Occupy Congress, Not Wall Street

Unfortunately, they are in the wrong city, targeting the wrong enemy.  The “Occupy Wall Street” protesters should have focused  on Washington, D.C., rather than New York from the beginning; pushing to replace crony capitalism with capitalism rather than attacking capitalism, the only real hope for progress.

The protestors have only a semi-coherent set of complaints.  Some objections focus on big business; others on the government bailouts they (particularly financial institutions) have received; still others on greed.  And there is some validity in their objections (I too object to the massive government bailouts and takeovers). But the common catch-all term for what they object to—capitalism–is incorrect, and therefore their “solution”—more political control, just of the “right” kind, would  actually be a move in the wrong direction.

The protestors seem to miss the irony of their position—they object to others being bailed out, but not themselves, and to what they consider other people’s’ greed, but not their own.  They are also misled by a major Marxian confusion about capitalism. The result is that they don’t want to eliminate the crony capitalism system of special government favors at others’ expense; they just want to become the cronies who control those favors.

These thoughts struck me because, yesterday morning, I went from reading an article about the self-styled “99 percent” to the introduction to The Morality of Capitalism (2011) , a slim book of essays edited by Tom G. Palmer.  Even though it was written before the protests began, Palmer seemed to capture the essence of what the protestors fail to understand about capitalism and, therefore, why their calls for more government control are misguided.

Palmer does an excellent job of correcting misunderstandings about capitalism.

“Far from being an amoral arena for the clash of interests, as capitalism is often portrayed…capitalism rests on a rejection of the ethics of loot and grab, the means by which most wealth enjoyed by the wealthy has been acquired in other economic and political systems…[where]  those who are rich are rich because they took from others…because they have access to organized force… Such predatory elites…feed at the state treasury and they benefit from state-imposed monopolies and restrictions on competition.  It’s only under conditions of capitalism that people commonly become wealthy without being criminals.”

“Capitalism is about creating value…The market—and not arrogant mercantilist politicians—shows us when we are adding value, and without free markets we cannot know.”

“Capitalism is…about adding value through the mobilization of human energy and ingenuity on a scale never seen before in human history, to create wealth for common people that would have dazzled and astonished the richest and most powerful…of the past…It’s about the replacement of force by persuasion.  It’s about the replacement of envy by accomplishment.  It’s about what has made my life possible, and yours.”

Palmer also locates the source of people’s confusion about capitalism in a failure by Marx to distinguish between it and crony capitalism.

“In some texts Marx used [capitalists] to refer to those innovative entrepreneurs who organize productive enterprises and invest in wealth creation, and in others he used it to refer to those who cluster around the state, who live off of taxation, who lobby to prohibit competition and restrict the freedom to trade; in brief, to those who invest, not in creating wealth, but in securing the power to redistribute or destroy the wealth of others…[He] confused productive entrepreneurship and market exchange with living off of taxes taken from others…’capitalism’…was used equivocally to refer to both free market entrepreneurship and to living off taxes and government power and patronage…”

“’free-market capitalism’ should be clearly distinguished from ‘crony capitalism’…

“Sadly, ‘crony capitalism’ is a term that can with increasing accuracy…be applied to the economy of the United States, a country in which failed firms are routinely ‘bailed out’ with money taken from taxpayers, in which the national capitol is little more than a gigantic pulsating hive or ‘rent-seeking’ lobbyists, bureaucrats, politicians, consultants, and hacks…[who] take it on themselves to reward some firms and harm others.  Such corrupt cronyisms shouldn’t be confused with ‘free-market capitalism,’ which refers to  a system of production and exchange that is based on the rule of law, on equality of rights for all, on the freedom to choose, on the freedom to trade, on the freedom to innovate, on the guiding discipline of profits of losses, and on the right to enjoy the fruits of one’s labors, of one’s savings, of one’s investments, without fearing confiscation or restriction from those who have invested not in the production of wealth but in political power.”

““People create relationships based on choice and consent.…Embracing free-market capitalism means…accommodating change and respecting the freedom of others to do as they please with what is theirs…embracing the freedom to create wealth which is the only means to the elimination of poverty…celebrating human liberation and realizing human potential.”

The Occupy Wall Street protestors justifiably object to abuses our government has imposed on the rest of us for its favored cronies.  But they are mistaken to blame the cronies rather than the government that “rents out” its power to use on their behalf. The abuses would disappear without government’s coercive backing.  Further, they are incredibly naïve in calling for more government intervention, with them as the new cronies, because those who aren’t well-informed, don’t vote, don’t contribute to politicians or mobilize resources on their behalf, and aren’t organized into an effective lobby, will not win political control over crony capitalism.

As Tom Palmer points out, if America was actually allowed to be capitalist, the fact that all such relationships are based on mutual consent, and are therefore mutually beneficial, would prevent all the abuses of some by others.  The legitimate claims of the protesters would be addressed.  As a result, the solution is not to try to redirect crony capitalism in their preferred direction, stealing for them rather than from them.  The solution is to reestablish capitalism, and once again unleash its now hamstrung cooperative miracles to improve all of our lives.

