"Greed—for lack of a better word—is good," declared corporate raider Gordon Gekko 20 years ago in the film Wall Street. "Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms—greed for life, for money, for love, knowledge—has marked the upward surge of mankind. And greed—you mark my words—will not only save Teldar Paper, but that other malfunctioning corporation called the U.S.A."
Of course, director-writer Oliver Stone meant just the opposite, that greed—or what others might call "self-interest" or even the "pursuit of happiness"—was destroying America. He wasn't alone in that opinion. When that movie came out in December 1987, the market had crashed on Black Monday two months earlier. A few days before that plunge, the House Ways and Means Committee had filed legislation to eliminate tax benefits associated with financing mergers. Greed seemed to be hurting America, and Congress was trying to do something about it.
But here is the weird thing: America didn't need saving, it turns out. During the fourth quarter of 1987—when Wall Street came out—the American economy grew at a phenomenal 7.2 percent pace, marking the 21st straight quarter of growth. And the economy kept growing for three more years until the short and shallow recession of 1990.
A year later, the American public kept the White House in Republican hands. As for the corporate buyout boom that was the subject of the film, it seems to have actually been good for America. In his well-known 1997 study "The Evolution of U.S. Corporate Governance: We Are All Henry Kravis Now," University of Chicago finance Prof. Steven Kaplan noted that 57 percent of large U.S. firms were either takeover targets or restructured on their own between 1982 and 1989. He concluded that "the combination of gains to pre- and post-buyout investors was positive overall. The [leveraged-buyout firms'] insights and benefits were real." Indeed, one reason the economy was so powerful in the 1990s was that American business was restructured and made more productive in the 1980s.
Maybe 2007 is 1987 all over again. Greed seems to be hurting America, some contend, and Congress is trying to do something about it. First, there is the proposed "Blackstone Tax," named after the private-equity firm that had its initial public offering Friday and is the successor to those 1980s buyout firms. The levy would hit such firms with a higher tax rates. There is also a proposal to tax hedge fund managers at a higher rate as well.
The former has a good chance of passing, perhaps attached to a bill to temporarily fix the alternative minimum tax. Such a move would certainly seem in keeping with the cultural zeitgeist. It's been suggested that our particular annoyance with Paris Hilton stems not just from her stupid and silly behavior—actress Lindsay Lohan is just as bad—but from the added fact that she has inherited her wealth and is now famous for being famous.
With statistics seeming to show that income inequality is rising to levels not seen since early in the 20th century, maybe Americans are starting are growing impatient with in-your-face, unearned wealth. Democrats sure look impatient and seem certain to make the "two Americas" issue a dominant one in 2008, blaming undertaxed CEOs and corporations for rising inequality—though America does have the second highest corporate tax rates in the world.
Is the Blackstone Tax all about the politics of envy stemming from Blackstone chief Stephen Schwarzman's potential $7 billion or so take from Friday's IPO? If it is, I'm not sure it is ultimately winning politics. A Gallup poll from last April found that 66 percent of respondents felt "upper-income people" were "paying too little" in taxes. That's actually a couple of points less than two years ago and 11 points less than the early 1990s. And 71 percent felt corporations were "paying too little," just a couple of ticks higher than recent years.
At the very least, there doesn't seem to be a sea change in people's attitudes. But expect Congress to forge ahead with the Blackstone Tax as well as an attempt to slap a 4.3 percent surtax on household incomes of more than $500,000.