FacebookTwitterGoogle+RedditEmail

Bailing Out Wall Street Won’t Save Main Street

Wall Street must be saved for the sake of Main Street, Secretary Paulson and Chairman Bernanke tell us. First, everyone has toxic financial instruments in their 401k’s; and second, these instruments are clogging the credit system. But in fact neither claim is true.

The first claim is not true simply because the majority of Americans don’t have any retirement accounts at all. And the claim that the credit system is clogged is not true because there is no object that can be removed in order to clear it. What is true is that the securities that Wall Street invented are toxic. But this is precisely why they should remain where they belong, in the vaults of those who created and pushed them. Otherwise they will poison the rest of us, the poorest among us the most. The government can and should stave off the increase in unemployment, but the only way the government can accomplish this is by hiring workers itself. A bailout will make matters worse.

If it were indeed true that all Americans owned these new financial instruments, then the decline, or even the total collapse, of their value, would actually not have made a difference to anybody. When the value of everybody’s assets falls by the same proportion, nobody gains and nobody loses, because monetary wealth is only relative. Thus, if Wall Street and Main Street were really the same, there would have been no economic crisis to begin with. But the fact is, only 53% of full-time full-year workers participate in a retirement plan, and for Americans who are only part-timers or temporary workers the proportion is even lower. The majority of Americans will therefore not benefit from the bailout at all. But will they be hurt by it? Badly.

If Wall Street fortunes were to evaporate, the result would be a major realignment of wealth in the country. The rich would become poorer, and as a result the poor would become richer. The very first thing a bailout will do is prevent this realignment from taking place. The rich will continue to have their jets and their palaces and the poor will continue to struggle to go to the doctor and to find housing. Heads, the rich win. Tails? Let’s toss again.

There is no doubt that economic uncertainty leads to low investments and low borrowing. There is also no doubt that mortgage-based-securities are partially responsible for this uncertainty, although the rising price of oil plays an important role as well. But, as Keynes pointed out during the Great Depression, nobody knows how to restore lenders and investors? confidence once it has been lost. And, in all likelihood, passing the mortgage backed security to the government will decrease, not increase, this confidence.

If the government acquires these securities, it will be left to a government employee (or, more likely, to a private contractor) to decide when ?the price is right? to sell them. But the volume of these securities is fantastically large, and nobody knows how to price them anyway. The effect on financial markets will be colossal. Business schools will start teaching new courses devoted to predicting the behavior of this bureaucrat. New financial instruments will be invented to take advantage of this new “expertise.” The government employee herself will either succumb, or be accused of succumbing, to an overwhelming temptation to sell the old-new securities for prices that will benefit those closest to her. The calls to regulate the new-new securities and to monitor the government employee in charge of selling the old-new securities will be deafening. The level of economic uncertainty will increase many times over, and unemployment will increase along with it.

What Keynes also pointed out during the Great Depression is that the government can increase employment by hiring workers itself. To press his argument Keynes suggested that the government could always hire half the unemployed to dig ditches and the other half to fill them up. But thanks to long years of neglect by the government, there are many government services that Main Street actually desperately needs: More teachers and better school lunches; more public transportation; more public universities with better facilities; more nurses and doctors and more medicinal drugs; more nursing homes for elderly people and more parks for the young; more housing for workers and more childcare for their children. And, Keynes explained, once the government starts using its power to stabilize employment and to increase its citizens? standard of living, there is no doubt that the economic horizon will clear and private lending and investment will rebound as well.

Normally, this would be the point at which the reader would ask: “But how do we pay for this all?” But not today. First, the government can use the money that the President and Congress want to give Wall Street. In addition, it is now clear that executive compensation is not a just reward. It can and should be taxed, heavily, and perhaps even retroactively.

Trickle down solutions to free market problems have had more than a fair chance. The only way that the government can perform its job is to work for Main Street directly.

MOSHE ADLER is the director of Public Interest Economics, a consulting firm. He can be reached at ma82092@gmail.com.

