Rents, Skim, Vig, Taxes

Posted: December 7, 2010 in Corporatism, Economics, Ethics

The New Yorker has a long and better-than-usual article about Wall Street investment banking. The article starts with the usual report-the-controversy approach, giving both sides to the question of whether Wall Street provides social benefits beyond the obvious enrichment of Wall Street itself. This is not an idle question, and the authorities cited for the negative case are Wall Street insiders and distinguished authorities on finance. The article is long on context and requotable quotes, but as is the tendency for journalism, it falls short of a conclusion on the central question. The preponderance of the article does, however, present the negative case, summarized by this quote:

Lord Adair Turner, the chairman of Britain’s top financial watchdog, the Financial Services Authority, has described much of what happens on Wall Street and in other financial centers as “socially useless activity” — a comment that suggests it could be eliminated without doing any damage to the economy.

The positive case, rooted in notions of how markets and high finance ought to operate for the greater social good, is abstract and idealistic, handily putting it largely beyond irrefutable criticism. The negative case, rooted in how markets work in actuality, undeniably describes criminal activity. The proof of this conclusion is throughout the article but especially in the penultimate paragraph, as well as here.

High finance resembles a rigged game in which participants are forced to play only with the ball provided by the operators of the game. Terms vary with each such gamed industry: rents, skim, vig (or vigorous), and taxes. Another way of looking at it is that operators define their turf for the extraction of wealth and resources from any who happen to fall within established boundaries. Either way, owners and operators generally ensure their own piece of the action before remitting anything.

Ideally and abstractly (again), social benefit flows downstream from wealth transferred to the operators of the games, whether it be asset building, entertainment, safety, or the power of collective action. Call it the invisible hand, Reaganomics, or voodoo economics. It matters little, since it has never been shown to work justly or equitably. Nonetheless, we react to each scenario differently, rebelling against taxation as income redistribution, willingly gambling away personal wealth by dribs and drabs at casinos or in state lotteries in hopes of hitting it big, compelled into protection rackets, or acquiescing to theft by computer algorithm and Ponzi scheme. We are all captives to the power of markets.

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