Marketplace Scratch Pad

A little Main Street bashing

Scott Jagow Dec 15, 2009

There’s no shortage of anti-Wall Street sentiment out there. Let’s give it a rest for a moment and navel gaze. Perhaps it’s not entirely accurate to say that Main Street got the raw end of the deal with Wall Street.

John Tamny at Real Clear Markets writes:

… Wall Street’s present struggles are to some degree a function of long-term efforts to redistribute wealth and credit to Main Street. Absent the collectivist instincts of politicians in favor of the average American, it’s highly likely that Wall Street’s problems wouldn’t even be a news item.

His argument: Wall Street’s worst times recently (70’s and this decade) coincided with a weak dollar policy designed to bolster manufacturing and American exports; thus, the American working class. The weak dollar has also correlated with rising home prices, so Main Street benefited there as well. Furthermore:

One reason ordinary Americans pay so little in taxes has to do with tax breaks on housing which directly aids them. Politicians wail about “predatory” mortgage brokers, but they never acknowledge the “predatory tax benefits” such as the mortgage-interest deduction which made taking on a mortgage all the more appealing.

Looking at the capital gains treatment on home sales, “fat cats” tend not to live in houses worth $500,000 or less, but Main Street types do. The zero capital gains rate on those houses made home ownership on Main Street even more appealing, and was directly subsidized by the high earners who once again account for the majority of federal (tax) revenues.

It’s a fair point. We’ve been over Wall Street’s behavior many times, but Wall Street and Main Street share an undeniable trait, and that’s human nature. People talk about bankers taking risks; what about homeowners? Felix Salmon argues that buying a home is not a diversified investment. It’s gambling, plain and simple:

… no potential investment returns are worth it if the downside is that there’s a good chance that you’ll end up financially devastated. That’s not sensible diversification: it’s putting all your eggs into a basket that you have essentially no control over….

If you have essentially no control over the outcome of your investment, and you have no way to exit that investment if it starts to go bad, then you’re a gambler.

So there are a couple of alternate ways to think about things. What are your thoughts?

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