Catfood Commission Proves We Are At The Political And Economic Mercy Of The Financial-services Sector
Americans really want to know why we don't make stuff anymore. What happened to American manufacturing? Why is everything made in China now?
The answer: Because we are now at the economic -- and political -- mercy of the nation's financial-services sector.
Here's an illustration of what's happened to America in the past 30 years, taken from page 33 of Kevin Phillips' fine book, Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism, which predicted the global economic crisis well before it happened:
As Phillips explains, this shift came about because both political parties in Washington -- well fed with Wall Street money -- decided America's economic future lay in the financial sector, not in manufacturing.
Phillips describes in detail how the financial-services sector came to be seen within the Beltway as "the winner" for politicians to back as the nation’s economic workhorse, fueled in no small part by the ongoing activities of the President’s Working Group on Financial Markets, even as the nation’s manufacturing capacity was slowly being gutted. He explores how this was facilitated by Republican governance this past decade, particularly from a Bush White House that favored the familial oligarchical approach to economics, and rapidly accelerated during the post-9/11 push to expand credit. This was manifested in the "securitization" mania that took root in the context of a "Wild West" milieu for all kinds of moneymaking devices, especially low-interest adjustable-rate mortgages.
In the process, both of America's political parties have largely been subsumed by the financial-services sector. The most recent manifestation of this is the work of the supposedly bipartisan Catfood Commission, whose recommendations, if followed, would produce "a major transfer of income upward, from the middle class to a small minority of wealthy Americans," according to Paul Krugman.
What's particularly striking about its work is that it quite patently intends to place all the burden for solving the deficit on the backs of working people (mainly through serious Social Security cutbacks) while steadfastly refusing to consider new ways of improving its revenues, as Matt Yglesias has observed.
And atop that list of ignored potential revenue sources: The financial sector.
The deficit report put out by the commission's co-chairs, Alan Simpson and Erskine Bowles, had one striking omission. It does not includes plans for a Wall Street speculation tax or any other tax on the financial industry.
This omission is striking because the co-chairs made a big point of saying that they looked everywhere to save money and/or raise revenue. As Senator Simpson said: "We have harpooned every whale in the ocean - and some minnows." Wall Street is one whale that appears to have dodged the harpoon.
This omission is made more striking by the fact that at least one member of the commission, Andy Stern, has long been an advocate of such taxes. Presumably he raised this issue in the commission meetings and the co-chairs chose to ignore him.
The co-chairs apparently also chose to ignore the I.M.F.. Noting the waste and extraordinary economic rents in the sector, the I.M.F. has explicitly recommended a substantial increase in taxes on the financial industry. It is even more striking that the co-chairs apparently never considered a speculation tax since Wall Street's reckless greed is at the center of the current economic crisis.
Indeed. You always hear from "fiscal conservatives" that taxes should only be applied to activities that you want to discourage or hold in check. Well, there you go.
In this context, it is worth noting that one of the co-chairs, Erskine Bowles, is literally on Wall Street's payroll. He earned $335,000 last year for his role as a member of Morgan Stanley's (one of the bailed out banks) board of directors. Morgan Stanley would likely see a large hit to its profits from a financial speculation tax.
It would have been appropriate for the reporters covering the report to ask about a financial speculation tax. It would also be appropriate to explore the connection between Mr. Bowles role as a Morgan Stanley director and the absence of any financial taxes in this far-reaching report.
Until we start electing Democrats who really want to put Americans back to work making things and recognize that Wall Street's speculative utopia is a global nightmare, we're going to be caught in this trap, and real economic recovery will remain out of reach.
Time for a left-wing populist uprising, perhaps?