Scott Talbott of the Financial Roundtable and John Carney of Clusterstock, a financial research firm, have said that there shouldnt be limits on Wall Street pay, because we should be rewarding hard work and innovation. We already have suitable rewards. Hard work can get you Social Security Disability Income and innovation gets a Nobel Prize. The Nobel is worth 10 million Swedish krona, or about $1.5 million if you win it all by yourself. On the other hand, if you drive Lehman Brothers into bankruptcy, you get $62 million. Ruin Merrill Lynch (and very likely take Bank of America along with it) and you can get $161 million by way of appreciation. Besides the hard work and innovation argument, the other justification for obscene compensation has been employee retentionif you dont give these people wheelbarrows filled with money, theyll go someplace else. This raises the obvious question: do these guys actually know anybody whos hiring? Pfizer is laying off 800 PhDs from their research labs, and Home Depot is laying off 7,000 people on top of the 1,500 layoffs and 13 store closings announced last spring. Caterpillar is cutting 20,000 jobs and Microsoft 5,000. The merger of Pfizer and Wyeth should cut 8,000 slots. The only people with job security are federal judges and hermits.
This is pretty much the situation that John Maynard Keynes was warning about back in the 1930s, and its pretty grim. What may be even worse is that the congressional Republicans dont get it. A little bit of economic history might help. Adam Smith, circa 1776, wrote that when things got bad, prices would go down, and when they got low enough, people would buy, and things would get better. Smith was right, at the time. Significantly, The Wealth of Nations was published just about the time the system it described was on the verge of disappearing.
Feudalism, also known as the dark ages, was a fairly stable economic system that lasted from the fall of the Roman Empire, 476 A.D. until about 1400, which is when the worst of the Black Plague ended. The Plague reduced the population of Europe, so that there was more competition for labor, and the villeins and serfs found there were better ways to make a living than what was, in essence, share cropping. The serfs, peasants and villeins farmed or worked at trades, but they owed fealty and taxes to a lord, who was the vassal of another lord, and so on up to the topthe king. The system broke down when the plague reduced the population of Europe by about one-third, leading to a migration from farms to cities, and increases in the trades. This led to a period of cottage industry, which lasted until about 1800, when the industrial revolution produced the factory system. When Adam Smith was writing, most workers owned the means of production, whether it was a farm or a spinning wheel. During this period, you might not have any food or clothing, but you couldnt be unemployed. In terms of Nobel prizes, James Watt would have earned two, the physics prize for the steam engine, and the economics prize for inventing unemployment.
In Adam Smiths era, a tax cut during hard times might be the difference between starvation and getting by. A weaver owned a loom, and made cloth to sell. If nobody was buying cloth, he might not have an income, but he had a job. With the turn of the century, cottage industry gave way to factories, and a weaver worked at somebody elses loom. If a weaver got fired, he had neither an income nor the means of earning a living. In 1811 the Luddites began opposing the factory system, and in 1812, the British Parliament made it a capital offense to destroy a power loom. Jobs were being eliminated and there were no replacements. For an unemployed weaver, a tax cut was not worth much.
And thats where we are today. At a time when people need jobs, steady incomes, the Republican Party is still shouting for more tax cuts, which hasnt made a great deal of sense since 1800. The banks, those that are still in business, defend high salaries and bonuses to retain people who have no place else to go, and John Boehner (R-Ohio) House Minority Leader, said if were really serious about strengthening our economy in the short term and long term, we ought to be reducing the capital gains tax to zero for the next two years for individuals and companies that buy equities. We are kowtowing to a system that hasnt existed for 200 years. This type of economics has been obsolete for centuries, and maybe the Republicans are, too.
Sam Uretsky is a writer and pharmacist living on Long Island, N.Y.
From The Progressive Populist, March 1, 2009
Subscribe to The Progressive Populist