An alternative to popular faith
Here is the key sentence from an article by Jackie Calmes, Published: January 11, 2010 in the The New York Times:
“With popular anger building as big banks show profits and pay sizable bonuses while unemployment remains high, the Obama administration has come under pressure at home and abroad to support a financial transactions tax on institutions and to heavily tax their executive compensation.”
What an amazing sentence.
First, consider the popular anger that “big banks show profits . . .” Would the citizenry prefer bank losses caused by bad bank management? What’s the approved size for profits?
Second, consider the “sizable bonuses.” Banks are businesses. What should they do with profits aside from pay employees and shareholders? Are other businesses held to that standard?
Third, consider “unemployment remains high.” What is the relationship here? Should banks hire millions of people, to get the employment rate down? Or, should banks engage in less than optimal business strategies, like lending to bad risks, to get the profits down?
Fourth, consider the “financial transactions tax on institutions.” Get real. Any tax on a business is passed along to its customers. Ultimately, you and I will pay that tax.
Fifth, consider “heavily tax their executive compensation.” A special tax created just for bank executives? What about a special tax just for Walmart executives? What about a special tax just for executives who live in New York, preferably Long Island?
Nothing could better demonstrate the financial ignorance of the Obama administration. Or if it’s not ignorance, then it’s worse: pure pandering to populist, class-warfare motives. Oh, it temporarily might make you feel good to “get those rich jerks,” until you realize (if ever) that you are the one getting the shaft.
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
#Monetary Sovereignty - Mitchell 
Great comments Rodger. It’s financial racism. The banks are the perfect Scapegoat.
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“Third, consider “unemployment remains high.” What is the relationship here?”
The relationship is that the unemployed are the victims of the bankers who are showing profits and reaping the benefits. We have rewarded the bankers who were instrumental in getting us into this mess, while doing little for the millions of unemployed who are suffering as a consequence.
I am writing in late February, after the cloture vote in the Senate on the jobs bill. This bill will spend $15 billion to save or create 1.3 million jobs. But we need to bring down unemployment by at least 7 million jobs. How much would that cost? $80 billion? $125 billion? $200 billion? Surely not much more than that, at most. As you have pointed out time and again, we can afford it. If we can spend $800 billion in a few days time to bail out the bankers, we can spend a fraction of that to put America back to work. Not to do so would be shameful.
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Min, I partly agree, partly disagree. Money never stops. When the bankers received money, they didn’t store it in their vaults. They either spent it or invested it.
Either way, the money went into the economy and circulated. Eventually, we all received some.
So why didn’t it prevent or cure unemployment? Answer: Too little, too late. On April 9th, 2008 I wrote (http://www.rodgermitchell.com/medialetters.html that curing inflation would require more money than the government was willing to spend.
I also recommended the ideal way to boost employment and end the recession: Eliminate the FICA tax ( https://rodgermmitchell.wordpress.com/2009/09/08/ten-reasons-to-eliminate-fica/ )
So I agree with you that the money could have been allocated differently, but the key money problem was “too little and too late.”
Rodger Malcolm Mitchell
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Hi, Rodger!
” When the bankers received money, they didn’t store it in their vaults. They either spent it or invested it.”
From what I hear, they either borrowed cheap from the Fed and bought Treasuries (a sure thing), or made a lot by speculation. Despite what Paulson said, they did not lend it.
“Either way, the money went into the economy and circulated. Eventually, we all received some.”
Bye and bye. I suspect that we will see some lending in the fall, unless the economy tanks again.
“So why didn’t it prevent or cure unemployment? Answer: Too little, too late.”
I think that there is more to it than that. History indicates that after a financial crisis banks do not start lending again for at least a couple of years. So attempting to stimulate aggregate demand by enabling banks to lend is like pushing on a string. The people the banks might be willing to lend to aren’t borrowing. Businesses are reluctant to hire when they don’t see paying customers. People cut back on their spending when they have lost their job or are afraid of losing it, or are paying down their debt. Under such circumstances, trickle down does not work, if it ever did. OTOH, targeting unemployment directly puts money into the hands of people who spend it, becoming paying customers, and that will induce businesses to hire and to borrow, and the fact that they have paying customers will induce banks to lend, in a virtuous cycle. I do not mean to paint a rosy picture, but, as Archimedes said, give me a fulcrum and I will move the Earth. But to do so he would have to place the lever correctly. Too little, too late, sure, but incorrectly targeted, as well. 🙂
Best,
Min
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Min, no argument here. That’s why we should eliminate the FICA tax.
Rodger Malcolm Mitchell
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Wonderful site, where did you come up with the information in this blog? I’m pleased I found it though, ill be checking back soon to see what other articles you have.
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