blocs that compete over
the same policy portfolios are likely to be found
in opposing alliances. The rise and fall of
blocs—the law of uneven growth
the stability of the political system. Rising blocs
seek to challenge the status quo upheld by
dominant blocs, until a ‘hegemonic war’ reorders
the political order, determining which blocs will
govern the system.
In order to evaluate the stability of a
given party system, one must analyze the
evolution of the system structure: The
distribution of power among blocs. Power is the
aggregate capacity of a bloc to mobilize
politically. In a money-driven political system,
this is more or less equivalent to the aggregate
financial resources at the disposal of the bloc.
Evaluating the capabilities of blocs is, by
necessity, an imperfect exercise. We shall use a
proxy variable, corporate profits, to measure the
relative power of different blocs. As we will see,
this will shed light on both the stability of the
the gridlock in Washington.
The attached chart shows the share of corporate
profits of the three major sectors of corporate
America.44 The 3-year periods are chosen so as
to exclude recessions and bubbles. In 1967-69,
the dominance of manufacturers is manifest.
Comparing 1977-1979 and 1986-88, we can see
the take-over by the new hegemonic bloc of
finance and multinational firms with significant
earnings overseas. The situation is unchanged in
1995-1997, while 2010-2012 reveals the rise of a
new power on the scene. This is the nationally-
oriented mercantile interests comprised of retail
trade, wholesale trade, transportation, utilities,
and other nonfinancial, nonmanufacturing
The gridlock in Washington is being
driven by the resurgent reactionary wing of the
Republican Party. A careful look at the changing
GOP coalition reveals the dynamic in play. A
number of rising mercantile interests are behind
the insurgency in the GOP. At the forefront are
retail interests led by Walmart and Home
Depot, followed closely by transportation,
chemical (Koch brothers), gambling (Sheldon
Anderson), wholesale trade, and the food and
beverage industry. The traditional major
investors in the GOP coalition—oil, defense,
agribusiness, and the nationally-oriented
manufacturers—are so far gone along with the
insurgency. The theory thus allows for a novel
perspective on the gridlock in Washington.
Duménil and Lévy expected the financial
crisis to undermine the neoliberal order.45 Thus
far, there are no signs that the neoliberal
coalition is unraveling. Indeed, it has proven
considerably more robust than previously
recognized. The fact of the matter is that finance
and multinational firms still constitute a
hegemonic bloc of investors. Indeed, big
banking firms have emerged stronger than ever.
Which is hardly surprising, after all, “in a
recession, assets return to their rightful
Decomposing the policy spectrum into
uncontested and contested spectra, we observe
that the core politico-economic policies of the
US state are themselves uncontested: security,
foreign, finance, monetary, and trade portfolios.
This is because the hegemonic bloc is decisive
over this vital core of the policy spectrum. The
stability of the system of 1980 is closely tied to
the primacy of Wall Street. It is a major investor
in both parties which makes the party system
more stable than previously recognized.47
Foreign and security policies—institutionalized
at the Council of Foreign Relations—are largely
uncontested by other blocs. The institutional
capture of the holy trinity of the monetary-
financial apparatus of the US state by Wall
Street makes the core policies of the neoliberal
order robust to secondary instability in the party
system. In particular, partisan fights over fiscal
and health policies do not threaten to spill over
into the domain monopolized by the hegemonic
The existence of a hegemonic bloc does
not mean that other blocs cannot contest
secondary features of the policy regime.
However, critical realignments mark the take-
elements of the policy spectrum by
ascendant industries. The rising mercantile
interests, as yet, do not pose a significant threat
to the primacy of the hegemonic bloc led by
Wall Street. However, if this bloc continues to
rise, we may see the system of 1980 unravel. Like
the prospect of China’s rise to primacy in world
affairs, this is not altogether appetizing.
1 Braudel, Fernand.
Civilization and Capitalism, 15th-18th century: The Perspective of the World. Vol. 3
. University of California Press,
2 All political spending data is from the Center for Responsive Politics unless otherwise specified.
3 Garfinkle, Adam.
Broken: American Political Dysfunction And What To Do About It
4 I prefer using ‘moneyed interests’ rather than the more specific ‘corporate interests’ since even individual billionaires can prove decisive in
electoral battles. For instance, the Koch brothers almost single-handedly bankrolled the successful gubernatorial campaign of Scott Walker,
the union slayer of Wisconsin.
