Conservatism or Corporatism?

[bord-du-rasoir.livejournal.com]

What accounts for the spikes in these graphs? Conservative (free market) policy or corporatist (government intervention) policy?









Why'd average Wall St. bonus pay recently quadruple average annual salaries? Why'd the financial sector recently triple the nonfinancial sector? Why'd the highest incomes recently increase 36 times faster than median family income?

Provide concrete explanations as to how X (policy) caused Y (economic indicator). Point to specific legislation or executive orders.

The liberal position is predictable: The unprecedented extreme growth in the financial sector and increased inequality is bad. Free market policy (deregulation of banks --> derivatives market expansion --> collapse) is to blame.

I'm more interested in the conservative position: How do you explain the unprecedented growth in the financial sector and the increased income inequality? What're the causes? Is corporatism (government interventionism) responsible? If so, how? Do you draw a connection between the above figures and the financial collapse?

I honestly don't understand the conservative position.

Comments

[ghoststrider.livejournal.com]

Well, I don't know if this is exactly what you're looking for, but this is an interesting video that explains why the financial industry grew as much as it did, both because of corporate greed and lack of ethics, and government incentives for people to invest in the stock market. The anchor man could probably do a bit better on his delivery, but the substance is excellent:

[bord-du-rasoir.livejournal.com]

I'm overwhelmed by the number of comments as well as the subject matter, but this video is definitely an extremely informative first comment. The most significant fact for me is the growth of 401(k) plans from $105 billion (1995) to $14 trillion (2005).

But this, of course, raises all sorts of questions I'll have to research...

How does the money from 401(k) plans compare to the total stock trading volume? I see the graph at around the 4 min. mark illustrates that stock trading volume jumped in the 1990s and 200s from well under 100% of GDP to well over 300%. And I know that the figure given for 401(k) investment of $14 trillion (2005) would have exceed GDP for that year.

I'll have to watch the video a second time for it to sink it.

[mahnmut.livejournal.com]

Conservatism in the US, if I'm getting it right, is touted as being the home of the 'average Joe', yet it also tends to represent the interests of big business. The 'average Joe' conservative will defend big business whilst the self same big business demands lower wages and more time at work for the 'average Joe'.

It baffles me how conservatives will go off on a bender about guns, abortion and a god (small g), yet continue to be silent in the face of increasing demands on workers; an issue that has immediate material and tangible effects on them.

Surely the interests of corporate America (increased production for less money) is in conflict with the interests of the average Joe (less work for more pay)?

[badlydrawnjeff.livejournal.com]

Surely the interests of corporate America (increased production for less money) is in conflict with the interests of the average Joe (less work for more pay)?

No, I don't think it is. Conservatism is at minimum about the acceptance that the rich are necessary and that incentives are encouraged. Big corporate money doesn't keep me from having a job or a good wage, it enhances it.

[abomvubuso.livejournal.com]

Reminds me of the so-called "technological unemployment", a much neglected phenomenon.

[rasilio.livejournal.com]

Actually this is incorrect.

The Republicrat party is a party of big business, of course so is the Democan party, they just each favor a slightly different set of big businesses.

However the conservative movement actually distrusts big business at best, they are MUCH more aligned with pro small business policies.

That said the what you refer to as the interests of corporate America sufers from the broken widow falacy.

Let us assume that a corporation doubles it's income and halves it's cost. It's profit has now quadrupled. What happens to those huge profits?

Well, some will be reflected in increased stock prices for that company and who are the majority stockholders? Common Peoples retirement and investment accounts. So the common man benefits.

Even for the big time investors who hold that company though, they take the profits they make from that increased stock price and invest somewhere else in the economy allowing another business to grow and create new jobs, more jobs = more demand for labor = higher wages. Again the common man benefits.

Now, other people all of a sudden look at that marketspace and see the huge profits that company makes and decide they want a piece of that. They either expand their existing businesses into it or open new ones. Both create jobs, good for the common man once again.

Once these competitors get off the ground there is now price competition for the original company as the new players can undercut the existing companies prices and still make a significant profit. In theory they could charge as little as 25% of the original company and still make the profit it started with. The end result however is a price war as the price of the commodity or service is driven down to near the same profit margin it had originally which leads to lower prices and therefore once again a benefit for the common man.

