When Wall Street Rules, We Get Wall Street Rules
from Dean Baker
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 10 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 were preventable and we knew 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.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of False Profits: Recovering from the Bubble Economy. He also has a blog, “Beat the Press,” where he discusses the media’s coverage of economic issues.