Today, some of the leading capitalists in the nation are located on Wall Street. Sadly, it is the protesters outside who are literally on the street who embody the ideal rewards and responsibilities of capitalism, not the financiers who occupy the buildings.
This is the first in a s series of articles that explores the nature of a well-functioning capitalist system and how this system is now applied to the occupants of the buildings on Wall Street and those who are, quite literally, on The Street.
Capitalism is not an abstract ideal. It is as real as any market or currency. And it is the organizing principle that has, for over two centuries, powered the strength and resilience of America.
As we think about capitalism, it's also useful to make an important distinction: It's not what you say, it's what you do. You may espouse capitalist ideals, but if you oppose responsibility, dishonor contracts, oppose competition, and embrace government subsidies, you are not a practicing capitalist.
For capitalism to work, there are several fundamental requirements: accountability, equal justice under the law, a clearly articulated purpose (and accompanying cost) for government subsidies of a specialized class of citizens, competition, and a relationship between the creation of profits and the creation of real wealth for the larger society.
Many of the protestors in New York City and around the country are jobless college graduates. The majority in all likelihood financed their education through federally subsidized student loans. A central characteristic of today's generation of student loans is that, unlike most debts, they cannot automatically be discharged in bankruptcy. As a consequence, they are one of the few expenses in our society for which an individual is likely to be accountable throughout his life. As a nation, we teach our most promising youth, from the age of 18 on, the importance of accountability. We use the federal government to subsidize an investment in human capital. In return, the beneficiaries enter into a lifetime of responsibility and accountability. It is a sacred contract. It is arguably one of the best, and potentially harshest, lessons of accountability associated with capitalism in our society today.
Now, let's contrast this high accountability with the behavior that occurred in our financial sector. When our largest financial firms created havoc in the U.S. economy through undisputed greed, mismanagement, and extreme risk, some important things happened. First, the government bailed the companies out without demanding any substantial change in behavior, and then the individuals responsible were not held accountable through civil or criminal law. As a result, the people who brought the nation close to the brink of economic collapse and caused untold pain and suffering -- which continues to this day -- returned after a brief hiatus to record levels of compensation. Individuals who earned tens of millions of dollars continue to earn these extraordinary sums. They have never been called to account for their deeds.
Can this be right? What about the many civil settlements negotiated by the federal government and the SEC? I would argue that, in light of the extraordinary profits these firms and individuals generate, such settlements are now viewed as a "cost of doing business." They appear to have almost no impact on the behavior or attitude of the nation's financiers.
Now let's contrast the kids on the street with the employees of The Street. The kids are accountable for their debts. They know it, and they simply want jobs so they can fulfill their civic responsibilities. In contrast, the occupants of the building on Wall Street act as if the rules of accountability -- which are central to a viable system of capitalism -- apply to everyone except them. Instead, many of the Wall Street elite have developed a dangerous sense of entitlement.
I would argue that in a true, competitive capitalist society, the idea of entitlement is anathema to all participants. It suggests that rewards are disbursed because of who people are, as opposed to the tangible wealth they create for the nation.
It's worth noting that old timers on Wall Street may still remember that until 1970 the New York Stock exchange mandated that investment banks be organized as some of the most accountable businesses in existence. Prior to going public, in the late 20th century Wall Street firms were organized as old-fashioned partnerships. The central idea of these partnerships was that every partner was fully liable for all of the debts incurred by the firm. If the partnership could not meet its obligations, the partners were required to meet these obligations with their own funds until they were personally bankrupt as well. It was a self-policing system that provided high incentives for investment banks to manage the risks they undertook. When every partner is liable, each has the highest possible incentive to ensure that the firm is not exposed to potential default. If they fail in this responsibility, both the firm and the individual partners can be wiped out. This rule was meant to avoid precisely what happened in the financial crisis.
Now these same publicly held financial institutions have been bailed out by the government and the high-paid executives are apparently immune -- both with respect to their pay, their sources of employment, and their personal funds -- from any day of reckoning.
The philosopher John Rawls is widely recognized for his theories of justice. In one exercise, his "veil of ignorance," he suggests that if you are faced with a decision you should pretend you don't know what kind of participant in the process you will be, so that "everyone is impartially situated as equals." Since you are blind to your own interests, you are likely to develop the fairest answer. (I have found this to be the perfect exercise for sharing desserts. I cut the cake and then let each individual choose a piece. Since I don't know what piece I will end up with, my cutting is far more likely to divide the pieces equally.)
Now let's apply a variant of Rawls's ideas to the situation on Wall Street today. You are a visitor from a foreign country or an alien world with no knowledge of Wall Street or capitalism. Then the principles of capitalism are explained to you and you are asked to identify the capitalists in this confrontation: the people in the buildings or the people congregating on the street. Which would you choose?
