Occupy Wall Street-Posner



What is one to make of the “Occupy” movement? Is this the return of the turbulent 1960s? Is it the American version of the “Arab Spring”? Of of the French and English riots of recent years?

 

I think only three things are clear: first, human beings are imitative, and the success of the Arab riots that brought down several governments and have shaken others was bound to attract imitation in some form (a necessary qualification: the “Occupy” “occupations” have been minimally violent); second, the social media have reduced the cost of organizing collective activity by strangers; and third, a depression (which we have now been in for more than three years, since the financial crisis of September 2008) gives rise to street demonstrations. (Think of the “Bonus March” on Washington of 1932, broken up by U.S. soldiers under the direct command of General MacArthur, who at the time was the chief of staff ot the Army.)

 

The police I think made a tactical mistake in routing the “Occupiers” from Zuccotti Park near Wall Street. That is the lesson of the 1960s. Arrests, whacking demonstrators with billy clubs, dragging screaming women to paddy wagons, and other police just create anger, martyrdom complexes, and sympathy for the demonstrators. The Occupiers had made the mistake of—occupying urban spaces (in imitation of the Egyptians who occupied Tahrir Square in Cairo), rather than marching in them. The occupations attracted criminals, panhandlers, and lunatics, and created unattractive, unsanitary conditions. Self-destruction impended, which cold weather in most of the country would have accelerated, had not the arrests interrupted the natural process of decay. As a result there is an increased danger that the occupations will be replaced by a movement—how effective a one I do not know. (In January 1969, student radicals occupied the Administration building of the University of Chicago. The police were not summoned, and after two weeks the radicals abandoned the building; almost 100 were then expelled or suspended from the university. The university was largely spared the turmoil that continued for years at other major universities.)

 

The grievances of the “Occupiers” appear to be three: income inequality, lack of jobs, and the baleful influence of the banking industry (“Wall Street”), broadly defined to embrace pretty much the entire financial sector. The three grievances are related, and a skillful leader could make them coherent, as follows. Income inequality had been growing for many years, most rapidly at the top of the income distribution; between 1979 and 2007, the income of the top 1 percent had grown by 275 percent, and the average income by only 18 percent. The income of the top 1 percent has actually declined during the current depression, but the growth of unemployment and underemployment has highlighted the enormous disparity in wealth between top and bottom. Although unemployment is much lower among college graduates than among others, the unemployment rate of young college graduates has increased sharply during this depression, from 2 percent in 2007 to more than 7 percent today. This helps to explain the prominence of college students and young college graduates among the “occupiers” and their emphasis on unemployment and income inequality.

 

Income inequality at the top of the income distribution has been further highlighted by the enormous publicity concerning the extraordinary incomes that continue to be obtained by financial executives despite their role in the current economic distress. Their incomes do appear to be excessive, in the following senses. These incomes are generated to a significant extent by speculation, which has social value in increasing the amount of information about asset values and the speed with which that information is generated, but these social values are smaller than the profits of successful speculators, since those profits consist primarily of gains, often produced by sheer chance, at the expense of the people or firms with whom they are trading. Speculation is not a zero-sum game, because valuable information is generated, but the value is smaller than the gains of the successful speculators. In the case of nonfinancial products and services, the producer is typically unable to capture anywhere near the full value that he creates. Bill Gates is believed to be the wealthiest person in the world, but the business model that he invented, and its implementation by Microsoft under his leadership, have created far more value that he and the other leaders of Microsoft have appropriated.

 

And without government assistance, whereas the incomes of financial executives have been bolstered by the efforts of the government to keep banks from failing.

 

Banking moreover has never been popular. The main reason I think is that banking is one of the few industries that simply refuse to sell to many of their most willing, even desperately willing, customers. For what they are “selling” is loans, and mainline banks won’t lend to people who have poor credit, leaving them to deal with the payday lenders, the car title lenders, and the pawn shops.

 

Because many financial executives have very large incomes, and because banks have huge financial resources, the banking industry has enormous influence on legislation and regulation. In the regime of deregulation and lax regulation of the financial sector that began at the end of the Carter Administration and accelerated in subsequent Administrations (notably Clinton’s and the second Bush’s), bankers were enabled to engage in a variety of risky and sharp practices—and competition forced them to do so. Banks depend mainly on short-term capital, both financial and human, and firms that depend on short-term capital are constrained to compete to the fullests extent allowed by the law and regulatory authorites, or else they lose their capital to their bolder competitors. Competition in such an industry is Darwinian.

