INCENTIVE

The current state of affairs and the current state of a movement (Occupy Wall Street) and a countermovement (We Are the 53%) are nothing short of fascinating. There are some specific and some general grievances on both sides but fundamentally, I think the issue is simply a difference of opinion and when it comes to opinions, there are no right answers; there is only belief.

OCCUPY WALL STREET

Occupy Wall Street began September 17th (according to the about page on their website) and since then the movement has spread to cities across the United States and around the world. It seems that the essence of their movement is they want to eliminate the greed and corruption amongst the top 1% of wage earners (leading to the catchy populist slogan “We Are the 99%”). Furthermore, OWS “is fighting back against the corrosive power of major banks and multinational corporations over the democratic process, and the role of Wall Street in creating an economic collapse that has caused the greatest recession in generations.”

In theory this is a noble goal but in practice eliminating it is extremely problematic. I spent some time a while ago surfing through some of their discussion forums and the one theme that I found is there are some seriously pissed off people including one fanatic who advocated replacing our system of money with a system of hugs and kisses (“would you rather be rich is money or rich in hugs and kisses?” is a question he posed) and then would not debate his points openly with any commenters and instead used extremely profane language to put them down. Alas, this is to be expected on public internet forums. What I did notice were some radical themes that kept coming up; eliminating the monetary system (and going to a more communal economic and social structure) and bringing down capitalism (and redistributing the ill-gotten gains of the wealthy few) to name just two.

What I find most fascinating about the OWS movement is their lack of specific goals and I’ve heard theories from both sides of the issue as to why that is. From the people who are not yet convinced that this is a viable movement, they say that one of the biggest advantages to not stating any specific goals is they can declare victory at any point and nobody can refute them. When someone points out that nothing tangible was accomplished, they can simply reply that their goal was to raise awareness. The flipside of the coin is some people believe that in the life of this movement, it’s too early to state specific goals. Rather, you need to let the movement progress by itself and you have to see where it will go without trying to steer it in any particular direction. As far as I am concerned, I have an extremely difficult time getting revved up about this movement because I don’t know where it is going and anyone who says they do know where it’s going and the endgame is flat-out lying. If you ask ten different people what their purpose for being out on the streets of the Big Apple is, you are liable to get ten different answers but they all seem to center around two things; the banks and the government.

It has bothered me to an extreme degree that by saying “We Are the 99%”, they are attempting to demonize 1% of Americans. According to the Census Bureau, right now there are an estimated 312,571,660 people in the United States. That would mean that 3,125,717 people are responsible for the economic state of affairs in this country and they need to have their wealth repossessed and redistributed to the masses…

Something doesn’t add up here. How much did Alex Rodriguez and his $25-30 million salary contribute to the mortgage crisis? Did the doctors and lawyers that make more than $500,000 a year cause bankers to give mortgages to people who couldn’t possibly pay them back if the market should take a downturn? My point is simply to say that if we’re going to go after greed and corruption, we need to make sure that we are going after the greedy and the corrupted, and not those that are taking advantage of their education and skill set to earn a wage that is on par with what they would earn on the open market for their services. It is my personal belief that the number of people truly responsible for the mortgage and banking crises is far smaller than 3.1 million. However, “We Are the 99%” is a far catchier slogan than “We Are the 9,999 out of 10,000”

So what it comes down to, as far as I’m concerned, is who do you want to blame and what do you want done? Before I can lend a shred of personal support to this movement, I need that question answered in a satisfactory manner and blaming a group of people because of how much money they make is blatant discrimination and I refuse to be a part of it.

There are some legitimate issues that people have raised in conjunction with this movement and they have nothing to do with eliminating our monetary system or redistributing wealth. Money should not equal influence when it comes to our political system. Personally I believe that eliminating it entirely is impossible but a reduction in that level of influence would be very welcome to me. Most importantly, some protestors are saying that the bankers who broke laws (which helped bring about the mortgage crisis) need to be brought to justice. I could not possibly agree more. However, it seems to me that those viewpoints are somewhat marginalized and the vast majority of people are decrying their personal situation and many of them are asking where the government is to catch them when they fall.