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I would like to imagine that the violence and vandalism there was initiated by fringe members of OWS, most of whose participants express adherence to non-violence. I can also imagine OWS being infiltrated by provocateurs intent on discrediting OWS.
But I fear the biggest problem is that most OWS participants regardless of preferred tactics, do see capitalism as the enemy, and are of an anti-capitalist bent.
From my perspective, and I assume yours, people are confusing capitalism with the abuse of capitalism. This is tragic, and will not help OWS if such perceptions dominate their efforts.
Positioning OWS as a movement to restore capitalism is the only politically viable and potentially effective approach. Because while capitalism as it has been corruptly practiced over the last thirty years has disenfranchised too many people, it still more or less works acceptably for the majority of people, even in its corrupted form.
OWS will not gain the support of that majority, which it needs to be successful, unless it is seen as an agent of reform, and not of some amorphous revolution or war against capitalism.
I wish I knew how to communicate this effectively to as many people who need to understand it. Your series is a great start. But the ideas need far wider distribution and understanding.
We're in deep trouble.
Bruce Judson's Restoring Capitalism series of articles may be the most important set of articles to appear on Huffington Post, or anywhere else, since 2008.
This series should be read by every participant and supporter of OWS.
This series should be the essential manifesto, and "Restoring Capitalism" should be the rallying cry of OWS.
Judson defines no more and no less than what this fight is all about.
Please folks. Read and reread, and share this series as broadly as possible.
What is most important about understanding that the fight is about restoring capitalism, and saying so, is that this goes a long way to preventing the enemies of OWS from distorting the message and misrepresenting OWS.
Marching under the banner of "Restoring Capitalism" is the right, and smart, political strategy. It is the winning strategy.
Mr. Judson wrote, "Capitalism is not an abstract ideal. ..." On the other hand, one might see capitalism as a tool. A visitor from a foreign country or an alien world might identify our preoccupation with capitalism & mistake it for religiosity or idolatry. In matters relating to 'capitalism' – one apparently cannot have any criticism & if that is not the definition of a 'sacred cow', then I ask you, What is?
Humanity is a tool making & tool using species. Tools can be used not for their intended purposes or misused. Sadly, the tools are sometimes destroyed in the process. In any event, a tool is created & meant to be used by the people, & not the other way around.
For a simple example, look at how 'futures contract tool' has metastasized from a functioning tool used by farmers to 'grow' the economy into a dysfunctional tool used by speculators in the global economic casino game to destroy the economy. I don't know what metaphor to use? An economy built on sand? Made of cards? Falling dominoes? However you see it.
Humanity is sacred. As Einstein said, "Remember your humanity."
Until you find work in the financial sector or in politics.
History will repeat itself again, for the fools who cannot learn from it.
The excessively paid CEO's, CCO's, CIO's and Boards of Directors practice self-serving cronyism and corruption and racketeering in order to maintain their positions of power and wealth.
We must free our economy from their greedy clutches, even if we must pry it from their cold hands.
We need to take back America now!
http://www.flixya.com/blog/3201910/Beautiful-Butterflys
It's sad that it gets relegated to the trash heap in favor of salacious tidbits about Congressmen soliciting for male prostitutes, or Obama-bashing.
We have to return to investing in the production of products here in the U.S:
http://www.flixya.com/blog/3201910/Beautiful-Butterflys
1) Independent verification that the Federal Reserve, Department of the Treasury, Office of the Comptroller of Currency (OCC), FDIC, FHFA, FTC, NCUA, SEC and CFTC are ethical, effective and efficient banking and market regulators.
2) A public record system that discloses ethical breaches and conflicts of interest at all federal banking and market regulators, and includes, at a minimum, a) Ethics Code Certifications; b) Ethics Reporting; and, c) culture assessments on an ongoing basis.
3) FINRA and PCAOB subject to Freedom of Information Act, with absolutely NO exemptions.
4) A stock exchange that prohibits hedging, high frequency trading and short selling. The US Securities and Exchange Commission (SEC) and other US banking and market regulators lack the competence (Boston Consulting Group, 2011) to protect investors from fraud stemming from the abuse of hedging, high frequency trading and short selling.
5) Responsible fiscal and monetary policies.
The operative words here are “legitimate” and “rules” - unfortunately not part of the current Wall Street's lexicon.
What are they supposed to do?
Do we need a Wall Street that takes 40 per cent of American profits?
Jeff Madrick
http://www.flixya.com/blog/3201910/Beautiful-Butterflys
Like what, exactly? Jobs??
Seriously, I would love to hear your response about what kind of "free stuff" you've been hearing the protestors demanding. Please, really, I want to know the "thought process" that goes into forming a comment like yours.