Evidence Grows Showing Wall Street as a Negative Economic Force

January 27, 2015

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Earlier this month, Jim Clifton, Chairman and CEO of Gallup, published a stunning indictment of Wall Street as a job creating engine. Clifton reported that the U.S. now ranks 12^th among developed nations in business startups with countries such as Hungary and Italy having higher startup rates. Of equal concern writes Clifton, “American business deaths now outnumber business births.”

Clifton has a theory on why America’s crisis in creating new businesses is a well-kept secret. He writes:

“My hunch is that no one talks about the birth and death rates of American business because Wall Street and the White House, no matter which party occupies the latter, are two gigantic institutions of persuasion. The White House needs to keep you in the game because their political party needs your vote. Wall Street needs the stock market to boom, even if that boom is fueled by illusion.”

A key function of Wall Street is to bring promising new companies to market to ensure that the U.S. remains competitive in new industries and good jobs and innovation. This process is called Initial Public Offerings or IPOs. But the nation was put on notice as far back as 2001 that Wall Street was more snake oil salesman than the locomotive for new business launches. The largest investment banks were calling the startups they were peddling to the public on the Nasdaq stock market “dogs” and “crap” behind closed doors while lauding their virtues in publicly released “research” announcements.

Writing in the New York Times in 2001, Ron Chernow precisely analyzed how the Nasdaq stock market, Wall Street’s primary market for tech startups, had served the country. Chernow wrote:

“Concern has centered on the misery of small investors maimed in the tech wreckage. But what happened to all the money they squandered in the I.P.O.’s? Think of the stock market in recent years as a lunatic control tower that directed most incoming planes to a bustling, congested airport known as the New Economy while another, depressed airport, the Old Economy, stagnated with empty runways. The market has functioned as a vast, erratic mechanism for misallocating capital across America.”