 

Railing against income inequality, job loss, and banking abuses is thus understandable, but it doesn’t do any good. The “Occupiers” are anarchic and disruptive, and the solid middle of American society, which rejects the Tea Party because of its goofy ideas, is likely to reject the Occupy movement because of its style, while broadly sympathetic to its antipathies. But if the movement attracts charismatic leaders amidst a stagnant or worsening economy, it may become a force in American politics. Already Kalle Lasn and Micah White, who appear to be the nearest thing the movement has to leaders, have published an articulate manifesto, “Why Occupy Wall Street Will Keep Up the Fight,” www.washingtonpost.com/opinions/why-occupy-wall-street-will-keep-up-the-fight/2011/11/17/gIQAn5RJZN_story.html?hpid=z2 (visited Nov. 20, 2011), which reminds me of Tom Hayden’s 1962 “Port Huron Statement of the Students for a Democratic Society,” www.h-net.org/~hst306/documents/huron.html (visited Nov. 20, 2011).

Comments

[Andrew]

Obviously as you remove regulations from an industry, it will start to engage in behaviors the regulations prohibited... if it is profitable!

This is the essence of free market capitalism! a good thing UNLESS government steps in to distort things.

Posner misses the key idea that, these types of behaviors are NOT risky for the banks at all. These de-regulated investments might be risky in the sense that they will fail, but for the bank either a) they don't fail, and the bank profits or b) they fail and the government (of FDIC) bails them out! See? no risk.

Competition in any capitalist industry is Darwinian: those that see to profit, profit. If a bank makes too many risky investments, the bank should not be bailed out but should go bankrupt. Select banks that make wise investments. Banks that fail to do so, simply die.

[Thomas Rekdal]

Judge Posner's post is excellent. One can only hope that those itching to resort to the "law and order" rhetoric of the 1960s will pay attention.

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[RPLong]

This is the best article I've ever read on this blog. It's both objective and critical. And, in my opinion, spot on.

[anonymous]

Most of those protesting actually seem to have a fourth, overarching concern - systemic corruption in government and large business. Few have a problem with wealth, or free markets, or corporate success. Rather, you are seeing young and old, veterans and peaceniks, and commentators of the right and left come together to protest the *lack* of free markets and even-handed regulation.

This aspect of the Occupy movement, along with widespread non-violence even in the face of provocation, is unique compared to sixties radicals, anarchists, or typical leftist protest groups.

Widespread demand for honesty in government and business dealings shouldn't be controversial. It is disappointing that it has become necessary, but heartening that so many Americans still believe in these core American values.

[Mike Hunter]

A very good, and objective analysis from Posner! I didn't see that one coming. IMHO his commentary was spot on.

[NEH]

"OWS" Reminescent of the Bonus Army"? Of Course, hopefully the powers that be, won't resort to calling out the Army to clear the streets by the use of poison gas, tanks (Tianamen square revisited?) and the point of the bayonet. Not too mention, the founding of Hoovervilles all across the Country. We can even go further back to 1781 when Pennsylavanian Continental Veterans marched on Philly for their bonus's during tight economic times and so frightened Congress that they ran away to Princeton. Ad-hocracy is an American Tradition.

To quote the book of Isaiah, "Its a voice thats crying in the Wilderness" which gave rise to a new Messiah and the rise of one of the great Religions of the World. Are we witness to the rise a new equitable economic structure that finally gets the money lenders under control? I doubt it...

[Jack]

After stumbling a bit with "humans being imitative" as reason number one for the Occupy movement Posner mostly "gets it".

"The three grievances are related, and a skillful leader could make them coherent, as follows."

............ Yes, and despite sloppy reportage focusing on anti-social activities, I think this is and will continue to take place.

"Income inequality had been growing for many years, most rapidly at the top of the income distribution; between 1979 and 2007, the income of the top 1 percent had grown by 275 percent, and the average income by only 18 percent."

......... Let's add the fact of the Average being hauled up by the enormous gains of the top 1%, 275% plus for the once percenters with actual losses of purchasing power in the lowest tiers with more sliding below and enduring the hardships of falling below the poverty line. Median income, by definition of more interest to the most, rose but 10% during the 30 years; a piddly "trickle down" of less than 1/2 of one percent a year.

"The income of the top 1 percent has actually declined during the current depression, but the growth of unemployment and underemployment has highlighted the enormous disparity in wealth between top and bottom."

......... Perhaps the best news of declines for the top 1% may be as understood? by the millionaires march on the halls of Congress that when the Titanic goes down, it's not long after steerage disappears below the waves that it gets wet up on the boat deck as well. Some will recall the effect during the last depression. One pizza chain owner commented on having learned the tax rate wasn't all important if customers weren't coming. Indeed.

