Wall Street vs. Main Street

Old-line populists and left-leaning politicians are fond of setting “Main Street,” where the votes are, against “Wall Street,” where the money is. The latter, inhabited by fat cats, price gougers, insider traders, and assorted corporate felons, enriches itself by overcharging the doughty denizens of Main Street for all manner of goods and services, and inducing them to buy shares when they should be selling, and to sell shares when they would do better to be buyers.

That story works less well in America than it once did, witness John Kerry’s attempt to portray himself as pro-business now that the Democratic primaries, dominated by voters from the party’s left, are behind him. Styling himself “an entrepreneurial Democrat,” Kerry told the centrist Democratic Leadership Council, “I refuse to lead a party that loves jobs but hates the people that create them.”

No surprise: Americans refuse to become rabidly anti-business despite corporate scandals that include the collapse of Enron and the subsequent jailing of some of its top executives, the conviction of Martha Stewart for lying to government investigators about her stock trades, and the highly publicized trial and conviction of Credit Suisse First Boston’s hot-shot trader, Frank Quattrone. The non-partisan Pew Research Center reports that recent corporate scandals have had “a minimal impact on public opinion.”

But the Main-Street-vs.-Wall Street dichotomy won’t die. It has taken on a new, more sophisticated form that goes something like this.

From the point of view of Main Street, the recent economic news couldn’t be better. The job market is recovering at a rapid rate, with 625,000 new jobs added in the past two months, and the unemployment rate down to 5.6 percent. If that rate of job growth is sustained, the unemployment rate will drop below 5 percent by the second quarter of 2005. The National Association of Colleges and Employers reports that employers plan to hire 11.2 percent more college graduates from this year’s crop than they did last year.

Equally important, the new jobs are not primarily of the hamburger-flipper, minimum-wage sort. Two-thirds of the 288,000 new jobs created in April were in industries paying above-average wages—that is, wages higher than $17 per hour. And the future looks bright: Cisco Systems, the networking equipment supplier, plans to add 1,000 employees this year, after four years of adding to the nation’s unemployment rolls, and other high-wage companies report business spending to be on the upswing.

Main Streeters are not only finding it easier to get decent jobs, but they are watching the value of their homes soar. They may be unhappy with the rising price of gasoline, but they show no signs of curtailing summer driving plans. The 24-hour business channels may be saying that the economy is cooling, but consumer confidence remains high. The Homeland Security office may be warning of a major terror attack this summer, but Americans are booking their vacation flights in such numbers that few seats remain available to the more popular destinations. And the news from Iraq may be disturbing, but Americans are taking to the roads this holiday weekend, fired up their barbecues, and downed their first gins-and-tonics of the season. In sum, Main Street, buoyed especially by the jobs news, seems rather happy.

But good news for Main Street seems to be taken as bad news for Wall Street. Main Street wants the economy to grow, creating jobs; Wall Street sees growth as a source of inflation that will force the Fed to raise interest rates, driving bond and share prices down. Main Street is in love with inexpensive made-in-China products; Wall Street fears that our mounting trade deficit will drive down the dollar and add to inflationary pressures. Main Street sees discounts on automobiles and on airline tickets as great opportunities to replace an old car and take a fun trip; Wall Street sees these price cuts as an assault on profits and share prices.

But Wall Streeters and Main Streeters are united in the hope that Federal Reserve Board chairman Alan Greenspan means it when he says that the round of increases in interest rates that is certain to start will be “measured.” Slow and steady, rather than rapid and abrupt increases will have less impact on share prices and on the interest payments of debt-burdened consumers. Greenspan, whom president Bush has nominated to remain in the Fed chair until his current term as governor expires on February 1, 2006 (by law, he cannot be renominated for the new 14-year term that would permit him to serve until he was 96 years old), knows that.

In short, where you stand on the good news about the economy seems to depend on where you sit. If you are sitting in the unemployment office or next to your telephone waiting for a job offer, you stand for high growth, even at the expense of inflation. If, on the other hand, you are sitting in a counting house clipping bond coupons or valuing your shares, you stand for slower growth, sufficient to keep profits growing but not so high as to frighten the Fed into raising rates often and by a lot.

Fortunately, the new dichotomy between Main Street and Wall Street is as false as the old one. For one thing, Main Street is now so heavily invested in Wall Street that both have an interest in buoyant share prices. For another, good news for Main Street—more jobs, rising personal incomes—is good news for corporate sales and profits. In the long run, divergence of interest between Joe Sixpack is more apparent than real, and exists only in the minds of superficial observers and latter-day populists.