Lynne Kiesling
What’s a political economy-oriented economist to make of Occupy Wall Street? So far I’ve found two complementary commentaries that reflect my analysis of the deeply flawed policies of the past couple of decades that have enabled the crony corporatism that seems to be at the core of the protest (just in my phrasing it that way you can see what my model is). The first is summarized in this Venn diagram from James Sinclair, in his insightful post about the false dichotomy between Occupy Wall Street and the Tea Party:
His entire analysis is worth reading (and is consistent with this excellent investigative citizen journalism from the protest in New York, thanks to Nick Gillespie for the link), concluding with
In other words, aren’t these two groups—Occupy Wall Street and the Tea Party—raging against different halves of the same machine? Do I have to draw a Venn diagram here? …
Yeah, I’m oversimplifying, but only a little. The greatest threat to our economy is neither corporations nor the government. The greatest threat to our economy is both of them working together. There are currently two sizable coalitions of angry citizens that are almost on the same page about that, and they’re too busy insulting each other to notice.
Hitting a complementary note (and hitting the nail on the head, from my perspective) is Sheldon Richman at the Freeman, noting that Wall Street couldn’t have done it alone:
To: Occupy Wall Street:
Wall Street couldn’t have done it alone. It takes a government and/or its central bank, the Federal Reserve System, to:
- Create barriers to entry for the purpose of sheltering existing banks from competition and radical innovation, then regulate for the benefit of the privileged industry;
- Issue artificially cheap, economy-distorting credit in order to, among other things, give banks incentives to make shaky but profitable mortgage loans (and also to grease the war machine through deficit spending);
- Make it lucrative for banks – and their bonus-collecting executives — to bundle thousands of shaky mortgages into securities and other derivatives with the knowledge that government-sponsored enterprises Fannie Mae and Freddie Mac and other companies, all subject to powerful congressmen looking for campaign contributions, will buy them after a government-licensed rating cartel scores them AAA;
- Inflate an unsustainable housing bubble by the foregoing and other methods, enticing people to foolishly overinvest in real estate.
- Work closely with lending companies to establish a variety of programs designed to lure people with few resources or bad credit into buying houses they can’t afford;
- Attract workers to the home-construction bubble, setting them up for long-term unemployment when the bubble inevitably bursts;
- Implicitly guarantee big financial companies and/or their creditors that if they get into trouble they will be rescued;
- Compel the taxpayers to bail out those companies and/or creditors when the roof finally falls in.
No bank or group of banks could do these things on its own in a freed market. It takes a government-Wall Street partnership – the corporate state — to create such misery and exploitation.
So demonstrators, you are right. Something is dreadfully wrong. But your list of culprits is far from complete. So go ahead and protest outside Goldman Sachs and Bank of America. But also spend some time outside the White House, the Fed, the Treasury, and the Capitol Building. Together they are responsible for our current economic woes. These are the entities that control our fate and over which we have no real say. It’s time for things to change.
The freed market is the alternative to what you properly despise.
Yep, that about sums it up.
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The above analysis makes the unfounded, and on consideration ludicrous, suggestion, that any entity, or coterie of entities, could have planned our present disaster in full detail from two decades back.
Even greedy people aren’t that intelligent and far sighted.
xanthian.
Inflate an unsustainable housing bubble by the foregoing and other methods…
That says it all. The guys whose services were worth nothing, who lack the brains even to figure out getting the noon bus under way when the big hand and the little hand are both on the twelve, were all going to get rich (or at least highly affluent) by swapping houses periodically and at ever-increasing prices with others of the same ilk. Pretty soon they would all live off expanding notional wealth without troubling themselves to produce anything, or so went the theory.
This pleased the Democrats owing to their unshakable belief in something-for-nothing; we’re all to be “equal” every which way even when some of us refuse to contribute anything. And it pleased the Republicans every bit as much both on account of philosophical beliefs about regulation and as monumental self-justification on the part of the immensely-paid executives taking advantage of the situation. So it was a slam dunk – it pleased all the big players. And really (just look at Greece), how was any democracy (however imperfect) ever going to be capable of turning down such a luscious free lunch?
Too bad the demonstrators do nothing more than hanker after yet another free lunch.
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Re: Occupy Wall Street.
Could you expand on the barriers to entry for banks, especially those created by the
FRB? I don’t doubt their existence — I was just unaware of them. (Empirically, there must have been barriers to entry, because the number of new entrants in the US financial system are nil. But I don’t know that its b/c of the FRB.)
This seems to be the key point in the argument, and I’d like some support behind it.
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