But what bugs me most is the widespread criticism of their ignorance of economics. What they know and what Wall Street and much of Washington do not is that the American model has been failing for decades. Look at income inequality. More important, look at average hourly earnings adjusted for inflation, now back to their 1969 level. Look at our crummy roads, our unequal education, our uniquely absurd healthcare system. Look even at relatively weak capital investment.
Then they are lectured by people like the Competitive Enterprise Institute that they do not understand how markets work. There have been no free markets by neo-classical or even Hayekian standards for decades on Wall Street. When there is no transparent pricing of derivatives, there is no free market. When five major banks control the entire market, there is oligopoly, not free markets. When enormous banks in every avenue of finance exchange information within their own companies, information asymmetries, not to mention potential for insider trading and front-running, are rife. When the conflicts of interest between ratings agencies and their clients are built into Wall Street, who can but laugh that this is real competition. And what about asymmetric financial incentives that made the bankers rich? They rewarded risk when you won, but did not penalize when you lost.
Don’t lecture the OWS movement about competitive markets. In league with Washington regulators, Wall Street learned how to rig those markets. And then they could misprice risk and lead to runway speculation that was bound to result in failure. One number always grabs me. Private financial firms wrote 18 percent of mortgages, which resulted in 42 percent of all serious defaults. There is the culprit. And then they didn’t have the capital to cover the losses. They drove the housing market sky high. Then they built debt on the bad mortgages.
Don’t make the mistake of thinking that even had markets run on more competitive lines speculation and crisis would have been completely avoided. There is little in neo-classical theory that suggests mild corrections are all that is needed to set economic growth on its inevitably stable path. But people like Alan Greenspan, Larry Summers and Ben Bernanke stuffed the deep crises of 1982, 1987, 1989, 1994, 1997, 1998 and 2000 into that mild model. The great moderation was born.
Then wise guys who cannot help but champion Wall Street with little sense of history tell us that all the OWC criticism is unwarranted. Capitalism must be allowed to make mistakes. This is true.
But on balance, OWS is not against capitalism, it is against wild capitalism. And it is against injustice. Is Wall Street?"
(by: Jeff Madrick, TripleCrisis Op-Ed http://www.Truth-Out.org)
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