We apparently have an extra $700 billion of taxpayer money to spend in an effort to improve our economy. How are we planning to spend it? We are going to give it to investment banks and other financial services firms. What could we expect the result to be? America’s investment banks and financial services firms will be in great shape; the rest of the U.S. will lag behind.
What do you call a country with a thriving financial services sector and everything else rusting and obsolete? England. The City of London has been a leading provider of financial services worldwide for the last couple of centuries. During this period the rest of the country has lost its empire, lost its military power, lost its leadership position in scientific and engineering research, lost its leadership in manufacturing, and suffered from slow economic growth compared to its European neighbors.
By some accounts, the 1.22-square-mile City of London contributes roughly 20 percent of the UK’s GDP, employing only 300,000 people. (This compares to the U.S. financial services industry, which has grown from about 6 percent of the economy in the 1970s to roughly 10 percent today.)
Seven hundred billion dollars is enough money to reshape the American landscape. New York City real estate will become even more desirable. The rest of the country will decline gradually.
Do we have to spend our money this way? Why not put the $700 billion into tax credits for businesses that make capital investments? Or reduce the corporate tax, which would increase the value of American stocks? Or give tax breaks to foreign companies that open factories or R&D facilities here in the U.S.?