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Going easy on the Street

Every Man a Speculator A History of Wall Street in American Life Steve Fraser HarperCollins: 722 pp., $29.95

February 06, 2005|Jeff Madrick | Jeff Madrick is the editor of Challenge magazine and a frequent contributor to the New York Review of Books. He is director of policy research at the Schwartz Center for Economic Policy Analysis at New School University and the author, most recently, of "Why Economies Grow."

All of this might have been tolerable if the economy had continued to thrive. Although it boomed in the late 1990s, and wages for all levels of workers at last began to rise handsomely again, in the last few years job creation has been the poorest of any economic expansion in the last 50 years. Wages after inflation actually fell last year. And income inequality is growing. The record of economic growth has, over three decades in fact, been well below historical par. As Fraser notes, during the robber-baron period the economy at least grew by leaps and bounds. Not so during the ascendancy of Wall Street that began in the early 1980s.

Yet the rapprochement between workers and the Street still seems to be in force. Why? There has been no dearth of critical bestselling books: "Den of Thieves," "Barbarians at the Gate" and "The Bonfire of the Vanities." Kevin Phillips, in "The Politics of the Rich and Poor" and "Wealth and Democracy," has documented the politics of wealth amid the widening of income distribution. Gretchen Morgenson at the New York Times is a one-person watchdog agency of ongoing financial abuse. Barbara Ehrenreich has graphically described life at the bottom in her book "Nickel and Dimed." Harvard Law School professor Elizabeth Warren has shown how hurt the middle class is. New York Times columnist Paul Krugman, once a moderate mainstream economist, has become a remarkably popular economic muckraker.

Fraser's useful book helps us understand these contradictions. He persuasively makes the case that the government is less effective at taming Wall Street's excesses today because the New Deal so effectively dissipated Americans' traditional distrust of Wall Street.

But it is not the whole story. We need more histories and a better understanding of this transformed America of the last few decades, an era so different from the progressive period of reforms of the early 20th century. America's historic antagonism toward Wall Street was not always justified. But Fraser's history shows that it was an important balancing force against the all-too-frequent eruptions of greed and destructive speculation.

Economic frustration has hardly disappeared among poor and middle-income Americans today, and it may take economic catastrophe to revive America's will to put Wall Street back in its place. The privatization of Social Security could well be such a tragedy in the making. But it will take years to be found out. It's worth remembering that the poverty rate of the elderly was 35% as late as 1959. Now it's about 10%, because of Social Security.

Fraser notes that Thomas Lamont, an executive of Morgan Bank, assured his friend Herbert Hoover in 1929 that "the wide distribution of ownership of our greater industries by tens or hundreds of thousands of stockholders, should go a long way to solve the problems of social unrest."

Alas, the Great Crash and the Great Depression rudely interfered with those self-serving dreams. Reforms are what restored balance to the nation, not an ownership society. Wall Street was not undermined by the New Deal. But these days, the nation does not seem up to reining in its excesses. We will pay a high price for that. *

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