The Occupy Wall Street protests continue to grow, and to gain support from public intellectuals. Joe Stiglitz, Anne Marie Slaughter, and Paul Krugman are the latest luminaries to praise the cause. The movement has also provoked derision. Let’s consider the latest Norquist/Limbaugh memes as the protest nears the one-month mark:
1) “They’re just spoiled hippies who can’t get a job.” A quick glance at the“We are the 99%” tumblr could easily dispel this notion. The economic suffering in this country is deep and broad. As one news story put it, “one in three Americans would be unable to make their mortgage or rent payment beyond one month if they lost their job.” Even if the most down-and-out people are too poor or busy to get to Wall Street (or the hundreds of other actions now taking place), many think of the OWS crowd as speaking for them.
There is so much needless suffering going on now, and so much wealth accumulating at the very top. It is hard to understand how critics dismiss the protesters so cavalierly. I used to find the Biblical passage about God hardening Pharaoh’s heart one of the more mysterious parts of the Book of Exodus; now I feel like I’m witnessing it firsthand.
2) “They should be in Washington, not Wall Street.” Never fear,OccupyKStreet is here. More seriously, this criticism misses the entire point of the protest. Wall Street and Washington have fused. Both politicians and the Fed given enormous subsidies to large Wall Street firms, while asking almost nothing in return. You can read the Larry Lessig’s Republic, Lost, or Kwak & Johnson’s Thirteen Bankers for all the gritty details. For now, let’s just say that entities that borrow at close to zero percent, lend at 4.5 to 20+%, and pay top managers billions in salary and bonuses, are not exactly Steve Jobs-level entrepreneurs. Rather, they’re part of a corrupt revolving door system that sends a favored group back and forth between government and business. We’d do better simply to pay off this shadow elite directly than to subsidize the trillion dollar schemes that maintain the illusion that our banking system is independent.
This is not a partisan critique. Like the OWS protesters, I have focused on the role of the Democratic party in covertly supporting a system that is openly applauded by establishment GOP figures. As Matt Stoller observes, “Rubinites still dominate Democratic policymaking — Larry Summers, Jason Furman, Treasury Secretary Timothy Geithner, Gene Sperling are all Rubin acolytes. Jack Lew, the current Office of Management and Budget director, is from Citigroup; Peter Orzag, the former OMB director, went to Citigroup. White House chief of staff Bill Daley is a JP Morgan man.”
Principled libertarians have also offered Hayekian critiques of the “Government Sachs” nexus. Russ Roberts at the Mercatus Institute has perceptively recognized the close ties between the US state and Wall Street. Amar Bhide has offered a brilliant Hayekian critique of the concentration of power in large financial institutions. From the opposite end of the political spectrum, Michael Hudson pithily observes that “economic planning has passed from government to the financial sector.” Individuals with a wide range of political commitments want to break up megabanks, or engage in more fundamental reform than contemplated in Dodd-Frank. OWS is protesting a form of corporatism that privatizes gains and socializes losses. Anyone who opposes welfare for the poorest should be passionately committed to a program that would cut off the richest from the trough of implicit and explicit subsidy that is at the core of our financial system.
3) “They’re breaking the law.” Were we back in the 1960s, I could perhaps understand how a claque of law-and-order Archie Bunkers could fulminate against the Yippies trying to levitate the Pentagon. If order is your highest social goal, the spontaneous transformation of a soulless, stone-covered city block in Lower Manhattan into a festive site of music and education may spark a frisson. But what’s different today is that the targets of the protest are so clearly lawbreakers themselves. In a 1993 article, economists Akerlof and Romer proposed that “an economic underground can come to life if firms have an incentive to go broke for profit at society’s expense (to loot) instead of to go for broke (to gamble on success).” They called this “bankruptcy for profit,” and its main features have a depressingly familiar ring.
As William K. Black explains in his theory of “control fraud,” the key to business success on Wall Street has been speculative ventures implicitly or explicitly backed by the government or the Fed. As Black has argued repeatedly, to make the scheme work, there must be some form of insurance——such as public deposit insurance or private policies——that promises to “make whole” those whose funds are lost in a speculative endeavor. Second, there must seem to be, on paper, some valuation that makes the entity’s investments seem worthwhile. Insurers are not stupid; they demand some evidence that the firm has an overall net worth sufficient to permit it to meet future obligations. These demands lead to the third element: a systematic subversion of the normal tools used to assess the stability and soundness of going concerns. Accountants and auditors are supposed to impose transparency on a firm’s accounts, but can easily be coopted into “aggressive” statements of positions. The looting leadership has a variety of mechanisms at its disposal. Accounting frauds can vastly overstate the value of current holdings. Opacity hides transfers of favors that justify contracts that are irrational on their face.
In a long series of posts, I have described the shady dealings—-the special purpose entities, the accounting fraud, the daisy chain of favors leading to CDO sales, the fake insurance (aka AIG-underwritten CDS’s), the epidemic of foreclosure fraud—-that generated countless Wall Street fortunes over the past decade. Wall Street’s winners are now trying to leverage those gains into permanent political victories, both to entrench the system of favors that helped them succeed and to cut the “entitlements” that generate rival claims to the public weal. OWS is trying to stop the illicit gains of the past decade from permanently deforming our economy.
As the protesters watch megabanks grab thousands of properties via foreclosures, often through processes that are utterly lawless, they think it equitable and just that they get to claim some small parcel of lower Manhattan as a center for their own deliberative processes. Giving them this space is the least that New York’s increasingly plutocratic and petulant Mayor Bloombergcan do.
4) “They should be thankful for what they have. Real poverty means living on $1 a day.” Rush Limbaugh recently praised a report by one of his advertisers, the Heritage Foundation, which details how good the US poor have it. A full 99% have refrigerators! But of course, selling that refrigerator would only buy about 8 days of food for most families.
The relative inequality point initially intrigued me. As Jared Diamond has noted, “The average rates at which people consume resources like oil and metals, and produce wastes like plastics and greenhouse gases, are about 32 times higher in North America, Western Europe, Japan and Australia than they are in the developing world.” But I no longer see a rational connection between the vast fortunes made by those at the top and a process of globalization that either balances consumption or creates rising living standards for all.
Yes, there are serious moral questions raised by global inequality that renders the average American better off than 90% of the population in poorer countries. As I noted earlier, a soi-disant Green Tory might advocate for more money circulating in the economy’s stratosphere: a luxury handbag costing $80,000 may have less of a carbon footprint than, say, 32 Tata Nanos.
But for anyone truly concerned about the environment, it would be far better to see the handbag consumption turned to sustainable energy investment, rather than continuing as a diversion of spending power away from the poor. Moreover, if domestic and international inequality continues at current levels, it will reinforce the US recession. Even for those who think the average US citizen is too rich anyway, the probable political consequences of perpetual stagnation are frightening. Money is being drained away from an ordinary economy into an economic stratosphere whose denizens appear increasingly out-of-touch with the workers who feed, defend, and otherwise serve them.
5) “They have no demands!” This is the most bizarre criticism of OWS as a social movement. As one organizer puts it, ‘We haven’t had a shortage of demands and solutions. We’ve had a shortage of mass movements.’ Moreover, it’s pretty predictable what will happen once demands get issued officially. If they’re too ambitious, the movement will be dismissed as socialism. If they’re moderate, it will be dismissed as stealth Obamaism, and the protesters will be condescendingly asked “why can’t you just participate in the political system as it is?”