November 20, 2011
The Occupy Wall Street Movement
The Occupy Wall Street Movement-Becker
Will the "Occupy" movement develop into a significant political force? I am doubtful: the movement is already losing supporters in most places where it has been active. Cold weather will accelerate the decline. The movement is losing ground not because the issues it raises are unimportant, but rather because the great majority of Americans and those in other countries with Occupy groups do not sympathize with most of the people doing the occupying.
We discussed the unemployment situation in the US last week, and reform of banks in several previous posts, so I concentrate my comments on the inequality issues raised by occupiers. American inequality in the distribution of incomes, and inequality in many other Western nations, has grown a lot since the late 1970s. This growth can be separated into the growth in earnings inequality across education and other skill classes, and the growth in income at the very top of the income distribution. I start with the inequality by skill since that is what most closely affects the vast majority of people.
Many of the Occupy Wall Street participants are college students- it is easy to miss classes at most colleges for a few days and even much longer- and other young persons who had gone to college. They have complained about the "high" unemployment of college-educated persons, and also about the burden of college loans. Yet the large increase in earnings inequality during past 30 years has mainly taken the form of a growth in the earnings of college graduates and that of others with high levels of skills relative to earnings of high school dropouts, high school graduates, and others with lower skills. Although unemployment grows for all education groups grow during recessions, it has not grown any faster during the Great Recession for college-educated persons than for persons without college, and is still much lower for the college educated. For example, in October of 2011 the unemployment rate for college graduates was under 5% compared to an unemployment rate of almost 14% for high school dropouts.
Nor are the complaints by occupiers about the burden of student loans much better founded for the great majority of graduates. The typical rate of return to a college graduate, especially those with post-graduate degrees, has risen greatly since the late 1970s, certainly high enough to support even sizable student loans with interest payments that are heavily subsidized by the federal government. The real ones with a gripe are high school dropouts who not only have high unemployment rates, but also low real earnings that may have fallen for dropouts during past 30 years, poorer health than others, bad marital prospects, and weak access to home ownership and other consumer luxuries.
The Occupy Movement and everyone else worried about earnings inequality should be emphasizing the need to find ways to encourage more high school dropouts and high school graduates to get the required background and study habits so that they can, and want to, continue on for a college education. A daunting task, but a necessary one in order to respond in an effective way to the anatomy of the large growth in earnings inequality.
The income share of the top 1% in the United States has declined a lot since the onset of the Great Recession, but it is still much higher than it was in the 1970s. Earnings are also an important component of these very high incomes, but these are earnings of top management and executives, including the top earners in banking, and in hedge funds and other managers of money, and including also the top earners in medicine, law, consulting, and some other fields. According to a November 2010 study by Bakija, Cole, and Heim (I am indebted to Steve Kaplan for referring me to this study), more than 60% of the persons in the top 1% of the income distribution in 2005 consisted of (non-finance) executives, managers, and supervisors, medical personnel, lawyers, and non-finance persons doing computing, math, or engineering.
Although, on the whole, I believe that most members of the top 1% provide useful services to society, I share the concern of "occupiers" and Tea Party members about many of the bailouts. The rich bankers and others who took large risks should have taken much larger haircuts. I have also supported from the beginning of the recession higher capital requirements for banks, especially for the large "too big to fail banks" that will be bailed out if they get into financial difficulties.
Nevertheless, the overall earnings inequality has far greater relevance for the vast majority of occupiers and Tea Party supporters than do the earnings of men and women at the very top of the financial sector. The most effective way for the US to reduce overall inequality that will help the largest number of young persons is by finding ways to bring American high school and college graduation rates up to the levels achieved by the other nations, such as South Korea and some European nations, that have replace the US as worldwide leaders in education achievements.
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).