Driving around downtown Salt Lake City yesterday, my mother and I inspected the scene at Pioneer Park, which is full of the tents of protestors in solidarity with those marching on Wall Street. As SLC is a relative backwater, and rarely sees protests of any kind lasting more than an afternoon, it seems that the Occupy Wall Street phenomenon has not only grown to a substantial size, but also appears to express a undercurrent among the middle class that something is fundamentally wrong with the country's political and economic system. Over a series of articles, I intend to find out and articulate if there is something to this, and what it is, exactly, that the protestors should be demanding.
While commentators often wrongly describe the protests as being about wealth redistribution or against corporations and people such as Steve Jobs and Bill Gates, the true complaint seems to be that money (and especially that from the financial sector) is now unduly influencing the workings of our political system. While this has always been true to some extent, it has now reached heights such that the financial sector can crash the economy and (through its political influence) come through unscathed. Not one significant Wall Street figure has faced jail time since the crash (despite the significant amount of fraud that went on), and the sector’s profits are back to what they were before the crisis, despite the fact that 16% percent of the country (~25m people, using U-6 measure) is un- or underemployed. What’s worse is that around 45% (~6m people, using the more restrictive U-3 measure) of the unemployed have currently been that way for more than 6 months, which is a desperate situation for any middle class family. This is another reason why it’s so idiotic to simply tell the protestors to get simply get a job.
So, to highlight some of what’s gone wrong in terms of Wall Street and its workings with the country’s economy and political system, I wanted to highlight an article, The Quiet Coup, from the Atlantic magazine in 2009. A former chief economist of the International Monetary Fund here runs down what went wrong and why the problems haven't been fixed:
[E]lite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.
Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.
But these various policies—lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits—such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside.
The financial industry has not always enjoyed such favored treatment. But for the past 25 years or so, finance has boomed, becoming ever more powerful. The boom began with the Reagan years, and it only gained strength with the deregulatory policies of the Clinton and George W. Bush administrations.
One of the other main complaints of the protestors has been the vast income disparities in America today (especially between those in finance and the rest of the country). The Atlantic article sees this as a natural result of the financial sector’s influence on Washington (see their figure above) and says:
Not surprisingly, Wall Street ran with these opportunities. From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.
The great wealth that the financial sector created and concentrated gave bankers enormous political weight—a weight not seen in the U.S. since the era of J.P. Morgan (the man).
While the people on Wall Street are mostly hard working, honest individuals (as are the people protesting), the deck appears to be stacked in favor of the big banks and the people that work for them. This is worth complaining about. Do read the whole article.
Re-enact Glass Steagall!
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