Bank Profits and Social Justice

Jim Henley makes a good point in response to Kevin Drum:

It isn’t possible to get the banksters “off the federal teat immediately” or otherwise. There is simply no guarantee we make today that can bind the politicians of tomorrow. That’s not even necessarily a nebulous “tomorrow” either. Nor can we guarantee that, when the time comes, it would even make sense for tomorrow’s politicians to honor today’s future refusal. We have to figure out how to organize a political economy predicated on massive if implicit subsidies to the finance industry and its owners and executives so as to minimize the harm they can do and so it works tolerably for the rest of us. Am I optimistic that we can do this? Not so much. But since we can’t cut ‘em off, all we can hope to do is keep ‘em in line.

Right. Banks are profiting massively from ultra-low interest rates, but making such rates available serves the general interest. Banks are also profiting massively from implicit federal government guarantees. But you can’t “take away” those guarantees—they’re basically intangible—and it’s not at all clear that doing so would be wise. So you’re left with the difficult task of prudential regulation and trying to shrink the largest players over time with special fees and higher capital requirements.

That said, I think this is primarily an issue of social justice rather than an issue of technocratic regulation. And the answer is higher taxes on extremely high-earning individuals. The evidence suggests that big shot financiers make up a huge proportion of the highest-earning Americans, leaving CEOs of non-financial firms in the dust. You need to tax these guys and use the money to finance more and better social services and jobs for the people who provide the social services.

Having administration officials go whine to Wall Street honchos isn’t going to achieve anything.