Most Americans have come to doubt Wall Street’s social utility and believe inequality has gotten out of hand. But taxes on the very rich can’t be the entire answer, writes MoneyShow.com senior editor Igor Greenwald.
Leaders and demands are overrated, it turns out, if the goal is to set off a national debate about the way the economy is working…or not working for many.
Both are obvious distractions. Because Occupy Wall Street is about whatever one cares to write on a sign, no one’s debating its ten-point platform for a better tomorrow. Instead, a quick and broad consensus has emerged about the injustices and inanities of today.
The financial industry primarily targeted by the protesters is widely reviled, in part because the pay at the top is so egregious and out of whack with the law of supply and demand.
But mostly it’s because Main Street has caught on to the fact that the business is not some magic workshop turning the sweat and tears of bankers into gold, and not even just a clever scheme to fleece gullible foreigners. Main Street hates that Wall Street is now a gambling den toying with the livelihoods of millions like so many chips in a poker stack.
Main Street doesn’t see results matching the hype about the wonders of financial engineering. Main Street sees flash crashes, housing bubbles and busts, and an inverted pyramid of debt that’s proven to be a poor substitute for income gains over the last three decades.
So Wall Street stands convicted in the court of public opinion—and on its home turf as well, to judge from the trajectory of its not-too-big-to-fail shares. It’s spending a fortune on lawyers and legal reserves but no longer minting money in the markets, a problem likely to be aggravated by the Frank-Dodd financial restrictions.
The revelations about how Goldman Sachs (GS) treated its clients, in setting them up to be bet against, can’t help but do lasting damage to the business model.
The surprising consensus forged by Occupy Wall Street extends beyond financial malpractice and to the premise that growing income inequality is a problem. Solid majorities of Americans in a variety of polls are backing tax hikes for million-dollar incomes. The “job creators” simply aren’t creating enough jobs, while health care costs and inflation eat away at worker pay.
But even the majority supporting extra taxes on the very rich can’t believe that’s the entirety of the answer. The fundamental trends driving the growing income inequality aren’t going away, in part because the inequality at home is a byproduct of the global income leveling.
It’s also a byproduct of technological change that’s wiped out whole layers of middle management and funneled fabulous riches on a scale never before known to man to the globally sourced and networked winners of the economic competition. There are problems a billionaire tax won’t solve. Yet they’re crucial to understanding the global shortage of demand.
Solutions might include different tax treatment for income earned by entrepreneurs risking their own capital, and the salaries and bonuses that executives at poorly-supervised public companies award to each other. In the financial industry, compensation practices still plainly reward dangerous gambling with other people’s money.
We almost certainly need much more direct shareholder democracy, and the ability to quickly and cheaply depose directors who fail to safeguard the interests of investors.
We have yet to reconcile the utility of free markets with the fact the most people crave more stability than such markets provide, especially these days. We have yet to figure out what to do about all the losers of the intensified economic competition.
These are questions that have to be tackled. The answers won’t possibly fit on a sign. But they’re worth discussing all the same.