_______________________ Some say we are in a recession. Others say it could be a depression. But, maybe it is something far deeper than either of these. What we are seeing could be a basic structural transformation of the capitalist system--the beginning of a new "post-market" phase.
Early capitalism was market-based, growing by capital accumulation from inventors, entrepreneurs, and industrialization. The 19th century economist Adam Smith wrote about how the "invisible hand" of market forces could guide the economy. Later, economist Joseph Schumpeter wrote about how "creative destruction" and market discipline could flush out inefficient industries and renew the market capitalism. Economist John Maynard Keynes wrote about how government could help stabilize capitalism and markets by taxation and spending--smoothing out the bumps. Banking and finance were ancillary, serving to augment and facilitate industrial capitalism. Finance was, in a sense, a utility--not an industry in itself. It did not produce any wealth, but only facilitated the flow of capital to where it was needed. This system produced a lot of economic growth and wealth over the years.
Today we may be experiencing something quite different -- a transformation from market-based capitalism to feudal-based capitalism. As manufacturing, engineering, and research have been shifted abroad, the role of banking and finance in the economy has expanded (as tends to happen in declining empires). Executive compensation, particularly in financial "industries," has grown beyond all reasonable proportion. Graduating college students have been seeking careers in finance rather than in engineering or science and medicine because that's where the money is. The result was a compensation system that established a perverse incentive to "privatize the gains and socialize the losses."
Now, as we find ourselves in a financial crisis, we are told that we must not let the traditional market forces work (e.g., Schumpeter's "creative destruction" ) because the financial institutions (i.e., Citigroup, GM, AIG, etc.) are now "too big to fail" and must be preserved, whatever the cost. Members of Congress may complain and posture, but at the end of the day they must preserve those who paid for their campaigns and keep them in office. We are told that the financial/banking system is so complicated that only those (from the elite finance culture) who ran it off the rails it can now "fix" it (e.g., Ben Bernanke, etc.).
In the new feudal phase of capitalism, the resources of society are allocated not by markets but by and elite class of feudal lords. Rather than land-lords, they are now money-lords. Beginning with the Reagan-Thatcher "free market" era, and since, a principle theme was privatization and deregulation -- with a transfer of traditionally governmental functions to private institutions. In the new feudal phase of late capitalism, the government itself becomes privatized. The government and the taxpayers (i.e., serfs) that support it become an adjunct to the feudal institutions at the top of the "food chain." It is said that the government is buying the banks, but rather perhaps it is the banks that are buying the government (note whom the prevailing lords are at the end of the day). The currently popular term is "zombie" bank -- but "feudal" may be more appropriate because feudal estates can be productive, at least for their elites.
A characteristic of the feudal system is stability, rather than growth. A modern example of this may be Japan in recent decades. Japan has a long cultural history of feudalism, and its industrial and political structure mirrors this. As Japan's banks and (quasi-feudal) financial institutions could not rid themselves of non-performing assets (perhaps partly for cultural reasons), the Japanese economy languished for over a decade, along with technical innovation and industrial growth.
It is hard to imagine a feudal system in the context of traditional American entrepreneurial culture, but it is also hard to imagine how the present domination of American political life by mega-corporations, corporate media, K Street, and particularly by the elite financial institutions, can change. I don't doubt that Barack Obama has only the best intentions, but the situation may be beyond anyone's control. If so, welcome to the new feudal estate.

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