Wall Street Protests:

Two items of news about our southern neighbour should worry us here in Canada. First, the protests against the excesses of Wall Street have gained strength in New York and spread to other centres in North America and Europe. Second, the median income in the U.S. has dropped nine percent over last ten years in real value of money. There can be no doubt that the two events are connected. Young men and women who were brought up in relative comfort in middle class families with an assurance that college education was a guarantee of good jobs are now working at minimum wage in fast food outlets or stacking shelves in aptly named Target stores, if they are working at all. Older men have been laid off because the factories can not compete with cheap overseas products and can’t find other jobs. These people have good reasons to be unhappy with the financial system as much as with the government. They expressed their anger with the government by supporting the TEA party candidates in the last election which has brought Washington to a halt. Now it is the system’s turn. Wall Street is a symbol of banks, insurance companies and stock traders where incompetent young punks make millions in bonuses while having fun with other people’s money and indulging in unethical and often illegal business activities. The senior executives walk away with tens of millions after being terminated for incompetence and short term profits are all that matter with no concern for long term. Bosses get big raises for ‘making companies more efficient’ by lowering wages and firing workers even if such actions on an industry wide basis reduce demand for their products by reducing the buying power of consumers.

Human nature is to blame for some of our economic problems. Capitalism thrives on selfishness and greed and those in power do all they can to feather their nest. Another reason for our troubles is that the theoretically wonderful idea of Globalization seems to have misfired badly so far. The expectation was that worldwide free trade will increase the prosperity everywhere by lowering prices and increasing production and trade. It is possible that in the long term this will happen and the developed countries are going through a period of adjustment pains. However, in the first decade of Globalization, trade has been mostly a one-way street. China has monopolized the production and supply of goods helped by its currency fixed at an artificially low level while manufacturing has shrunk in most of America and Europe. This has eliminated a large number of high paying jobs and reduced the wages of remaining industrial workers. Contrary to expectations, there are few new industries to hire the newly unemployed or young people joining the labour force. Even in China and India, increased production levels helped some to get out of poverty but caused many of the poor to become poorer because unskilled labour is no longer much in demand. This is where the promoters of Globalization went wrong – they had a long term vision but no idea of how the transition will pan out.

The protesters do not know what can be done to help them except that they are angry for banks having been bailed out at their expense in 2008 with no visible constraints placed on their operations and on payments to failed executives. And they are afraid of this happening again. They also believe, correctly it turns out, that instead of paying old debts and building the reserves in good times the governments have accumulated large debts by cutting taxes on business and wealthy and thus helping the rich get richer. Now that these debt levels have reached the stratosphere and must be reduced to keep the same rich happy by repaying the bonds as they come due, it is the workers who are losing their jobs and pensions. Their grievances are genuine and must be addressed if the system is to survive.

To save the system we need to create new well paying industrial jobs in the West. These must come from revival of traditional manufacturing as well as newly invented products. Revaluation of Chinese currency will help. But it would be more important if there were a general realization in the West that buying locally produced goods helps us keep our jobs. Buying the cheapest saves money now but it may be the root cause of someone dear to us losing his job when a factory shuts it doors. Bankers have to take a long term view when lending or calling the loans and businesses have to look beyond the profit in the current quarter and work for long term viability. The governments have to save – not reduce revenues by cutting taxes – in good times and spend the savings to create jobs in hard times. Even if the worldwide protests do nothing more than focus light on these fundamentals, future generations will thank them for it.