Sociologist Michael A. McCarthy’s latest book shows how ordinary people can take back control of financial capitalism and make it work for them.
For many, American democracy seems increasingly empty. What drained it? In The Master’s Tools: How Finance Wrecked Democracy (And a Radical Plan to Rebuild It), sociologist Michael A. McCarthy, professor at UC Santa Cruz and economic activist, points to finance capital as the main culprit.
Big Finance, of course, is a particular form of Big Money—not the kind that builds factories or creates products, but the kind that profits off speculation, debt, and transactions through banks, hedge funds, and financial institutions. It shifts focus from long-term investment and innovation to short-term profits through financial speculation, and, as economist William Lazonick has long argued, makes companies prioritize shareholder value, often sacrificing workers, product quality, and sustainable growth—while financial elites profit from producing…nothing.
The Big Finance boom, fueled by 1970s to 80s deregulation and pro-wealthy policies, allowed giants like JP Morgan, Goldman Sachs, and Blackstone to amass vast wealth and sway governments. Today, they shape policy, influence elections, and prioritize profits—while, as seen in 2008, triggering crises that hit regular people hardest. (Research by Thomas Ferguson, Research Director at the Institute for New Economic Thinking, and colleagues shows with stark precision the dominance of the superrich at the ballot box, and specifically how Democrats in Congress were influenced by political money to weaken regulation of the finance industry).
Is all this inevitable? Must we accept that Big Finance pulls the strings? McCarthy says no. He believes citizens can reclaim control by creating financial institutions that are inclusive, using the system’s tools to improve lives rather than deplete them. He envisions a finance system that funds what truly matters: green energy, social housing, and public goods for the people. His warning is stark: either we control finance, or finance controls us. Reclaiming power won’t be easy, but it’s doable, says McCarthy, and he has a plan. The first step? Recognize that with elected officials prioritizing finance over the public, we need a different form of democracy—and the ancient Greeks show us how.
In ancient Athens, “sortition” randomly selected citizens for roles like jurors and council members, forming diverse groups to deliberate on policy. McCarthy advocates a modern version: minipublics—ordinary people chosen by lottery—to address key issues, ensuring decisions reflect the voices of everyday citizens, not just elites. Today, citizen assemblies are already in use worldwide. In the U.S., states like Oregon, Minnesota, Arizona, and New Mexico have used them to debate issues like marijuana legalization. Meanwhile, countries like Ireland and France have turned to sortition for major decisions, with regular citizens recommending policies on topics like abortion, gay marriage, and climate change.
But can sortition really work in finance? Many, like crypto enthusiasts, have fantasized about democratizing the system. But McCarthy argues that true democratization isn’t about more people participating in financial markets—it’s about giving them power over how credit and investments are allocated. It means making financial flows accountable to a deliberative public. The key, he insists, is engaging the public through effective democracy—and minipublics, in his view, are the best way to manage financial decision-making at every scale. McCarthy spoke to the Institute for New Economic Thinking about the crises facing our political and economic systems, how to make them work for the people, and how sortition can be the key to achieving that.
Lynn Parramore: You point out that after the 2008 crash, Big Finance, despite the blow to its credibility, grew even more powerful — more deeply tied to the government and more harmful to democracy. Movements like Occupy Wall Street wanted the opposite—to see the government step in and limit financial power. Why didn’t that happen?
Michael A. McCarthy: There really was nothing that was done after 2008 that undermined the key sources of power that financial institutions have in the state. We’re basically talking about three different levers of financial power that I outline in my book – they are engagement [in formal policymaking], prominence [in the economy more broadly], and entanglements [with both state institutions and nonfinancial corporations].
If you look at the role of financial institutions—and I mainly mean banks and asset managers—they’ve become more deeply embedded in American politics through these three levers. First, financial institutions have become more organized as a sector. This has led to even more money being pumped into politics to influence policymaking. Second, their size in the economy has grown. This is deeply related to the way ordinary, working-class people are tied to the interests of the sector—through their savings, their holdings in mutual funds, and the other financialized assets they hold. And third, not only have financial institutions become more intertwined with the state, through monetary policy, they’ve also become more intertwined with other sectors of business, through their flows of credit and role in generating new sources of profits.