Although unemployment is much lower among college graduates than among others, the unemployment rate of young college graduates has increased sharply during this depression, from 2 percent in 2007 to more than 7 percent today. This helps to explain the prominence of college students and young college graduates among the “occupiers” and their emphasis on unemployment and income inequality.

.......... Well, perhaps we should flesh this out with 17%? for the more numerous non-college youth and 28% for those of darker skin tones. Much of what explains the prominence of college grads or students is the same as during the Viet era protests, that absent union or other leadership the "blue collars" are A. trying to scrap out a living, and B. less knowledgeable and confident that they can influence a government that has served them poorly for decades.

Income inequality at the top of the income distribution has been further highlighted by the enormous publicity concerning the extraordinary incomes that continue to be obtained by financial executives despite their role in the current economic distress. Their incomes do appear to be excessive, in the following senses. These incomes are generated to a significant extent by speculation, which has social value in increasing the amount of information about asset values and the speed with which that information is generated, but these social values are smaller than the profits of successful speculators, since those profits consist primarily of gains, often produced by sheer chance, at the expense of the people or firms with whom they are trading. Speculation is not a zero-sum game, because valuable information is generated, but the value is smaller than the gains of the successful speculators.

.......... Well Posner, from the bench, is poorly positioned to deem it utter corruption from top to bottom. He explains well how Investing and Speculation are SUPPOSED to work...... but doesn't cover the embezzlement of gambling irresponsibly with the company's assets and locking in personal gains while creating a nation tanking bubble and leaving behind the bankrupted husks of companies a century in building. FAR too few have been hauled up on charges and imprisoned. A gridlocked Congress, still feeding on "financial sector" campaign donations, has yet to mend the fences sufficiently to prevent another raid.

"In the case of nonfinancial products and services, the producer is typically unable to capture anywhere near the full value that he creates. Bill Gates is believed to be the wealthiest person in the world, but the business model that he invented, and its implementation by Microsoft under his leadership, have created far more value that he and the other leaders of Microsoft have appropriated."

......... the same is true for those spending their lives helping to double per capita incomes but sharing in little or no benefits of the gains. True, that some of the productivity gains are reflected in cheaper technology such as that of new autos and electronics, however if one can't afford new cars, what they often get is a used car with so many faltering, costly electronics that the things aren't economic to repair. Surely we can agree that it's rare that any employee is added to the payroll w/o the expectation of profiting from the labors of the employee.

Gates doesn't get off scot free either. He purloined his early OS from government code back in the days before software was patented or copyrighted and did his haevyhanded unlevel best to freeze out competition as the designers of internet browsers that preceded IExplorer, and many at the antitrust division of Justice well know.

" On May 18, 1998, the DOJ and twenty state attorneys general filed an antitrust suit against Microsoft, charging the company with abusing its market power to thwart competition, including Netscape. On November 5, 1999, Judge Thomas Penfield Jackson issued his initial findings of fact, finding that Microsoft held monopoly power and used it to harm consumers, rivals, and other companies.
The sensational United States v. Microsoft case hit Gates with a double whammy.

Besides losing the case (the judge ruled that Microsoft had committed monopolization and tying, blocking competition, in violation of the Sherman Antitrust Ac), Gates’ courtroom behavior (recorded in a series of Videos) badly eroded his already sagging public image.

.......... It seems fortunate for Gates that, apparently the Bush admin sent the entire Anti-trust Division on an eight year vacation.
BTW one other case MSFT lost involved claims of the "temps" many of whom were at MSFT in excess of 5 years, to have the employment benefits of the permanent employees. With MSFT ginning up over $350,000 per employee it does seem a bit disgusting to avoid the costs of employee benefits by keeping many on as "temps".

Posner ends with the Occupy movement "not doing any good". Ha! Though it may seem that the specter of the unwashed barbarians at the gates, undercuts the message of the movement, I'd say it has already been a factor if only in bringing together those disgusted with the ALL FOR THE RICH trend that our once fine nation has pursued these last three decades. My guess is that the message will become better focused and play a major role in the coming elections as did the protester of the Viet era were a major reason for Congress finally gaining enough spine to end the all too long fiasco.

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[crusher]

Widespread demand for honesty in government and business dealings shouldn't be controversial. It is disappointing that it has become necessary, but heartening that so many Americans still believe in these core American values.

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[Gordon Removals]

Well, I am glad there is such act of democracy, the process but I am not sure if the government will do anything for their requests but let's hope some change is done in the near future!

