It's also been picked over pretty well for notable quotes, but I thought Obama's answer in response to one question was notable and a bit odd. Leonhardt asked: Are there tangible ways that Wall Street has made the average person's life better in the way that Silicon Valley has? And the president answered:
Well, I think that some of the democratization of finance is actually beneficial if properly regulated. So the fact that large numbers of people could participate in the equity markets in ways that they could not previously -- and for much lower costs than they used to be able to participate -- I think is important.
If I'm not mistaken, the democratization of finance is a concept popularized in at least two of Robert Shiller's books. (I'm going to assume Obama is referring to Shiller because this New Republic article tells me Shiller is a big hit in the White House.) But the democratization of finance has not much to do with Wall Street making lives better and a lot to do with citizens learning more about Wall Street. As Shiller writes (in the Subprime Solution), democratizing finance is about "extending the application of sound financial principles to a larger and larger segment of society and using all the modern technology at our disposal to achieve that goal." It implies that we should do things like subsidize financial advice.
Which is fine, but I think that means Obama's answer was a bit of a cop-out. And that's fine too (he's the president and has to dodge questions all the time), except that I think the answer to Leonhardt's question is obvious and shouldn't be controversial. Of course there are tangible ways in which Wall Street has made the average person's life better.
There is a tendency to view finance less as an industry that contributes to our pile of shared wealth and prosperity and more as an industry that consists of crazy people with dynamite strapped to their chests -- useful only when they're not threatening to destroy civilization with derivatives. It's not hard to see why a view like that would develop. No one writes about all the planes that land safely, or the dogs that don't bite men, or the asset markets that don't implode.
But that view of financial innovation is, I think, wrong. Maybe it's easy to forget that financial arrangements like the bond or the IPO or the joint-stock limited liability company weren't around forever. But, like microchips, someone actually had to come along and invent them. And those inventions have vastly improved the lives of average people. I don't think it should be controversial for the president to say this to the New York Times.
(FWIW, I think the argument above is logically distinct from the argument -- expressed by Paul Krugman and Brad DeLong and Simon Johnson and others -- that the financial service industry is overpaid. An industry can be both beneficial and overpaid!)
I think you're stretching this one way too far. The question was posed relative to Silicon Valley, so that's implicitly the time frame in which Obama is framing his answer.
I doubt very seriously Obama would disagree with you about the importance of joint stock companies as a central innovation in the industrialization process of the 19th and 20th centuries. Or, for that matter, IPOs which made Silicon Valley itself possible.
But lots of folks have been scratching their heads about what, in the past three decades, have been the socially beneficial results of recent financial innovations. Paul Volker came up with the ATM, and was hard pressed to go much further. I personally would add that, in their plain vanilla incarnations, securitization of home loans and accounts receivable were positive developments. We really don't need banks to be intermediating some of this stuff on their balance sheets. And retail products like money market funds, for all their disintermediation effects, did "democratize" finance by making available to the great unwashed a broad range of choices among income-generating savings vehicles that had only been available to the wealthy.
It's in the latter sense that I'd expect Obama to be using the notion of "democratization of finance". He may have read Schiller, but the term substantially antedates Schiller's books and wasn't used in the narrow sense you've cast it in this post. It's instead, from at least the Thatcher era, meant to encompass the various ways in which access to financial services (both on the savings/investment and borrowing sides) and retail capital accumulation vehicles have expanded.
I don't see any hostility to "finance" in Obama's remarks. Just a recognition that the benefits can become swamped by the costs if the industry isn't adequately regulated.
So get a grip, eh?
You state "An industry can be both beneficial and overpaid!" Fair enough. But, can the same be said about Silicon Valley? I think the answer is broadly "no" because we believe that market forces dictate Silicon Valley remuneration. Isn't there something else going on here with Wall Street? Government capture anyone?
The reason Obama does not like Wall Street is that he could NOT make it on Wall Street. Check his employment history.
