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How the Servant Became a Predator: Finance’s Five Fatal Flaws
Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He is a white-collar criminologist who has spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.
Originally published at New Deal 2.0
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What exactly is the function of the financial sector in our society? Simply this: Its sole function is supplying capital efficiently to aid the real economy. The financial sector is a tool to help those that make real tools, not an end in itself. But five fatal flaws in the financial sector’s current structure have created a monster that drains the real economy, promotes fraud and corruption, threatens democracy, and causes recurrent, intensifying crises.
1. The financial sector harms the real economy.
Even when not in crisis, the financial sector harms the real economy. First, it is vastly too large. The finance sector is an intermediary — essentially a “middleman”. Like all middlemen, it should be as small as possible, while still being capable of accomplishing its mission. Otherwise it is inherently parasitical. Unfortunately, it is now vastly larger than necessary, dwarfing the real economy it is supposed to serve. Forty years ago, our real economy grew better with a financial sector that received one-twentieth as large a percentage of total profits (2%) than does the current financial sector (40%). The minimum measure of how much damage the bloated, grossly over-compensated finance sector causes to the real economy is this massive increase in the share of total national income wasted through the finance sector’s parasitism.
Second, the finance sector is worse than parasitic. In the title of his recent book, The Predator Statehttp://books.simonandschuster.com/Predator-State/James-Galbraith/9781416566830, James Galbraith aptly names the problem. The financial sector functions as the sharp canines that the predator state uses to rend the nation. In addition to siphoning off capital for its own benefit, the finance sector misallocates the remaining capital in ways that harm the real economy in order to reward already-rich financial elites harming the nation. The facts are alarming:
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The Deindustrialization Of America
The United States is rapidly becoming the very first “post-industrial” nation on the globe. All great economic empires eventually become fat and lazy and squander the great wealth that their forefathers have left them, but the pace at which America is accomplishing this is absolutely amazing. It was America that was at the forefront of the industrial revolution.
The deindustrialization of the United States should be a top concern for every man, woman and child in the country. But sadly, most Americans do not have any idea what is going on around them.
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U.S. losing high-tech manufacturing jobs to Asia
The report comes as the Obama administration is seeking to make U.S. manufacturing more competitive through engineering and innovation. In June, it announced its Advanced Manufacturing Partnership and sank $500 million into the effort.
But as the National Science Board publication shows, vast government efforts in Asia are working along similar lines. It offered abundant evidence Asia’s efforts to attract and develop engineering outfits, and not just low-wage factories, have paid off. Since 2000:
•Research-and-development expenditures in China and nine other Asian countries have risen to match that of the United States.
• The number of doctoral degrees in engineering awarded in China has more than doubled, and now far exceeds the number awarded in the United States.
• The number of research workers for… Continue reading
Is High, Single-Digit Unemployment the ‘New Normal?’
Ask ManpowerGroup Chairman and Chief Executive Jeff Joerres if there’s a “new normal” of higher-than-desired unemployment in the U.S. He will agree.
“There’s no reason to suspect any time in the next three years we will find ourselves under 7% unemployment,” said the top officer at the $22 billion revenue, Milwaukee-based Manpower, which provides temporary staffing and a host of other employment services globally.
“That (would be) almost eight years of high, single-digit” unemployment, he added in an interview at the outskirts of the World Economic Forum meeting in Davos, Switzerland. The U.S. unemployment rate currently stands at 8.5%.
The bottom line of hiring remains demand and if it gets strong enough, Mr. Joerres asserts it will trump all the serious, much-talked-about structural issues afflicting the ability of so many people to find and keep jobs.
Those issues in the U.S. include a talent mismatch, especially for some highly skilled manufacturing jobs, immigration policies that frustrate employers who believe they keep skilled, productive people out of the country, and colleges that aren’t preparing enough young people for the available careers of the future.
Shining A Light on Crony Capitalism
Rules: When Republicans suspended the 100-watt-light-bulb ban, they said they were trying to protect consumer choice. But they also managed to show how regulations help big business at the expense of the little guy.
The light-bulb ban was part of an energy bill pushed by Democrats in 2007 that set efficiency standards that traditional incandescent bulbs could never meet. The first to go was supposed to be the 100 watt bulb in 2012, followed by 75 watt bulbs the next year and the ubiquitous 60-watt bulb in 2014.
The argument is that forcing consumers to buy more efficient — and far more expensive — bulbs will greatly reduce energy consumption, and in turn, air pollution and global warming.
Earlier this month, Republicans suspended the law until October by denying funds for its implementation as part of a massive spending bill. For Democrats, this move was another sign of how out of touch the GOP is.
But look who else is complaining. As Politico reported, “big companies like General Electric, Philips and Osram Sylvania (are) fuming.” Allegedly these companies are mad because they invested lots of money getting ready for the new rules.
Fact is, they were pushing for the ban… Continue reading
Getting Worse: 40 Undeniable Pieces Of Evidence That Show That America Is In Decline
Is America in decline? That is a very provocative question. I have found that most people that hate the United States are very eager to agree that America is in decline, while a lot of those that love the United States are very hesitant to admit that America is in decline.
Well, I am proud to be an American, but I cannot lie and tell you that America is doing just fine. The pieces of evidence compiled below are undeniable. Our economy is deathly ill and is rapidly getting worse. We were handed the keys to the greatest economic machine in the history of the world and we have wrecked it. But until we are willing to look in the mirror and admit how bad things have gotten, we won’t be ready for the solutions that are necessary. The truth is that there are things that we can do to reverse the decline. It does not have to be permanent. We have gotten away from the things that made America great, and we need to admit that we are on the wrong path and start fixing this country. But if we choose to continue down the road that we are… Continue reading
