This has been a terrific week for Congress, with the exception of the mean-spirited rejection of the Dream Act. But, as the great Joseph Stiglitz points out today, there was one area where Congress punted this year: cracking down on the speculators who gave us the financial collapse of 2008 and the Great Recession. Stiglitz identifies two serious evasions of responsibility: the failure to break up the big six “too-big-to-fail” banks in the financial reform package, and the continued aggrandizement of the wealthy in the tax-cut compromise package just passed. (I thought the President got the best possible deal, but I’m still appalled by the Republicans’ hypocrisy in yapping about the need for budget discipline, while demanding more and greater tax breaks for people who don’t need them.)
I’m sure it will be impossible to accomplish–I’m pretty sure the President will want no part of this, having struggled through financial reform last year–but I’d love to see that issue reopened. If we’re going to escape the toxic, speculation-fueled economy of the past 30 years, we need to do two things: First, break up the big banks, while forbidding them from trafficking in gambling instruments like credit-default swaps. Second, and perhaps more important, change the incentive structure for smart young people emerging from business schools–making financial speculation less attractive and work in the productive economy moreso. The best way to do this would be to tax the private equity and hedge fund crowd the same way other wealthy Americans are, and second to tax financial transactions on a sliding scale–with higher rates for trafficking in instruments that have little to do with investment in companies that actually produce things. (I would use the proceeds to reduce the corporate income tax, which is too high and a form of double taxation, in any case.)
By the way, I’d add another area where Congress punted: energy legislation that might have pushed this country toward a job-creating green economy. I put this on the Obama Administration, which chose health care over energy as its main project–which reversed the priorities that Barack Obama stated during the 2008 campaign. The health care overhaul is important, if flawed, but if the President had a chance for one big thing, he probably should have chosen energy.