Anyway you cut it a benefit to the corporation is a benefit to the average Joe with one exception. When a corporation gets large enough that it can use the power of the state to alter the business rules to lock out competition or raise the competitions costs relative to their own and this is the source of conservatives not being fans of big business, because those big businesses drive the government to seize more and more power so they can offer more and more benefits to the businesses that power the politicians campaigns.

[badlydrawnjeff.livejournal.com]

Why'd average Wall St. bonus pay recently quadruple average annual salaries? Why'd the financial sector recently triple the nonfinancial sector? Why'd the highest incomes recently increase 36 times faster than median family income?

Stock options. A soaring stock market. A change in the way our economy works that benefits those who have specialized skills as opposed to the interchangeable parts of the past.

How do you explain the unprecedented growth in the financial sector and the increased income inequality?

Why should I care?

What're the causes? Is corporatism (government interventionism) responsible?

It's probably corporatism in some form, but I've not looked into this much because, again, why should I care?

Do you draw a connection between the above figures and the financial collapse?

Nope. The financial collapse may have had similar causes (government interference), but the two situations aren't related.

[wyrrlen.livejournal.com]

As Alesina and Perotti wrote in their 1994 paper on income distribution and investing, a soaring stockmarket, or rather investment in such a market, leads to a decrease in income inequality. As of my last check, that paper has been cited over a thousand times.

[mrsilence.livejournal.com]

Why should I care?

I can think of several reasons, but the simplest and most direct off the top of my head is that as income inequality increases it inevitably delivers ever more socio-political power into the hands of a small number of people at the top, who use that power to suppress the political power of the masses and reduce their civil rights, either through legal or extra-legal means - essentially, they feudalise the socio-political system into an increasingly pyramidal structure, with them at the top.

This leads to icnreasing social unrest, decreasing quality of life, increasing death and disease rates and frequently, revolution.

[blorky.livejournal.com]

" why should I care?"

On the off chance that you or people you know might get caught on the wrong side of the income curve or have to try and get a job in the face of an economy devastated by corporate/govt malfeasance?

[malasadas.livejournal.com]

Why should I care?

Maria Antonia Josepha Johanna von Habsburg-Lothringen and Nikolay Alexandrovich Romanov would like a few words with you.

[mrbogey.livejournal.com]

I kind of chuckle at the outrage over financial bonuses and salaries.

In short, the US (the people and gov't) is trying to game the financial sector in order to minimize their pay. What we're not realizing is that the people we're dealing with aren't idiots and have been gaming the market themselves. And even some of the people on the gov'ts side used to be/still are their allies. So in analogy, we're playing a basketball game with professional NBA players and in response to them kicking our ass, we try and make the game more athletically challenging.

[debergerac.livejournal.com]

http://en.wikipedia.org/wiki/List_of_highest_paid_baseball_players

[telemann.livejournal.com]

If Bord got this from the same set of slides I posted about earlier, they provide plenty of footnotes and explanations on the website that are not included in the graphics.

[ddstory.livejournal.com]

Corporations are all about collective ownership. COMMUNISM!

Real conservatives should oppose corporations. :)

[debergerac.livejournal.com]

yes but corporatioons facilitate creation of wealth. communism alas does quite the opposite.

[mikeyxw.livejournal.com]

Wall Street bonuses are increasing for two reasons. First, there has been a shift from salary to bonuses on Wall Street. The people on Wall Street have always been pretty highly paid, so comparing the increase in bonuses to the average worker will make these look like they were soaring while the actual increase in take home pay by those working on Wall Street has actually increased less. More than the average worker, but still, less than the graph would indicate. The graph is actually rather misleading in this regard.

Second, Wall Street has gone global. The same number of people can invest twice as much money without much more effort, so adding the wealth of the entire world to invest has magnified their productivity, i.e. the amount of profit they can generate by investing.

[mikeyxw.livejournal.com]

Also, since you asked about my take on this, I don't really mind much. People's incomes as a whole are rising and lots of things are getting cheaper. The combination really means as a whole, we're doing better.

As a conservative, I'm troubled much more by the disparity in opportunity than in results.

[abomvubuso.livejournal.com]

Stupid banks and investors who spend like there's no tomorrow are to blame.

