Glass-Steagall Is Campaign Finance Reform

The financial wonkosphere just doesn't get it about Glass-Steagall.  Pieces like this one by Matt O'Brien concentrate on the questions of whether Glass-Steagall would have prevented the last crisis or whether it is better than other approaches to reducing systemic risk.  That misses the point entirely about why a return to Glass-Steagall is so important. No one argues that Glass-Steagall is, in itself, a cure-all.  Instead, the importance of a return to Glass-Steagall is political. But totally absent in much of the wonkospheric discussion is any awareness of the political impact of busting up the big banks.  

Let's be clear about why Glass-Steagall matters:  the route to campaign finance reform runs through Glass-Steagall.

By splitting up the financial services industry into squabbling factions, the result will be a substantial reduction in the influence of any particular section of the industry. Divide et impera. (See here for a more detailed discussion.) A return to Glass-Steagall is every bit as important as rolling back the Citizen's United opinion for reducing the influence of money in politics (and because of the declining marginal utility of money, the fact is that those with more money can in fact buy more influence).  

Yes, Glass-Steagall won't stop the rogue bazillionaires from attempting to buy elections, and it leaves concentrated influence uncurbed in many other powerful sectors of the economy.  But finance is the high-octane fuel for the entire economy. Reduce the volatility in the financial sector, and we'll reduce volatility across the board in the economy. A less volatile economy benefits those households with fewer means that cannot self-insure against volatility.  It is also likely to produce a more equitable distribution of wealth--there are no outsized profits to be made from speculative bubbles or from heads-I-win, tails-you-lose gambles. Robber barons thrive on volatility. 

And Glass-Steagall will also let us get to the best regulations in the financial sector.  If we want to be sure that we can get the optimal regulations, we need to create the political space for that to happen.  Without Glass-Steagall there simply will not be the political space to consider other financial industry regulations. 

So once again, with feeling:  Glass-Steagall is a political imperative for American democracy.