Replacing "Financial Engineering" With a Productive Economy

A tax on financial transactions – the Robin Hood Tax – adds up in so many fundamental ways:  raising meaningful revenue, hundreds of billions annually, at a time when communities across the country remain in deep crisis; a way to put a break on rampant speculation, underscored in the aftermath of JPMorgan Chase’s high-stakes bet last spring—now estimated to have cost that financial institution $5.8 billion; and controls over spikes in prices for key food and fuel stuffs, an area of speculative activity (“speculative bubbles”) that has significantly grown over the years and threatens the security of families everywhere.

Speculation undercuts our society in a myriad of ways, including the misallocation of essential capital away from productive work—all the more needed as many millions remain out of work or marginally employed.   A survey conducted this spring by Rutgers University found that half the number of college graduates who received their degrees in the last six years are not working full-time.  And those Rutgers numbers did not include the graduating class of 2012, whose fate is undoubtedly the same, or worse.  The consequences of unemployment for young adults are stark, as evidence points to the enduring impact – economically and socially – on young people throughout their lives.  

In his powerful and persuasive new book, Back To Full Employment (Boston Review Books), economist Robert Pollin lays out a plan to regenerate the U.S. economy with special emphasis on the creation of jobs that provide a real living.  Pollin points out a very sobering fact:  U.S. corporations – financial and non-financial combined – have stockpiled cash reserves of $3.6 trillion—an amount equal to 23 percent of the nation’s annual GDP.  This “hoarding,” as Pollin describes, is being directed in large proportion in “financial engineering,”  which he says includes “buying back shares of their own stocks, as opposed to investing in new productive equipment and expanding their operations.”

Taxing Wall Street with the Robin Hood Tax would have the effect, as Pollin calculates, to move investment away from speculation and into a productive economy.  Revenue from the tax would create payroll jobs which, in turn, would allow working Americans to create demand of a magnitude that corporations could ignore or downplay.  The crisis of “confidence,” so often cited by mainstream economists as reason to withhold capital investment, would be solved.  Spark demand through the creation of good jobs.

The facts underlying Pollin’s blueprint for a real national recovery are not unnoticed, even in places like the Harvard Business Review.  In the September 2012 issue column, “Use It or Lose It,” writer Eamonn Kelly says that “the levels of cash Western corporations currently sit on are clearly excessive, as a proportion of total assets….”  He adds, “The ratio of corporate investment to GDP in Western economies today is very close to a 60-year low.”  Kelly asks: “How sustainable is the picture this presents- one of cash-rich corporations failing to do their bit to promote growth, employment, and prosperity…?”

“In such circumstances,” Kelly comments, “why wouldn’t Western governments increase taxes?  And, frankly, why would we in the corporate world deserve anything else?”