The link between Wall Street and Main Street is shattered. It's time to confront what that means.
by David Atkins
Three cheers and another glass of champagne for the ownership society: the stock market has hit a new record high. It's true that this does come on the heels of slightly less depressing news for the real labor force, with weekly jobless claims at near 6-year lows. But that's a pretty low bar to set in what still amounts to a jobless "recovery."
In a sea of infuriating public policy decisions and even more upsetting media coverage of those decisions, probably the most frustrating is the near total silence on the disconnect between Wall Street and Main Street. Stocks have been floating at and near record highs for years now without a positive effect on real jobs. Slightly better news on Main Street has led to a new record surge on Wall Street. But the reverse effect in which stock gains are supposed to lead to job gains simply hasn't materialized at least since the crash if not well before. While the housing bubble temporarily boosted both the consumer and financial sectors, it was the housing bubble itself rather than the concomitant Wall Street surge that truly benefited Main Street.
There are many reasons for the shattering of the link between Wall Street and Main Street; they have been decades in the making. But the disconnect is very real.
And it has profound consequences for public policy. For starters, of course, the entirety of supply-side economic thinking is based on the idea that inflating the assets of the wealthy will lead to more jobs for working people. If inflating middle-class assets like housing leads to dangerous bubbles while boosting stock values that largely benefit the rich does nothing for the greater economy, the entire edifice of conservative economics comes crashing down.
But it's not just the way conservatives describe the economy. Even progressives and liberals in Congress use language that suggests the link between Wall Street and Main Street still exists, but that it has simply become blocked or frayed. "Gains on Wall Street haven't reached the middle class," one often hears--as if it should naturally happen but for some evil gremlin getting in the way.
There's a reason that even liberal politicians won't say the chain has been broken, and a reason why the media largely refuses to even report on the phenomenon: the implications are terrifying. If helping Wall Street doesn't actually help Main Street, then the foundations of the capitalist economy are shaken to their roots. Capitalist economics is supposed to be a virtuous circle: companies generate profits which generate reinvestment, which generates employment, which boosts demand, which in turn generates higher profits. When certain industries take on too much weight or grow obsolete, or when supply outstrips demand, there are temporary but necessary corrections called recessions that keep the system in check.
But what if profits don't generate reinvestment and companies simply hold onto the loot? What if "reinvestment" takes the form of financialization rather than real product development? What if boosting productivity means mechanization that leads to job losses, rather than job gains? What if the few job gains that do accrue, happen in countries with such depressed wages that middle-class workers in advanced economies (the ones who create the demand for high-cost, profitable products) simply cannot compete?
And what if, in order to disguise this phenomenon, policy makers attempted to bribe the public with free trade agreements that lowered the cost of imported electronics and plastic toys while quietly destroying domestic jobs? What if policy makers' next step in a failing wage environment was to boost asset prices like housing so that the currently middle-class homeowner could feel artificially wealthy, all while obliterating any prospect that the next generation could afford even a modest home in areas with strong job markets without help from their parents? What if the low-skill job market deteriorated to such an extent that young people needed an outrageously expensive college education or more--and only in the "right" fields--to attain any sort of job security, all while policymakers refused to lift a finger to help make that education more affordable? And what if policy makers made it easier for underwater Americans with failing wages to take on debt via credit cards, while doing nothing to prevent predatory lenders from taking advantage of them?
In that world, the virtuous circle of capitalism becomes a death spiral. Recoveries become shorter and more jobless. Recessions and depressions become longer, even as asset markets remain curiously "healthy." This happens a few times until eventually supply-side Wile E. Coyote runs out of demand-side cliff and comes crashing at terminal velocity into the canyon below. At that point all it would take is a few terrorist acts or natural disasters to tip much of the industrialized world into darkness and collapse.
That sounds too bleak to be true. But again, consider the trendlines. Even if jobs start to slowly return in the short term, the next recession will see even sharper job losses, with muted financial sector effects. We're already supposedly a long way into the current "recovery." How long until the next recession, even absent Congressional budget shenanigans this fall?
This is not a question anyone wants to think about, because it would require reorienting the entire perspective of the economy. How do you keep people fed when there are no jobs for which they qualify? How do you run an economy when qualifying for jobs requires going $100,000 into debt? What happens when mortgage costs severely outpace rental costs, even with tax incentives? How do you secure wage increases when companies can increasingly hire overseas and even relocate in another country for 1/20th the cost? What do you do when companies can increasingly make products faster and cheaper by firing workers rather than hiring them? What do you do when the hottest new up-and-coming companies valued at hundreds of millions of dollars or more, only actually hire a few hundred or maybe a few thousand employees at best? How do you hold the financial sector accountable when Wall Street's cold is Main Street's flu, but Wall Street's vigor doesn't improve Main Street's condition? And how do you manage it all when robots are getting smarter and smarter, people are living longer and longer, and the world is getting flatter and flatter?
No one wants to even try to answer these questions, because the answers--be they conservative (let the weakened many die and the strong few survive) or liberal (much more centralized, regulated global economies)--are each scary and radical in their own ways. There is a reason that politics here and around the world are becoming more divisive than ever. There are very serious problems that are frankly only being addressed by the "extreme" ends of the political spectrum, even as the neoliberals and corporate conservatives continue to attempt the maintenance of the status quo hoping that we can go back to late 20th century economics and everything will be fine.
We're well past the point of no return on that one. It's a brave new world that demands brave people creating untried solutions. Unless the neoliberals hold their ground all the way to collapse and social unrest, one side or the other is going to take the reins. It's just a question of which one, and whether alternative solutions are implemented in ordered or disordered fashion; with empathy and justice, or greed and social darwinism.
Only one thing is certain, however. The link between Wall Street and Main Street has shattered. The virtuous circle has been broken. Those who choose to ignore that fact and its consequences do so at their own peril.
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