Losing Their Immunity
by Paul Krugman
As the Occupy Wall Street movement continues to grow, the response
from the movement's targets has gradually changed: contemptuous
dismissal has been replaced by whining. (A reader of my blog suggests
that we start calling our ruling class the "kvetchocracy.") The
modern lords of finance look at the protesters and ask, Don't they
understand what we've done for the U.S. economy?
The answer is: yes, many of the protesters do understand what Wall
Street and more generally the nation's economic elite have done for
us. And that's why they're protesting.
On Saturday The Times reported what people in the financial industry
are saying privately about the protests. My favorite quote came from
an unnamed money manager who declared, "Financial services are one of
the last things we do in this country and do it well. Let's embrace
This is deeply unfair to American workers, who are good at lots of
things, and could be even better if we made adequate investments in
education and infrastructure. But to the extent that America has
lagged in everything except financial services, shouldn't the
question be why, and whether it's a trend we want to continue?
For the financialization of America wasn't dictated by the invisible
hand of the market. What caused the financial industry to grow much
faster than the rest of the economy starting around 1980 was a series
of deliberate policy choices, in particular a process of deregulation
that continued right up to the eve of the 2008 crisis.
Not coincidentally, the era of an ever-growing financial industry was
also an era of ever-growing inequality of income and wealth. Wall
Street made a large direct contribution to economic polarization,
because soaring incomes in finance accounted for a significant
fraction of the rising share of the top 1 percent (and the top 0.1
percent, which accounts for most of the top 1 percent's gains) in the
nation's income. More broadly, the same political forces that
promoted financial deregulation fostered overall inequality in a
variety of ways, undermining organized labor, doing away with the
"outrage constraint" that used to limit executive paychecks, and more.
Oh, and taxes on the wealthy were, of course, sharply reduced.
All of this was supposed to be justified by results: the paychecks of
the wizards of Wall Street were appropriate, we were told, because of
the wonderful things they did. Somehow, however, that wonderfulness
failed to trickle down to the rest of the nation - and that was true
even before the crisis. Median family income, adjusted for inflation,
grew only about a fifth as much between 1980 and 2007 as it did in
the generation following World War II, even though the postwar
economy was marked both by strict financial regulation and by much
higher tax rates on the wealthy than anything currently under
Then came the crisis, which proved that all those claims about how
modern finance had reduced risk and made the system more stable were
utter nonsense. Government bailouts were all that saved us from a
financial meltdown as bad as or worse than the one that caused the
And what about the current situation? Wall Street pay has rebounded
even as ordinary workers continue to suffer from high unemployment
and falling real wages. Yet it's harder than ever to see what, if
anything, financiers are doing to earn that money.
Why, then, does Wall Street expect anyone to take its whining
seriously? That money manager claiming that finance is the only thing
America does well also complained that New York's two Democratic
senators aren't on his side, declaring that "They need to understand
who their constituency is." Actually, they surely know very well who
their constituency is - and even in New York, 16 out of 17 workers
are employed by nonfinancial industries.
But he wasn't really talking about voters, of course. He was talking
about the one thing Wall Street still has plenty of thanks to those
bailouts, despite its total loss of credibility: money.
Money talks in American politics, and what the financial industry's
money has been saying lately is that it will punish any politician
who dares to criticize that industry's behavior, no matter how gently
- as evidenced by the way Wall Street money has now abandoned
President Obama in favor of Mitt Romney. And this explains the
industry's shock over recent events.
You see, until a few weeks ago it seemed as if Wall Street had
effectively bribed and bullied our political system into forgetting
about that whole drawing lavish paychecks while destroying the world
economy thing. Then, all of a sudden, some people insisted on
bringing the subject up again.
And their outrage has found resonance with millions of Americans. No
wonder Wall Street is whining.