Wall Street is the symbol of capitalism the world over. But a closer look
these days reveals not private-sector derring-do, but the grasping hands of
a welfare client eager for the government dole. And those in a position to
dish it out are so swept up in bull-market fever that they can’t bring themselves to say no.
Let’s start with the physical building itself. The stock exchange says it
needs larger quarters, but real estate is so expensive in Manhattan that
the exchange has threatened to move to New Jersey. Frightened at the prospect, New York City and State are tossing out the free-enterprise principle that businesses should carry their own weight.
Mayor Giuliani and Governor Pataki, ever generous with other people’s
money, are using state and local tax dollars to buy the huge lot across the
street from the exchange. It will cost up to $300 million, a price these
governments are willing to pay provided they can keep their campaign contributors happy and net tax revenue flowing.
But the subsidy hardly stops there. The city and state will also fork over
$450 million to build fancy new digs for these model capitalists, who believe the market should prevail unless socialist planners are willing to
lend a helping hand. In building contracts alone, taxpayers will be guaranteed plenty of corruption for their dollars.
In some ways, this proposed Kremlin of the bull market is a metaphor for
everything that is wrong with the American economic system. Property is private and enterprise is free until and unless outcomes do not conform to
the preconceptions of big government planners or big industry planners. In
that case, any means are deemed permissible to make reality conform.
Consider too Wall Street’s addiction to Fed intervention. During the
Mexican and Asian crises, the nation’s largest banks and brokerage houses
yelled for full-scale financial collectivism, demanding money from Congress, international agencies, and the Fed’s printing presses for their foreign clients.
The response in a crisis established a principle that now applies in
normal times. The Fed is expected to use all its power to prevent even so much as a tightening of lending standards or a downtick in the Dow. The Fed has happily obliged all year long, with ever-lower interest rates and
consequent daily feeding frenzies.
The market is still vulnerable to sudden panics, as it will continue to be
so long as earnings fall short of rises in stock prices. The right course
of action would be to permit an equilibration. But the Fed has made it clear
that it is there to serve with a smile, which encourages more risk taking
and more dependency on artificially low interest rates.
As much as building subsidies and loose credit violate market economics,
they constitute coins in a hat compared to Wall Street’s most grandiosely
socialistic scheme. Big players are lavishly subsidizing the political movement to convert Social Security from a coercive intergenerational wealth transfer program into a national forced-savings plan to be channeled
directly into corporate coffers. Worse, they are doing this in the name of
To understand this elaborate scheme, one needs to understand something
about the way the program works today. Present workers are taxed up to 15
percent of their incomes. Present recipients may believe they are getting
their own money back, but in fact their money was long ago spent. Accounting gimmickry aside, their monthly checks are taken directly out of the hides of younger workers.
Once you understand that, a problem with “privatization” is immediately
obvious. If money taxed away for the program is to be diverted to the stock
market, where does the revenue come from to meet the $5 trillion in present
and future legal obligations?
The short answer was given in the Wall Street Journal’s initial editorial
endorsement. After a flowery several-hundred words, the other shoe dropped. “New taxes” are needed to fund current benefits. So much for the paper’s much-ballyhooed reputation as a fiscal watchdog.
The same answer came from Clinton’s 1997 advisory council on Social Security. Members favoring the new forced-savings scheme want more payroll taxes on top of current payroll taxes, in addition to vast new public
borrowing, to fund a “transition” lasting 72 years. A 20 percent payroll
tax increase over that period constitutes the biggest tax rip-off ever contemplated in world history.
Why is such a politically disastrous scheme being talked about in an era
of continued anti-tax fervor? Even a small diversion of funds could mean
hundreds of billions in new financial subsidies for the financial industry.
As the Washington Post puts it, “lobbyists for Wall Street are trying to
stay behind the scenes as they argue for privatization because they and their firms so obviously stand to profit by the changes they are promoting.”
The lesson of this century is that government planning fails in the long
run. Rather than put Wall Street on the dole, isn’t it time to return to
first principles before disaster strikes? Big business has never been free
enterprise’s best friend, but must it become true capitalism’s worst enemy?