There's also something else. Corp's will give money to whoever shows a willingness to vote for what they want. Unions will give money to those who show a willingness to support their goals, too. Corp's are out for profit, while unions are, at this point, mostly an ideological organisation. So... a corporation wants to get something from say, the Department of Wildlife and Refried Beans. They donate money to everybody on the committee in charge of it, and maybe give a contribution to a charity (or a similar organisation) that is okay with the group they want to influence. Several million dollars later, the corporation has what they want, and the senators on the committee in charge of wildlife and refried beans now have campaign contributions. And thats a vicious circle, akin to the oligarchic mafiotic state of late Rome (hello, sophia_sadek!) :)

As for unions, they often get to the point that they effectively own the employment process. If you want a job at a Detroit auto plant, you gotta either be a relative of a union member, or a very good friend of a union member. In NY, it holds about the same for the construction unions. In many places, the union has to represent me the worker, and i get all the benefits, without having to pay for it. I cannot be excluded from a job because i will not join a union. And thats a vicious circle as well, akin to the decadent late Soviet state (hello, gillen!)

Congrats. You've now got the most toxic combo of failed former empires ;)

[verytwistedmind.livejournal.com]

Why should I care if someone else is making more money? Is that somehow causing me to make less? I don't see that connection. In fact, I see the opposite. I've never gotten a job from a poor man.

[ytterbius.livejournal.com]

However, where the money is might be indicative of some set of economic priorities / incentive structures that are out of balance in some way.

So, the fact that all of that money is flowing to that particular (relatively) small group of economic players might actually indicate a system that isn't treating you as well as it could be.

Example: If people make a hundred times the amount of money by going to Wall Street and trading paper assets, then they could possibly make in some science like Engineering, then you're going to have alot of people forsaking engineering and moving to Wall Street.

So maybe there's more "wealth" and money, but maybe there are fewer inventions of things that could be bought with that money.

[htpcl.livejournal.com]

Good thread...which means it won't last very long, unfortunately.

I'll add something that baffles me:

The reliance and even worship of the free market, it seems, is predicated on the need for continued economic growth. In a closed system - there are only so many resources, after all - isn't continued growth anathema to sustainable living conditions? I mean, if it's such a horrible thing to have "negative growth" (a hideous euphemism among many in economics), then why don't those who espouse the free market ever do something to prepare for these inevitable reversals? The cycle is called "boom AND bust", isn't it? It seems frightfully nearsighted and narrow-minded to demand continual growth without realizing that recession is inevitable.

[verytwistedmind.livejournal.com]

Then what do you think would be more appropriate? A controlled market?

[verytwistedmind.livejournal.com]

Today, Senator Chris Dodd (D-CT), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs

"During the past 20 years," the Courant reports, "PACs and employees of finance-related firms have contributed more than $13 million to Dodd's election efforts, including nearly $6 million in the past two years."

That's $250,000 per month from people who expect legislative protection.
http://latimesblogs.latimes.com/washington/2008/09/chris-dodd.html

Senators Dodd and Conrad are among the government officials who scored V.I.P. loans from C.E.O. Angelo Mozilo. An exclusive Portfolio investigation

Senators Christopher Dodd, Democrat from Connecticut and chairman of the Banking Committee, and Kent Conrad, Democrat from North Dakota, chairman of the Budget Committee and a member of the Finance Committee, refinanced properties through Countrywide’s “V.I.P.” program in 2003 and 2004, according to company documents and emails and a former employee familiar with the loans.

http://www.portfolio.com/news-markets/top-5/2008/06/12/Countrywide-Loan-Scandal#ixzz0lekMfxOU

Rep Maxine Waters D- CA, “Under the outstanding leadership of Mr. Frank Raines everthing in the 1992 act has worked just fine in fact the GSE’s have exceded the housing mission.”

The liberal position: Be on the take from failing financial firms help them get bailouts and then blame them for everything that's wrong.

[korean-guy-01.livejournal.com]

Americans didn't have to take on debt, but they chose to.

[the-rukh.livejournal.com]

Yeah the poor didn't have to wear that short skirt out at night, how could the rich help but fleece them? We definitely should not be enabling short skirts.

[politikitty.livejournal.com]

This is a tricky issue for me.

I find that a focus on profits and inequality are bad ways to frame policy. It plays well in the media, but it focuses on the wrong issue, and thus directs policy change in the wrong way.

I'm not particularly concerned about the wealthy abusing their means to keep the little guy down. While it certainly can happen, I don't think it happens to the extent that liberals argue. The wealthiest aren't the ones that fight for lower taxes and removal of the cheap welfare safety net. Protecting their interests usually means protecting their interest from other competitors, not the little guy.

