It is obvious that there is something fundamentally wrong with our economic system, a system in which the CEO of a corporation is paid several hundred times the wage of its average worker. A system in which the wages of workers have remained flat despite decades of productivity growth. A system in which well over half the wealth of the nation is held by 1% its people. A system in which (as the author tells us) “the top twenty-five hedge fund managers in America make more than all of the country’s kindergarten teachers combined.”
But unjust wealth distribution is not the only problem. Our financial system as it exists today may actually be detrimental to our economy.
In this book, Rana Foroohar (a business writer for Time Magazine and a CNN economic analyst) argues that Wall Street financiers have warped the system to their benefit. They have successfully pushed the idea that making money, rather than making goods, creating jobs, or providing services, is the primary job of any business. They see money as the ultimate gauge for measuring the value of all things, and they treat it almost like a commodity to be traded and manipulated as if it has some intrinsic value.
It doesn’t, of course. Money is simply a tool, a means to facilitate the trade of goods and services. It is, at best, a representation of the value produced by makers who build, grow, and create things that have real value. When banks loan money to makers, they provide a legitimate service. Loans can help business get started. They can help makers make.
But our financial system has mutated beyond simple banking. It has become a system that allows money manipulators to become takers. These takers provide nothing of real value to our economy themselves, but they can skim a great amount of wealth from those who do. Worse, they exert pressure on businesses to maximize short-term monetary gains over long-term growth and innovation. If an expenditure (such as R&D or worker benefits) is unlikely to increase quarterly profits, it’s less likely to be made. Money spent on growing a business is money that can’t be given to investors.
This isn’t a comforting picture. It seems fairly obvious to me that a system that gambles on debt, places quarterly profits above long-term benefits, that skims wealth from those who create it and then hordes that wealth rather than recirculating it back into the real economy, is destined to fail. It has before, most recently in 2008. The government bailed out the financiers then, but the government is heavily in debt now as well, a fact that can also be attributed to the influence of the financiers. Wall Street controls a great deal of wealth, which is used to further the interests of financiers in the halls of government and in the offices of businesses. It promotes policies and practices that allow it to squeeze wealth from the economy like water from a sponge. This can continue only as long as the wealth being created by makers exceeds the wealth being squeezed out by takers. As long as this is true, economic growth can still happen, although much slower than it might be otherwise. When the takers squeeze out as much as goes in, the economy will stagnate. It may collapse.
At the end of this book, Foroohar suggests some strategies to prevent takers from squeezing dry our economy. These include simplifying our economic policies, better regulation of financial services, and a few philosophical changes about what businesses and banking are actually for. I wish I could say that I thought these might happen, but I fear that they won’t. The influence of the financial system is too great. Countering that would take more courage from our politicians and greater interest from voters than they have demonstrated in the recent past.