Celebrity economists embrace Occupy Wall Street: Krugman, Sachs, Stiglitz and Co.
from Edward Fullbrook
Paul Krugman, Jeffrey Sachs, Robert Reich, Joseph Stiglitz, and Jeff Madrick have all either gone to the Financial District in New York Cityand embraced OWS or written favourably about it.
Stiglitz and Madrick were there on Saturday and below is their dialogue using the people’s mic in front of the protesters.
Joseph Stiglitz:
Before talking about economics, I want to say something about democracy. In July, I was inSpain, talking to the “indignados” there, the protesters. There, I could use a bullhorn. I didn’t have to go through this echo chamber. I realize the pedagogy of having you repeat what I say is very valuable, but it makes the whole process much longer. The fact that you are not allowed to use a megaphone on a Sunday is outrageous! We have too many regulations stopping democracy and not enough regulations stopping Wall Street from misbehaving. You should have the right peacefully and demonstrate your views and not be arrested and not be sprayed with pepper spray.So now I want to talk a little bit about what I said inSpain, and then about the banks. The protests there are called the “indignados,” and I said, “You are right to be indignant.” The fact is, the system is not working right. It is not right that we have so many people without jobs when we have so many needs that we have to fulfill. It’s not right that we are throwing people out of their houses when we have so many homeless people.
Our financial markets have an important role to play. They’re supposed to allocate capital and manage risk, but they’ve misallocated capital and created risk. We are bearing the cost of their misdeeds. 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, and if we continue with that, we won’t succeed in growing, and we won’t succeed in creating a just society.
Jeff Madrick:
To make it a little more clear how Wall Street was allowed to take all that risk, the bankers were able to take home their bonuses every year by developing risky strategies that one day had to go bad. They knew, however, they would take out their money before most of those investments went bad. Economists call this “asymmetric incentives.” You make money by taking risk, but nobody takes it away from you when the strategies don’t work and lose lots of money. That was one of the core problems with Wall Street. CouldWashington have done something about that? Yes! There were other problems. I’ve got to throw it to Joe to talk about other problems.Stiglitz:
One of the things the banks did was to prey on the poorest Americans [through predatory lending. We knew about it. There were some people who tried to stop it, but they used their political power, [that is] Wall Street used its political power, to stop those who would stop them.Madrick:
Just to keep going on this, the FBI actually told the powers that be that there was an epidemic of fraud in 2004 in the mortgage market. Washington and the Federal Reserve had the power to do something about that. They did not. The more bad mortgages went on, the predatory lending got worse, and the powers that be—in particular and let me name names, Alan Greenspan, the Chairman of the Federal Reserve—was able to retire in glory. Is there something with this picture? There sure is, and there are a lot of other areas we can discuss.Stiglitz:
Two more things. After the bubble broke, they continued in their way of disobeying the law, in a sense—throwing people out of their houses, even in some cases when they didn’t owe money. The balance of rights has been distorted. We bailed out the banks with an understanding that there would be a restoration of lending. All there was was a restoration of bonuses! Unless we deal with the anti-competitive practices, with the reckless lending and speculative behavior, with the anti-competitive practices, unless we restore finance to the function it should serve, we won’t have a robust recovery.Madrick:
One last point. There had been few civil suits by the federal government. Even when they make them, they settle. There may be some hope somebody’s lighting a fire under prosecutors and attorneys general. Not all on Wall Street broke the law, but it is hard to believe that some didn’t, and it’s important so that all of us can understand that not all that happened was simply well-meaning gigantic errors. By prosecuting where there was serious unethical practices, we may provide another deterrent. Unethical practices were a major contributor, in my view, to the crisis we had and the difficult future we face.
Here is a video of it: Joseph Stiglitz at Occupy Wall Street – YouTube www.youtube.com/watch?v=fL1WIfpMb18
And here is the leading site for what is now called “Global Revolution”: http://www.livestream.com/globalrevolution
What is happening in the Wall Street is a proof that there finally are limits in case you pass a critical point. As a matter of fact it cannot continue the system prevailing after 1980, in which the 99% of the population work to make rich the 1%. This has to change in the one or the other way. I wish it will be done peacefully.