I agree with the overall sense of nadezhda's comments. It may be more illuminating to frame the issue as a sort of a gedanken experiment "Would our capitalistic economy have been damaged or destroyed if the INSTITUTION known as "Wall Street" had somehow suddenly vanished without a trace (i.e., disappeared with complete public, corporate, and governmental amnesia at some earlier time of economic stability and prosperity, leaving UNTOUCHED the products and services (IT, medicine, law, scientific and engineering research and design, etc., bankers, individuals with resources to invest in the product and service producing companies, and etc.? If so, how and why? IF not, why? Remember, this is a sort of hypothetical thought experiment.
I do not know the answer, and I am neither dumb nor an ideologue.
The question addressed in the article is DUMB. It is a CONDITIONAL question, asking for a comparison between the institution of "Silicon Valley", which has produced TANGIBLE (dictionary definition: "capable of being precisely identified or realized by the mind"), EASILY NAMEABLE products and services of GREAT capitalistic value. It appears obvious to me that the question as asked begs the answer: Wall Street has produced no TANGIBLE benefits.
I certainly cannot come up with any "precisely identified" ways that Wall Street in its present incarnation is of benefit like Silicon Valley. President Obama gave an ambiguous, soft, feel-good answer to a DUMB question. So what.
Think about the gedanken experiment.
Hank's comment that Wall Street has produced no TANGIBLE benefits makes no sense when you consider the companies and employment built with the capital raised and invested by Wall Street activity. The problem on Wall Street is the other activity where the movement of capital and risk that does not correspond to the creation of capital for company growth.
Transparency is the antidote for that sickness and is the most efficent regulator, but that won't fly in Washington because budgets and staff are not TANGIBLY utilized.
It seems that no only does Obama have hate and scorn for Wall Street, but for private investors as well. It must be perfectly obvious that the Government wants to steal the bondholder's investments in Chrysler and GM in order to transfer wealth to the Unions. Now, if the Government can flout the law at will who will want to invest in anything which may come under the Government's purview?
So, it seems investors will prefer to put their money anywhere but the US, because it seems the US is turning into a place, like banana republics, where expropriation without compensation is a real risk. This will make less money available to the US borrower and make the recession even worse. And, it seems Obama wants to have Judges who will also ignore the law.
Does he want to reshape Wall Street or destroy it? Does he want to restore the Auto Industry or run it out of business with Union domination and Government control?
It looks a lot like the far-left anti-capitalists who probably financed Obama's huge illegally obtained campaign funds are pulling the strings on the Obama marionette, and are firmly in control.
M'kay, let's list all the benefits Wall Street delivers directly to the common, average American. And let's do it bullet sytle, no more than 10 words for each line item.
And before we start
* got a job while financier wallows in obscene wealth
does not belong on the list.
If we look at Wall Street and Capital Markets in general over the course of their history, creditable arguments supporting their contributions in improving the life of the average person can be made.
The question was framed within the emergence of Silicon Valley in the early ‘70s. It is difficult to dispute the positive contributions realized from the development and utilization of the integrated circuit and the microprocessor in improving the life of the “average person”. Providing your jingoistic view of the “average person” does not include an innocent civilian victim of an un-manned Predator Drone in Afghanistan. Their perspective, understandably, may be entirely different.
Ironically, just as Silicon Valley may be credited with improving the life of the average person… the recent dissembling of our financial markets would not have been possible without the progeny of Silicon Valley. A caveat… a conundrum?
There is a dramatic difference between today’s capital markets and the capital markets of the Industrial Revolution. The “Captains of Industry”, such as J. P. Morgan, Andrew Carnegie, Henry Ford, J. D. Rockefeller; all created a tangible “industry”. The Reganomic’s theory of “trickle-down” economics actually worked back then. It would still be working today, if our congress, capitol markets and corporations were run by leaders with a little more vision and a bit less cupidity.
Far too much of our legacy “industries” have been “offshored” in order to maintain the paradigm that created this country’s wealth, middle class and political stability. Today… all of that is at risk!
The term “Financial Industry” is an oxymoron! The only thing our financial industry produces today is a great “sucking” sound!