#OccupyLA: How 500 = 99%
It seems like fuzzy math, to see a tiny crowd of mostly white youngsters with a spattering of legitimate community organizers claiming to be 99% percent of the population. Likewise is it hard to believe that a handful of redditors and youtube jockeys with their somewhat short-sighted stories about personal debt and unemployment could somehow embody the experience of almost the entire population of the richest country on Earth. On a day when everyone was making suggestions to these protesters on what their demands should be (including of course, yours truly) there were just as many people speaking out against the ‘dangerous’ ‘class warfare’ of a handful of idiot hippies who want to make us like the Communists.
It’s just as easy for opponents of this protest to dismiss its participants and their desires as it was for liberals to dismiss the Tea Party in its early days. Back then, the Tea Party seemed like an over-hyped Fox News focus group, suddenly transformed from studio audience to vocal mob, chanting and waving signs about liberty and socialism and Sharia law. But just as the Tea Party grew into a legitimate social movement with electoral power, this movement has the same potential, and it’s because its concerns do really do line up with the desires of 99% of people in this country.
(Much more below the fold)
I would even venture that this is simply another node of the exact phenomenon that drove the constitutionalists into their community centers in the summer of 2009. There is a feeling in this country that the marriage of corporate and government power has created a powerful elite that plays both sides of the political fence to enrich and empower itself while diminishing the chances of everyday people to achieve economic self-determination. The Tea Party blames coercive government intervention into markets through excessive spending and crony capitalism. The Occupy movement blames the debt system and opaque financial markets for holding the economy hostage to keep investors whole through a crisis they engineered from our prosperity. At the heart of both of these messages is that the huge institutions in which we have invested so much of our trust and wealth have never been working for us at all. The highest paid people on the planet manage us like assets at best – politicians with their electorate, investors with their consumers and ‘head count’ – and as expenses and liabilities at worst, and they don’t care if we convalesce. Average people do not feel they are an expense on an otherwise perfect system. We want democracy and the market to work for us. They do not want to live their lives in constant debt to a bank or government that tells them they’re too fat to insure, too lazy to employ, and too stupid to understand why. This is not an unreasonable demand.
Everyone is in Debt
Currency is an instrument used to represent value. It is administered by a central bank (in our case, the Federal Reserve) in order to maintain a standard medium of exchange for goods and services. There is a sense that this currency exists as an inert and abstract object, one that serves the needs of he who holds it, and that it is not ‘owned’ by anyone.
But this is not really the case. Currency is not a free object, because it cannot be used without the certain conventions and institutional associations that give it meaning. The prime entity among these are banks, namely commercial banks, which hold deposits from regular customers and loan their reserves to businesses and individuals. Without banks, we are told, there would be no economy, because there would be no one to independently evaluate risk in lending, and therefore capital would freeze in the pockets of individuals, gathering dust and wasting precious resources on the sidelines of the economy. In such a case currency would be meaningless, because those who have it would have no way to grow it without some way to manage the risk of investment. No one would invest or hire, and we would all be reduced to gathering gold nuggets and wampum under our beds. This is the standard argument for the bailout of Wall Street that occurred during the Bush/Obama transition. Without banks, the economy freezes up, businesses can’t make payroll, people lose jobs, demand collapses, everyone else loses their jobs, and we die in a Mad Max hell where Donald Trump is President.
But, wait a minute, why do businesses need to borrow money to make payroll? Aren’t we constantly told that the government is irresponsible because ‘it has to balance its checkbook like every other enterprise, every other American family’? How could these heroes of job creation, of sound investment and enterprise, the ones we trust with our money because they know what to do, be so close to collapse that a temporary inaccess to loans would cause their business to fail immediately?
The reason for this is simple: debt positions are inherently less risky than equity positions. This means it is more desirable for a corporate entity to owe money against the value of their assets than to own things outright. This is for a few reasons:
Debt is liquid – it can be transferred for face value, refinanced at different rates, and canceled outright without a tricky question of comparable valuation. Money is money, even negative money.
Debt is predictable – Assuming that inflation is relatively constant, I know what the value of promissory note will be in ten years. It’s written right on the front. But will I know what my coal plant will be worth? Or a farm?
Debt can be avoided through bankruptcy – This is the true advantage that corporate personhood bestows on the investor. He can take risks and avoid the consequences by limiting the collection of debt and liability through the ‘corporate shell.’ By leveraging ownership of physical capital, he can keep the things he owns while passing the risk of default onto a fake person, a ghost. And although some loans do come with personal guarantees, the fact is that corporate entities were created specifically for the purpose of displacing debt obligations and unforeseeable (and in our present case, foreseeable) liabilities.