[Miami Personal Injury Lawyer]

I just dont like the fact that people are going to OWS for personal reasons. Yet the students in these schools have a reason to protest. How are you going to charge a young adult thats trying to start their life with them basically going into bankruptcy and it only keeps getting worse.

[Phil Terry]

Two points. One, you cannot take the college protest movement in the 1960's as it was handled at the University of Chicago and extrapolate from that one example on how protests should be handled. Ask the administrators at University of California - Berkley and the University of Wisconsin who took a "hands off". They paid for dearly. It took the California National Guard under Governor Reagan to restore order at Berkley. Wisconsin had buildings that were blown up because of the soft approach by the administration.

Two, since when are the ideas of (1) a constitutionally limited government (2)being fiscally responsible by living within our means, and (3) using free markets solutions to solve are problems rather than the Government goofy ideas. The majority of Americans line up behind these ideas.

[Thomas Rekdal]

Mr. Terry: Like you I would not be inclined to dismiss the objectives of the Tea Party as simply "goofy," but I do think that Posner is right about the imprudence of resorting to legal repression in dealing with political protest. It more often energizes than suppresses. And the 1960s are a good example (leaving aside arguments about particular cases). The civil rights movement, the anti-war movement, the student movement, the women's movement, the pro-choice movement, the ethnic studies movement, etc., etc., all got much of what they were after, while their opponents got--well, they got Richard Nixon. Whoop-de-doo.

[TANSTAAFL]

Rekdal argues that "the civil rights movement, the anti-war movement, the student movement, the women's movement, the pro-choice movement, the ethnic studies movement, etc., etc., all got much of what they were after." He's got to be making this up.

Apart from a small few who got academic tenure, only to spend the last 40 years publishing articles that no one reads, or other small scale notoriety, anyone who survived their youth in the 1960s recalls that time as a distraction and setback to maturation. It is not a parallel to encourage the OWS crowd to think about.

[Jack]

Tans! That explains it! You kinda missed the 60's and mebbe the 70's too? To be sure the "60's movement" including a lot more than the civil rights and the anti-Vietnam movement. As the wave of baby boomers have moved through time they've influenced nearly everything... and Ha! as they approach "retirement" with many having been wiped out or ill-prepared to begin with I expect they'll influence Medicare, Medicaid, SS and all as well.

Also, it looks as though the, perhaps premature, Ban The Bomb movement that emerged as the Boomers became the first generation that could see themselves being wiped out in an instant if the, often foolish, national leaders got purposefully or accidentally crosswise and lit off the oversized and increasingly costly arsenal, is making a resurgence, both in the T-shirts and jewelry of folks of all ages but in the political sphere as well.

The Ban may have been premature in the 50's as we might not have been able to detect a sneaky build-up, but today with the combo of satellites, inspectors, and even the internet where once the silly and useless things were banned along with all the means of mfg and delivery, those valuing civilization over bombs, as did Einstein, could rat out those attempting to cheat.

Have you noticed how many RETIRED Generals and officers agree with a "build down" to zero? With neither of us in active service and not running for office, can you imagine a scenario in the modern world where the response to a lone nuclear attack on a city would justify a response of hurling another one? say, should the unwelcome dictator of NK get one off on a Japanese or other city within reach of his crude missiles, would that be justification for the killing of several million impoverished NK peasants and rendering uninhabitable a fair chunk of their small nation? When we have the far better option of slipping a few hundred smart bombs into their military facilities and perhaps the palace of their oppressive dictator?

As for encouraging the OWS movement I doubt, as in the 60's, that they need or want advice from those complacently enjoying the status quo.

[Tablet PC]

quite objective analysis...very good

[Back Taxes]

It seems they just wont go away. How long do they honestly think they can last? There just is not enough support for this to really have an impact on anything.

[chenshunan]

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[Jack]

Back... Occupy appears to be polling quite a bit higher than Congress.

http://www.gallup.com/poll/150164/Americans-Uncertain-Occupy-Wall-Street-Goals.aspx

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How long do they honestly think they can last?

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The Ban may have been premature in the 50's as we might not have been able to detect a sneaky build-up, but today with the combo of satellites, inspectors, and even the internet where once the silly and useless things were banned along with all the means of mfg and delivery, those valuing civilization over bombs, as did Einstein, could rat out those attempting to cheat.

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It is disappointing that it has become necessary, but heartening that so many Americans still believe in these core American values.

[Beats Headphones]

It is not a parallel to encourage the OWS crowd to think about.