Senators who attended the March 28th Senate Banking Committee Hearing on Fostering Economic Growth: The Role of Financial Companies, were fortunate that Professor William Spriggs, an economist from Howard and the AFL-CIO, was able to slog through D.C. traffic to deliver his compelling testimony and insight to the Committee. Together with Ms. Deyanira Del Rio, Co-Director of the New Economy Project, Professor Spriggs correctly asserted that economic growth in the U.S. is predicated on a bipartisan agreement to invest in the American people and the real economy. While all the witnesses on the panel agreed that finance is crucial to prosperity in America, Professor Spriggs and Ms. Del Rio highlighted that our current, bloated financial system siphons power from broad based growth.
Rather, finance best serves the American people when it is eliminating barriers to access fair banking and credit, pushing out the need for exploitative credit and debt services. This creates growth in all industries, including finance mind you, as new and existing businesses adapt to meet the new and rising demand of well banked Americans.
Professor Spriggs detailed this point succinctly:
“A financial system that serves the purpose of taking excess capital and moving it to productive capital is the point. If it is doing something else, it is diverting funds.
The Professor also properly noted that the longest period of stable, comprehensive growth in American history is correlated with the over sixty-year existence of the Glass-Steagall act, which would also have prevented banks from recklessly exploiting their customer deposits to place risky, and ultimately failed, bets in the lead up to 2008. When the financial industry focuses strictly on internalizing the potential benefits of that growth, we see wild fluctuations in the economy that inhibit job and wage growth, reinforcing declines and tamping down gains.
Finally, Professor Spriggs also picked up on an astute question from Senator Reed about costs and benefits of Dodd-Frank to break down the often-used trope that financial regulation is too costly to undertake:
We do have to remind ourselves of the tremendous cost in trillions of dollars, almost our entire GDP, one might argue, in cost. Lost banks: community banks that got swallowed up, not because of something they did… Many of our cities and state governments ran into huge problems because their pension funds collapsed. You have to look at the loss from the household sector… All of this cost, the cost to the global system, the collapse of international trade. The loss to potential GDP of the United States. When you look at projections that were made in 2001-2005 about what our economy would look like. When you add all that up, almost one years’ worth of GDP… you have to say that a few cautionary measures on banks to prevent that, has to be worth it.
Overall Professor Spriggs’ testimony elucidated a number of fundamental truths that should underpin financial regulation now and in the future. Better Markets echoes Senator Perdue’s sentiment: “Dr. Spriggs, I couldn’t agree with you more. Your testimony today, I thought, was pretty much right on.”