What You Need To Know About Banana Republic


The term “banana republic” was coined in the early 20th century by American journalist Walter Lippmann to describe countries with weak democratic institutions and an oligarchic political system.

In his book, The Phantom Public, Lippmann described the banana republic as one where:

“…the government of the country has been taken over by a small class of men who have become so accustomed to having their own way that they are quite willing to allow others theirs if only they will pay for it. They may be called the oligarchy or the privileged few, but what they really are is the permanent bureaucracy – a body that at every moment of its existence is supported by the constant application of force, and which can never be reduced to any other kind of support without destroying itself. It is this organized power of the bureaucratic elite that makes the banana republic into a phantom public.”

How Does a Country Get There?

There are two main theories about how the United States got to the point of being a banana republic.

One theory says that the US became a banana republic because of the influence of big business. The second theory says that the US got there because of the influence of Wall Street.

Both theories are correct. But they are not mutually exclusive. There is also evidence that both factors were important together.

1) Big Business Theory

According to the Big Business Theory, the US was originally a constitutional democracy until large corporations began to exert too much control over the political process. This led to the rise of the Republican Party, which was founded by industrialists and businessmen to protect corporate interests. As time went on, the Republicans gained more and more power and eventually took over the entire government.

This theory holds that the US now operates like a banana republic. It has no real constitution, just a set of laws that are written by Congress and enforced by the courts. The Supreme Court is packed with conservatives and the executive branch is controlled by conservative politicians.

2) Wall Street Theory

According to the Wall Street Theory, the US government was originally a representative democracy. However, when the stock market crashed in 1929, the economy collapsed and the people lost faith in capitalism. This caused them to lose confidence in elected officials and elect populist leaders instead. These populist movements grew stronger after World War II and eventually overthrew the old order.

Under these new conditions, the Democrats came to rule the roost and the Republicans were marginalized. They then gradually regained some ground under Reagan, but since then the Republicans have mostly stayed out of office.

These two theories explain why the US is such a banana republic today. But they don’t tell us why the situation arose in the first place. In fact, neither theory explains everything. For example, neither theory tells us why the Democrats always win elections. So, let’s look at another explanation.

The Political Economy Explanation

The Political Economy Explanations say that the US has slowly turned from a constitutional democracy into a banana republic because of changes in the structure of the economy.

For many years, the US operated like a mixed economy. It had a capitalist sector and a socialist sector. The capitalists provided jobs for most of the workers while the government gave everyone free health care, education, and housing.

However, during the 1980s the capitalist sector began to decline. Corporations started moving overseas to take advantage of lower labor costs. Many businesses closed down or moved abroad completely. At this point, the US entered a period of de-industrialization. Millions of people found themselves unemployed and unable to afford basic necessities.

At the same time, the government continued to provide social services even though it wasn’t getting any tax revenue from the private sector. To pay for all this spending, the government started printing money. Eventually, inflation skyrocketed and interest rates rose dramatically. This made borrowing money very expensive, so companies stopped investing in new factories and equipment.

Eventually, the government ran out of ways to print money. When this happened, the value of the dollar plummeted, and the price of imports soared. Suddenly, the US was once again faced with an unemployment crisis.

Meanwhile, the socialists still needed money to support their programs. So they cut back on social services and raised taxes on the rich to finance their operations. As you can imagine, this didn’t go over well with the business community. After all, they weren’t paying for anything anymore.

So, the capitalists started leaving the country. They either went to other countries or took up residence in offshore tax havens. Since there were fewer capitalists around, more and more people became dependent on welfare benefits.

Since the capitalists left, the government has been forced to rely on income taxes alone to fund its operations. However, income taxes are much less efficient than payroll taxes. That means the government needs to raise taxes on the middle class and reduce taxes on the wealthy.

This causes problems for the middle class because higher taxes mean less disposable income. Lower taxes cause problems for the wealthy because they’re not taxed enough to make a big difference.

In addition, the government spends more money than it takes in. If the government doesn’t get its budget balanced, it will default on its debt. Once the government defaults, the value of the currency drops, making imports even cheaper. This makes exports even more competitive. Soon, we’ll be exporting everything except our politicians!


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