Interest is tax deductible – When people say ‘the rich pay no taxes’, what they’re really saying is that the rich pay no taxes on the investment of their wealth, and the collection of debt from borrowers. The principle of carried interest is what allows people like Warren Buffet to pay a lower tax rate than his secretary. We have engineered an environment where the lending of money is more preferable than the spending of money, and we have given preferential tax treatment to those who make their money through the collection of interest. This has caused two things to happen: 1) inflation from the increased money supply through fractional reserve banking and 2) the gradual movement of wealth from those who create it (workers) to those who lend the means to create it (investors). When you reach a certain point as a wealthy person, the vast majority of your wealth is derived from the investment of your assets, not your work. The interest earned on those assets are sheltered from taxes, and at the same time you can right down the value of your physical assets, you’re writing off the income that lets you buy them.
It’s good to be rich.
For 99% of Us, Debt Was Not The Answer
Wall Street is built on the power of debt to open up the flow of capital and create opportunities for risk where they first did not exist. But it’s safe to say that this concept has not always been accurately described to the majority of Americans, not in high school economics classes, and not in the margins of a credit card agreement (until Elizabeth Warren came along). Throughout the 90’s and 00’s, debt was put forward as a way to close the gap with your neighbor, as Michael Lewis put it on Fresh Air last night a ‘way to bridge the gap between expectations and reality.’ In this way, our sense of entitlement as individuals led us to borrow for things we had not nor could ever earn for ourselves under the system of employment that exists today. But the financial system did not slap us down and say ‘no, man, you can’t afford that.’ They chose instead to extend that credit, because they know that people getting what they want is at the heart of economics, and if people weren’t getting what they wanted they would stop working, and the system would collapse. Do I think individual loan officers were considering a proletariat uprising when they made sub-prime mortgages? Of course not. But there is an implicit understanding that growth means peace, and recession means trouble, for more than just the bottom line. In a rush to capitalize on the insatiable desires of individuals, the banks ignored their primary task (measuring and mitigating risk) choosing instead to hide it, pay themselves millions, and risk everything in the name of meteoric growth.
Capitalism and it’s uneasy marriage with the liberal state has consistently led us into seemingly unavoidable crises. The answer put forward by political and financial elite is always to further merge the two, that we one must prop up the other, always with debt, or our precious modes of exchange will collapse and we will be left with anarchy. But 99% of people were not involved in the backroom mathematics that created AAA bonds from risky mortgages, nor the derivatives that pushed those risks onto municipalities and pension funds. And although the moral failure of communism is undeniable, it is equally undeniable that it was slavery and indentured servitude that built the basis for global capital and the industrial revolution, it was fascism (and the military-industrial complex we built to fight it) that lifted Europe and the United States out of the depression, and it was the bankers begging for corporate socialism to save them from themselves that prevented an even bigger calamity in 2009.
All of this is because we have replaced our sense of positive value with a system of securitized debt. This is not a whackjob conspiracy of the Federal Reserve instituting a worldwide regime of kleptocracy. It’s the natural outcome of a property system that encourages the people with outsized capital wealth to bind regular people to unreliable income streams through a system of interest bearing agreements, all under the auspice of what we call “good debt.” And when only 1% of the people have the legal and economic expertise to escape that debt (or hedge their investments through complex financial instruments), while the other 99% are forced to pay or hit the streets, you reach a point of stress that can only be dispelled in one way: release people from their debt or they will default en masse, and then all of us screwed.
Freedom is Freedom from Debt
Economic Anthropologist David Graeber gave this interview to Naked Capitalism where he described the origins of debt and currency in ancient Mesopotamia, and how the handling of debt crises has been inherent in the money system from the beginning. He points out that one of the first times the word ‘freedom’ appears in history is in reference to a custom held that once in a generation, the temple leaders (who managed the public markets of the day) enforced a policy of widespread debt forgiveness. They did this to reverse the trend of those with means gradually but inevitably locking up the future labors of farmers and tradesmen over time, a vicious cycle that had no foreseeable end. They had to do it, or they would have been a nation of slaves, always leaning toward unrest.
We may be at that point in our nation, and it is a scary thing. How can we trust people to pay a mortgage if the nation can default on its debt, or if homeowners decide to turn the titles of their homes over to lenders en masse, glutting the market with underwater houses with no occupants. How will we invest? How will we save for the future?
There is an answer in the gloom of debt, and it lies in the negotiation between the indebted and the owners of that debt. We need a settlement. We can no longer refinance our futures ad infinitum. Everyone is going to have to take a haircut, and no corporate veil will protect the 1% from that obligation.