Your Ad Here
 

 

 

 

More articles by:

Moshe Adler teaches economics at Columbia University and at the Harry Van Arsdale Center for Labor Studies at Empire State College. He is the author of Economics for the Rest of Us: Debunking the Science That Makes Life Dismal (The New Press, 2010),  which is available in paperback and as an e-book and in Chinese (2013) and Korean (2015) editions.

Weekend Edition
September 21, 2018
Friday - Sunday
Paul Street
Laquan McDonald is Being Tried for His Own Racist Murder
Brad Evans
What Does It Mean to Celebrate International Peace Day?
Alexandra Isfahani-Hammond
Hurricane Florence and 9.7 Million Pigs
Nick Pemberton
With or Without Kavanaugh, The United States Is Anti-Choice
Andrew Levine
Israel’s Anti-Semitism Smear Campaign
Jim Kavanagh
“Taxpayer Money” Threatens Medicare-for-All (And Every Other Social Program)
Jonathan Cook
Palestine: The Testbed for Trump’s Plan to Tear up the Rules-Based International Order
Jeffrey St. Clair
Roaming Charges: the Chickenhawks Have Finally Come Back Home to Roost!
David Rosen
As the Capitalist World Turns: From Empire to Imperialism to Globalization?
Jonah Raskin
Green Capitalism Rears Its Head at Global Climate Action Summit
James Munson
On Climate, the Centrists are the Deplorables
Robert Hunziker
Is Paris 2015 Already Underwater?
Arshad Khan
Will Their Ever be Justice for Rohingya Muslims?
Jill Richardson
Why Women Don’t Report Sexual Assault
Dave Clennon
A Victory for Historical Accuracy and the Peace Movement: Not One Emmy for Ken Burns and “The Vietnam War”
W. T. Whitney
US Harasses Cuba Amid Mysterious Circumstances
Nathan Kalman-Lamb
Things That Make Sports Fans Uncomfortable
George Capaccio
Iran: “Snapping Back” Sanctions and the Threat of War
Kenneth Surin
Brexit is Coming, But Which Will It Be?
Louis Proyect
Moore’s “Fahrenheit 11/9”: Entertaining Film, Crappy Politics
Ramzy Baroud
Why Israel Demolishes: Khan Al-Ahmar as Representation of Greater Genocide
Ben Dangl
The Zapatistas’ Dignified Rage: Revolutionary Theories and Anticapitalist Dreams of Subcommandante Marcos
Ron Jacobs
Faith, Madness, or Death
Bill Glahn
Crime Comes Knocking
Terry Heaton
Pat Robertson’s Hurricane “Miracle”
Dave Lindorff
In Montgomery County PA, It’s Often a Jury of White People
Louis Yako
From Citizens to Customers: the Corporate Customer Service Culture in America 
William Boardman
The Shame of Dianne Feinstein, the Courage of Christine Blasey Ford 
Ernie Niemi
Logging and Climate Change: Oregon is Appalachia and Timber is Our Coal
Jessicah Pierre
Nike Says “Believe in Something,” But Can It Sacrifice Something, Too?
Paul Fitzgerald - Elizabeth Gould
Weaponized Dreams? The Curious Case of Robert Moss
Olivia Alperstein
An Environmental 9/11: the EPA’s Gutting of Methane Regulations
Ted Rall
Why Christine Ford vs. Brett Kavanaugh is a Train Wreck You Can’t Look Away From
Lauren Regan
The Day the Valves Turned: Defending the Pipeline Protesters
Ralph Nader
Questions, Questions Where are the Answers?
Binoy Kampmark
Deplatforming Germaine Greer
Raouf Halaby
It Should Not Be A He Said She Said Verdict
Robert Koehler
The Accusation That Wouldn’t Go Away
Jim Hightower
Amazon is Making Workers Tweet About How Great It is to Work There
Robby Sherwin
Rabbi, Rabbi, Where For Art Thou Rabbi?
Vern Loomis
Has Something Evil This Way Come?
Steve Baggarly
Disarm Trident Walk Ends in Georgia
Graham Peebles
Priorities of the Time: Peace
Michael Doliner
The Department of Demonization
David Yearsley
Bollocks to Brexit: the Plumber Sings
FacebookTwitterGoogle+RedditEmail