The net effect is that finance has become a hegemonic sector of business. And we have some empirical evidence for this. There’s a really interesting finding in the political science literature – when you look at lobbying, no sector has more support from other sectors in lobbying efforts than finance. So when there’s a bill that’s coming down the pipeline, for instance, that runs against financial interests, other sectors of business throw their lobbying power into blocking it as well.
These three key levers I mention have become more and more prominent in our politics and to weaken the financial sector, to weaken the power of these actors in our democracy, we must disrupt those levers. This was simply not done after 2008.
LP: You made a point about private equity—a form of finance capitalism that often profits by stripping assets, cutting jobs, and leaving workers behind while investors cash out. You note that workers’ pensions, meant to secure their futures, are increasingly funneled into these firms, which then erode labor protections and threaten their livelihoods and communities. It’s a deeply perverse situation.
MM: Yes, it is.
LP: What does this tell us about what you see as the crisis of finance capitalism? What is it at its heart?
MM: I think it’s really a crisis of democracy. It’s a crisis of how peoples’ earnings, their actual savings, are invested, and the lack of capacity that ordinary people have to make deliberative discussions about how it should be invested.
Why do I say that finance capitalism represents a crisis of democracy? Democracy is, at its core, “rule by the people.” And we recognize that this rule has a dual character. On the one hand, it involves the freedom of individuals to make choices that affect their own lives without coercion. But on the other, it involves fair and equal access to participate in meaningful ways in the decisions that affect our collective fate. In America’s peculiar democracy – which today functions instead like an oligarchy – we have drawn the line between these two sides of democracy in such a way that decisions about flows of credit and investment are principally made by private actors and not subject to public deliberation and decision-making processes. But few things impact our shared future more than how investments flow. Finance capitalism is a system in which larger and larger pools of assets, very often worker’s actual retirement savings, are controlled and invested by asset managers with little to no input from the people those investments bear on. In this way, it represents a real deepening of the crisis of democracy that has defined the American project since its inception.
In a wonderful little book titled Participation and Democratic Theory the political theorist Carole Pateman wrote that a democratic society, “requires that the scope of the term ‘political’ is extended to cover spheres outside national government.” This is precisely how to address the crisis of finance capitalism, by first acknowledging the political character of investment and then subjecting the most impactful flows to real popular input. Otherwise, Wall Street will continue to invest in ways that most interest Wall Street itself.
LP: Like, do I really want my savings invested in firms that could end up doing me harm?
MM: Exactly. I think that this crisis of democracy in our financial system is right at the core of the underinvestment crises that we have in things like affordable housing, green retrofits, green infrastructures, and community wealth building. That lack of control for workers and middle class people of their own income, their own savings, is, to me, the center of the crisis of financial capitalism.
My first book, Dismantling Solidarity: Capitalist Politics and American Pensions since the New Deal, traced the development of the pension system in the U.S. In the post-WII period, where workers were collectively bargaining on pension plans on a large scale. Initially, there were real efforts by unions to control their funds. The United Mine Workers actually did control their funds in significant ways. The United Steel Workers, the United Auto Workers, and other big unions that were winning pensions were also trying to control their funds. Unions not only wanted to win secure retirements for their members, they also wanted to be able to share in the decisions about how their members retirement savings were invested. But that fundamentally threatened the financial oligarchy that was already formed and the infant asset manager industry that today has become gigantic. Acting fast, worker say over investment was forced off the table by the state. In the Taft-Hartley Act [the Labor Management Relations Act of 1947], there are specific rules about how pension funds can be governed. Essentially, the employer side is given the capacity to make governing decisions over union pensions funds by limiting union representative seats on pension funds to no more than 49 percent. This loss of control of workers’ own savings — which at the time was thought of as deferred income – has had a profound impact on how financial flows work in the U.S. It’s had profound impacts on where money is invested and where it’s not invested.
In simple terms, worker savings in the decades that followed was invested in ways that hurt workers themselves. Pension funds invested in anti-union firms in the U.S. that resisted organizing efforts. These companies were considered more profitable because they used cheap, exploited labor in developing countries. However, they produced inconsistent returns and contributed to economic instability in financial markets. The asset managers who rose during this period now help finance’s consolidation of power by consistently underinvesting worker assets in the sectors that working-class communities need most.
