What is best for "the country as a whole" is of little interest to people living in the peculiar environment of Wall Street short-termism.
By PINCHAS LANDAUglobal agenda 88(photo credit: )
Greed is good. That fundamental dictum of Wall Street, certainly valid for the last two decades and perhaps always, was laid down by Gordon Gekko in Oliver Stone's 1987 film, "Wall Street."
What we seem to have now is a slight enhancement and updating of the basic idea: Gridlock - a political situation in which the executive (President) is under the control of Party A and the legislature (Congress) is controlled by Party B - is good.
There was a time when the common wisdom held the opposite view. Gridlock was considered to be bad for the economy, and hence for the markets, because it prevented - or at least severely constrained - the conduct of economic policy. The president might propose measures, but these would be opposed, watered down or rejected by Congress. Conversely, Congress might pass laws that promoted its declared aims, but these could and would be vetoed by the president. In this environment, key elements of policy, relating to taxation, spending programs, trade treaties, labor and pension laws, etc., would be stymied for years.
The 2006 mid-term elections in the US produced precisely this result, with the Democrats gaining control of both houses, leaving President Bush as a "lame duck" in domestic policy no less than in foreign policy. Given the weighty agenda that faces the American economy and people, and that most politicians now reluctantly accept the need to address, this should have been seen as a negative state of affairs, since doing nothing is guaranteed to exacerbate the problems on this agenda. The list includes the reform of Social Security, and by extension the pension system as a whole; and of the Medicare/Medicaid system, which extends to the entire health system and its absurd, incredible, spiralling costs. The whole field of trade policy is another problem area, given the increasingly protectionist bent of the Democratic party (although perhaps not of the bunch of Democratic winners in the recent elections).
These problems have been on the agenda for many years, of course. However, the issues of pension and health are becoming steadily more pressing as the demographic time-bomb implicit in the pending retirement of the baby-boom generation comes steadily nearer and as health costs impact the profits and competitiveness of American corporations (with General Motors and Ford the most prominent examples). Nevertheless, the attitude of the financial markets has been - both before and after the elections - remarkably laid back, given the prospect, and now the reality, of governmental gridlock.
The explanation for this sanguinity has little to do with a philosophical preference for laissez-faire, and hence minimal government initiative, on the part of market participants - although they would like to think that they have a philosophy along those lines. In fact, however, whatever intellectual pretensions Wall Streeters currently use as rationales for their attitudes and activities are at most fig-leaves. Their "philosophy" is purely Gekkian: Greed is good, and more greed is better. The level of "compensation" in the financial sector, and especially in the big investment banks, is today so astronomical in absolute terms, and so far-removed from historical norms in relative terms, that Gekko and the 80s-era tycoons he represented would be amazed - although no doubt delighted - to see how far things have come in less than 20 years.
The prospect of Bush continuing to pursue his foreign policy, including the possibility of an attack on Iran and a consequent oil supply crisis; or of the Democrats pursuing a populist and hence anti-business agenda; or of a bi-partisan effort to reform welfare, pensions or health, with associated labor unrest and potentially higher taxes - any of these avenues is bad, compared to the alternative of doing nothing. Bad, that is, for the corporate bosses who are making huge "salaries" - mainly from stock option, which depend on the stock market remaining strong - and for the financial sector, which is raking in fantastic profits ("rents" in economic jargon) and paying itself vast bonuses.
What is best for "the country as a whole," in foreign, domestic, energy, health or any other policy, is of little interest to people living in the peculiar environment of Wall Street short-termism. Achieving another successful quarter, or at least publishing figures presenting that picture, is the dominant business strategy. The long-term goal is to take home another whopping annual bonus.
By comparison, 2010 is the distant future and demographics is science fiction. If political gridlock can help spin out the good times for another year or two, then bring it on!
landaup@netvision.net.il
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