The Ascendancy of Politics

Something extraordinary is happening. New York used to be the financial capital of the world. It's no longer the financial capital of the United States. For the moment, that honor falls on Washington, where lawmakers and executive branch officials are hard at work on policy proposals that will shape the future of the US economy. In fact, the shift in the balance of economic decision-making power from capitals of finance to capitals of government is taking place in several countries at once. This power shift will slow the global recovery. It's difficult enough to build consensus among policymakers within one country on how best to promote growth. Imagine that argument during a meeting of the G20, the expanded group of major industrialized nations. Agreement on anything beyond diplomatic generalities will prove exceptionally tough to achieve—not simply because there are so many players at the table but because the most powerful of them won't agree on the most basic rules of the economic road. Coke and Pepsi are playing the same game. America, Russia, and China are not. This trend will produce its own set of winners and losers. This shift of economic power from financial to political capitals is also likely to produce shifts of wealth within countries. Expansions of the public sector spur new economic activity in the cities in which they occur. If it's happening in Washington, we may begin to see this trend in Beijing, Delhi, Brasilia, and elsewhere. It's not just decision-making power that is shifting from financial to political capitals: It's capital, as well.