The New Protests Against Wall Street: Why They Should Be Taken Seriously, and What Could Come Next if They Are Not

The last few weeks have seen the emergence of an important political movement in America.  The so-called “Occupy Wall Street” protests have now spread beyond lower Manhattan, to Washington, D.C., and other major cities.  Because this movement arose so quickly, and without warning, political commentators have been struggling to understand what is happening.  Are these protests a harbinger of something bigger, or merely a passing fancy?  In short:  Do they matter?

The two easiest responses to the protests are as follows:  First, one might dismiss them as ill-focused and poorly organized, and second, one might liken them to the emergence of the Tea Party movement.

When covering any grassroots movement, it is very easy to find people in a crowd who seem not to know that they are talking about.  If those people are also poorly dressed, and if they are young, it is even easier to dismiss them as muddle-headed and irrelevant.

Some commentators have pointed out, however, that the initial stages of the Tea Party movement also involved a lot of silly-looking people saying things that seemed to make little or no sense.  Therefore, a new narrative has emerged in which the “Occupy Wall Street” protesters are “the Tea Party of the left.”

Because people on the left have always been skeptical of the authenticity and honesty of the Tea Party movement (and, especially, of its well-funded backers), this narrative puts liberals in a difficult position: They must choose between apparent hypocrisy—embracing one group of supposed fringe lunatics that is, other than its liberal beliefs, indistinguishable from their ideologically opposite group of fringe lunatics—and missing out on the chance to build upon a spontaneous popular uprising.

For all of the discussion about how to describe the new protests, however, the substance of the protesters’ complaints has received comparatively little attention.  In this column, I will describe the basic policy arguments that have been put forth in the “Occupy Wall Street” protests, and explain why those policies are anything but radical.

In addition, I will explain why we should all hope that the protesters’ complaints are taken seriously:  This might be our last chance to deal constructively with the cancer of inequality that is destroying our national and global body politic.

What Do the Protesters Want?  An End to Government for the Privileged

Protests on the political left in the United States have long been characterized by disorganization and incoherence.  A Saturday Night Live sketch in 2003 portrayed protesters who were decrying the invasion of Iraq as a frustrating amalgam of confused dunderheads, the most memorable of whom were two white college kids with dreadlocks shouting: “Legalize hemp!”  The sketch hit home for a reason: With large, organic movements, a lack of focus is inevitable.

Moreover, this current group of protesters is almost insistently leaderless and open-ended.  Even with the addition of labor organizers and others who could bring greater coherence to the “Occupy Wall Street” protests, there is still no statement of principles, nor any grand platform, as might be expected from other protest groups.  To a large degree, however, this may be a good thing, in that it prevents the protests from becoming just another lobbying group with an office on K Street.

Even so, it is possible to distill a larger message from the protests.  As the Pulitzer Prize-winning business journalist David Cay Johnston summarized it recently in a blog post, the protesters “unite around a common theme: bankers are ripping off America. Two secondary themes also emerge in talking to some of the hundreds of people occupying Zuccotti Park. One is that the super rich own the politicians. The other is that the news media, almost across the board, view events through the eyes of the rich.”

In short, this is a group of people who view the wrenching economic catastrophe through which we are all living as a manifestation of inequality.  Unequal economic power, they correctly believe, leads to unequal political power, accompanied by unequal access to media power.  And all of those forms of inequality then feed on each other, to the detriment of “the other 99%.”

The Scourge of Inequality and the Demise of the American Dream

Every aspect of that critique, of course, has already been developed in academic and policy writing as the Great Recession and its aftermath have unfolded.  Documentaries, such as the Academy Award-winning “Inside Job,” have made the case that the financial sector was uniquely responsible for the economic crisis, and that the people most responsible have not been held to account.

Certainly, the elimination of key financial market regulations preceded—and almost certainly caused—the emergence of financial bubbles that ended up destroying many, many lives.

As a matter of economic analysis, moreover, it is not at all difficult to show that extreme concentrations of wealth are not just damaging to the have-nots, but also devastating to the long-term health of the economy.  For example, a recent report from the International Monetary Fund—hardly a hotbed of leftist populism—confirmed that greater degrees of inequality lead to slower economic growth rates.

The reasons for the correlation between inequality and economic damage are easy to understand.  The mythology of the American automobile industry tells us that Henry Ford figured out that he could not sell cars to people who could not afford them, leading him to pay his workers enough to move them into the middle class.  And the engine of first-world growth in the mid-Twentieth Century was the emergence of that very middle class.

Subsequent generations of capitalists, however, became ever less willing to do what was necessary to protect the long-term connection between a thriving middle class and prosperity for all.  In some ways, of course, this is not surprising.  Short-term sacrifice is never easy, even when the long-term payoffs are clear.  (Just ask anyone who is trying to lose weight.)  As the years went by, therefore, financial leaders in the United States and elsewhere became less and less willing to give anything up to aid their workers—seeing the long-term benefits of doing so as either too uncertain or too diffuse to contribute reliably to their bottom lines.

The Political Coddling of the Upper Class

As a result of such strategic decisions over the years, the financial sector grew larger and more powerful than the world had ever seen.  When the system nearly collapsed in 2008, we were faced with a moment in which governments in the U.S. and Europe could have called a halt to the madness, reinstituted the necessary regulations to govern a sane financial system, and allowed the political system to be driven by the wishes of the vast majority of the people.

