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Dean Baker on How We Can Make the 'Free Market' Work for the 99%

The right has been working for years to rig the market to the disadvantage of most of the population. Why can't we rig it in the other direction?

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If this turns out to be the case, then the full amount of the money raised through the tax effectively comes out of the hide of the financial sector. We will see fewer transactions, and therefore fewer resources, devoted to the sector. This is a great way to make the sector more efficient, eliminating a vast amount of waste in the sector.

There is also the possibility that this tax will make the sort of speculative bubbles that have distorted the economy in the last three decades less likely. The evidence on this point is inconclusive. All we know for sure is that it a financial speculation tax will raise a huge amount of revenue directly from the hide of the financial industry. 

JH: I think this brings us to the key question, and the subject of the final part of the book: how do we end this "loser liberalism"? You're not telling progressives to start aping the right and talk about how the free markets can cure all of society's woes. What do you advocate? Tell us a little about your prescriptions.

DB: First we have to understand how the market is being rigged. This is essential. Knowing the importance of the Fed and the value of the dollar doesn't mean that we can do anything about either, but we have to at least know how the game is played. Otherwise, it's like playing football without knowing that the way to score points is to get the ball into the other team's end zone. That makes it pretty hard to win.

Also, once we understand that the issue is the way that the market is structured and not a question of the government bureaucrats and their patrons trying to overrule the market we are on much sounder political grounds. It is understandable that many people will dislike the idea of taxing the winners to benefit the losers; it is much harder for the right to make a case for rigging the market so that income flows upward. That's what our politicians have done for the last three decades and the public must understand this fact.

The key battles over Fed policy, dollar policy, and trade policy will be long and difficult, but we may have many small victories along the way. For example, just last year there was an alliance of the left and right to require the Fed to disclose the loans that had been made through its emergency lending facilities. The Fed, supported by all sorts of respectable types, insisted that the world would end if it had to let the public know who it had lent money to. However, as a result of the pressure from both the left and right, a provision requiring disclosure was included in Dodd-Frank. 

The Fed has since released data showing that it made trillions of dollars in below market loans to the largest banks in the country. This might have been embarrassing to Goldman Sachs, Citigroup and the Fed, but it didn't have any of the negative fallout that the Fed claimed. This is the sort of small victory that we can achieve even now and then use them to build for bigger victories.

There are other areas where transparency -- a simple good government demand -- can make a big difference. How much are the Wall Street boys being paid to manage public pension funds? If that is not always easy find, it should be. Do shareholders know all the terms of their CEOs contracts. For example, did they know the guy who nearly drove Hewlitt Packard to ruin would get paid $20 million for his effort? 

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