The last time our country was scheduled to elect a president amid economic distress, in 2008, some overly clever candidate quipped that the economic policies had for too long favored Wall Street over Main Street. It was a turn of phrase that is memorable 16 years later but not because it was especially accurate or even clear, but because it worked. It persuaded voters that the federal government should be a more activist and assertive in shaping financial conditions.
Federal bureaucrats are not usually waiting for permission to pursue their goals, but it’s more convenient if they can proceed without much resistance. And from that election until the present one we have grown accustomed to a government that performs like a landlord setting rents and rules.
Oddly, one way this landlord shows indifference to complaints is by the endless spending to fulfill reckless plans and promises, and borrowing money to service an unspeakable level of public debt created by that spending. To draw on the analogy from the past, the feds have replaced Wall Street in taking advantage of Main Street.
That analogy doesn’t work perfectly, and mainly because it didn’t make too much sense in 2008. Then, Wall Street was a stand-in for the economically powerful, while Main Street represented every economic entity: small and midsized businesses, home owners, wage earners. But the comparison does work well enough to observe that the role for those enterprises and individuals has not really changed: then and now, their economic stability or even some progress is gained by borrowing from lenders at market rates and then organizing their circumstances as well as they can to minimize the cost of those loans.
In 2008, Wall Street signified the expansive complex of banks and securities firms, insurance companies, brokerages, pension funds, investment funds, and various other entities that helped those characterized as Main Street to manage their financial activity and gain some independent security.
Over the 30 years or so leading up to 2008, those Main Streeters had earned a significant stake in the activity of Wall Street through their investments in stocks and funds, their home ownership, insurance policies, retirement accounts, and so forth. Wall Street relied on that capital flow as a way to balance its own activities. All this was the world of finance.
Finance is strategy. It involves evaluating the options available for growing capital by assessing the different risks involved with investments, loans, etc. It is quite distinct from economics, which involves respecting the principles that shape how capital is created and distributed, gained and lost, and how markets and people respond in relation to capital.
This distinction between finance and economics is what has changed since 2008. As evidence I point to the ongoing drama of high interest rates – which have punished businesses and consumers for over three years.
The federal government does not set interest rates; that’s the work of the Federal Reserve Bank. But the government defines the work of the Fed because it will not reduce its spending, and the river of cash flooding into the market forces the Fed to set policies that will inhibit borrowing. That means high interest rates – which prevent businesses from investing in new equipment, drive up housing costs, undermine new vehicle sales, and restrain economic growth in multiple other ways.
The spending, along with excess regulation on business activities (e.g., on oil and gas exploration and processing), also boosts inflation, again punishing Main Streeters. And Wall Street would like some relief as much as the rest of us.
When Federal Reserve chairman Jerome Powell hinted in late August that a cut in interest rates may be coming, Wall Street celebrated with a 450-point stock-buying binge. The traders simply want some signal that there’s an escape from the hole that Big Government has dug for all of us.
The federal government, like the Federal Reserve, is meant to be outside of the market all together. It’s role is to maintain the principles of market economics, not the strategy of finance.
And yet now we are drifting toward another presidential election in which principles are not on display: we have a vague choice of strategies (protectionism, lower regulation; or price controls and targeted tax rates.) It’s not much of a choice, in principle.