What's Wrong With Wall Street, Pt. 3

(Read parts one [1]and two [2].)

Whoever said it was right when he or she called the current economic downturn a "financial 9/11." [3] Though he may not have meant it in quite this way, it' still an apt comparison. Because, just as 9/11 was something that didn't "just happen" to us, but was done to us, so this financial crisis did not "just happen" to to us. It is a consequence of actions taken and decisions made, and it was allowed to happen — through incompetence, indifference, and sometimes intentional neglect.

After 9/11, conservatives were fond of asking progressives who objected to the policies of the Bush administration, "Don't you understand that there is evil in the world?" Implication being that progressives or liberals didn't understand the presence of evil in the world, and thus were incapable of fighting it. The answer that got shouted down in those days of anxiety and fear was a relatively simple one.

Of course there is evil in the world but it is not born in a vacuum. Much of it we create in ourselves and others, and mid-wife it into existence with out words and deeds — and even our beliefs and our way of thinking about the world, inasmuch as they influence our words and deeds. Much, then, can be prevented — denied a place to implant and gestate — by re-examining our beliefs and changing the way we think about and relate to the rest of the world. In other words, we can deal with much of the "evil" in the world preemptively, but not creating it in the first place .

But, as noted in the previous post, there are some people in who have the capacity to do harm to others, without remorse or reason. When it comes to antisocials we're talking about 5.8% of the general male population and 1% of the general female population [4]. And while not everyone with antisocial tendencies or traits is necessarily a psychopath, they still represent a danger to the larger population [5].

Not everyone with the traits of a sociopath is a serial killer. Not everyone with the traits of a sociopath is in prison. Not everyone with the traits of a sociopath is autistic or psychotic.

One can have enough empathy to refrain from homicide, but not enough empathy to refrain from fraud or political callousness that causes harm to many thousands of people.

So if you want to understand how someone can run the huge scam that was Enron, or how someone can rip $50 billion out of the pockets of charities and people, many of whom are "friends," or how some people can be callous about a torture called water-boarding (a "no-brainer," he said), or offer nothing but a shrug when reminded they have caused the death of thousands--if you want to understand the dynamics of these behaviors it might help to remember the continuum that runs from ordinary people with empathy to people with no empathy at all.

It seems that's the real America. Or is it? These days it seems we're living in a society that's a candy store for sociopaths and almost-sociopaths and wannabe-sociopaths.

And, not to say that conservatives themselves necessarily condone any of the above or are less appalled by it than the rest of us, but conservatism actually cannot help but leave us a "candy store" for sociopaths and-near sociopaths.

It seems that conservatives, with their devition to deregulation, believe that's the way it should be. Since the subprime tsunami made its first waves, they've saved most of their derision for homeowners who were deceived into or didn't understand all the details of the mortgages they were taking on, while sparing surprisingly little for the Wall Streeteres who made tons of money off financial instruments they didn't fully understand. The difference is that the latter got bailed out and the former is still waiting.

The moral of all the above would seem to be: better to scam than to be scammed. It's a Barnum and Bailey world, truly. Or at least a P.T. Barnum world in which "there's a sucker born every minute" and the golden rule is "Never give a sucker an even break." Better a scammer than a sucker. Except that we're all suckers for the trappings of success.

One of the most interesting things I've read on the subject of American's relationship to wealth was written by a conservative columnist who essentially wrote that Americans have little resentment of the wealthy because of a belief that wealth is actually within their grasp [6] — even if it's just one big break or winning lottery ticket away. Intelligence, however, is another story, for while people can convince themselves that they can be rich, they can't convince themselves that they'll ever be much smarter than they are.

When times are good or seem to be good — when credit is flowing, even though prices are rising and wages aren't — we emulate the wealthy and the trappings of success they happily display. But missing, perhaps since the French Revolution, is a real sense of anger that bears consequences. Dan Grossman touched on one reason why when he explained why there's not going to be a revolution this time.

