Why Aren’t Democrats Talking About Wall Street And The Economy?
“The financial industry may have been overshadowed by Big Tech in recent years but remains at the heart of the question of whom the economy works for. You would assume this would merit the attention of the candidates vying to replace Trump as president.”
Economic and political inequality is commonly cited as the driving force behind the rise of populism in American politics. Yet despite 75 percent of Americans telling Reuters that “America needs a strong leader to take the country back from the rich and powerful” on election day in 2016, the media has failed to bring attention to what American Propect editor David Dayen calls “the greatest driver of inequality” in the economy: Wall Street.
“The financial industry may have been overshadowed by Big Tech in recent years but remains at the heart of the question of whom the economy works for,” wrote Dayen. “You would assume this would merit the attention of the candidates vying to replace Trump as president.”
Financial Times columnist Rana Foroohar notes that Wall Street has gained huge power over the economy since the deregulatory period of the 1980s, with the finance industry now creating “only 4% of all US jobs,” but taking in “25% of all private sector profits.” Foroohar argues that much of these profits come from parasitic behavior rather than value creation.
“While a healthy financial system is crucial for growth,” wrote Foroohar, “research by numerous academics as well as institutions like the Bank of International Settlements and the International Monetary Fund shows that when finance gets that big, it starts to suck the economic air out of the room – and in fact, the slower growth effect starts happening when the sector is half the size it is today in the US.”
Another major concern regarding Wall Street is evidence that large-scale deregulation leads to financial crises. As Dayen has previously noted, a working paper from the International Monetary Fund found a consistent pattern in 10 major financial crises over the past 300 years:
“Deregulation coincides with a financial boom that inevitably busts, then a new government comes in and re-regulates the financial system,” wrote Dayen. “This pattern holds for all ten crises, with deregulation accelerating in the five years preceding the crisis in nine of the ten examples.”
The Trump administration has slashed financial rules over the past three years, such as dismantling the post-subprime mortgage crisis Dodd-Frank regulations and shrinking oversight by watchdogs like the Consumer Financial Protection Bureau and the SEC. Dayen argues that the widespread deregulation causes “more risk for financial consumers, ordinary depositors, and the broader economy.”
Dayen argues that neglecting Wall Street’s grip on much of the Democratic party fails to inform voters of the differences between the Wall Street-friendly Democrats like Biden and Buttigieg versus the progressive wing of the party represented by Sanders and Warren. Notably, Sanders has proposed a cap on credit card interest and a Wall Street transaction tax to pay for higher education, while Warren has put forward plans to regulate private equity and to enforce white-collar crime laws.
“When we hear about media bias, it’s usually about one outlet favoring one poll over another, or forgetting to add one candidate’s name in a story,” wrote Dayen. “But leaving finance out of the picture reflects the deepest and most dangerous bias. It frees Wall Street-friendly Democrats like Biden from having to answer for their actions. It muddles the choice for voters.
For an entire presidential primary, the greatest driver of inequality and economic risk has remained invisible to voters. The establishment thanks the media for their service.”
Why Aren’t Democrats Talking About Trump’s Economy?
Dayen’s comment that Wall Street remains “at the heart of the question of whom the economy works for” reflects criticism that Trump’s economic policies have abandoned the working class to serve the rich.
Cambridge PhD student Benjamin Studebaker argues that progressives should bring attention to the economy rather than focus solely on the president’s scandals and corruption:
“The Trump administration has been able to develop a simple argument for itself. It goes something like this:
Unemployment is lower than ever. The economy is strong. This is because of the tax cuts and the tariffs. The Democrats are distracting you from the real results the administration is delivering.
We aren’t challenging that narrative. We’re feeding into it. And by voting to impeach the president, the House has ensured that we continue to play into it for some time to come.
It doesn’t have to be this way. We could point out that this economy is a paper tiger. We could point out all the people who are still forgotten. We could talk about the administration’s recent decision to strip more than 2 million struggling American households of the food stamps they need to survive.”
Critics like Studebaker argue that a closer look at the numbers reveals a far different picture of the economy than metrics like low unemployment and the strong stock market imply.
