When Wall Street Rules, We Get Wall Street Rules
Dean Baker, Co-Dir. of the Center for Economic and Policy Research
Hufington Post: August 21, 2010
The middle class is getting whacked by the Great Recession. Fifteen
million people are out of work, another 9 million workers can only find
part-time jobs, and millions more have given up looking for work
altogether. Those lucky enough to be employed are unlikely to see any
substantial wage gains for years to come.
Millions of homeowners are facing the loss of their home and more
than ten million are underwater in their mortgage. Most of the huge baby
boom cohort is approaching retirement with little other than Social
Security to support them, now that the collapse of the housing bubble
has destroyed their home equity and much of the rest of their savings.
This pain is infuriating for two reasons. First, this was an entirely
preventable disaster. The housing bubble was easy to see. Competent
economists had long warned of its dangers.
The second reason why the current situation is infuriating is that we
know how to get the economy out of this mess. We just need to boost
demand. This can be done either with much more government stimulus, more
aggressive monetary policy from the Fed, or pushing the dollar down to
boost exports.
If this disaster was preventable and we know how to get out of it,
why didn't our leaders try to stop it before it happened? Why don't they
take the steps necessary now to get the economy moving again?
The answer to both these questions is simple; the politicians work
for someone else. On Election Day, the politicians might need our votes,
but they won't get to be serious contenders unless they've gotten the
campaign contributions of the big money crew. And the moneyed elite has
been using its control of the political process to ensure that an ever
larger share of the economy's output is redistributed upward in their
direction.
The reason that there was little interest in cracking down on the
housing bubble is that Goldman Sachs, Citigroup and the rest were making
a fortune from the financial shenanigans that fueled the bubble. Former
Treasury Secretary Robert Rubin personally pocketed over $100 million
from this fun. Why would they want the government to rein it in?
Of course, when the bubble did finally blow and threaten their banks
with bankruptcy, the Wall Street crew just ran to the government for
help. And they got trillions of dollars in loans and loan guarantees to
ensure that they would not be victims of the crisis they had created.
Now that they are back on their feet, with Wall Street profits and
bonuses both again at near record levels, they see little reason to
concern themselves with the measures that might set the economy right
for the rest of us.
After all, the steps necessary to revitalize the economy could mean
some inflation. This would reduce the value of the debt owned by the
wealthy. And the wealthy don't see any reason that they should risk any
of their wealth just for the good of the economy.
We have enormous ground to cover to restore an economy that works for
the vast majority, but the first step is to know where we are. The
upward redistribution of the last three decades has nothing to do with
the market and a belief in "market fundamentalism." This is about a
process where the rich and powerful have rewritten the rules to make
themselves richer and more powerful.
For example, they wrote trade rules that were designed to put
downward pressure on the wages of the bulk of the U.S. workforce by
placing manufacturing workers in direct competition with low-paid
workers in China and other developing countries. This had nothing to do
with a belief in "free trade." They did not try to subject lawyers,
doctors or other highly paid workers to the same sort of international
competition. They only wanted international competition to put downward
pressure on the wages of workers in the middle and bottom, not those at
the top.
This elite has instituted a system of corporate governance that
allows top executives to pilfer companies at the expense of their
shareholders and its workers. Top executives are overseen only by a
board of directors who owe their hugely overpaid sinecures to the
executives they supervise. And of course the Wall Street barons
themselves are given a license to gamble with the implicit promise that
government picks up their tab when they lose.
No progressive movement will make any progress until we understand
the battle we are fighting. Our income is a cost to the rich. They will
look to cut it wherever they can, whether this is wages for private
sector workers, pensions for public employees, or Social Security for
retirees. That is their target.
We have to fight back using the same logic. Their income is our cost
-- the multimillion dollar bonuses for the Wall Street wizards is a
direct drain on the economy. So are the bloated paychecks of top
executives and their lackey boards. Progressives must be prepared to use
all the same tactics to bring down the income of the rich and powerful
that they have used to reduce the income of everyone else.
This means restructuring the rules of corporate governance to put
serious downward pressure on the pay of top executives. The highest paid
workers (doctors, lawyers, and economists) must be subjected to
international competition in the same way as manufacturing workers
have been subjected to international competition. And, we should sharply
limit the extent of the patent or copyright protections that are exploited
by the drug industry and the entertainment and software industries.
We have to put the focus on the ways the rich have rigged the rules
and place this at the center of political debate. The three decade-long
battle over tax cuts for the rich is important, but at the end of the
day it is a side show. If we let them steal all the money at the onset,
it really doesn't make much difference if they end up letting us tax a
little of it back.
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