Naturally, the people with the most to lose from such a change responded quickly to emerging threats to their comfortable positions.  To give one small example, in early 2009 I wrote a column on a CNN website that endorsed proposals that had been floated in the U.S. and the U.K. to tax the bonuses of Wall Street executives.  Within minutes of the column’s posting, I began receiving angry emails from men who work on Wall Street.

While those responses were surely not part of a coordinated strategy, the larger political debate was very much dominated by the financial sector’s lobbying efforts.  We quickly learned just how much influence financial interests exercise over both Democrats and Republicans, when both political parties rushed to make sure that the economic collapse would not do anything to upset the established ways of doing business.

Even the Dodd-Frank law, which was passed in 2010 after months of wrangling, was never the game-changing financial re-regulatory plan that we needed.  Despite its critics’ claims, Dodd-Frank was a minimalist bill that left most of the important rule-making in the hands of lobbyists, working under cover of darkness.

The bill’s sponsors never seriously considered, for example, re-establishing the basic divide between commercial and investment banking that had served the country so well since the 1930s—a divide that was eliminated by a Republican Congress and an enthusiastically deregulatory Democratic President in 1999.  Yet returning to a sensible and time-tested approach would hardly have been a radical move.  In this case, it was hewing to the new status quo that was radical.

Wall Street’s Unique Debt to the Government

The political game in the United States, therefore, is exactly as the protesters describe it.  Wall Street paid to have the rules changed in its favor, which destroyed the economy.  The corporate-owned news media repeated the talking points of the financial industry.  And the people who most benefited (and who continue to benefit) from the rigged system have not suffered:  They reaped the benefits, but never paid the costs.

All of this is even more egregious in light of the ultimate source of the wealth that the people on Wall Street enjoy.  Every business in America, of course, benefits from the existence of a healthy legal system—and thus a healthy government.  The rule of law is one of the most basic requirements of a thriving business sector.  For example, if a person decides to sell bread, she must rely on the government to enforce contracts, to provide roads on which her trucks can drive to deliver her goods, and so on.

In the financial sector, however, the connection between government and profits is even more direct.  The “products” that are being traded in financial markets are not loaves of bread, nor steel ingots, but entirely notional products denominated in the national currency.  Being able to trade in those goods is possible only because the government creates and regulates those markets.

For financial markets to work, the government must ultimately stand behind the electronic transfers that generate such great wealth.  Without such guarantees, history has shown again and again that the forces of competition will surely lead to excesses, and that those excesses will quickly—unless contained by emergency government action—destroy the economy.  The regulations that are needed to make all of this work also make possible the profits that Wall Street has used to control the government and the media.

In this sense, the greater crime of the Wall Street culture has been that the government has issued virtual “licenses to print money” to private financiers, and those financiers have then turned around and used their gains to take more and more from everyone else.  It is not just that the amounts of money are large, but that they would not be possible without the stable government that our society has taken for granted.

The Larger Danger:  The Political Establishment Ignores the Protests, Hastening a Larger Confrontation

The stability of government, however, might no longer be something that we can take for granted.  As I noted above, the content of the protesters’ concerns is anything but radical—so far. (Indeed, some “Occupy Wall Street” protesters are calling for Obama’s re-election, though there is no question that as a candidate, Obama took scads of money from Wall Street, just as McCain did.)  At this point, the protesters are simply saying that the system is rigged against all but the super-rich, and they are calling for moderate policies that might return us to the kind of distribution of income that we have seen in our recent past—and that not coincidentally coincided with widespread prosperity.  But the message may change, if the protests continue.

Thus far, unlike the Tea Party protesters, the “Occupy Wall Street” protesters are not articulating a view of government (or a level of rage) that is in any way inconsistent with modern, mixed capitalist governance.  Rather than saying that the government should stop carrying out functions that it has carried out for decades or centuries, the new protesters are simply asking for a slight rebalancing of a very unbalanced system.

If the political system cannot respond to this moderate set of demands, what might happen next?  One possibility, of course, is that the protesters will get bored and go home (if they have homes to go to).  The political system could then return to its self-destructive preoccupation with deficit reduction and tax cuts.

Yet there is a larger danger.  As I discussed in a column last year, the political fallout of a deep and extended economic crisis can be quite severe.  When grievances are unaddressed, the resulting anger can come out in very harmful ways.  In extreme cases, governments can fall, to be replaced by repressive, unrepresentative regimes.

Even short of all-out revolution, however, the consequences of inaction today could be severe.  We are already seeing among the “Occupy Wall Street” protesters some extremist agendas that would be truly destructive of the world’s prospects.  Watching a march in Washington last week, for example, I noticed that some people at the back of the crowd were holding “Abolish the Fed” posters.

This merging of extreme right- and left-wing ideology is understandable, in that there is a very real reason to be upset about some of the Fed’s actions during the financial crisis and its aftermath.  Taking seriously the radical ideas that we should abolish the Fed, and should never bail out the financial system again, would, however, be insanity.  The political system’s inability to resolve the financial crisis in a way that approximated “just desserts,” in other words, has given traction to people (many of them Republicans currently serving in Congress) whose own proposals would, if enacted into law, do great harm to the economy.

The “Occupy Wall Street” protests, by contrast, present an opportunity for our politicians to adopt sensible, measured, moderate responses to the growth of income and wealth inequality in this country.  If they do not do so, we could soon face the prospect of much larger, dangerous changes that we cannot control.