5 Doster, Adam. “Durbin on Congress: The banks ‘own the Place.’”
. April 29, 2009.
6 Senator Shelby, the Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, took $2 million from financial inter-
ests, more than double the contributions from the next leading industry.
7 Lipton, Eric. “For Freshmen in the House, Seats of Plenty.”
New York Times
. August 10, 2013.
8 Brad Miller, a veteran of the Financial Services Committee, says: “Freshman are pushed and pushed and pushed to raise money—it’s how
they are judged by the leadership and the political establishment in Was hington. It’s only natural that it has got to be on your mind that a
vote one way or other is going to affect the ability to raise money.”
9 Bank bonuses totaled $66 billion in 1998-2002, surged to $117 billion in 2003-2007, declining only slightly to $100 billion in the five
years after the onset of the banking and financial crisis. In the same period, the 5-year-totals spent on lobbying by the financial sector were
1.1, 1.8, and 2.4 billion dollars respectively.
10 Dean Baker estimated $308 billion in savings in the next decade if American seniors paid Canadian drug prices and $726 billion if they
paid the much lower Danish prices. Meanwhile, the largest pharmaceutical companies made $711 billion in profits in the past decade.
11 “ObamaCare’s Secret History.”
Wall Street Journal
. June 13, 2012.
Political Economy of the US State
12 PhRMA negotiator Bryant Hall informed the CEO of Pfizer that the White House was “working on some very explicit language on
importation to kill it in health care reform. This has to stay quiet.”
13 Exxon alone made $350 billion in 2003-2012.
14 In 2010, the energy industry spent $453 million on K Street. In the period 1990-2013, the industry handed out $91 million to the Re-
publicans and $23 million to Democrats—amounts which appear low, as they indeed are, due to legal limits on direct contributions. Total
lobbying in the much shorter period 1998-2013, was a more respectable $4 billion.
15 Fifield, Anna. “Oil Lobby Seeks to Work With Obama.”
. December 26, 2012.
16 Fifield, Anna. “US Immigration Reform Draws 3,000 Lobbyists.”
. March 20, 2013.
17 Corrections Corporation of America has spent $17 million in the past decade to promote hardline policies that line its pockets.
18 Kocieniewski, David. “A Shuffle of Aluminum, but to Banks, Pure Gold.”
New York Times
. July 20, 2013.
19 “Goldman Relents in Metals Warehousing Row.”
. October 15, 2013.
20 Hacker, Jacob S., and Paul Pierson. “Winner-take-all politics: Public policy, political organization, and the precipitous rise of top in-
comes in the United States.”
Politics and Society
38.2 (2010): 152-204.
21 Note that by using corporate profits after tax we are estimating a lower bound for the capacity of corporations to exert financial influence.
A more appropriate measure is perhaps corporate revenues, since political investments compete with other investments that a firm can
make from its revenue pile.
22 The analogy to great power competition is not as far-fetched as it appears at first sight. After all, it was the fight over US trade policy
between the rising northern industrial interests and the hitherto-dominant southern plantation interests that undermined the political sys-
tem of the Early Republic and prompted the Civil War. The northern industrial interests wanted a massive tariff wall to protect them from
British competition while the southern planters derived their revenues from supplying cotton to the British textile industry which would be
jeopardized by a protectionist policy. The Republican Party was founded in 1854 by the northern bloc. The home of free trade today pre-
sided over nearly a century of arguably the most protectionist regime in history.
23 That is, the standard Downsian model.
24 Ferguson, Thomas.
Golden Rule: The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems
versity of Chicago Press, 1995.
25 Save in the negative sense of voting “no confidence.”
26 The railroads constituted a hegemonic bloc. They were an entirely new breed of politico-economic actors. They were the first modern
corporations with a national reach and financial depth that no other firms could even begin to match.
27 The internationally-oriented firms could not maintain their market shares in Europe unless the Europeans could earn dollars by selling
their wares in the US market through the tariff walls set up to protect the nationally-oriented US manufacturers.
28 Regulation Q, which had been law since 1933, imposed a ceiling on what interest rate could be offered by depository institutions. When
the economy overheated market rates rose above the ceiling, prompting a rapid outflow of funds from depository institutions. This “disin-
termediation” contracted capital available for lending, especially mortgage lending, thereby reigning in the overheating economy. During a
slowdown, market rates fell below the ceiling, drawing capital into depository institutions, which increased lending, boosting the economy.
