Main Street vs. Wall Street—the Wrong Debate

Much of the current debate about the financial "crisis" describes the issue as Wall Street vs. Main Street. This reflects a fundamental misunderstanding of our economy. It is true that a government buy-out of the failed mortgages will probably require a substantial increase in taxes, at least for a while. And a buy-out might certainly be a bad idea, as another blog on this site argues. But underlying the debate is a fundamental misunderstanding, by many of our legislators and the media, of the role of Wall Street in our economy.

The capital markets channel funds from Main Street to create and support the businesses that hire all the workers, from unskilled to highly skilled, who produce our GDP—the vast array of goods and services that we all consume, food, clothing, homes, cars, repair sites, churches, schools, and so on.

The media often follows the mention of Wall Street with reference to the high salaries and golden parachutes that some large firms pay to attract CEOs—as if that's a defining characteristic of Wall Street. But that's an entirely separate issue. Those payments are an infinitesimal part of the total value of the failed mortgages that we're worrying about, and have no place in a discussion of major government policy regarding what to do about them.

The debate is not about Wall Street vs. Main Street. It's about the best way to serve the interests of our citizens.