Doug Henwood (LBO): against NPR/NYT Wall Street propaganda by Adam Davidson

For a while, I’ve been thinking about writing a piece on how NPR is more toxic than Fox News. Fox preaches to the choir. NPR, though, confuses and misinforms people who might otherwise know better. Its “liberal” reputation makes palatable a deeply orthodox message for a demographic that could be open to a more critical message.

The full critique will take some time. But a nice warm-up opportunity has just presented itself: a truly wretched piece of apologetic hackery by Adam Davidson, co-founder of NPR’s Planet Money economics reporting team, that appears in today’s New York Times magazine.

In the print edition, the thing is called “A World Without Wall Street.” For some reason, the paper’s web editors decided to call it  “What Does Wall Street Do For You?” Maybe they thought that the question would draw in readers, who might find the declarative title of the print edition an appealing little fantasy and just turn the page.

Davidson concedes, with a mocking tone (that’s part of his straining at cool), that Americans have long hated Wall Street. But he rejects the usual complaints—that financiers are a bunch of bloodsucking parasites who periodically drive the real economy into a ditch—with the disclosure that finance is “a fundamentally beneficial business.” It brings together borrowers and lenders, a task that it does “extremely well”—“most of the time.”

Now I will be the first to argue that critiques of finance that let the “real” sector off the hook are incomplete, and even dangerous. (For more: “How to misunderstand money.”) The world of production can be a very nasty place. Corporations make money by paying workers less than the value of what they produce. They’re constantly maneuvering to cut costs, which means cutting pay, speeding up the line, dumping toxic waste in rivers, and a host of other familiar misdeeds. Like financiers, they’re in business to make money, and they’ll do nothing that doesn’t make money unless they’re forced to. Yes, they often provide useful products in the course of their pursuit of money. But it’s wrong to get carried away in painting them as the Good Guys, by contrast with the moneychanging Bad Guys.

But Davidson’s defense brief is incredibly wrong. I’d say “dishonest,” but I suspect he really doesn’t know better. He’s just picking this stuff out of the air. His points, in turn.Without Wall Street…

…the poor would stay poor. Without credit cards, poor people would have no money to buy stuff. Thanks to Wall Street, now they do—a contrast with benighted other countries, where they don’t. He seems to forget that the borrowers have to pay the money back, and at often usurious interest rates. Borrowing money at 18% or more is a poor substitute for a decent job and a civilized welfare state. Besides, the poor are not as well endowed with credit cards as Davidson seems to think—only 28% of the poorest fifth of the population carries a balance on its credit cards. That’s about half the share of the middle- and upper-middle income brackets. (See: FRB: 2009P SCF, especially the Excel file.)

…there would be no middle class. Davidson once again seems to think that borrowed money is the same as income. There’s no doubt that easy credit over the last 30 years has made class warfare from above more palatable, economically and politically. But neither admirable nor sustainable. Also, Davidson apparently hasn’t read up on the comparative international mobility stats (e.g.,this).  He writes: “One of the most striking facts of life in countries without a modern financial system is the near total absence of upward mobility.” In fact, the U.S. has a middling-to-poor standing on mobility in the international league tables. A country like Germany, where consumer finance is relatively underdeveloped, is more mobile than the U.S. The Nordic social democracies show the most mobility of all. Oh, and student debt, now breaking the trillion dollar mark? Nothing to worry about, says Davidson: it’s “largely changed America for the better.” Actually, the rising price of higher ed is making it harder all the time for the working class to go to college. Watching millions graduate with five figures of debt into a miserable job market doesn’t evoke a better America. College should be free.

…lots of awesome things would never happen. Wall Street, because it loves risk and innovation,  is responsible for all sorts of wondrous novelties, like lifesaving drugs and artisanal goat cheeses. In fact, financiers long been shy about funding risky ventures. Henry Ford couldn’t get a dime out of them when he was revolutionizing auto production. Financiers weren’t at all interested in computers from the late 1940s through the mid-1960s—the Pentagon and Census Bureau funded the industry in its early stages. Ditto the Internet, which was initially a project of the military. Basic pharmaceutical research is funded by the National Institutes of Health. Wall Street is more interested in things that have been proven. And I doubt that Goldman Sachs has much to do with funding artisanal cheese production, though its employees probably buy a lot of the stuff.

And how does Wall Street do all this? By matching investors and borrowers, of course. In fact, most corporate investment is funded internally, through profits. Very little comes from the stock market. Venture capitalists are crucial to funding startup firms, for sure, but VC is actually a relative speck on the financial landscape. Trading in existing assets, the bulk of what Wall Street does, has almost nothing to do with real activity.

But Davidson concludes with an absolution: it’s still ok to hate Wall Street. They did lots of reckless stuff during the bubble and then got bailed out. But that’s ok, really, we had no choice. And there’s not much we can do to prevent problems in the future: “regulation—no matter how well intended—cannot be trusted to rein in Wall Street.” So the real reason to hate Wall Street is that they’re indispensable.

No wonder NPR’s list of corporate sponsors takes up four pages of its Annual Report.