No matter the fairness of what we would now call a draconian law, as a stabilizer of the economy it functioned with ‘hydraulic efficiency.’
Capitalizing on Crisis
29 Burn, Gary.
The Re-Emergence of Global Finance
. Palgrave Macmillan, 2006.
30 Speculators used the eurodollar market to attack currencies of the center countries and forced them to devaluate: the pound sterling in
1967, the Deutschmark in 1969, and finally, the biggest fish in the tank, the US dollar in 1971.
31 Brenner, Robert.
The Boom and the Bubble: the US in the World Economy
. Verso, 2003.
32 Duménil, Gérard, and Dominique Lévy.
Capital Resurgent: Roots of the Neoliberal Revolution.
Harvard University Press, 2004.
33 It was around the time of Volcke r’s appointment that the holy trinity of the monetary and financial-regulatory apparatus of the US
state—the US Federal Reserve-US Treasury-New York Federal Reserve—was virtually taken over by Wall Street. The last is effectively the
liaison office of the US state with the big banking firms.
34 Krippner, Greta R.
Capitalizing on Crisis: The Political Origins of the Rise of Finance.
Harvard University Press, 2011.
35 Ferguson, Thomas and Joel Rogers.
The Hidden Election
. Random House, 1981
36 The World Economic Forum, the Bilderberg group, the Trilateral Commission, the Council of Foreign Relations, and other related
globalist institutions where core policies of the US state are formulated, were all bankrolled by this bloc.
37 A muscular foreign policy geared towards opening up world markets for exploitation by Western capital, with the attendant commitment
to prolonging US primacy in the international system, is a centerpiece of the bipartisan neoliberal consensus.
38 Chandler, Alfred D.
The Visible Hand: The Managerial Revolution in American Business.
Harvard University Press, 1977.
39 A major innovation was the leveraged buyout that allowed financiers to borrow money to acquire a firm using the
firm’s assets as
40 Davis, Gerald F.
Managed by the Markets: How Finance Reshaped America
. Oxford: Oxford UP, 2009.
41 The ‘Caterpillar report’ by the Business Roundtable argued that the yen was being deliberately held down by the Japanese and that liber-
alizing Japanese capital markets would solve the problem. Treasury knew that the dollar was strong because of Volcker ’s sky-high interest
rates and that deregulating the Japanese capital markets would
the upward pressure on the dollar since Japanese controls were
holding down further capital flight to the US. Tre asury played along with the Roundtable in order to placate the losers, going so far as to
launch a diplomatic offensive aimed at liberalizing Japanese capital markets.
42 The international system consists of sovereign states that interact in anarchy. That is, each state fends for itself and there is no night-
watchman to protect the states against their militarily stronger rivals. States try to maximize power in order to ensure their long-term sur-
vival. They balance their rivals by increasing their internal efforts or seeking alliances with other powers. One may restrict attention to great
powers without loss of generality, since minor powers don’t matter in the global balance of power. Military power decays over large dis-
tances. The best predictor of alliance formation is proximity. States fear powerful neighbors more than faraway great powers. Therefore,
states that compete over the same territory are likely to be found in opposing alliances. The rise and fall of great powers—the law of uneven
growth—undermines the stability of the international order. Rising powers seek to change the status quo upheld by dominant states, until a
hegemonic war determines which states will govern the system. The principal explanatory variable of the theory is the system structure—
the distribution of power among units. To evaluate the stability of a given system, one analyzes the evolution of the system structure.
43 Waltz, Kenneth N.
Theory of International Politics
. Reading, MA: Addison-Wesley Pub., 1979.
The Economic Report of the President
. Washington: Government Printing Office, 2013.
45 Duménil, Gérard, and Dominique Lévy.
The Crisis of Neoliberalism.
Harvard University Press, 2011.
46 This quote is attributed to New York investment banker Andrew Mellon, who served as the Treasury Secretary from 1921-1932.
47 The system of 1860 was dominated by the Republican Party. The hegemonic bloc, the railroads, only had to bankroll the Republicans.
This made the system less stable. Grover Cleveland, the only Democrat to occupy the White House between the Civil War and the First
World War, rose to power by attacking the declining railroad interests. Such an opening is unavailable in the present system, since finance
bankrolls both parties.