In America, the country that invented the modern model of wealth—i.e., derived neither from inherited landholdings nor royal patronage—mocking the rich is historically one of the most durable cultural memes, matched only by envy of them. In different eras over the past two centuries, one or the other has predominated, but only rarely has the American public evinced the kind of outrage that gives rise to serious political change. Historically, that has happened only when Americans suspect that the rich haven't been playing by the same rules as the rest of us, so today's crop of Wall Street millionaires—celebrated for their frugality, honesty and wise stewardship of the economy—should have nothing to fear, right? Except that the day after the administration proposed capping executive pay in financial companies that have been bailed out by the government, the letters published in The New York Times ran six-to-one in favor of the idea. That included one warning that ending bonuses for overpaid bankers might drive them into occupations, such as driving taxis, where their incompetence could get other people killed. While some economists worry that a cap of $500,000 a year is too low to attract experienced executives, ordinary Americans may actually regard it as excessively generous. A study published last August by political scientists Benjamin Page and Lawrence Jacobs found that on average Americans think CEOs of large corporations should be able to get by on $200,000. That would represent an average pay cut, by Page and Jacobs's calculations, of 98.57 percent from the actual figure of $14 million.

And just months ago, we were debating whether $250,000 annual income qualified one as "rich." [7]

Is it possible that the vast majority of every day Americans have no concept of how rich these people are? That the majority of Americans already think these guys are getting by on less than $500,000 a year? Perhaps, then, there is such a thing as unimaginable wealth, and the actual amount is less than many of us think. It's what lies between $200,000 and the actual figure of $14 million — that place where most of us, who get by on far less than even $200,000 imagine never having to worry about money again. While that may be a pipe dream (apparently, even the richest worry about money, though their worries are not exactly like ours), apparently "only" making $500,000 a year worries some people alot [8].

"That is pretty draconian - $500,000 is not a lot of money, particularly if there is no bonus," said James F. Reda, founder and managing director of James F. Reda & Associates, a compensation consulting firm. "And you know these companies that are in trouble are not going to pay much of an annual dividend."

Mr. Reda said only a handful of big companies pay chief executives and other senior executives $500,000 or less in total compensation. He said such limits will make it hard for the companies to recruit and keep executives, most of whom could earn more money at other firms.

"It would be really tough to get people to staff" companies that are forced to impose these limits, he said. "I don't think this will work."

Sadly, it's unlikely that James F. Reda's remark will inspire people to show him and the other Wall Streeter's what "draconian" really looks like. After all, even $500,000 a year is more than ten times the median household income in the U.S. [9], which was $44,334 as of 2006.

Populist sentiments have waxed and waned over the decades, peaking during times of economic distress for farmers and workingmen, especially the 1890s and the 1930s. Yet by and large most Americans have tried to stay neutral in the war between the classes, particularly in contrast to European countries of comparable wealth. What Americans lack is what the European working classes gleefully exhibit: resentment of the rich personally, as distinct from unhappiness with policies that affect how income and wealth are distributed. The press considered it a major gaffe last fall when Barack Obama gave a tentative endorsement to the idea of using the tax system to help redistribute income—although the record shows that he won the election. In fact, according to Page, for the first time since the 1930s a majority of Americans are in favor of taxing the rich—heavily, if necessary—to redistribute income. But that doesn't mean they want to kill them. So far, at least, they prefer to laugh at them. The vagaries of the economy over the next several years will determine if Jay Leno can continue to fill in American society the role the French delegated to Robespierre.

Americans' contradictory attitudes toward wealth are ingrained in the national culture. Sigmund Freud, steeped in fin de siècle Middle European pessimism, memorably compared the unconscious significance of money to that of excrement, an idea that found very few takers on this side of the Atlantic. The first European settlers to New England were Calvinists, belonging to a stern creed obsessed with the fate of their souls. Believers in predestination, they anxiously sought the outward signs of inward grace, signifying their "election" to heaven. One of these was worldly prosperity; wealth was a valued indicator that the possessor enjoyed God's favor. The other salient feature of American society is that it lacked a landed aristocracy. This meant, as Alexis de Tocqueville observed in "Democracy in America," that "there is hardly anything left but money which makes very clear distinctions between men or can raise some of them above the common level."

