Archive for November, 2011
On the Occupy Wall Street movement
It amazes me how Austrian-schooled economists can make comments that many dismiss when they first make them, but later on seem like they were speaking with advance knowledge of whats to come. I wanted to write a post about the Occupy Wall Street movement and I stumbled upon this video from a congressional testamony by George Mason University economics professor Russell Roberts. Here are his opening remarks:
Americans are angry about executive compensation.
Rightfully so.
The executives at General Motors and Chrysler don’t deserve to make a lot of money. They made bad products that people didn’t want to buy.
The executives on Wall Street don’t deserve to make a lot of money. They were reckless. They borrowed huge sums to make bets that didn’t pay off. And they wasted trillions of dollars of precious capital, funneling it into housing instead of health innovation or high mileage cars or a thousand investments more productive than more and bigger houses.
Everyday folks who are out of work through no fault of their own want to know why people who made bad decisions not only have a job but a big salary to go with it.
No wonder they’re angry at Wall Street.
But if we keep getting angry at Wall Street, we’ll miss the real source of the problem. It’s right here. In Washington.
We are what we do. Not what we wish to be. Not what we say we are. But what we do. And what we do here in Washington is rescue big companies and rich people from the consequences of their mistakes. When mistakes don’t cost you anything, you do more of them.
It sounds like he’s talking about the Occupy Wall Street movement. However, he made those comments before congress on October 28, 2009, almost 2 years before the first tent was pitched in Zuccotti Park.
I think his comments sum up my feelings about Occupy Wall Street exactly. People are rightfully angry at Wall Street for the situation that they have put our economy. However, you cannot blame the puppet without blaming the puppet master. People need to be equally angry at the moral hazard that government policies have created that guaranteed the risks the banks were taking with regard to the housing market.
This “crony-capitalism,” where corporations facing huge losses are bailed out by the government is being mistaken for real capitalism. Capitalism is a system of profit and loss. Potential profits encourage risk taking, while the potential losses encourage prudence. If you tell banks that they should make risky loans (i.e. sub-prime loans) and in return, the losses will be absorbed by the government (which is what Fannie Mae and Freddie Mac were chartered to do), no wonder these banks leveraged themselves to the hilt.
So instead of occupying Wall Street, occupy Fannie Mae, occupy Freddie Mac, occupy the Fed, and Occupy Congress for chartering these organizations. Don’t occupy retail stores this Black Friday, because then it really makes you look anti-capitalism. And by preventing companies’ ledgers from going from red to black, you’re only hurting the 99% you claim to represent when those companies take losses and are forced to lay off workers.