That’s the crisis as I see it.
LP: You’ve described capitalist states as facing a “Frankenstein problem”—a contradiction where, in times of crisis, the state steps in to rescue capitalism, only to create powerful forces it can’t entirely control — forces that end up threatening capitalism itself. Can you explain how this works?
MM: This goes back to the role of the state in capitalism as it evolved in the 1970s and 1980s, following the period of consolidation of control of worker’s savings I just described. If you look at the critical periods, there tends to be the view within critical theory that what the state does is basically manage capitalism, to keep capitalistic accumulation thriving. In other words, one view argues that the modern state functions solely for maintaining and expanding capitalist profits. I think that this argument is problematic. It doesn’t really help us understand the different ways in which the state can actually operate in ways that are against the interest of financial firms or run against the interests of accumulation.
If we take a slightly more contradictory view of the state and democratic politics, we can see that during times of crisis, the state steps in to create new institutions, laws, and governing bodies to manage the crisis. As these new entities are formed, they become sites of political contestation – they become political institutions that the people try to win power over. As the state grows to manage capitalism, institutions like the Central Bank, for example, become battlegrounds for political struggle. And these struggles can, in turn, deepen the crisis they were meant to address. Like Frankenstein’s monster, they can turn on their creator.
Going back to the examples of pension funds I was mentioning. They were created, through legislation like the Taft-Hartley Act of 1947 and the Employee Retirement Income Security Act of 1974, to be the rocket fuel of American capitalism. As a result, worker savings absolutely flooded American capital markets, driving up the stock prices of American firms, granting them access to cheaper lines of credit, helping their profits and ultimately promoting capitalist accumulation. But in creating these pools of finance for capitalism the American state inadvertently also created political institutions that can be used against the very thing financial actors created them for. The Frankenstein problem, the possibility of the creation of the master turning against the master, is how I think about managing or redirecting finance in more socially useful ways through new forms of democracy.
LP: You also connect the Frankenstein metaphor to neoliberalism, comparing neoliberals to Mary Shelley’s villagers with lanterns and pitchforks. Could you elaborate on that? And how does this metaphor help us understand neoliberalism in a conjunctural way—since you use that term often in the book? Why is a conjunctural, or context-specific, approach so crucial?
MM: Neoliberalism was a reaction to the state institutions built in the 1960s and 1970s, particularly in the U.S., though you can see something similar across Western Europe as well. These institutions, which included various aspects of the welfare state and the regulatory state, were responses to crises in capitalism. They were the result of American capitalism’s inability to provide income and stability for large sections of the population, which then resulted in social movements (such as the Civil Rights movement) and unions making demands on the state.
These institutions were key to legitimizing the American project—especially capitalist accumulation. Neoliberalism, I think, is tied to what I mentioned earlier: state institutions were created to manage crises, but were then politicized and turned into points of contestation and new forms of crisis. The irony of course is that the neoliberals effectively came after the very institutions that gave legitimacy to the American project itself. And now, we’re seeing the fallout: the breakdown of social and welfare state institutions that once helped legitimize the American project and a widespread sense that American capitalism is deeply illegitimate and operating principally for the benefit of the few at the very top. A large part of my book’s analysis is built on what is termed a conjunctural approach. At heart here is the importance of thinking about how the political development of capitalism is dynamic, with moments of growth and crisis that result in changing forms of power and therefore different possibilities for emancipatory transformation. To understand where we need to go, I think that it is essential that we develop concrete understandings of power at the present with a sharp focus on how that power has developed and led to new political contradictions – as in the Frankenstein problem.
Today many of our debates concern abstract theoretical positions: greater or fewer markets, larger or smaller states, weaker or stronger unions, and so on. A conjunctural, or context-specific approach as you put it, helps us identify and study the key problems of our time and as crucially identify how to resolve them in ways that promote real human and ecological flourishing. Doing that for some of our current problems puts finance capitalism squarely in the center of the story.
LP: Let’s talk a bit about what you call “democratic ruptures”— moments of real emancipatory change for the people. What are these ruptures and how do they work?