They talk about student loans, they talk about the lack of affordable healthcare, and mostly they talk about unemployment and underemployment and they ask where the government is to help them. In a nutshell, I believe that this viewpoint is terrible. It sounds tremendously good in theory that when the average American is knocked down for one reason or another, their kindly Uncle Sam is there to help them back on their feet but this is where that fantasy needs a reality check. We live in a country where the federal government has run a budget deficit of more than $1 trillion each of the last three fiscal years (with 2011’s figure of $-1.65 trillion an estimate). Why, why in the wide world of why should that entity spend MORE money?

“They shouldn’t spend more, they should spend the money they have better.”

I completely agree. The size of the federal government has ballooned in the past twenty years under both Republican and Democratic presidents. Measured by the difference in expenditures from the last year of their predecessor to their last year in office, federal expenditures rose by 29% under President Clinton, 64% under President Bush, and so far 28% under President Obama. From 1992-2011, federal expenditures have increased by 176% ($2.43 trillion) while federal income (most of which comes from taxes) has increased by only 99% ($1.08 trillion). There are two exceedingly simple ways to make up this enormous (and growing) disparity; cut spending or increase revenue in the form of taxes.

WE ARE THE 53%

Relatively soon after the OWS movement started, another anti-movement started as well; We Are the 53%. The number is a reference to a study done by a non-partisan government organization that estimated that only 53% of Americans actually pay federal income tax due to the deductions and tax thresholds below which all federal tax monies collected are refunded. The 53%ers message to the 99%ers is simple; stop waiting for your handout and go get a job.

I believe that this is an overly simplistic interpretation of the OWS movement and I expressed my disbelief that anyone would ask the government to spend more money in our current budgetary and economic climate. However, I do believe that their point is valid. Life is hard but if you grab hold of your bootstraps and pull hard enough (through honest hard work) you will find yourself living the American dream. My sense is that that is the gist of the of the 53%ers message. If I’m wrong, please feel free to set me straight.

INCENTIVE

I’ll bet you were wondering where that word would come into this whole foray into a very contentious situation. Hopefully your incentive for reading this far has been to find out what incentive has to do with all of this.

As I was surfing around the forum page on OWS’s website (found here - http://occupywallst.org/forum/ - warning, some language not appropriate for all audiences) a few thoughts started to gel in my mind. The next morning, I read a paper first published in February of 1848 and was nothing short of shocked to find some of the same rhetoric as I was seeing on that forum page. The paper? None other than the Manifesto of the Communist Party, written by Karl Marx.

I am not saying this to demonize the OWS movement. I do not think that communism and socialism are dirty words; I didn’t live through the tense times of the Cold War. My shock was due to surprise, not outrage. Since some of the people involved in the OWS movement were advocating that we move further from capitalism (if not just do away with it completely) I thought it prudent to know the other side of the spectrum and thus, was inspired to read this document. It is a well written, well thought out, and extremely incendiary piece. I can also see how any person of modest means that feels oppressed would find the theories put forth extremely appealing.

It is necessary to keep some perspective about us though. As wide as income and wealth inequality are in this country, they are not nearly as far apart as the separation between the serfs and the tsars in Russia in 1917. Anyone who says our economic climate is as bad as that is just wrong.

This leads us to two great questions that are very difficult to answer:

First, where on the economic spectrum between pure capitalism and pure communism should we fall?

Once there, what role should our government play in the economy?

The second question cannot be answered without first answering the first so let’s tackle that one first. The economic term for a marketplace where all wealth is seized by the government and is distributed evenly is an Egalitarian market. The problem with this system is there is no incentive.

The price that you get for a good or service is most likely set by the State; there is no incentive to make a better product.

The wage that you earn is the same no matter what your individual skills or education or experience are; there is no incentive for you to chase down opportunity.

The wage that you earn is the same no matter how much work you put it; there is no incentive to put in the extra time and effort to make more money because you won’t.