Reforming Civil Society
There is a misunderstanding that conservatives perpetuate about what is wrong with America. The problem they claim is government interference in the free market system, and, therefore, the issue in our economic life is the old fight between a state-run command economy and an economy in which production and consumption is allocated by the mechanisms of free markets.
This is a bogus issue because few in America or in the world are interested in establishing a state run command economy. We have seen the socialist and fascist version of centrally planned and directed economies fail everywhere. Nobody really advocates their adoption.
So, if we all begin with the idea that free markets are the best way to allocate production and consumption, then where’s the beef? Well, the beef is about how best to organize civil society in order for the free markets to promote the commonwealth. Free markets do not do it alone because they are not coextensive with society. Free market economists themselves recognized this a long time ago. Wilhelm Roepke, who fought the Leviathan and command economics in freedom’s name after World War 2, stated that there is a considerable difference between the way free markets function in a society made up of a small super rich minority privileged class and a broad marginalized poor mass, and free markets operating in a society composed of a large middle class with broad property ownership and a widespread income distribution. If we all prefer, as Roepke did and stated, “a decentralized government, we also favor decentralization of sources of power through widespread property ownership, anti-monopoly policy, and the correction of income distribution and significant market failures.” (The Problem of Economic Order)
Civil society is composed of complex social and economic interests. For it to function in the common interest, the legal basis for the interaction between interests that are in conflict must be organized in a way that recognizes the legitimacy of particular interests to be expressed, heard, and redressed. If, however, certain rich and powerful interests, through the political system, control government, the legislative process, and the courts, civil society comes to function in the interest of these vested interests. This has happened increasingly in America to the detriment of the people. This is the beef. And it cries out for reforms.
One jurisdiction , among the many that could be mentioned, is the business corporation’s place in civil society. American law and custom has always given owners (stockholders) control over the firm. Recently, however, the rise of managerialist hierarchies in large corporations has given CEOs and members of the board de facto control in decision-making at the expense of all the firm’s stakeholders, including stockholders. It is not socially healthy for a management caste to dominate the affairs of civil society. Legally empowered, they have stripped their firm’s employees of pension plans and health benefits, moved their factories and services offshore, polluted the environment, and generally mal-distributed the profits their firms generate to management’s advantage, and the detriment of employees and stockholders.
To redress the balance, stakeholders in firms need a voice in their governance, that is, a reform of the constitution of the firm must be pursued in civil society, or the gap between the rich and the poor will growth endlessly and the Walmartization of America’s poor consumers along with it.
Jeff Madrick’s suggestion at the OWS gathering in New York that we need to prosecute those guilty of “unethical practices” is a good idea, but it is only a band aid. The real work needs to be carried out in reforms of civil society.
It is really good to hear that some economists at least are not only aware of what is happening but have the courage to tell it as it is. Like Maria, I hope the necessary changes will be peaceful, but do any of the idiots in Wall Street, Washington and the Academies of Economics ever read history? The horrible history of John Law’s bank in France reminds us how the resultant acquisition of huge estates by the rich led to the peasantry, left lacking even the wherewithal to produce bread, being advised to eat cake by an uncomprehending queen – who of course lost her head in the subsequent French Revolution.
Robert Locke’s observations are as usual very sane and to the point. As a Catholic I’m delighted to see the slow old Vatican updating its advice (“Rerum Novarum” – in this new age) of 1891: http://uk.reuters.com/article/2011/10/24/vatican-economy-idUKL5E7LO1LS20111024. Personally I don’t think this is going to get sorted out without internationally exposing and eradicating the scam of governments dominated by bankers allowing banks to create the appearance of money “out of nothing”, demand mortgages for and charge interest on it, and be so disgustingly vicious as to throw even unfortunate people out of their homes in the event of their being unable to work for this “nothing”. I don’t see it being eradicated without a complete inversion of our understanding of the value of money. It is not something we earn. We are all in debt to each other, and our contributions to social well-being (rightly expressing our gratitude for that support) usually only reduce our indebtedness to a few.
