This Chronicle of Higher Education piece on anarchism and its influence on the Occupy Wall Street protests is a pretty interesting read that gets at some of the complexities of a movement that’s obviously much more than spoiled rich kids upset that they don’t have the cash to upgrade to the new iPhone but obviously much less than a thoughtful criticism of systematic distortions in the banking system.
To emphasize a theme I wrote about on Friday, mere contempt for “Wall Street Greed” is ineffective and unhelpful. In this morning’s FEE “From the Archives” feature, Nicholas Snow suggests getting back to David Hume’s assumption that “all men are knaves” and focus our analysis on how institutions direct that knavery for good or ill. Nobel Laureate Joseph Stiglitz makes this important point about current institutions on which economists from across the ideological and intellectual spectrum can agree: “There’s a system where we’ve socialized losses and privatized gains. That’s not capitalism; that’s not a market economy. That’s a distorted economy.”
The comments on the Chronicle article are interesting. At least one comment plays right into the hands of the Occupiers’ critics: the comment’s author complains that her dreams as “an academic, poet, and scholar” are hampered by the student debt she incurred in graduate school. Student loan debt is the issue on which it is hardest to take the Occupiers seriously, and no doubt this is why the critics have seized on loan complaints as a reason to dismiss the movement as (again) a group temper-tantrum by spoiled kids who don’t realize how good they have it. There are a lot of college degrees out there that represent real investments in human capital. There are a lot of others that are great fun and very fulfilling, no doubt, but they are consumption goods. Most people will tell you that financing consumption with borrowed money isn’t a very good idea.
The Occupiers appear to lean left, for the most part. Let’s go back over the last couple of decades and think about the policies that have helped create the crisis (summarized in Thomas Sowell’s The Housing Boom and Bust) and Peter Wallison’s excellent Wall Street Journal article). As I wrote in Friday’s Forbes article, our current bind is an unintended consequence of yesteryear’s allegedly enlightened housing policies.
Suppose the banks had said “no, we can’t do this because these are unsustainable and unwise policies that will create serious problems down the road.” My guess is that Wall Street would have been occupied by many of the same people carrying “People Before Profits” signs. The great irony is that a lot of the current mess is due to a policy regime that encouraged financial institutions to put “people before profits” with an array of carrots (like a liquid market for what would become Troubled Assets provided by Fannie and Freddie and backed by an implicit government guarantee) and sticks (HUD pressure to pursue political goals). Sowell (pp. 40-41) discusses how activist groups were able to use their political connections to pressure banks into making loans they wouldn’t have otherwise made.
The problems in the housing market also illustrate the perils of focusing on the short run. Policies aimed at expanding home ownership looked like free lunches when in fact they were contributing to an unsustainable boom that has left a lot of the purported beneficiaries of the policies with ruined credit scores. I’ve seen a handful of comments in recent weeks talking about how this policy or that policy has “worked” even in spite of warnings from economists and other analysts. Triumphant proclamations focusing on the short run should be taken with a few grains of salt. As we saw with the housing market, today’s policy triumph could very well be tomorrow’s financial crisis.