MM: For a long time, we’ve framed the state and the economy in a hard public vs. private binary: the public, or state, where policy is made and the private market where economic activity occurs The political left came, in some crucial ways in our popular political culture, to be seen as the wing for larger states and the right smaller – recall the metaphor of neoliberals as Mary Shelley’s pitchfork wielding villagers. Leaving aside the bigger question of military and empire, even at the domestic level I think this distinction isn’t at all valid. It contrasts the state and the titans of the economy, i.e. firms, as the competing loci of power. But in reality, as I think has been demonstrated through empirical study after study, the American state itself is dominated by corporate power.
In my book, I argue that a key grouping is left out of the public/private binary, the demos. The demos is a concept that goes back to ancient Greece. In its original usage it wasn’t simply meant to be the people of a place, but instead the working classes and non-elite of a place. With the idea of democratic rupture, I am arguing for policy changes that don’t simply strengthen the state but rather that empower the demos by extending decision-making rights into the economy, expanding the democratic composition of the economy, consolidating the body politic along lines that expose the fissure between the elite and the demos, and decommodifying labor.
I’m advocating for a return to an ancient way of thinking about democracy—not just as the space of the public, i.e. a state run by elected representatives, but as something that involves all aspects of society in decisions that impact us collectively. So what I’m really getting at with the notion of democratic ruptures is bringing democratic processes into spaces we typically don’t consider political in our popular culture. This is financial investment par excellence.
LP. You’ve described our current era as the “age of the bailout state” and you made a striking point: it’s actually easier for us to imagine the end of capitalism than to reverse climate change. How do you see this dynamic reflected in the Obama Recovery Act versus the Trump CARES Act?
MM: It goes back to the loss of legitimacy. Popular sentiment is grim—people feel like they’re on a train ride to oblivion, with no way out. The system not only has lost legitimacy, but many believe it’s, in some ways, unfixable.
I think the Obama-era response to the financial crisis, especially the bank bailouts without bailing out those facing the mortgage crisis, led us to where we are. In many ways, it was the final nail in the coffin for the rosy sense of how our society actually works. It’s hard not to imagine a widespread revolt kicking off had Trump simply repeated Obama’s policy of corporate bailout without also offering up something to working people in the form of stimulus checks.
LP: You made an interesting point about the Obama Recovery Act. Despite its flaws—perhaps because of them—it may have sparked people’s imagination about challenging unregulated capitalism. By the time we get to the Trump CARES Act, public anger is more reflected in a reluctance to leave the people totally behind. So, even though many feel hopeless, their anger over the bailouts ultimately influenced public policy.
MM: I do think that’s right. We’re at a strange moment where, on one hand, things have opened up—like industrial strategy, as the Biden administration called it. But there’s a contradiction: our democratically elected representatives have been empowered to pursue goals people largely support, yet they’ve done little to create new green infrastructures, jobs, or industries. People know we are in a crisis, but many can’t imagine how the state will respond in a way to fix it. There’s a perception that it’s so dysfunctional, and our political system so unworkable, that for the average person, myself included, it’s hard to see how our current democratic politics will effectively address it.
Our imagination has been sparked in such a way that we no longer see our polity as legitimate. And most policymakers, at least the ones who win elections, know this and understand how to speak to that dissatisfaction. And yet we still have no emergent platform or policy agenda that really speaks to people’s concerns besides Trumpian nativism.
So American politics, much like the politics of most other advanced capitalist democracies, is in a bind. One the one hand, politicians know they need to address people’s suffering but they are unwilling to alter the core cause of that suffering, the governance designs of the systems that decide how the flows of investment are allocated.
LP: That leads me to the topic of solutions—both the fantasy ones and the more realistic ones. Crypto is sometimes seen as a way to democratize finance – we heard about this in Kamala Harris’s campaign. But you’re skeptical, even calling crypto a “morbid symptom of the finance capitalism crisis.” Can you explain why?
MM: I think this connects to the binary that’s often used in discussions of centralization vs. decentralization. Some crypto supporters, especially from the more progressive wing associated with Ethereum rather than Bitcoin, argue for decentralizing the financial system to give more people access. This idea echoes economist Robert Shiller’s notion of democratizing finance, in his book Finance and the Good Society, where he argues that to democratize finance means allowing for more and more people to invest in things like the S&P 500.