I see the “Occupy Wall Street” movement is being criticised for a lack of objectives. I’ve just heard a snappy one which rings all the right bells. The Free Traders have long insisted on the separation of a moralising Church from their type of State. It is now time to demand “the separation of Government and Big Business”, in view of their blatant conflict of interests.
Yay. A few Big Names finally speak out about a fraction of the problems and deliberate injustices orchestrated by the GS Treasury Gang at Club Fed.
The 1st 3 comments are more powerful, yet inadequate. As I’ve said or implied earlier & elsewhere (like The Greenbook), now that “The Mule” is gone, it’s time to stop talking about closing the barn door.
Now is the time for all truly good economists to come to the aid of their fellow 99%ers, to start a nonprofit credit system immediately. In the USA we have the right to do it ourselves, with no legal obstacles of anykind.
What am I talking about? I mean a non-monetary credit system, with credits (& discredits) or merits (& demerits) for instantly initiating direct awards and grants to creators of value (like “goods” or services or benefits, like happiness, laughter, amenities, shelter, food, etc.).
The important thing is to help people See that score is not more important than value. You know what I mean?
Hmmm….. maybe not. OK. The Plutonomy Game is unsustainable & unfixable primarily because the Big Winners (the 1%ers) and most losers believe that scoring and hoarding are more important than natural, life-enhancing, life-sustaining values & benefits. Though that is partly because most of the players have forgotten that they are not totally independent, separate beings, but communal beings dependent on all other forms of being.
Even without realization of the whole truth about human being, everybody can See that the End Game enforces the ultimate worst case scenario for the losers, the 99% and the biosphere, the planetary life-support system of 100% of us. If the Big Winners don’t let the game end and start over again from scratch, there is no way to restore cultural equity and socioeconomic balance. As long as score and winning is more important than real value and pervasive cultural well-being, there is no way to balance the books with any strategy other than changing the rules of the game, radically.
Like Monopoly, the board game, Plutonomy has rules that make increasing disequity and imbalance a structural necessity of the game. As in Monopoly, Plutonomy also incentivizes sociopathic exploitation, regardless of negative potentials and consequences for the community. In both games, the “community” is just an optional notion, but in Plutonomy and Casino Capitalism, it is also a hindrance to winning at all cost. Another difference between Monopoly and the “real world” games is that the winner of Monopoly may be able to take all. There is no one Big Winner of Plutonomy (AKA Casino Capitalism), and the 1%ers can’t really take all, but they can and do make the quality of life exponentially worse while the End Game scenario devolves to ever more barbaric neoFascist Feudalism.
The only alternative I have found in the last 26 years of deep R&D resembles the ancient gifting economies of the ancient spiritual cultures. Why? In those ecologically sane cultures value and quality of life are more important than scoring, competing, winning & accounting. I also found that the pervasive socioeconomic conditioning makes it very hard for almost everybody to understand that score (numbers & account balances) and winning are NOT more important than value, joy, wellness, a life sustaining biosphere and a sane culture.
For more on this topic & related issues, I recommend The Greenbook in progress and the new Green Community Credit System group on Facebook.
“What am I talking about? I mean a non-monetary credit system … The only alternative [to plutonomy I have found in the last 26 years of deep R&D resembles the ancient gifting economies of the ancient spiritual cultures. …”.
Michael, this too, but we have to start from where we are. Everybody knows the money game and all our equipment is geared up to it, so we can’t really change our basic way of trading. What we can do is tell the truth, the whole truth and nothing but the truth i.e. define money honestly, put human biology, interdependence and dignity back into the theory and rewrite the rule books accordingly, ruling out any claim that governments can rewrite them.
When the definition of money accords with both how it is created and how it used to make purchases, it turns out to be indistinguishable from the setting of a credit card limit, meaning we owe society for what we buy, not the banks. The implication of that is that the more we have, the more we owe others. It seems to me that general understanding of this will be necessary to change the ethos of society from its present one of fearful stock-piling to one of graceful giving and grateful emulation. With that as its basis, your “gift economy” will not define a new set of duties but, like Ruskin’s olympian “Crown of Wild Olive”, will have a meaningful role in the honouring and sustaining of good work.
