Wall Street and the Rest of Us


Tony Soprano is right about the stock market: “You have to be high up in the corporate structure to make that sh-t work for you.” Or, as economist Ilene Grabel of the University of Denver told me, “Stock markets prove profitable for a small proportion of the U.S. and global economy, but the relationship between the stock market and the underlying economy has never been established.”

Have you ever wondered how the world might be a different—and better—place if Wall Street didn’t demand ever-widening profit margins? The income gap would likely shrink, making 90 to 99.9 percent of Americans happier. And a broader view of corporate success might lead corporations to show some respect for the environment and their workers.

The New Yorker brings a little good news on this front (caveat: It’s the magazine’s job to make New Yorkers feel good about themselves). James Surowiecki calls bullshit on the “7 percent rule,” a handy rule of thumb that sprung up during the dotcom boom, suggesting that any company announcing layoffs would see a 7 percent rise in its stock value.

Surowiecki argues that layoffs only make long-term financial sense when demand changes significantly—not, as they have become of late, as “a default business strategy, part of an inexorable drive to cut costs.” Stock prices may feel as cold and hard as a surgical knife, but Surowiecki claims they generally reflect what you know is true if you’ve ever worked through a round of layoffs: “Downsizing may make companies temporarily more productive, but the gains quickly erode, in part because of the predictably negative effect on morale.”

Stock prices consider my feelings? That feels a bit too cheerleader-y, so let’s get back to the bad news. The flies in the ointment are, you guessed it, C.E.O.s and analysts. (What would the world look like without them?) Many analysts push companies to downsize, and companies have to act like they’re listening even though the analysts aren’t always right. And C.E.O.s are all about quick and dirty: “The average C.E.O.’s tenure today is just six years, long enough to see the benefits of downsizing (like a lower payroll) but not long enough to suffer costs that may appear in the long term.”

Assuming no one will take my suggestion to abolish the stock market seriously, here’s a few quick partial fixes that are good for the rest of us. Can you say labor unions, where wages are higher and layoffs more difficult? We could also stop paying C.E.O.s so much, at least in stock options. And less golf for bigwigs.

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