Charles Murray wrotes an excellent analysis in the Review section of the weekend Wall Street Journal, July 28-29/12, Why Capitalism Has an Image Problem.

He addresses the different perception between the production sector and the financial sector:

Another change in objective conditions has been the emergence of great fortunes made quickly in the financial markets. It has always been easy for Americans to applaud people who get rich by creating products and services that people want to buy. That is why Thomas Edison and Henry Ford were American heroes a century ago, and Steve Jobs was one when he died last year.

When great wealth is generated instead by making smart buy and sell decisions in the markets, it smacks of inside knowledge, arcane financial instruments, opportunities that aren’t accessible to ordinary people, and hocus-pocus. The good that these rich people have done in the process of getting rich is obscure. The benefits of more efficient allocation of capital are huge, but they are really, really hard to explain simply and persuasively. It looks to a large proportion of the public as if we’ve got some fabulously wealthy people who haven’t done anything to deserve their wealth.


The difference between Wall Street and Main Street is important.  The financial sector does an important job of allocating capital based on merit when it is allowed to do so.  The financial sector can be seen as a lubricant that allows capital to flow to its best use.  When the financial sector grows to a very large percentage of the economy it transforms from a necessary tool for productive use to an end in itself.

Clearly the Wall Street financial sector needed to become more attuned to the productive use in the economy.  There is a clear need for regulation to keep dangerous instruments from creating devastating consequences.

But Washington was fine with the excesses when it was serving their political purposes. In the case of the recent collapse Wall Street delivered an endless supply of capital into the mortgage market which served to put people is overpriced homes they could not afford.  In the ensuing blame game Washington has failed to admit or comprehend its responsibility.

In an effort to correct the regulatory failures of Wall Street, we risk handicapping Main Street.  Capital becomes harder to come by, and the explosion of new rules, laws and regulations, the never ending inconsistency in tax law, and the demonization of capitalists from those in power has essentially created a capital strike on the part of investors and business owners.