#OWS: The Morning After

Hope is not an exit strategy.

You know the argument about a rising tide, and how it lifts all boats?  This has always seemed a dubious metaphor to me because of all the assumptions it must make in order to apply, and all of the obvious features of the ‘tide’ that it conveniently leaves out of the idiom.

Join me while I break it down.

(much more below the fold)

Grow Your Way Out of It

First of all, tides do not rise forever.  A tide is, by definition, an endless cycle – it rises and falls in equal measure, according to the cycle set by lunar gravity – so using it to symbolize the economy is at once extremely appropriate and hilariously ineffective at demonstrating this idiom’s message: that growth benefits everyone and has no downside.  The axiom also assumes that everyone has a boat, and is not simply standing on the ocean floor or flailing helplessly somewhere near the surface, with rising water inching ever upward, threatening to drown the boatless.  Thirdly, it assumes that waters are more or less still, and that as the water rises lifting all these lovely boats, that waves and winds won’t crash us all together, or topple overladen vessels, spilling the fruits of our labors into the salty economic brine.

The notion of a mutual social benefit to the growth of private capital through markets is the central principle holding our economy together.  Milton Friedman says in Capitalism and Freedom that:

“there is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

In this 1970 article, Friedman explains that business does its good by performing its central function for the benefit of its principal or stockholders, and that any deviation from that interest is a betrayal of principle and threatens a free society.  Friedman famously argued for an entirely voluntary society, one where no individual’s interest was subservient to a general social good that he did not willingly engage at his own expense.  He also provided ample evidence to back this up, and is considered one of the greatest economists in history.  Even for those who would disagree with him, he is required reading, and considering that the primary philosophy being touted at Occupy is a repudiation of his life’s work, he should be first on everybody’s list.

Jobs Create Job-Creators

“Money is created at the top, ” a libertarian friend of mine told me this week, after I had made an offhand crack about my work being for the benefit of others.  This assertion took me back, and it made me really consider the things I know about labor and capital.  In a way, money is created at the top – particularly through a phenomenon derided by anti-Fed activists as ‘printing money’ through the fractional reserve system.  In short, banks can lend money they don’t have because they’re only required to keep a fraction of deposits on hand.  So when you and I deposit our $100, if a banker is required to keep only 10% reserves, he can lend $1000 on that $100 bill.  He can then earn interest and accept risk on that artificial money, and since he has enough cash on hand to pay us out should the occasional need arise (since most people keep their money in banks all the time) he never has to worry about being short.  He earns 5% on $1000 instead of $100, pockets the difference, and wham, money created.

But this is not what my libertarian comrade was suggesting.  Like other adherents to that faith, my friend is allergic to public intervention into private markets.  For him, the idea of our currency being manipulated for the benefit of anyone, banks or single mothers, is a distortion of a perfect system that will lead to waste and resentment between citizens.  What he meant was that it is the people who risk their capital by buying equipment, hiring workers, paying for regulatory compliance, and marketing products and services in a competitive space that create the added value that grows an economy.  This is what’s called referred to as a supply-side argument, and it is a particular way of looking at how markets work – but it is not the only way.  Markets are a proven mechanism – they are extremely effective at distributing resources efficiently  through the aggregation of individual choices in competitive environment.  Anyone who has ever had a job or run a business understands the power of markets to spurn us on to greater efficiency and purpose by sheer necessity and self-interest.

But knowing that markets work and accepting them as the basis for our cooperative society does not require a belief that it is capital and its risk and management that creates growth in our economy.  While liquidity and risk is essential to the functioning of a market, the most important input into any system is energy.   In all industries on planet Earth, that energy is generated by one of two things:

1) the Sun

2) Human beings, which are in turn powered by the Sun.

Let me explain:

Natural resources are scarce on this planet, and the companies that grow and extract them, whether they be coal or oil or corn or lumber, risk their capital to bring those goods to market where they can fuel our lives.  But those resources are the stored energy of sunlight – oil and coal are carbon deposits created by the fossilized remnants of ancient sea algae (most likely).  Corn is an earlier form of that same energy – photosynthesized energy stored with carbon into a burnable form.  That energy fuels the otherwise closed system of planet Earth and allows for the growth and complexity of life.

Human beings also add energy to the economy, but like corn and oil, humans are ourselves more efficient ways to store and release the Sun’s energy. We, through our complex brains and ingrained social habits, are even more effective at employing energy (from food) into focused work.  Like a bicycle for the Sun, we employ its energy in a way that expresses itself over many magnitudes, affecting system much larger than ourselves.

So, is capital an expression of that same concept of potential energy?  Is money, like oil, a finely condensed way of storing human labor so that it can be implemented in an efficient and focused way?

I believe that it is.  Ask anyone who has a job if their boss works hard and their answer will usually dictate their level of satisfaction with their job.  If their boss provides an invaluable skill or talent (including the management of employees) then people will respect her, and will work hard.  If they provide only oversight and discipline, or if they hinder progress by flattening the success curve to suit their inabilities, people will despise her and work poorly.  It doesn’t matter if this boss is a manager at Wendy’s or Steve Jobs – the boss’ value is not determined by his wealth of capital, but instead by his talent and labors at organizing the workforce.  The value added by labor and human talent is the engine that drives industry, not money.

Money is a tool to store labor and energy.  It is not created by the rich through some magic spell (except when it is).  It is created by the efforts of billions of people toiling daily to keep themselves alive, and the way our system is diverted now, that surplus value is captured at the top where it can be directed according to business principles, not social ones.

