by Linda Beale
Do Good Wall Street Days Translate to Good Days for Most Americans?
As usual, there was one of those all-knowing snippets in the news last Friday about what the direction in the stock market meant for the economy. Observing high corporate profits and buoyed by the idea that the GOP might not play its “just say no” game on the debt ceiling issue (at least for three months), Wall Street profits rose. See Wall Street at 5-year high, New York Times Business Insider, Jan 18, 2013.
Should we so easily consider Wall Street’s well-being as a general sign of the well-being of the economy? Sometimes it seems that it marches to its own tune, while ordinary Americans continue to struggle. Foreclosures, job losses, offshoring, state actions to make union membership harder even when most Americans say union membership should be easier, huge inequalities in incomes and wealth and the social problems that go with those inequalities–there are all kinds of things going on that still don’t bode well for ordinary Americans whose income is mostly made up of wages and not preferentially taxed capital gains and who don’t own much of the financial assets of this country. Democratic egalitarianism isn’t satisfied by such a system that consistently rewards one class of income over another based on what amounts to class distinctions–the kind of income that requires hard work is less rewarded than the kind of income that comes with a silver spoon at birth.
In other words, corporate giants making high profits doesn’t provide much reassurance to ordinary guys about the stability of their own personal economies. High profits seem to translate to higher payouts to corporate managers/shareholders, but ordinary workers don’t get more than a trickle of a share of those productivity gains.
Trickle down hasn’t trickled much down the last few decades, if it ever did. Inequality is growing worse, and with that comes even more influence so that the politically powerful are the same as the economically powerful, yielding a return on lobbying that the Founders couldn’t have imagined.
The unequal society that is today’s United States has many problems that are at least partially caused by the high level of inequality–from teenage pregnancy to illiteracy rates to lifespan of the underclass to low birth weights to college graduate rates and many other indicators of a less than optimal quality of life. And those problems are exacerbated by the continuing blind faith of so many Washington politicians in the “degenerating discourse of mainstream economics” (the link is to a recent post on Yves Smith’s Naked Capitalism by Philip Pilkington). We continue to look to Wall Street, and ignore the blight of wealth and income inequality that besets Main Street, because economists have fabricated a convenient theory of equilibrium that is most successful at hiding what is really going on from us while protecting the “free market” impulses of brute force capitalism.
Perhaps one of the positive results of the buoying of Wall Street is the general consumer attitude, which does result in more spending (still perhaps beyond one’s means for much of the underclass)? That spending increases business demand, and could even result ultimately in more job creation, especially if accompanied by more federal spending rather than the counter-stimulus current focus on spending cuts and “balanced” budgets (in at least one sense an oxymoron for a federal government that can print its own money). But those jobs will require a better educated public than the US is likely to have. Again, partly due to the mainstream economic discourse, we are effectively debilitating public education through cuts in funding, exploitation of teachers, and privatization for the profit-making gains of education profiteers, rendering what was our greatest strength our greatest weakness.\
But what really happens to most of the wealth created by those increases in corporate profits (and those demands for ever higher returns that the wealthy have come to view as their norm, accompanied by those terribly preferential tax rates that mean the wealthy get to keep more of their unearned wealth while ordinary workers cannot)? One suspects that much of that ‘extra’ wealth heads out of the country–to offshore tax havens, invested in yet another vacation home abroad, put into emerging markets, following the promise of higher returns without much regard for the impact on the US economy.
As long as we are facing the kind of inordinate reward to the uberwealthy and underreward to ordinary Americans, I find it hard to get excited about a five-year high on Wall Street. It’s main effect is to drive home the need for Congress to develop better tax policy to at least use tax as a means to help, on the periphery, cut back on inequality. Eliminate the preferential taxation of capital gains and dividends and estates. Don’t listen so much to the deficit scolds who want to decimate earned benefit programs like Medicare and Social Security. Invest more in physical infrastructure, particularly mass transit and environmentally sounder energy policies. Don’t listen so much to the militarists (who are often in company with said deficit scolds) who want to continue allowing the military budget to engorge itself.
cross posted with ataxingmatter