Wall Street and the capitalist system?

[kentuck]

Has Wall Street replaced labor as the means to create wealth in this country?

With the export of many of our best-paying jobs to overseas production, many businesses that are left in this country can actually make more money by putting their profits into Wall Street than into the creation of new jobs.

With the advent of employee 401K's, workers have helped the companies invest huge sums into the market and reap huge profits in the process.

Why should companies create jobs if they can make more money on Wall Street? Why should they not simply cut jobs and make all their profits on Wall Street?

I think this is playing a big part in the present economy. The capitalist system is like a python that is eating itself.

[JHB]

1. No, but it has replaced it as a means to make Big Money...for some.

One of the main effects of tax cuts and deregulation is that much of that money that either wasn't taxed or was no longer tied up in tax shelters went to Wall Street and other financial gaming centers. Instead of new real investment (R&D, upgrading equipment and facilities), a lot of it went towards mergers, stock buybacks, financing of leveraged buy-outs, and other wheeling and dealing that didn't really create much new but allowed the executives and major shareholders to profit by consolidating and liquidating "excess" assets.

"Excess" like companies that were profitable, but not "profitable enough", especially when saddled with a new debt load from a buy-out structured so that the debt was on the acquired company's books, not the buyers. Shock-doctrine company-style: the new debt drives a need to "improve productivity", and provides the public rationale for outsourcing, offshoring, and union-busting, while the people who made the deal take their big fees and executive compensation all the way to the bank (or offshore account).

We do need a financial sector of some form to "grease the wheels" of business, but when the grease takes over all you have is a gunked-up mess.

[kentuck]

2. Makes sense.

I think that is what is happening.

[JHB]

3. It's been happening since Reagan

(now former) Philadelphia Enquirer reporters http://americawhatwentwrong.org/Barlett-and-Steele/">Donald L. Barlett and James B. Steele documented this in a special series of articles (expanded into a book) "America: What Went Wrong", in 1991 (pre-Clinton). A lot of people thought it was important...but a lot of other people bought into the "New Economy" BS during the Tech Bubble, especially with the "Third Way" mentality of the Clinton administration which defanged any significant Democratic opposition.

I think it (and their subsequent books) are required reading, because the foundation for The Mess We're In was laid back then.

At first we wanted to know only one thing: What had happened to the men and women who worked for these companies? Did they, as many economists maintained, find other jobs to replace the jobs they had lost? And if so, how did the new jobs compare to the old? What did they pay? What kinds of benefits did they provide?

It didn’t take long to identify scores of once-solid companies that had gone under or were in trouble. Then we began to seek out former employees. We found some names in bankruptcy court records. Others turned up in Labor Department filings. Still other names showed up in news stories published in hometown newspapers when a local plant closed. Working separately, we began to interview people across the country: While one of us spoke with a mid-level manager in Missouri, the other met with a factory worker in Pennsylvania. One of us would travel to California to interview a lumber worker, the other would talk to a department store employee in West Virginia.

When we exchanged the notes of our interviews, we came to an astonishing conclusion. Though the men and women we talked with had worked in many industries and were separated by thousands of miles, their stories were remarkably similar. Those who had found work earned less than before. Their new jobs had fewer benefits, if any. Some of them had been forced to sacrifice part of their pensions to hold onto at least minimal health-care benefits. They all saw their retirement as endangered. And all of them felt betrayed: They had worked hard and played by the rules, and now, through no fault of their own, they were being cast aside.

As compelling as these stories were, we wanted to make sure that they reflected broad trends. We collected tax, trade and economic data measuring family income, taxes, job losses and other key indicators. These showed how longtime corporate tax breaks had been used to drive down wages and export jobs. They also showed how the tax burden had been shifted from corporations to individuals. Most tellingly, the data showed that for the first time, the middle class was shrinking.

http://americawhatwentwrong.org/story/how-project-unfolded/

The table of contents and prologue of the book are available at http://www.politicalindex.com/wrong1.htm (the book can be found via Amazon, but I'd suggest your public library first)

They're revisiting it in a big way. See http://americawhatwentwrong.org/