We liberals don’t tend to like bankers. They seem to make a lot of money for doing nothing. But in fact, they do important work. At least some of them. Think about it. There are disparate people who have money they want to invest and disparate people who need investment money. At their best, bankers are like casting directors in the movies. Just the same, here in America, we’ve really mythologized bankers. The truth is that bankers help the economy run well, but they are not the reason the economy runs. And it is totally out of control.
After World War II, financial industry profits were roughly 10% of all business profits in the United States. And they pretty much stayed at that level for a long time. But then they really took off starting in the 1980s. It’s interesting that 1980 seems to be the inflection point where the United States went from a middle class society to an oligarchy. Before the Lesser Depression, the financial industry was responsible for 40% of all business profits in the United States.
There has been a lot of talk recently about “high frequency trading” because of the media blitz for Michael Lewis’ Flash Boys. This is actually kind of strange, because this has been well known for a long time. But anything that gives the issue more attention is good. Because here’s the thing. High frequency trading does not do any of the good things that bankers do. All it does is skim off profits.
And it’s worse than that. Given that these trades take money away from investors, it takes some of the incentives out of investing. What’s more, it pushes the narrative that Wall Street is not doing anything productive and that it is just a big casino. So we should get rid of the high frequency trading. But we don’t need to legislate it out of existence. For a long time, Dean Baker has been pushing a financial transaction tax. As he noted yesterday, “A bill proposed by Senator Tom Harkin and Representative Peter DeFazio would impose a 0.03 percent tax on all trades of stocks, bonds, and derivatives.” That’s a very small fee, which would not affect regular trades. But it is enough to put the high frequency traders out of business.
Of course, the financial industry is completely against such a tax. But this is bizarre. When I go to the store and make a financial transaction of cash for Advil, I have to pay a financial transaction tax, more commonly referred to as a sales tax. And it is 8.75%, not 0.03%. So a financial transaction tax shouldn’t be a big deal. And if we lived in a democracy, it wouldn’t. Unfortunately, both of our political parties are beholden to the financial industry so I doubt anything will change soon.
That doesn’t mean we shouldn’t try. In addition to eliminating a truly pernicious aspect of the financial industry, the tax would raise an estimated $400 billion over the next ten years. That is almost five times as much money as Congress just cut from the food stamp program. This is why issues like the financial transaction tax are so frustrating. They are overwhelmingly beneficial. But they aren’t done because a very small number of extremely powerful people benefit by the system staying in its current broken state. Hopefully, Michael Lewis’ book will help to push the matter. And you could, you know, write your representatives and vote.