So here's the cold, hard, unvarnished economic truth about financial deregulation, and the big gaps between rich and poor it fosters: They're really, really lousy for the economy, as Robert S. McElvaine points out in "It's the Equality, Stupid" in this month's Sojourners magazine.
The big lie for the last few decades has been the endlessly-repeated claim that only when government gets out of the way of Wall Street can rich people do their magic of "creating jobs" and keeping the economy humming. If some jobs have to get sent overseas in a "race to the bottom," federal labor law has to go virtually unenforced, and some CEOs who move factories out of the U.S. have to make more money than all 10,000 of their Mexican maquiladora workers put together -- that's just the price we're told we have to pay for the greater good.
Now, though, it's become clear that -- just as before the Great Depression –- extraordinarily rich people tend to put their money into bubble-prone speculations, which pop with disastrous force. Poor and middle-class people, in contrast, spend their money on food, clothing, and other consumer goods, which, it turns out, is what keeps the economy humming.
But some folks seem to have missed the memo. At least, that's the only reason I can see for the double standard between the Wall Street bailout, in which Congress quickly approved all $700 billion requested, and the in-the-works $15 billion bridge loan to the Big Three automakers, in which Congress is taking twice the time to give out half the requested amount. (Also being dished out is a big side helping of dishonest union-bashing, when the real problem is the high costs of our country's broken health care system).
It's a good thing that the automaker deal will apparently put strings on government loans by requiring automakers to submit detailed plans, pay their executives no bonuses, and shell out no dividends to shareholders. But why didn't we do the same for bailout-dependent Wall Street firms –- or, better yet, throw out the incompetent CEOs who thought mortgage-backed derivatives were such a great bet?
Our gift to Wall Street had no meaningful CEO pay restrictions at all. Nor have we restricted Citigroup and other banks on th
e federal dole from handing out dividends. Such dividends are basically free money given, at U.S. taxpayer expense, to people who made a bad investment and who are lucky their shares are still worth anything at all. And every dollar given out as dividends is one less dollar available for making loans to keep the economy going (which was the whole point of the bailout).
Now some Wall Street CEOs, motivated by public relations, are apparently waiving bonuses this year, moving their compensation down to "just" a few million dollars each for 2008—still enough to party like it's (early) 1929.
As McElvaine asks, "Have we learned the lessons of the Great Depression now?"
Elizabeth Palmberg is an assistant editor of Sojourners.