The mass media uses Wall Street and Main Street in their discussions. Of course, they have overlap, but Wall Street is happiest when the S&P is rising and Main Street when GDP is rising. Unfortunately, they don’t always rise together. Like now, stock prices are at record highs while GDP is down. Thus jubilation on Wall Street and unemployment lines on Main Street.
It’s useful to consider Wall Street as the 10% wealthiest Americans who own stocks, while Main Street is everyone else.
The terms are useful shorthand to distinguish between the financial marketplace and the daily pulse of workplace activity. This is a stretch, but their connection is a bit like the Mediterranean Sea and the Atlantic Ocean connected through the Strait of Gibraltar. Funds from Wall Street do help expand new companies and profit levels on Main Street operations affect stock and bond prices; however, they have depths that carry on relatively unaffected by the other.
What is meant by Wall Street? The investments and financial operations which support enterprises that employ more than 100 million Americans. It is also a favored storage location of wealth. The richest 10% of Americans invest in the stock market. When it goes up, their wealth increases.
Wall Street means the entire financial system. The stock exchanges, Treasury and corporate bond markets, banks, and shadow banking. The Fed too.
The figure above shows that in the US Wall Street is about 75% larger than Main Street’s GDP, yet considering the entire world the financial system is the same size as GDP. That’s worrisome.
Main Street is you and me and the workers. It is mainly concerned with bread-and-butter issues, like food today, housing next month, and family well-being. Working and worrying about affording a good life consumes Main Street’s attention. Wall Street is the bank for businesses that line Main Street.
Main Street has many economic components. Big employers, gov’ts (local, state, fed), Small Business, Mom-and-Pops, Construction, Agriculture. Start-Ups, Travel, Leisure, and Entertainment.
GDP is 70% consumer-driven spending, by Main Streeters.
The 2017 Income Tax Reduction reveals how respective tax rates reductions affect GDP and business activity, a primary concern of Main Street.
The lowering of the corporate tax rate resulted in a boost to corporate profits of $100B in the first year. Roughly 91% of that gain was kept by Wall Street in the form of stock buybacks and dividends. Only 9% was used to fund new plants and products that flowed to Main Street.
The lowering of the individual rates resulted in the residents of Main Street having more money to spend, which increased GDP modestly and improved employment.
The impact of new debt incurred by the legislation is ignored here. Not because it is unimportant to consider, but because it detracts from the Wall Street-Main Street focus.
Why Republican Tax Cut didn’t do more for GDP?