Since I need to focus my post through economic glasses, I think that this movement is doing a masterful job of misdirecting attention through a frenzied advertising campaign whose message is that we need to look at reforming everything and anything, as long as it's not our overreaching bureaucracy. The protesters need to occupy Washington and demand some political leaders who will allow the invisible hand to do its thing!
This blog contains posts and comments written by students in Dr. Tufte's economics classes at Southern Utah University.
10/22/2011
Occupy This
How can I help but focus my post on the current furor aimed at the heart of our capitalistic foundation? Academia, a sympathetic "free press", union money, and thousands of people with nothing better to do are occupying this park and that street and myriad airwaves with demands for changes to the systems that made this country the most prosperous and free society in history- free even to become fat and lazy and demand more entitlements from a benevolent group of public servants.
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6 comments:
I'm sympathetic to just about any minority group that feels the need to protest. But it's hard to for me to be that way with the Occupy... groups. Three things bug me.
First, protests seem to be primarily directed at bankers, and secondarily at the financial system. This is already a heavily regulated sector of the economy, and one which — contrary to the urban myth — hasn't undergone much deregulation in the last several decades.
Second, the "bailout" of the financial system is the part of the Bush/Obama response to the recession, financial crisis, and weak recovery that everyone seems to agree worked. This is what we should be celebrating.
Third, much of the discussion seems to view financial relationships as one-sided. Many people are asking for their liabilities to be reduced, without recognizing that this will make someone else's assets smaller. Who is looking out for the second group? Or are they afraid of being shouted down by the mob?
Millions of households have developed serious financial problems as a result of the macroeconomy over the last 4 years. Nonetheless, we seem to be too timid to confront the significant portion of that group that borrowed to make risky investments that didn't pan out: asking for debt forgiveness makes these folks "predatory borrowers", which is apparently a larger problem this time around than predatory lenders.
Dr. Tufte wrote about three things that bug him with respect to the “Occupy groups.” I will address his call for celebration at the bailout that “everyone seems to agree worked.”
Before we roll out the “Mission Accomplished” banner prematurely again, let us consider the following:
There exists serious doubt of whether some groups will ever recover from the current recession.
First, young adults and recent college graduates are now forced to take stop-gap jobs significantly reducing their life-time earnings to such a point as will never be fully recouped.
Second, older Americans who have been battered by rising health care costs, diminishing home values, shrinking pension and investment portfolios, and employment struggles are facing the stark reality they may not have enough days left to live to recuperate.
Bare survival – not recovery – might be the only cause of celebration for these groups.
In AARP's latest Public Policy Institute Report nearly 30 percent of those surveyed reported they had exhausted all their savings during the recession.
As you read through the extensive report in the New York Times on the history, current events and future considerations of the Great Recession, it becomes clear the bailouts exacerbated the effects of financial uncertainty in many sectors and simply delayed to inevitable collapse of others.
The bailout bubble is, as all other bubbles before, unsustainable and primed to burst. Someone needs to say it. Why not the 99%?
(delayed "the" inevitable) (not "to")
Thomas: I see your correction, so I won't ding you for that.
I'm in general agreement with what Thomas said, so no doubt the problem is that I wasn't clear enough the first time.
The ongoing financial crisis has two dimensions: liquidity and solvency.
A liquidity problem is when you don't have enough cash (or other liquid assets) for comfort. Liquidity is a problem of being able to convert less liquid assets into more liquid assets in a timely manner, and without much loss in value.
A solvency problem is when your assets are not worth what you expected them to be worth.
Clearly a liquidity problem is less serious. Further, liquidity problems don't lead to solvency problems.
But solvency problems can lead to liquidity problems. So the question when you see a financial problem is if it is 1) just a liquidity problem, 2) just a solvency problem, or 3) a more chronic solvency problem that is presenting as an acute liquidity problem.
Liquidity problems have standard textbook solutions that can be executed by a central bank (like the Fed) or a government agency with access to funds.
Solvency problems are much more fundamental, harder to solve, and often more painful too.
What the public regards as "the bailout" is the TARP program. This helped (primarily) large and/or investment banks with liquidity problems. And it worked: this is why the banking sector was able to pay some of the money back early, is profitable again, and paying bonuses. TARP is also expected to yield a profit to the government.
But, the government has done little to address solvency issues in some parts of the financial sector, or as Thomas points out, with the discouraged young, and cash-strapped seniors.
Let me be clear that I am not saying they should have done better. Systemic solvency problems are very complex: I'm not happy with government's performance the last 4 years, but I'm willing to give them some breathing room on this.
So, I remain broadly sympathetic to the "Occupy" movement. But I think their focus on Wall Street is analogous to being seriously hurt in a car accident (whether or not you wore a seatbelt), and being upset that other people who were wearing seatbelts were hurt less. It's good for everyone if you have a group that was less seriously hurt whether or not they were better protected than you were.
That was likely the most concise explanation I have ever read on the TARP program. As TARP relates to the "Occupy" movement, how much do you think misinformation is a cause of their frustration? It seems that the media (and I mean all forms of media) and the government has done a poor job of communicating its purpose in a way that everyone can understand. Not that this would make it acceptable to the average taxpayer, but they would at least be able to judge it more accurately.
As for me, I get a little queasy at the thought of the bailout...while it may have been necessary it creates a double standard that doesn't sit well with a lot of people—regardless of how far right or left they lean.
Thanks Joe! Remember that when it comes time to do evaluations ('cause I know those Discussions give you lots of reasons to not like this class).
It's off-topic, but I'd recommend reading Sowell's A Conflict of Visions to answer Joe's question. He talks about how the different sides of most of our contemporary policy debates revolve around visions of how the world works that are fundamentally different, and this makes it hard for people to understand the position of the other side. Most of this difference is whether you belong to the group that values motivations or the group that values consequences. The "Occupy" movements seem to be much more strongly oriented around motivations.
Here's a personal example from my life that might help you understand why people disagree. My neighbor's dog bit my kid (bad enough for us to file an animal control complaint). Their (reasonable) position is that they didn't intend for their dog to bite, and this is something we should let go. Our (reasonable) position is that the consequence of their actions was that our kid got bit, and we shouldn't just let it go. A lot of the discussion around the "Occupy" movement isn't much different.
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