As Citizen Truth reported last week, nearly half of Americans work low-wage jobs despite strong job growth and a 50-year low unemployment rate. Wage growth has been mostly stagnant for decades while the cost of basic living expenses like health care, education, and housing has increased. Growing inequalities have fallen even more dramatically along racial lines, as the massive black-white wealth gap has expanded since the 1980s.
“We don’t have any basis or any evidence for calling this a hot labor market,” Fed Chairman Jerome Powell said in July, noting that wages are barely growing enough to cover productivity increases and the cost of inflation.
President Trump has also touted the stock market’s record-breaking performance as proof that the U.S. economy under his administration is the “best it has ever been,” but as economist Dean Baker notes, the stock market is not a measure of the health of the economy; “the stock market is a measure of the expectations of future profits of companies that are listed in the exchange.”
“The basic logic here is simple. The price of Microsoft, Boeing or Pfizer stock is not going to rise because workers are getting pay increases or they can take longer vacations,” wrote Baker. “The price of these companies’ stocks will rise if investors believe that events will cause their profits to be higher. That’s the end of the story.”
As Citizen Truth previously noted, Goldman Sachs has recently advised investors to pursue a “low labor cost” strategy, based on targeting industries with low exposure to rising labor costs and avoiding companies where wages are growing, demonstrating how what benefits the stock market does not necessarily benefit the economic well-being of the population.
Furthermore, the richest 10% of Americans own 84% of all stocks. With nearly half of Americans excluded from the stock market and the majority of its gains accrued to the country’s wealthiest citizens, critics argue that designing policy centered around the stock market exacerbates inequality and hurts the broader economy.
Baker argues that many policies that would hurt the stock market – stopping Big Pharma price gouging, curtailing fossil fuel production, and allowing labor unions to bargain for better wages – would be good for the economy and broader society. Baker notes that the U.S. had very strong growth with widely shared benefits in the 1950s and 1960s despite stock prices being far lower relative to the economy.
CNBC attributes Fed policy, including cutting interest rates three times and pumping billions into the financial system, as reason for the stock market’s record performance. Additionally, Trump’s tax cuts inspired a surge of stock buybacks, in which companies buy their own stock to inflate their share prices, rather than a significant increase in business investment in wages and research & development.
GDP growth in 2019 so far averages at 2.33%, with just 1.9% in the third quarter, weaker than Obama’s average in his second term.
Despite Trump’s pledge to ‘drain the swamp,’ he has already assigned more corporate lobbyists to his cabinet in three years than Bush or Obama did in two terms. He has also weakened labor protections on workplace injuries, overtime pay, and forcing workers to settle disputes in closed-door arbitrations rather than class-action lawsuits.
With the real value of the minimum wage lower than it was 50 years ago and life expectancy declining in an unprecedented trend, critics argue that the reality of the population’s economic situation isn’t reflected by the president’s rhetoric.
Power Of Super Rich Over Economy
Another reason progressives should concern themselves with Wall Street is to anticipate how the super-rich could use their structural power over the economy to thwart a progressive agenda. After all, the last time a president took on Wall Street, a group of wealthy businessmen tried to overthrow him and instate a fascist dictatorship in the United States.
In 1934, Retired Marine Corps Major General Smedley Butler testified before the House of Representatives that wealthy businessmen had asked him to lead a fascist veteran’s organization to march on Washington and execute a coup d’état to overthrow President Franklin D. Roosevelt. Butler named the American Liberty League as involved in the scheme.
“Virtually all of them were founding members of the Council on Foreign Relations (CFR),” wrote Counterpunch’s Michael Donnelly. “The League was headed by the DuPont and J.P Morgan cartels and had major support from Andrew Mellon Associates, Pew (Sun Oil), Rockefeller Associates, E.F. Hutton Associates, U.S. Steel, General Motors, Chase, Standard Oil and Goodyear Tires.”
According to Donnelly, historian Jules Archer and Harper’s journalist Scott Horton, Prescott Bush, who made the Bush dynasty’s family fortune in part through doing business with Nazi Germany, was a conspirator in the plot who appeared “to have formed a key liaison for the group with the new German government.”
