Reformed Broker and Epicurean Dealmaker recently provided a necessary service in defending Bain Capital from scurrilous and misinformed attacks. I suggest, however, that this “rallying of the finance troops” is an example of preaching to the converted, and talking over the heads of an increasingly motivated anti-finance movement. Again, the anti-Bain idiocy deserved a corrective response and both Josh and TED did so effectively. However, there is a sense in which the argument is merely shoring up the walls of the finance cocoon.
The Other End of the Pendulum
It is possible to view the socioeconomic conditions of 2005 as the converse of 1975. Thirty years ago, corporate management was largely powerless in the face of labor power, taxes were extreme and government intervention was the “vampire squid” of the age. Profits sucked and unless investors were fully exposed to the major geopolitical clusterfuck of Iran-related East tensions, returns were scarce to non-existent. Beginning with Reagan, the pendulum began to swing back, slowly crushing labor and, for our purposes, culminating with the repeal of Glass-Steagall.
To be employed in finance in the 75-05 period was to believe fully in the primacy of bottom line, profit-related orthodoxy. If nothing else, it sustained the efforts to clear the political and regulatory anti-business, socialist clutter of 1970s. As an organizing principle, faith in the bottom line provided the advantages of clarity and measurability in addition to the obvious outsized creation of wealth. Bain Capital, among many others, is the walking, talking, strutting embodiment of this thirty-year transition – the realization of a Platonic form dreamed up by William F. Buckley and other 1970s-era pro-business conservatives.
The Financial Crisis was a clear representation of the other end of the socioeconomic pendulum, and the excesses, arrogance, avarice and overall public destructiveness of finance was clearly analogous to that of organized labor and misguided government in the 70s. To blindly defend Bain now is to associate ourselves with the spluttering, enraged defenders of organized labor in the early 80s. In both cases, an intellectually-consistent orthodoxy not acclimated to criticism had ceased to function for wide segments of the population, in the current case the un- or under-employed.
We are conditioned, in finance, to accept as an axiom that aggregate corporate profitability should be the end goal of almost all government policy. Primarily, we only really argue about the means to achieve this. Outside of the finance cocoon however, this is exactly the mode of thinking they believe is the problem. For people who haven’t experience real wage growth in a couple decades (i.e almost everybody in numerical terms), finance-generated, corporate profit-friendly policy solutions to the current economic malaise are a ridiculous, tragic joke. “Oh, really? You want license to fire more of us in the pursuit of productivity? While cutting unemployment insurance? Where do I sign up?”.
Incumbent politicians and the banking industry will use all of their considerable intellectual capital to maintain the current, rent-seeking status quo. The truth in the end, however, is that many of the actions of the investment banks during the lead up to the GFC were entirely indefensible, and eventually history will show this. It does not, importantly, mean that the economically important aspects of finance should be “thrown out with the bathwater” of reform or that every element of the business is corrupt. But, in defending the finance industry from attempts to reform we are going to have to understand that for most Americans, referrals to the benefits of increased profitability are going to fall on deaf, increasingly angry ears.