The disconcerting story of Robert Rubin's career overlaps the maddening story of Bernie Madoff's livelihood: Both men held elevated positions on Wall Street, and both believed in an approach to capitalism that is dangerous to the common good. In Madoff's case he turned the general architecture of the stock market into a personalized business, thus making himself liable for reproach that the general market has largely escaped: formal Ponzi status. What percentage of the American public understands this? What percentage realize that Rubin and his ilk are contaminated with the same illusions as Madoff?
Representative democracy requires an attentive and discerning public. Financial elites know that the public is daunted by the complexity of today's financial markets. The public hides from what it cannot pleasurably understand, the entertainment industry having long cultivated this propensity. Indeed, the Hollywood-Manhattan Island connection, fellow travelers aside, suggests that a confused and resigned public is no mere accident. Regardless, elites now count on great leeway in redesigning the architecture of financial markets.
There is no adequate check in America against greed and political madness. The situation reflects cultural decline, the downfall accelerated by foolishness in religion, dumbed-down education, unhealthy immigration dynamics, interest group politics, and a severe breakdown in leadership norms. Political leaders are celebrities rather than morally gusty statesmen and self-sacrificing reformers. They rise only to the degree they plunder the public domain to provide largesse to special interests — the socialization of speculative losses now a profound example.
One can appreciate President-Elect Obama's good intentions while recognizing that he is no Teddy Roosevelt, his key appointments to financial posts signaling at least that much. In Obama's defense, who could be a TR in this cultural environment and remain electorally competitive? Working Americans don't have their personal finances in order, so they can hardly afford fiscally responsible and far-sighted policies. Then, again, what nation can afford to forego rational prudence after prolonged budgetary intoxication?
Much like the general populace, the U.S. government is going to spend until it can spend no more, much like it intends to burn oil until it can no longer afford it. When at last there is no more money to borrow from foreigners, then will be fulfilled the words of Isaiah the prophet: "...You felt secure in your wickedness...your wisdom and your knowledge, they have deluded you. ...But evil will come on you which you will not know how to charm away; and disaster will fall on you for which you cannot atone" (Isaiah 48:10-11, NASV). When the game can be played no longer, Americans will not set the terms of their financial rescue; global financial elites will dictate the terms of American survival (and surrender).
Working people everywhere are asking: What should we do? What actions can Americans take to make a difference for the good? The ancient answer is simple: Whatever goodness your hand finds to do, do it with all your might. Some can teach the principles of prudence. Others can post rationally to the Internet. Some can form sane political groups. Others can promote educative progress in the clubs, churches or business associations. Some will write members of Congress. Others will get out of debt and get their lives in order. It is all needed. Much of it will make meaningful differences in families and communities, especially when hard times come. Some of it will take root and grow beyond expectations, impacting the national situation for the good. But it won't be enough to stop the nearly inevitable tide of macro-catastrophe that is headed our way as long as culture dictates irresponsible government spending as the solution for profligate government borrowing.
We got here with expert knowledge of Keynesian, monetarist and supply-side economic theories. We'll need something far more powerful than stimulus to float our ship of state from here. Long-standing societies don't end by becoming accountable, bringing irresponsible elites to heel, and ceasing to inflate their money supply. They simply suffer for their sins until they pay what is due for discarding their moral compass. However, societies sometimes do end when they refuse to address their evils. (At the least they get some sense beaten into them.)
When biologists study endangered habitats they monitor indicator species, the condition of which gives them a moving picture of what is transpiring in the larger eco-system. The same sort of theory can be applied to the financial eco-system. By considering how society reacts to the financial remuneration of celebrities and sports stars, we come to understand the prospects of honorably redesigning the architecture of our financial markets. Something is terribly amiss if we think justice is served when sports elites earn many millions annually to swing bats or bounce balls while at the same time people who provide basic goods and services or stock our grocery store shelves can hardly make bare bone ends meet without two incomes. Merit and reward are misaligned in this society, market forces displaying the consequences of delusional values.
If the public will not demand the proper alignment of merit and reward in high visibility areas it understands (like sports and entertainment), it certainly will not insist on a financial architecture for capital markets that aligns the value of participant contributions with the rewards taken off the table. In the case of Wall Street's principals and employees, the ones who game the retirement savings of American workers don't deserve much for their "contribution." Professional traders should not be paid exorbitant amounts since most of what they siphon off through volatility belongs to the public domain just like the air we breathe. After all, the stock that is being traded is that of "public corporations"
A substantial part of national corporate profitability belongs in the public domain for the purpose of giving all hardworking honest people a reasonable capital stake in society. Even in the midst of this downturn, most American corporations remain profitable. Instead of Americans losing money as the value of shares decline, Americans should be participating in the stream of profits big corporations continue to generate. Such income should be accruing for retirement, displacing the Ponzi financial architecture that requires new players to enter and buy higher so as to provide a profit and an exit for earlier participants.
The stock market will not be fixed until the Ponzi structure is phased out and a national profit- participation model is phased in. One-third of profits could be reinvested in corporate growth and productivity. Another one-third could be reserved for "investors, managers and workers" — capital being rewarded alongside labor instead of in opposition to it. (There is plenty of capital in the world, so capital does not need to make a killing to remain healthy where inflation is controlled.) The last third of the profit belongs to the public domain. This responsible model, combined with fiscal and monetary accountability, could make America great again.
Real progress will be made on a sustainable humanitarian model of capitalism when people decide they can no longer stomach the bizarre levels of remuneration that professional athletes and celebrities knock down — Robert Rubin included. Only then will the barons of business realize that the public is willing to take them to the mat, if necessary. This argument is NOT an appeal for a "flat" society, socialism or disastrous egalitarianism (which is an attack on merit). This is an appeal for justice and fair reward that makes the world a better place.