As the only man to have received both the Marine Corps Brevet Medal and two Medals of Honor (not to mention 13 other medals), Butler was the most decorated Marine in US history at the time of his death. Even though a Congressional investigation found that Butler was telling the truth, the New York Times dismissed the coup plot as a “gigantic hoax,” and not a single conspirator was prosecuted.
Could The Super-Rich Sabotage A Progressive 2020 Victory?
In a 2018 interview between Marxist scholar David Harvey and the Intercept’s Jeremy Scahill, Harvey explained how President Clinton was convinced to give up structural reform by his Treasury Secretary and former co-chairman at Goldman Sachs Robert Rubin:
“I mean that famous moment when Clinton came in and said, “Can I do this or can I do that?” And Rubin, from Goldman Sachs, says: “You can’t do that.” Basically you’ve got to do what the bondholders tell you. And Clinton, who came in promising universal health care, gave us NAFTA, the reform of welfare, gave us the taking down of Glass–Steagall, and all the rest of it, and actually set up the sort of housing financing that produced the crash in 2007 and 2008.”
Citizen Truth asked several experts, including economist Dean Baker, Financial Times columnist Rana Foroohar, and prominent scholar Noam Chomsky, if rich bondholders would be able to similarly stifle a Sanders presidency.
“It is less a question of conspiracies among bondholders (although that can happen) as them responding in ways that screw a progressive government,” economist Dean Baker told Citizen Truth. “There was a fixation in financial markets in the early 1990s on budget deficits, so Clinton did have to worry about this, although probably not as much as he did.”
“We should always assume rich people will act to protect their money. That will make the plans of any progressive government more difficult,” Baker continued. “For example, a sharp increase in progressive taxes will raise much less revenue than would be projected because they will find loopholes and tax dodges. These are wasteful for the economy because people are getting rich figuring out ways for other rich people to avoid paying taxes.
Any progressive has to factor that into their calculations. I hope Bernie’s people have.”
Financial Times columnist Rana Foroohar, who argues in her book Makers and Takers: The Rise of Finance and the Fall of American Business that the oversized finance sector is the economy’s worst problem, told Citizen Truth that while progressive reforms would encounter immediate resistance, they would ultimately create a more stable economy.
“Dean makes some good points; in fact, wealthy people are already moving assets abroad in anticipation of a more progressive government and higher tax rates,” Foroohar told Citizen Truth. “We may well see more capital flight; there’s no way to avoid it in the short term without capital controls which would completely spook the market and the public.”
“But my feeling is that Progressives should focus on the long game; if we move the orientation of the economy towards workers/income (a la Germany) and away from consumers/debt, it will ultimately be a good thing for stability economically and politically. The key is for the next government to focus on investment, in human capital and infrastructure.”
Noam Chomsky told Citizen Truth that while progressive reforms are feasible, they would only be possible with a strong electoral victory.
“Baker and Foroohar are right,” Chomsky told Citizen Truth. “But I think the question is academic. For Sanders to do anything he’d at least need congressional support, and that’s pretty hard to imagine right now.”
“Militant public opinion could make a difference, and whether capital controls and other such devices would ‘spook the market’ or not, they can be enacted as they have been in the past, and the market is not God. It can in principle be placed under control – again, depending on public support – now far from existing.”
While Chomsky appeared skeptical of Sanders’ chances, Politico reported on Thursday that Sanders’ recent polling, fundraising, and enthusiastic progressive base have led some Democratic establishment figures to seriously consider his potential for victory.
“For months the Vermont senator was written off by Democratic Party insiders as a candidate with a committed but ultimately narrow base who was too far left to win the primary,” Politico reported Thursday. “But in the past few weeks, something has changed. In private conversations and on social media, Democratic officials, political operatives, and pundits are reconsidering Sanders’ chances.”
“I believe people should take him very seriously. He has a very good shot of winning Iowa, a very good shot of winning New Hampshire, and other than Joe Biden, the best shot of winning Nevada,” Dan Pfeiffer, who served as a adviser to former President Barack Obama, told Politico. “He could build a real head of steam heading into South Carolina and Super Tuesday.”
And as the American Prospect’s Graham Steele explained, a President Sanders or Warren would have enough tools to “change the fundamental structure of Wall Street” even in the absence of congressional support.