A revolution (“rewrite the rule books” and “change the ethos of society”) which does not include a shift in consciousness yields fairly predictable results. True revolution begins within, otherwise it’s like prisoners rioting for better prison conditions.
So the question is: how can we influence this shift of consciousness? I agree with you Dave, we have to start from where we are, with the tools we have at hands.
We primarily need a healthier economic heart to fuel a better performing brain. We need a world wide common goal to steer the economy in a more purposeful direction (eradication of poverty, environmental clean up and other meaningful and motivating ambitions of the like) and a solid, world wide free education system (one that stimulates independence of thought and expansion of consciousness, thus creating competent humans).
Eric @ #6: thanks for the support. How to influence “this” shift in consciousness? From money being a thing of value to it being a symbol of disvalue? This is going to require a long answer, so let me apologise in advance for that.
The difficulty is that in our world there are broadly four types of mind habitually thinking in four different ways, with development of understanding from childhood to maturity dependent on conceptual education and breadth of experience. Most of them already have healthier economic hearts than adequately developed brains. The 1% are usually exceptions, with the emotional state of “spoiled” children and a conceptual uptake limited by never being corrected. Which groups are we going to “influence”?
So, as I see it, “the tools we have at hand” are disparate people and inadequate concepts (often expressed in ambiguous or deliberately misleading language). There is not much we can do about people, but insofar as we have adequate concepts ourselves we can express them unambiguously and truthfully.
The point I tried to make to Michael is that the truth about truth is that it is complex: it is not only about the relation of words to facts but also about their relation to concepts and what we do (including what we do when things go wrong). The complexity of brains has evolved until that’s what humanity is capable of doing, but individual brains, given to understand that truth concerns only the relationship of words to facts, don’t do the half of it. Algol-68R, Myers-Briggs and the physiology of brain architecture are keys to the science of this, but too involved for a quick shift in consciousness. I think ambiguity in the perception of the direction of movement (historically the Copernican Revolution, experimentally the “which train is moving?” experience), may be simple enough to start discussion of the movement of value from poor to rich in a bank loan.
The ambiguity of a compass needle aligned between North and South poles (so which end is North?), leads on to what is involved in your “steering of the economy”. Not just a steersman, but the ship’s captain setting the crew’s “common goal”, his scientific mate checking for positional drift and a look-out on the watch for approaching hazards: different roles even in single-handed sailing. That’s the overview. The problem is, what happens when the captain is one of the 1% and doesn’t have it? He goes South (money making) instead of North (providing for the kids). What happens when a mutinous crew (your prisoners rioting) don’t have it? Their replacement captain won’t have it either.
So enlarging the awareness of steering to the more complex understanding of navigation is one part of the problem, recognising the 1% and changing THEIR consciousness is another. When the 99% see us all as alike, the differences are seen as between tribes or races, as when all Jews get blamed because for historical reasons their 1% became the world’s bankers. Class consciousness doesn’t get to the root of the matter either.
Using the veil of fiction in dangerous times, William Shakespeare proposed the method of legal challenge in “The Merchant of Venice”. Shylock had his contractual right to his “pound of flesh”, but no legal right to tear the heart out of the nation as the Reformers were doing. As the City of London evades Occupation by claiming to be “private ground”, we find hidden among the prophetic jokes of twentieth century genius G K Chesterton, a dog, Quoodle, likewise calling in the legal bloodhounds:
“They haven’t got no noses, the fallen sons of Eve …
They haven’t got no noses. They cannot even tell
When door and darkness closes the park a Jew encloses,
Where even the law of Moses will let you steal a smell”.
Christianity’s ‘catholic’ brotherhood of man, anyway, raises “the fallen sons of Eve” from global domination via fraudulent stereotyping by teaching all of us to recognise and respect the diversity of each others’ talents (1 Cor 12). The crew of the ship need to get together as a team, whether or not they are legally the manager’s or owner’s slaves. Their lawyers need to challenge the fraud in and even the need for “banking” and “ownership” as we now understand them, whether or not these began with fool’s gold and/or clever Jews compensating themselves for not being respected by the 99%. As I see it, those are the “respectable” ways to influence the consciousness of the 1%.