Twisted Finance

           I have a passion for the most boring subject on earth: Finance.  But what really gets me going is the systemic failure of the United States’ financial system. Just by looking beyond the walls of Trinity’s campus, we can see how the financial system in this country has failed to benefit the majority of Americas.

I think that one of the biggest reasons for the perversion of the financial sector is that finance and politics in the United States are engaged in a very dangerous relationship.  Since 1979, there has been stagnation in the wage growth of poor and middle-income earners, leading to a shrinking percentage of total wealth controlled as the economy grows. On the other hand, those who have incomes in the top 10%, and especially those in the top 1%, have seen their share of the wealth pie grow substantially. The financial system has essentially been used to funnel wealth from those in society who need it most to those who need it the least.

This most recent corruption of the financial center is due largely to the crusade of deregulation. Before Reagan, regulation was viewed as an area for policy wonks to argue over the minutia of their respective areas, but Reagan made deregulation about morality. He saw, and convinced a sizable amount of the American people, that regulation was inherently bad, and both Republicans and Democrats have carried this sentiment to the present. In a recent blog post on the website Baseline Scenario, frequent contributor and author of 13 Bankers, James Kwak had this to say about morality politics and their influence on the financial sector:

“…For Rick Perry and people like him, there’s something immoral and unmanly about inflation and about paper money. He can stand there telling people that monetary expansion is devaluing the dollars in their pockets, and those people will nod their heads, even though (a) it isn’t—check the inflation figures—and (b) many of them are net debtors and thus stand to gain from a little more inflation. The basic problem is that Rick Perry and his audience (and probably many other people) see economic questions in primarily moral terms, and in their moral universe gold is better than paper and deflation is better than inflation. (That’s the obvious inference if you say that inflation is bad.)”

            This passage clearly explains the relationship between modern morality politics and the financial sector. The people who stand to gain the most from increased inflation, the poor, have been led to believe in a position that hurts them economically. However, this is no accident. The people that have distorted the financial sector, so that it acts to transfer wealth to the wealthy, are also the people who endorse this line of reasoning because they are net creditors. When people see inflation targets and regulation as moral questions it clouds their judgment. When you ask someone in favor of deregulation whether we should deregulate industry, the answer is generally “yes”. This is because in the minds of many people regulation and interest rates are seen as a moral question rather than an economic one. People should have opinions, it encourages participation in our society, but they should think critically about the opinions they hold instead of being conditioned to respond in a certain way to the words “regulation” and deregulation. The financial system is in a world of trouble and it is up to the American people to make sure it gets fixed.