Why does Wall Street keep recovering after recessions but the economy seemingly never does?
The reason, as I document in my book, “The Scandal of Money: Why Wall Street Recovers but the Economy Never Does” is that Washington and the Federal Reserve together have created a closed loop economy where the Fed creates money for the government and the S&P 500 and Main Street is left out.
The Fed decides what money is worth and who receives it and how much. The Fed prices it at zero interest rates, allegedly to stimulate economic growth. But whenever something is free, it’s distributed by queue, and only the privileged, connected people in the front of the line get any, not the innovators who create growth and opportunity for Main Street. Trump voters are wrong if they blame Mexico and China, but they are right about one big thing: The economy is rigged against them.
The Fed takeover of the economy has turned Main Street into Mean Street; it has gelded Silicon Valley, reducing our most creative entrepreneurs to climate cranks obsequiously petitioning in Washington.
Almost two-thirds of jobs created between 2002 and 2010 came from 23 million small businesses, according to the Small Business Administration. But venture capital investment in 2014 of $48 billion is just one-third of the 2000 total (in 2015 dollars), according to the National Venture Capital Association. There were half as many IPOs in 2015 as in 2000, and they were mostly focused on a few large deals. Back in 1999, there were seven times more IPOs than mergers and acquisitions for tech companies. Today merger and acquisitions outnumber IPOs by almost 36 to 1.
The Fed regulations and money manipulations have displaced an open market of IPOs by an exclusive game of horse trading among “qualified investors” who get rich and leave Main Street out, and fail to create new jobs.
George Gilder is a bestselling writer and author of, most recently, The Scandal of Money: Why Wall Street Recovers But the Economy Never Does.