These are the pitfalls of the communist model. The system is Utopian but the problem is that Utopia does not exist in the real world and it is in the real world that communism fails. This is the part of me that agrees with the 53%. Why should I have to go to work for 40 hours a week and work hard and then pay taxes that I don’t get back every spring so other people can sit back and collect unemployment without ever having to work a single day? This is a part of our government and our welfare state that simply enrages me. I am sure that many of the unemployed that are currently occupying Wall Street would rather be working; I’m not talking about those people. I’m talking about the ones who see government handouts as an alternative to working; not as means to get by while finding another job. That is a large reason why we have an enormous deficit and an enormous debt but that is an issue for the second question I posed and I’m not done answering the first one.

So what happens when you introduce incentive into the markets? Some people work the same as always (be it little or lots) while others work harder. They work 50, 60, even 80 hours a week, staying away from their families except for a few minutes before and after dinner (after work and before bed), in order to be rewarded for their hard work… and they are. Some people go to college, sometimes even working terrible hours at a bad job to pay for their schooling because they know that when they finish and achieve a degree, whether it’s a bachelor’s, graduate, or professional degree, the market will reward their work with a higher wage… and it does.

Incentive is the fuel that drives this country more than anything else. It’s not that we necessarily want to be the best, it’s that we know that if we put in more work, we will be better. Capitalists strive to be better while communists do not. If that doesn’t show you exactly where I fall on this particular issue, let me make it just a little more plain. Capitalism brought about peace in a way that arms and peace talks could not. There is free enterprise in Russia and China where thirty years ago there was not. China is going to overtake the United States in terms of overall economic size (in terms of Gross Domestic Product, or GDP) within the next few years and it’s all due to that free enterprise and the desire of their people to get better economically and more importantly the incentive that is now in front of them. They see what they can achieve if they work for it… and so they are.

In short, the government should not dictate who gets what job or who gets how much money. The market is extremely efficient at doing just that and an economy driven by free markets is called capitalism.

From this point forward, I’m going to assume that we’ve chosen a capitalist model instead of the communist model and the reason is simple; the second question I posed was about the government’s role in the economy and in a communist model it’s simple… collect all money and then distribute evenly. In a capitalist society, it’s far more complicated. According to famous economist Adam Smith, there is an “invisible hand” that will move the market to an equilibrium point where a certain number of a good is produced and the market as a whole want to buy that same number of that good at a certain price. If the price is too high, producers want to sell far more than people want to buy and this creates a surplus. Gradually, the producers will realize that if they want to sell more and thus make more money, they can’t charge that high price. As they lower the price, people buy more of that good and the producer makes more money. The opposite is true if the price gets too low. This is one of the simplest and most powerful theories in all of economics; the theory of supply and demand.

There are many things that can upset this delicate balance but in our society, one dominates over all the others; the government. The vast majority of the time that the government interferes in the market, the overall efficiency of the market is decreased. For most markets, this is a bad thing but for a select few, government influence is a good thing. For instance, a side effect that does not factor into the price of a good is called an externality and they can be good or bad. The textbook example of a negative externality is pollution. Before environmental legislation (such as the Clean Air Act or the Clean Water Act) was passed, there was no incentive for certain industries to reduce the level of pollution that they produced while making a good. Thus, harmful chemicals were put into the environment and the people at large were harmed.

For a more specific example, let’s look at gasoline. Benzene was used as an “octane enhancer” for many years due to its octane number of 120. The only problem is that benzene is extremely carcinogenic. The federal government mandated that gasoline can no longer have benzene in it and because of that, the public is better off.

The other example of government influence benefiting the people at large is the steps that the government has taken to ensure competition in the marketplace. In short, monopolies are bad for the economy as a whole and they can easily exploit the people who buy their products. Starting with the Sherman Act in 1890, the government has levied fines in the billions and has taken the drastic measures of breaking up companies that seek to reduce competition in the marketplace. Unless you bought gasoline that originated from BP, the odds are fairly good that they last time you filled up your car, you bought gasoline from a former part of John D. Rockefeller’s Standard Oil Empire.