But to me, that’s not what democracy is about. Democracy isn’t simply a matter of access it is about the power to contribute to decisions. It involves participation and deliberation over decisions that affect us all. Crypto doesn’t open that door; it doubles down on the worst aspects of our financial system—ecologically harmful speculation detached entirely from real-world production. And further, it is anonymous and shadowy, creating no real space for the demos to consolidate politically in ways that expose and contest power in politics. This is why I refer to it as a “mythology” with respect to its democratic potential.
LP Let’s talk about this ancient Greek idea of sortition. How could it help us loosen the grip of financial capitalism?
MM: This idea dates back to ancient Greece, particularly in Athens during the period of radical democracy. They used random selection to form governing bodies that managed nearly every aspect of Athenian society— for example market prices, road maintenance, temple cleaning, and juries, an idea still in use today. Their system during this period was principally governed through these different groups of people that were randomly selected from the citizens—admittedly only men, as it excluded women, non-citizens and slaves.
Despite its deformed character in Athens, I believe this basic insight—randomly selecting people to govern—could be powerful for creating financial institutions with investment power at different scales. For example, a public bank in Santa Cruz, where I currently am, could be governed by randomly selected citizens who deliberate over and make decisions about how the assets of that bank are invested. One of the key barriers to constructing new affordable housing (which is desperately needed in Santa Cruz) is financing. This might be one means to that. Or you might do it with larger institutions like the Bank of the U.S. or a global bank. The idea here is that random selection bypasses key democratic roadblocks. Typically, democracy is framed in one of two ways: representative democracy, where elected officials govern on voters’ behalf, or direct democracy, like the Occupy Wall Street model, where everyone participates. The representative model is deeply flawed. Because of the influence of financial power, money in politics, and that politicians are drawn from the elite class it is oligarchic in practice. This creates a system that often serves capitalists, not the people. On the other hand, I don’t think the direct democracy model works either.
LP: Having sat through discussions about how to do the laundry at Occupy Wall Street in Zuccotti Park, I can certainly agree with that last point.
MM: Ha, yes, exactly. I was there, too. Not in the laundry discussions, but other ones.
LP: They were quite lengthy!
MM: Yeah, and it’s frankly an unreasonable expectation. Because of that, experiments in direct democracy tend to be undemocratic themselves due to self-selection bias—only those with the right life circumstances and desire can participate. As a result, it excludes the majority. And with the sheer numbers involved—like those massive meetings at Occupy Wall Street—it becomes unmanageable, too many people. What really happens is that a sub-group is in some ways guiding things. Again, that’s not democracy.
Sortition creates a mechanism for randomly drawing people out of a certain group, people that you want to have governing power. You can randomly select however many you think is necessary to the task. It allows you to avoid the problem of just having elites in the room, and it also allows you to avoid the problem of self-selection bias which we see in different episodes of direct democracy. It makes the possibility of governing available to everyone.
When you bring together randomly selected people and ask them to become somewhat expert on a task and make recommendations or binding decisions, they often produce high-quality outcomes. Research shows that diverse groups—demographically and cognitively—make better decisions than highly educated, homogenous ones. Diversity improves democratic results. For me, sortition is a potentially radical and transformative way to introduce democracy into new spaces of society, such as financial investments. While it may seem too complex for everyone to decide on such issues, this mechanism could make it possible.
There’s been an explosion of what are often referred to as “citizen assemblies,” really after 2008. They’ve been experimented with even more over the past 4 or 5 years, around the world. For example, in Ireland, they had a Constitutional Assembly over the issues of gay marriage and abortion, both of which were constitutionally banned. Randomly selected people came together over several sessions, over several months, learned about these issues, debated them, and in the end they had a vote. The majority decided that those bans should be removed.
There have been others all around the world. In France, they had a wave of them after the Yellow Vest protests, to think about how to deal with this complicated problem of wanting to do things that are environmentally sustainable, while also not wanting to do things —-like dramatically increasing gas prices — that are really detrimental to ordinary people? They had assemblies all across France. This shows how sortition can work, and there’s no reason it can’t work for investment and financial matters.
Creating pools of finance governed democratically in such a way can not only begin to address our deep investment crisis, it can strengthen democracy itself. In my view, this must be our starting point in responding to the crisis of finance.
