The HuffPo conversation around 13 Bankers has gotten very interesting. Tyler Cowen has advanced an interesting and plausible alternative to Johnson-Kwak narrative:

Johnson and Kwak make a major step forward in describing our recent financial crisis as a fundamental problem in political economy, namely by pointing their fingers at an unholy alliance between banks and the U.S. government. Much as I admire their analysis and exposition, I see the problem a bit differently than they do. Whereas they see banks as the puppet master and our government as the fool, I wonder whether it is not more accurate to think of the government as running the show.

He goes on to suggest that it is ultimately the state that decides who is including in the ruling coalition:

In other words, it’s our government deciding to assemble a cooperative ruling coalition – which includes banks — at the heart of its fiscal core. It’s our government deciding who belongs to this coalition and who does not, mostly for reasons of political expediency and also a perception – correct or not — of what is best for the welfare of American voters. If we don’t in this year “get tough” with banking regulation, it’s because our government itself doesn’t want to, not because of some stubborn recalcitrant Republicans.

The central problem with Cowen’s analysis is that it might assume too much autonomy on the part of the federal state. Can we meaningfully speak of the government as a coherent actor that makes decisions on its own behalf rather than as a set of permeable institutions subject to capture? Caldwell speaks of a party-elite in his review of 13 Bankers, and of course the political parties are susceptible to the influence of donors, etc. But past experience suggests that elected officials adapt to power: it is one thing to take certain positions out of office, quite another to take them in office. We normally encounter this argument in the context of national security, but it’s easy to see how a similar dynamic obtains when it comes to managing a large-scale, slowly-unfolding financial crisis: it is easy to feel overawed by the consequences of a misstep.

Cowen’s narrative suggests that the main tool that Johnson-Kwak suggest using to break the power of the financial oligarchy won’t actually do the trick:

This analysis bears on one of the main policy recommendations of Johnson and Kwak, namely to break up the big banks so they cannot soil Washington with such powerful lobbying and privileges. I believe this recommendation will not achieve its stated ends and that Washington would find another way to assemble privileged financial institutions – no matter what their exact form — within its ruling coalition. Breaking up the large banks would be striking at symptoms rather than at root causes, namely the ongoing growth of political power and the reliance of that power upon an ongoing inflow of capital.

I’m sympathetic to Cowen, of course. But I wonder if the Johnson-Kwak proposal would nevertheless make the political economy problem better rather than worse.