Here are three articles related to the subject line.
You might find the first two interesting
and the third one amusing (… or not).
1) By Ezra Klein, Washington Post, 23 April 2010
2) By James Kwak, BaselineScenario, 4 May 2010
3) By Anonymous (parody?), FTAlphaville, 30 April 2010.
-RichardH
Let me clarify the purpose of my comment.
The lure of Wall Street was legal and irresistible to some of our brightest students.
These students who decided to go to Wall Street instead of going into inventing, designing, and manufacturing tangible products that improve peoples’ lives made perfectly rational choices for themselves. My point is that these choices have consequences for our society as a whole that may not have been so good.
The idea of making capital gains more lightly taxed than ordinary income may have some appealing first order consequences. However, the second order consequences are that they lure people to jobs that pay out in capital gains rather than in ordinary income. Over enhancing the incentives for financial jobs relative to other jobs is not good for the economy and society.
People thought that deregulation would let the markets run free to be more productive than if they were hampered by too much regulation. Some of that is true, but our tax policy also changes the way the market works.
Regulations are not the only way of changing the behavior of markets. People did understand the affect of tax policy in changing market behavior. They realized that lowering the tax on capital gains significantly below the level of ordinary income would stimulate the financial markets. They didn’t take into account that they may overstimulate financial markets.
Once again we see that economic and social policy decisions are not binary decisions. It is not a matter of should we lower taxes or not. You have to ask how much. Just like the right amount of medicine is a good thing, but an overdose can be fatal. The same goes for economic and social policies.
That also means it is not a question of do we regulate or not. You have to know how much regulation or deregulation is good and how much is an overdose.
By the way, I talk about taxes excessively in the above comments only because they are the easy and obvious targets. There were many other rules and regulations that were changed to make purely financial transactions overly profitable. Allowing banks to be under capitalized is another obvious example. Allowing AIG to sell credit default swaps insurance without sufficient capital is another example. There are many more, I am sure, but I am not an expert who can name them all.
I just read the middle one so far, but this coincides with something I have always felt. The lure of Wall Street has diverted many very bright people away from practicing science and engineering.
The only place you can get bright minds to practice science and engineering is India and China.
No wonder all the jobs that cause something tangible to be made and sold are being outsourced to India or China. Before they were outsourced to India and China, they were being insourced to immigrants from India and China.
You could hardly get a third or fourth generation American to go into any of these fields. It was just too tempting to go into banking.
When I was at Texas Instruments in the late 60s and early 70s, I took over support of a piece of software that had earlier been written by an MIT classmate of mine. I never got to meet him at T.I. because he had gone off to New York to be a bank VP.