Tom Piatak

December 17, 2008

“Does the public stock market actually serve a purpose?” is the question posed by an important and provocative piece, “Kiss Wall Street Goodbye,” in the January 2009 issue of Chronicles.  The anonymous author cites the research of Lawrence Mitchell, a professor of business law at George Washington University, who argues that “empirical evidence is clear that the American public stock market rarely has been a significant factor in financing industrial enterprises in the United States.  The only American business sector to rely upon public stock issuances as an important source of financing public activity is the financial industry itself.”  Mitchell’s examination of data going back to the 1950s leads him to conclude that “America’s economy is increasingly based on finance, and our public financial markets principally are financing finance.”

As the author notes, “Mitchell’s research comes out at a fortuitous time, as the federal government is pumping money into financial institutions to keep the markets going, in order to ‘avoid chaos.’”  By one estimate, the amount of money the federal government has committed to the financial sector now exceeds eight trillion dollars, even though that sector was the primary cause of our current recession.  The author concludes by observing that “the government might have been better off lending our tax dollars to companies that actually build something—or, better yet, reducing our tax burden.”  It is unlikely that this argument will be given much heed in Washington—which has already shown how beholden it is to a financial sector that is the largest contributor to both major parties—but I suspect that many in Middle America may be willing to give it a hearing.

UPDATE:  Yesterday’s New York Times had a very interesting article on the culture of greed that existed at Merrill Lynch.  Those who are interested may read it here.