(Gary Galles is a professor of economics at Pepperdine University)

Comments

  1. Paul E Taylor Jr says

    They dont occupy Congress and Obummer because they are lemmings led by George Soros and moveon.org
    These kids are losers, they do not want to work and they are clueless. Some even said they “didn’t know what they were protesting” when asked by reporters!!!!!!!!!!!!!

  2. Ed Funston says

    Just another iteration of “Sex, drugs, rock and roll.”
    It was good while it lasted . . . then what?
    The Wall Street Occupyiers make about as much sense.
    The wannabe job holders vilifying the job makers.
    How stupid is that?

  3. Mary Blakeslee says

    How about asking Palmer for permission to print thousands of inexpensive copies of The Morality of Capitalism to distribute to the protesters to help them galvanize their thoughts and realize the argument they need to rally around. Yes many are there with no understanding of how true Capitalism is the answer to our woes. However there are those among them who will read the book and be better able to define and verbalize what they want to accomplish. They need help to accomplish their goal. Let’s hope the American Autumn is more successful than the Arab spring!!!
    Mary

  4. James V. Lacy says

    It is an interesting thought to organize a political evangelization of the protesters. They clearly are clueless about “Wall Street.” Not only jobs have been lost in this economy, so have the value of retirement investment accounts of millions of employed and retired Americans that make “Wall Street” possible. I think many who actually work on Wall Street themselves would like to protest, but not against themselves, rather, against government policies that have helped create all the uncertainty in financial markets worldwide. Those policies are more responsible for the protesters unemployment than “Wall Street.” If one only watches CNBC everyday, its all that one needs do to understand that the “stock market” didn’t create our current economic problems, most of which are the result of Government policies led by people like liberal Congressman Barney Frank, which encouraged financial institutions to push out loans to people that could really not afford them; and too much Government intervention in the economy through reckless give-away programs that fail to create not only jobs, but sustainable wealth to cycle through the economy and help everyone.

    • let me remaind you that the financial crisis was caused by lack of regulation dumb ass

      • James V. Lacy says

        Dumb ass? I could have edited that out, as we don’t tolerate name calling here like those “anonymous” blogs. But you are wrong in your conclusion that lack of regulation caused the problem. Too much government intervention in the private sector is what caused the problem. The financial crisis has some significant roots in liberal Democrats forcing banks to make loans to people who could not afford them. See this article: http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2008/09/28/franks_fingerprints_are_all_over_the_financial_fiasco/. In this piece by Boston Globe columnist Jeff Jacoby, which was published just over three years ago, Jacoby writes in relevant part: “The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and “redlining” because urban blacks were being denied mortgages at a higher rate than suburban whites. The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to “meet the credit needs” of “low-income, minority, and distressed neighborhoods.” Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this “subprime” lending by authorizing ever more “flexible” criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued. All this was justified as a means of increasing homeownership among minorities and the poor. Affirmative-action policies trumped sound business practices. A manual issued by the Federal Reserve Bank of Boston advised mortgage lenders to disregard financial common sense. “Lack of credit history should not be seen as a negative factor,” the Fed’s guidelines instructed. Lenders were directed to accept welfare payments and unemployment benefits as “valid income sources” to qualify for a mortgage. Failure to comply could mean a lawsuit.

        As long as housing prices kept rising, the illusion that all this was good public policy could be sustained. But it didn’t take a financial whiz to recognize that a day of reckoning would come. “What does it mean when Boston banks start making many more loans to minorities?” I asked in this space in 1995. “Most likely, that they are knowingly approving risky loans in order to get the feds and the activists off their backs . . . When the coming wave of foreclosures rolls through the inner city, which of today’s self-congratulating bankers, politicians, and regulators plans to take the credit?” Frank doesn’t. But his fingerprints are all over this fiasco. Time and time again, Frank insisted that Fannie Mae and Freddie Mac were in good shape. Five years ago, for example, when the Bush administration proposed much tighter regulation of the two companies, Frank was adamant that “these two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis.” When the White House warned of “systemic risk for our financial system” unless the mortgage giants were curbed, Frank complained that the administration was more concerned about financial safety than about housing. Now that the bubble has burst and the “systemic risk” is apparent to all, Frank blithely declares: “The private sector got us into this mess.” Well, give the congressman points for gall. Wall Street and private lenders have plenty to answer for, but it was Washington and the political class that derailed this train. If Frank is looking for a culprit to blame, he can find one suspect in the nearest mirror.”

  5. This is an example of the radicals our schools are turning out. These are communist and other fellow travelers trying to bring down the capitalist system. Prime Minister Putin of Russia said, not to follow the path to Socialist Marxism, it only leads to disaster.

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