by Jennie S. Bev
Dr. Martin Luther King, Jr. once said, “Don’t sleep through the revolution”. Now is a crucial turning point in history. On Sept. 17, 2011, the Occupy Wall Street movement started at Liberty Square, in New York City’s financial district. The group is leaderless, but its ideas have spread to more than 1,500 cities worldwide.
In Indonesia, the Occupy Jakarta, or the Occupy BEJ movement, started on Oct. 19 2011. It is worth celebrating for two reasons. First, the protestors involved consciously think and feel that they are part of the world and the global economy. Second, they are aware of the unequal distribution of wealth and are taking action. This awareness represents progress in Indonesia, especially in terms of the country’s so-called participatory democracy.
After three agonizing years, the Occupy Wall Street movement was finally born. The 2008 recession was marked with the implosion of subprime loans and their derivatives, causing the collapse of the Lehman Brothers investment bank and the American International Group (AIG). Three years is a short period of time in terms of incubating a revolution. Revolutions have taken decades, even centuries to foment in the past, with the French Revolution being a good example.
The economic crisis, which started with the mortgage crisis, is merely the tip of the iceberg. The deeper issue is with the fundamentals of capitalism.
Today, the US unemployment rate has reached 10.1 percent, with the state of Nevada having the highest rate at 13.4 percent and North Dakota having the lowest, at 3.5 percent. My home state, California, has a 12.1 percent unemployment rate, which is the second-lowest after Nevada. Throughout the nation, 49 million people (including 15 million children) are food insecure. This means that they may go to bed at night hungry, while 1 percent of the population controls 40 percent of the wealth and 60 percent of the income of the bottom 90-odd percent. Those included in the top 1 percent live in households that earn US$1,530,773 or more.
So does that 1 percent of the population consist of bad people that are all worthy of expelling? It’s not that simple, because some of these people have earned their income by not exploiting the public.
However, a good chunk of the 1 percent make their income mostly from unearned income, such as dividends and capital gains, which are positively correlated with the performance of Wall Street and are taxed much lower than earned income.
Most of the bottom 90 percent earn their income through “earned” activities, such as going to work, or by being paid salaries or hourly wages, which are taxed higher than unearned income.
Interestingly, economist and Nobel Prize winner Joseph E. Stiglitz found that almost all US senators were members of the top 1 percent when they first came to office and knew that they would live a good life if they listened to the top 1 percent. This explains why many tax provisions benefit corporations and wealthy individuals.
The problem lies in how financial regulations were developed, who “lobbied” for them and also who benefited from them. Both Wall Street and regulators are responsible for the ongoing crisis. The floodgates were opened when the Gramm-Leach-Bliley Act of 1999, which allowed investment banks to mix with retail banks, was approved. This repealed the Glass-Steagall Act of 1933, which separated the two. This development contributed to the creation of bundled loans, including subprime loans that were sold as investment products.
Those who aren’t familiar with how the financial system works, including how secondary mortgage market and investment banks work, would blame the homeowners for paying more than they could afford. Think again.
One might have purchased a property with a prime loan, but one foreclosed property in the vicinity would reduce that property value by $9,000. For instance, a house purchased for $700,000 is now valued at $430,000 with 30 foreclosed neighboring houses. Even without a subprime loan, the property owner would be burned anyway.
Thus, it’s a myth that the other 99 percent consists solely of greedy people with subprime loans and lazy people who cannot find a job.
Still, more comments have come from those who don’t support the Occupy Wall Street movement. Based on my experiences as a housing activist, they belong to the following categories. Those who have not previously owned a home, those who are still in employment, those who feel that they belong to the top 1 percent (though perhaps they don’t) and those who live in a house that is paid for and not in negative equity.
In 2009 and 2010, the Federal Reserve spent $1.25 trillion to buy troubled mortgage-backed securities as a way to provide support to the mortgage and housing markets. To stabilize communities with high foreclosure rates, public agencies are encouraged to acquire properties by default. The Federal Reserve also created a Neighborhood Stabilization Program that provided $3.9 billion worth of funding and was aimed at mitigating impacts on homeowners. Despite impressive policy measures, an ongoing foreclosure crisis is still occurring. In 2010, 2.9 million homes have been foreclosed, while 5 to 6 million are still waiting in line.
While we can blame both Wall Street and regulation for the crisis, and also the unequal distribution of wealth, the underlying problem is that Adam Smith’s hardcore version of orthodox capitalism is obsolete. And unsurprisingly, most corporations and Wall Street are still thinking in the way that Smith, Milton Friedman and Alan Greenspan all did.
Today, we live in an post-industrial era, where resources are limited due to excessive consumption and the world has grown overcrowded and fragile. Social costs have grown to far exceed production costs. The Harvard economist, Umair Haque,
in The New Capitalist Manifesto, gave the example of a $3 burger, which came with social costs of $27. By “social costs”, Haque was referring to environmental harm, resource depletion and health issues, all of which come with the production and distribution of a product and likely influence the quality of the future, including the future of our children and their social debts. So far, Wall Street and various corporations have been successfully influencing consumption behaviors, resulting in tremendous social debts.
The Occupy Wall Street and Occupy Jakarta/BEJ protests are consequences of the unspeakable greed and irresponsibility of orthodox capitalism in this fragile economic ecosystem. Social debts have mounted and people are demanding to be heard.
The Jakarta Post, October 26, 2011