The protesters on Wall Street and everywhere else are expressing a commonly held belief that those that we entrust with the handling and implementation of our currency, our debt mechanisms, our capital markets, and our public finances have simultaneously preached growth through individual effort while they have hoarded and mismanaged the fruits of that same labor.  There is a sense that no matter how hard one works, that the outcome of that work will belong to someone else, somewhere far away.  It doesn’t matter to people if that person is a welfare queen or a billionaire playboy.  They want their lives to matter, because the greatest risk a person can take is not with their financial capital, no matter how big that capital might be.  The biggest risk we take is with our life.  Humans may not be the scarcest resource on Earth, but ask any individual what his own life is worth and he’ll have a damn hard time giving you a number.  Our lives our irreplaceable to us, so it should come as no surprise that folks are not willing to spend it for nothing.

For more on this, I highly suggest the following audio lecture by Noam Chomsky:

In any event it is a bit difficult to take seriously arguments about efficiency in a society that devotes such enormous resources to waste and destruction. As everyone knows, the very concept of efficiency is dripping with ideology. Maximization of commodities is hardly the only measure of a decent existence.

Thanks, Noam.

A Voluntary Society

We cannot choose to be born into a different society.  We can not, as human beings, move freely between territories to choose the system we prefer.  Instead, we are provided with two choices when faced with an already established system: join or die.  This is why our Constitution is so precise in protecting the rights of individuals to speak out and attempt to alter the status quo – doing otherwise would impose the tyranny of previous generations on the presently alive.  Zachary Elkins, professor of political science at the University of Illinois, says that Thomas Jefferson intended the Constitution to be rewritten every 19 years.  Most countries rewrite their doctrines every generation as well.  To do so admits that the rules should change and improve over time.

That our Constitution has remained sacrosanct for so long has been a boon and a curse.  The machinery of our government is extraordinarily slow, and for all the praise heaped on our Founders for creating a ‘perfect’ writ, that law and its application required a massive Civil War and 100 years of degradation and riots to overcome the evils of slavery.  It took the threat of defeat in a World War before women were truly integrated into the business world, and only by the sheer necessity of factories and government offices to churn out the instruments of death.  But still, our Constitution has protected, through thick and thin, certain universal human rights that may not have been politically expedient to the rulers of any particular time.  This balance between principle and contemporary novelty is what defines the endless struggle between Left and Right, young and old, liberal and conservative that exists in every modern society.

This protest, and similar ones around the world, express the emergence of a new generation, connected like never before, and faced with an economic and political order that to them is unfamiliar and ineffective.  It doesn’t matter to the young that things were worse before capitalism.  They care only for the present and the future, and they’re not going away.

These guys aren't going away either.

The New Society: Horizontal or Sideways?

Despite the wide ranging implications of the First Amendment, the protesters at Zuccotti Park do not have a legal right to occupy private property without permission.  The owners of that property do not have an economic incentive to allow the demonstration on their land, and have the legal prerogative to ask them to vacate.  To stay in place, even and especially facing the threat of forcible eviction, is a rejection of that property right in favor of another kind of force – a human inertia that develops as more and more people occupy a small space.  The big question of the day is whether such a confrontation can be postponed long enough for this movement to develop beyond the need for such an event.  My impression is that it will not.

I would love nothing more than for the people of this country to descend on downtowns everywhere and establish communes where horizontal governance can be explored and prepared for scalability.  The power of the internet combined with the idleness of an unemployed nation presents an unprecedented opportunity for our society to take a step towards a new paradigm of political and economic arrangement.  But I cannot help but fear that obstinate protests on private property will devolve into something more violent and undesirable, long before a nascent social order can take any kind of root.  Is the genie really out of the bottle?  Or is this a passing wish that will wear off in the morning?

My belief is that for this protest to succeed, it must harness the levers of political and economic power where they are housed – in boardrooms and ballot boxes.  I believe that through directed and principled action, like organized bank boycotts and walkouts, through voting, through social enterprise and volunteerism, that we could make adjustments that would foster a more cooperative society that doesn’t lean on greed and self-interest as an organizing maxim.  Stand-offs with police are exciting and visible, but they are also dangerous and divisive, and they alienate fellow citizens who would otherwise be on the front lines of this fight for social democracy – police and public safety workers.  They are some of the hardest hit by the current bank-borne disaster that has a lot of us out of work.  It’s their salaries and benefits that we’re fighting for, and it’s their spirit of social responsibility and the willingness to risk life and limb for the good of others that allows for the cohesiveness of civil society.

I urge the government of New York and other cities to allow these protests to continue in peace.  I also urge the organizers and general assemblies to coordinate directly with city governments, police and property owners to reach an understanding about the use of land and resources.  If this is going to be a transformative uprising with a positive outcome, it has to be non-violent, and it has to make real change.

In the 60’s, folks threw themselves onto the machinery of war to try and grind it to a halt.  Ghandi and Martin Luther King , Jr. went to jail to reveal the injustice against which they fought.  Are we fighting the right to own a park in downtown Manhattan?  Or are we fighting for the right to control our own destinies, and to not be boxed in by debt and a wage system that funnels energy from the bottom to the top?  Where, exactly, should we make our stand?  I don’t know.  I just hope it doesn’t happen in the haze of teargas, or at the expense of lives or livelihood.

I understand that for many people this is an emotional cause, not an intellectual one.  But the argument we make has to be reasonable and based in reality, not on blind hope and wishes.  There is a valid argument to be made, and we can make this argument against private property without seizing it by mob action.  We can address inequities in the marketplace without shutting it down. We can fix society while we live in it.  We have no other choice.

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