Instead the emergence of the financial giant is pretty easy to pinpoint. After the Great Depression, we wouldn't let banks fail. No matter how much risk they take on, we won't let it happen because we consider the shocks to be too great. We created regulations, but the regulations stayed fairly static. The problem wasn't primarily with banks, but with institutions that were able to avoid the definition of a bank. So the partial repeal of Glass-Steagall might have been a step in the wrong direction, but it wasn't a main factor in the crash.

By hitching the banks to the government, we created the environment necessary for this situation. We made more regulations, which opens up more jobs and opportunities and desire to figure out how skate these regulations as close to legally possible to stay competitive. By regulating banks, we made banks larger. We increased fees to enter the market and remain in the market, creating economies of scale.

When we have such a complex web of regulation that hinge on very specific definitions, you create a situation where regulation avoidance is more profitable than actually being profitable in the marketplace.

And in that sense, 'liberalism' has a lot to do with the market melt-down.

[gifa.livejournal.com]

I would have less of an issue with obscene bonuses and CEO pay if there weren't so many hard working people below the poverty line.

[bord-du-rasoir.livejournal.com]

For the purposes of this post, my interest in income inequality isn't to cry about unfairness, but to question how/why it increased so quickly.

Like a sudden fever, the spikes in the graphs look like symptoms of economic ailment. It seems an unnatural progression. It certainly doesn't look conservative.

Well first off you are suffering from several false premises.

[rasilio.livejournal.com]

First that there is a single "Conservative" view on this issue.

Second, that there is really no one cause for an issue as complex as this.

That said there is a general idea that can be seen in Austrian Economics as the economy has essentially been in an Inflationary Boom for the last 30 years.

Ah but you say, this inflationary boom did not result in consumer price increases or wage increases, how could it have been inflation.

The answer is right there in your graphs. For whatever reason (and I don't think there is any one reason for this) most of the new money the Fed created over that time stayed locked up in the Financial Sector, either in the form of increased stock prices or increased home prices.

This set up a situation that allowed wages to remain constant against low levels of consumer inflation as people were generally able to borrow against their assets (Credit Cards and tapping into the equity in their homes) to maintain the same standard of living and therefore they did not demand wages that kept up with the 2 - 4% annual consumer inflation that we have averaged over that time.

So, constant wages, slight price inflation (meaning real wages were slightly negative) and flat consumption, yet the monetary supply nearly doubled. Where did the money go?

Simple, it went into stock prices and home values.

Of course since the bulk of that inflationary money was not real had people tried to cash out their investments for consumption the bubble would have burst a long time ago as the market realized the money to support it didn't exist. Since they didn't it was allowed to inflate to huge levels until the debt burden became unsustainable and the housing market crashed in turn triggering the Stock Market to crash in effect wiping out much of the inflationary money that had been created in the last 30 years without totally tanking the economy because most of the money had never really entered it.

Where it did hit the economy is in the form of corporate and private debt. Corporations and private citizens now find themselves in large part holding onto assets worth pennies on the dollar of what they were worth 2 years ago but still owing the same debts on those assets. This creates a cash crunch on those corporations and individual leading to reduced spending which is why we have 10%+ unemployment.

Now I can't point to specific policies that lead to this because there was no one specific policy save for the existence of the Fed and the use of Fiat Currency. I am not really a proponent of a Gold Standard but inflationary bubbles like this are the inevitable result of allowing politicians to control monetary policy in a fiat currency environment because it is easier to "borrow from the future" in the form of debt and the monetize the debt (and thereby inflate the money supply) than it is to cut spending or increase taxes.

Another issue only tangentially related to the collapse is in fact corporatism. That is large corporations always benefit from government regulation. The problem in the financial sector was not too much free market but to little. Rules and regulations were written to benefit not the companies (including financial) that had the best ideas or were the most efficient. They were written to benefit the largest companies capable of buying the most politicians. That is what allowed the companies to get "too big to fail" which in turn creates the moral hazard of making them risk free investments because it can be assumed that if they did fail the government would bail them out (which is exactly what happened).

As far as the growth in the Wall Street Bonuses. Well, that's where the money is. It's much easier to demand a 6 figure bonus if the company is making 10 figures. Ultimately it is the same reason why Baseball Players make hundreds of times what teachers make. There aren't that many people who can do the job and there aren't that many jobs in the field but it makes HUGE money. Anytime you have a sector of the economy making that much money compared to the number of people working in it salaries will be huge compared to the average so as the financial sector inflated the salaries in it inflated right along with it while salaries in the rest of the economy stayed essentially flat.