Saturday, January 14, 2012

Oliver Stone's "Wall Street," 25 Years Later

In recent weeks, pundits ranging from Paul Krugman to Ross Douthat have made analogies to Oliver Stone's 1987 film "Wall Street," with some going so far as to compare Mitt Romney with Gordon Gekko.  In light of this dynamic as well as the spirited contemporary debate over economic inequality, I decided to reexamine the movie. Though it was released during another era of economic turbulence in the Reagan years, it appears as relevant as ever today.
It is important to remember the events surrounding the film, as the 1980s witnessed an historic bull market with stocks taking off as the economy recovered from the 1981-82 recession.  While Wall Street brokers made a great deal of money in the 1960s and 70s, the rewards grew dramatically during the 1980s.  At the same time, income inequality began to grow as the rich got richer, while the middle class barely gained, and the poor stagnated or fell behind.  Finally, a number of major insider trading scandals broke in the late 1980s, famously ensnaring Ivan Boesky and Michael Milken.
Leveraged buyouts (LBOs), a process by which corporate leaders bought companies, then broke them up and sold them off rather than rebuilding them, also emerged in the 1980s.  The advocates of LBOs claimed they were bringing new competitive pressures to American business, forcing them to be more efficient or face takeovers.  To their critics, firms like Romney’s Bain Capital were merely corporate raiders that earned money by destroying businesses rather than creating anything.
This tension plays out in “Wall Street,” as a young trader named Bud Fox (Charlie Sheen) is working his way up the career ladder.  The son of an airline union leader (real-life dad Martin Sheen) who is not satisfied with conventional success in the financial industry, Fox wants to make the big time by working with a major player, Gordon Gekko (Michael Douglas).  Once he ingratiates himself into Gekko’s inner circle, Fox engages in all sorts of illegal activity, notably insider trading.  He makes a great deal of money in the process and the film is replete with examples of the conspicuous consumption of the 1980s.
Though the film revolves around Fox, the movie’s star is clearly Gekko and Douglas’ performance earned him an Oscar for best actor.  Equally charismatic and villainous, Gekko tempts Fox into his orbit, eventually using the relationship to put himself in a position to purchase and liquidate Fox’s father’s airline, Blue Star Airways, laying off all the workers in the process.
While Gekko’s “greed is good” speech is the most famous clip from the film, I think Gekko’s response to Fox when he confronts him about Blue Star’s fate is far more instructive.  “The richest one percent of this country owns half our country's wealth, five trillion dollars,” Gekko declares, “One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It's bullshit.  You got ninety percent of the American public out there with little or no net worth. I create nothing. I own.”  In that sense, Gekko was dramatically different from morally ambiguous businessmen from the late 19th and early 20th centuries, such as John D. Rockefeller and Andrew Carnegie, who created massive new industries and businesses.  It also differentiated him from a real-life contemporary, Steve Jobs, who was leading the personal computing revolution at Apple.
Gekko’s speech proved prescient as the nation’s economy was in the early stages of an economic transition that has continued to the present day.  According to Alan Krueger, Obama’s Chairman of the Council of Economic Advisers, “The proportion of people in the top 1% who were from the finance and real estate sector nearly doubled from 1979 to 2005.  And in 2005, executives from the finance and real estate sector made one quarter of the income in the top .1 percent.” While the earnings of different income quintiles grew by roughly the same amount from the late 1940s to the mid-1970s, Congressional Budget Office data shows that the real after-tax incomes of the top 1% of families grew by 278 percent between 1979 and 2007, while the middle 60 percent grew by less than 40 percent (Krueger speech to Center for American Progress, Jan. 12, 2012).  Today, income inequality has reached its highest level since 1929, the start of the Great Depression. 
At the end of the film, Fox maneuvers to save Blue Star Airlines, but is arrested for insider trading.  He wears a wire to obtain evidence against Gekko before going to jail at the end of the movie.  His father tells him it may be the best thing for him to go to prison and “Stop going for the easy buck and produce something with your life. Create instead of living on the buying and selling of others."  With the insider trading scandals and the October 1987 stock market crash, change in Wall Street appeared to be on the horizon.  “I thought the ’80s would have been an end to a cycle," reflected Stone in 2008, "I thought there would be a bust. But that’s not what happened.”(New York Times, October 5, 2008)
Quite the opposite occurred.  Bizarrely, many people who went to work on Wall Street over the next two decades cited Gekko as their inspiration.  The 1990s witnessed another stock market boom, as high-technology stocks soared even though many of them never made a profit.  Though inequality did narrow some due to the low unemployment of the Clinton years, the bubble burst as the century closed.  The 2000s saw relatively weak growth fueled by the housing bubble, which also exploded, leaving the Great Recession in its wake.  In the aftermath, Stone revisited the subject in the much weaker “Wall Street: Money Never Sleeps” (2010).  The sequel revolves around Gekko, but Fox makes a brief cameo.  Rather than learning a lesson from his comeuppance, Fox has become a morally questionable entrepreneur himself.  Perhaps a sad metaphor for the country not learning anything either.

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