Other than those rare cases, the government is a hindrance to economic efficiency, plain and simple. Where capitalism gets sticky is the difference between efficiency and equity. Just because a market runs efficiently and the quantity of a good supplied equals the quantity of that good demanded does not mean that the allocation of resources is fair. This is yet another role of the government and this is an issue that I believe is central to the points of both OWS and the 53% movements. Both sides think the redistribution of wealth is unfair; social conservatives believe that too much is taken in the form of taxes and handed back to the people who are less economically fortunate. The social liberals believe that more money should be reclaimed from the wealthiest Americans and given back to those who can’t afford as many luxuries.

There is no right or wrong answer when it comes to tax policy and social aid programs. Social and fiscal conservatives have a model that is more economically efficient and is also more heartless. Their liberal counterparts have a model that is far less economically efficient but people don’t need to worry about starving to death if they lose their jobs. I personally believe that there is unbelievable room for compromise. Government agencies have had their budgets increase to the point that there is an incredible and distressing level of wasteful spending. If you want those agencies to operate more efficiently, all you have to do is reduce their budgets. Tell them that they need to do the same job with 10% less funding and after the shock of having their budget cut wears off, they will find a way to make it work. The flip side of the coin is our economy is balanced on a razor’s edge and something needs to be done about it. I would support a moderate increase in taxes under one condition; every penny of those new taxes goes towards paying off our $14 trillion debt.

Fanaticism is the enemy in this case. Winston Churchill once said that a fanatic is one who “can’t change his mind and won’t change the subject”. If we are going to rebuild this economy and make it bigger and better than ever, we need to work together. We need to find the central ground, socially and economically, where most of this country’s citizens reside. The Democratic and Republican parties are straying further and further from the center of the political spectrum in a dangerous game of one-upsmanship that very nearly caused us to default on our debt and plunge us into a depression that would have lasted for years if not decades… all to make a point. That cannot be allowed to happen. All of this leads me to the last point that I’ll make in this ode to our society and economy – there are 537 people who owe their jobs to us. They work for us. We need to remember that…

THE WILL OF THE PEOPLE

There are 435 Representatives, 100 Senators, a Vice-President, and a President that wield enormous power because we, the people, of the United States of America, handed it to them. If we want something bad enough and we perceive an injustice, we need to stand up and let them know in a unified voice that this is what we want and we’re willing to elect different people until we get it.

Some of the few issues that I’ve heard from the OWS movement that I think are legitimate points are the corruption in our political process and the fraud perpetrated by some bankers that helped bring about the mortgage crisis three years ago. One of my single biggest issues with the Occupy Wall Street movement and the “We Are the 99%” people is nothing can be resolved on either of these issues by picketing bankers on Wall Street. As long as the focal point of this movement is Wall Street, nothing substantial will be accomplished. So what should these people be doing and where should they be picketing (or demonstrating perhaps would be a better word)?

They should be demonstrating at the corner of East Capitol Street, NE and 1st Street, NE…

At the US Capitol building!

If you want money to not buy influence in politics then say that you won’t vote for someone who accepts money from certain lobbies and if they don’t tell you who their campaign contributions are coming from, don’t vote for them.

If you want bankers to be indicted for fraud because they had appraisers artificially inflate the price of homes so they could make more money, tell your Congressman, Congresswoman, or Senator that if they don’t go after these people, you won’t re-elect them. Tell the President that if he doesn’t direct the Department of Justice to look into this, you won’t send him back to the White House.

The federal government works for us at our pleasure. We reshape our government every two years and yet many people do not realize the awesome power we as citizens have. The problem is that power is only useful if it is applied well.

The Occupy Wall Street movement might just be doomed to fail because they are yelling and screaming at a group of people (bankers) who have no incentive to listen. Just a few miles to the south (227 miles by car) is a group of people who do have the incentive to listen to us, the citizens of this country. And that group of 537 people can command the attention of the bankers that helped cause this recession.

Until that happens, OWS is just tilting at windmills.