Scratch just a bit more below that surface Calvinism, and you'll find the roots of everything from the prosperity gospel to Norman Vincent Peale, "muscular christianity," and conservative economics for the last 30 years; the latter of which George Lakoff neatly encapsulated when he spelled out the link between wealth and virtue in the conservative worldview [10].

Competition is necessary for a moral world; without it, people would not have to develop discipline and so would not become moral beings. Worldly success is an indicator of sufficient moral strength; lack of success suggests lack of sufficient discipline. Dependency is immoral. The undisciplined will be weak and poor, and deservedly so.

...Taxes: The best citizens are those who are successful and moral, and should be rewarded with lower taxes. Taxes beyond the minimum needed for government take away from the good, disciplined people the rewards they have earned and spend it on those who have not earned it and so do not deserve it. Progressive taxation is seen as a punishment for being a good person, and so is immoral.

Of course, people also want to believe that they are among the elect even if their material condition doesn't support that belief. They are moral, and they are virtuous. So it stands to reason that they just haven't gotten their inevitable reward (virtue being insufficient as its own reward nowadays). They just have to keep the faith and try harder. And, it helps to have a bit of mythology to prop up all that possibility.

And lacking a hereditary upper class, Americans have typically looked at themselves in the mirror and asked, why not me? The belief that anyone can become rich in America has its roots in an extraordinary statistical fact noted by Malcolm Gladwell in "Outliers." A list (compiled by Forbes magazine) of the 75 richest people in all of history, going back to Crassus (No. 8) and Pharaoh Amenophis III (No. 12), shows that an astonishing 14 of them (including John D. Rockefeller and Andrew Carnegie, Nos. 1 and 2) were Americans, born mostly of humble origins between 1831 and 1840. That made them just the right age to take advantage of the tremendous creation of wealth in the years following the Civil War. The example of those men, and those decades, has colored American attitudes toward wealth ever since. It persists today, according to Page and Jacobs, who found that "large majorities of Democrats and low-income Americans agree with Republicans and more affluent people that it is still possible to start out poor, work hard, and become rich." People who expect to join a country club someday are, obviously, less likely to want to burn it down now.

Yet those who serve the political interests of wealth are in effect closing the door the country club even tighter than before. In the stimulus bill, congressional conservatives fought to remove (and succeeded in the Senate) funding for education and healthcare. (Try pursuing wealth without either of those, and you'll see what I mean.) Congress has bailed out Wall Street and is still doing so, yet ordinary Americans are still waiting patiently as the U.S.S. Economy bobs in the water one last time, for the lifeboats to return for them once the first class passengers are saved. They need to believe that in order to keep treading water, keeping themselves afloat even if they aren't going anywhere.

And those days have long since passed. Carnegie, Rockefeller, etc., are men who became wealthy in part because they were born white, male, and western at the right time and place in history. And even they achieved their wealth at least in part due to business practices that would be considered unethical and even illegal today. (It's thanks to Rockefeller's Standard Oil that we have antitrust laws.) And they benefited from labor conditions that would hardly be tolerated by American workers today. (At least not until they've been softened up by the job market.

Of course, conservatives have and will argue that its precisely those rules and regulations born of the America's industrial age that are keeping people from getting rich. The quicker we do away with them the quicker more people will make more money. Nevermind that those theories haven't been born out in the past 30 years, after doing away with the regulations that were put in place after the 1929 crash — which were intended to prevent just the kind of mess we're in today from every happening again, wages have stagnated [11], household net worth is down [12] and continues to plummet, while the 400 richest Americans have gotten even richer [13].

The truth is that the conservative economic policies that have dominated the last 30 years or so hasn't resulted in shared prosperity, but in greater disparity and greater concentration of wealth.

And there's great danger in that.