Main man Michael Churchill of Churchill Research sent the following out to his mailing list today. As it's cool to pass on, that's exactly what I'm doing here. enjoy.
Classical Insights Afternoon Bullet Points October 16, 2011
I went to Zuccotti Park yesterday and talked with about 20 of the Occupy Wall Street protesters. Everyone was polite and happy to chat. I’d say the breakdown between good and bad ideas was a little better than 50/50. Yet the protestors’ core notion -- that average Americans are being screwed by the powers that be -- has plenty of merit. On specific points, the Occupy Wall Street people and the Tea Partiers actually have a fair amount in common.
Here are some of the individual protestors’ ideas:
Replace the existing 535-man congress with direct democracy -- thereby cutting down on corruption. The guy proposing this was in his 20s and carried a sign reading “Waterboard Wall Street.” He was quite eloquent, arguing that today we have the technology to allow all Americans to vote on major decisions, so why not do it? It’s a reasonable point. In fact, author Eric Morse made a similar argument in his recent book Juggernaut. Morse recommends we move to a 10,000-man congress, thereby returning us to the original, 1790s-era ratio of 30,000 citizens per congressperson. This approach would cut down on corruption because 30,000 people are too many to bribe.
“Weak Messianism.” I chatted for a while with a scholarly looking fellow in his late 20s at a table with a couple of books by philosopher Walter Benjamin. The concept behind weak messianism is that small powerless movements can have an inordinately large impact because they embody the sins and problems of the recent past, bringing them into the open and helping to get them resolved. Apparently, this notion has roots in Eastern Orthodox philosophy. “Are there dirty hippies here? Yes,” said the fellow at the table. “Are there people doing drugs here? Yes. But this is all part of the process. It’s a mistake to try to define the goals of the movement too quickly.” The process of airing all the grievances and concerns is itself useful, he said. “The protest has actually morphed several times since it started a few weeks ago.”
Stop the foreign wars and use those resources here at home. This was a big theme. Many protestors are very upset that we’re spending hundreds of billions of dollars fighting wars all over the world when our own economy is weak and jobs are hard to find. I was handed a flyer from an outfit called “Veterans for Peace” which contained several noteworthy statistics:
The U.S. military budget is 7x that of China ;
New Yorkers have paid $113 billion for the wars in Afghanistan and Iraq over the past 10 years. For that same money, 19 million students could get scholarships to go to college for one year;
$1 billion spent on the military creates 8,500 jobs, whereas $1 billion in tax cuts generates 10,800 jobs. (Not sure about that point but it’s interesting they supplied it.)
End the Fed. A saw one big sign making the case that the Federal Reserve is a non-governmental entity whose primary goal is to empower and enrich bankers, not individuals. It’s a fair point. As G. Edward Griffin wrote in The Creature from Jekyll Island, our current banking system is designed to implode periodically – and for the losses to be socialized when it does. The protesters are rightfully mad about this, though as a practical matter most probably don’t understand the nuts and bolts of it. They simply see that Wall Street banks blew up, taxpayers bailed them out, nobody went to jail, and the bigwigs made millions of dollars. It doesn’t seem right to them. On this issue the protests (as well as the Tea Party protests) should have some impact. We can expect some combination of higher capital requirements and lower tolerance for high-risk trading activities by banks going forward.
“Aggregate demand is too weak.” This was written on a sign carried by a fellow wearing an “MMT” baseball cap. In this case, MMT stands for Modern Monetary Theory. The protester argued that the government needs to increase spending drastically to boost the economy. I disagreed with him on that point, proposing that a combination of tax cuts and nominal GDP targeting via quantitative easing would make more sense. He disagreed and we argued the point for a while. There was another economist type standing next to him (also an MMT-er), who agreed that tax cuts would be an acceptable way to boost aggregate demand.
College is way overpriced and the education is lousy. One of the most interesting conversations I had was with a chunky 22-year-old from Vermont who is $250,000 in debt yet still doesn’t have his bachelor’s degree. He was carrying a sign that read, “Where’s our Robin Hood?” He has attended Hofstra, University of Vermont and (currently) Ramapo College in New Jersey . His degree is costing him about $50,000 per year and he expects to need 5 years to graduate. After graduation he wants to get a master’s degree, at which point he expects to be $500,000 in debt. He is studying business and his goal is to work in the music business for a few years and then start a record company.
“Nobody will take you seriously if you don’t have a college degree,” he explained. “You can’t get a job, and a bank won’t give you a business start-up loan.” He said he doesn’t think any of the schools he’s attended has given him a good education. “I’m sitting in computing classes and they’re teaching us how to use Excel and Powerpoint – things I learned when I was 16. I’m sitting there thinking that I’m paying thousands of dollars for this.” He said his student loans carry a 7% interest rate.
Another guy (with a clearly skeptical bent) joined the conversation and asked, “So why don’t you just go to a cheaper school?” The Vermonter responded that he wanted to get out of Vermont and see new things.
Workers of the World Unite! I chatted with a full-on socialist who argued for nationalization of banks and industries. Such a move would free workers from mind-numbing jobs -- while bringing an end to the capitalist practice of skimming the excess value created by laborers. I argued that a successful business can’t function on labor alone, and that without a visionary running the business labor won’t create any excess value at all. He rejected this notion, arguing that people are motivated to work and create by non-monetary impulses. The engineers at Apple Computer, for instance, would be inspired to do their work even without the profit motive.
Socialists or communists were manning four tables in various parts of the park. Nearly all were older guys. I don’t think they’ll get much traction with the young protestors. For instance, the socialist I talked to cited steel-mill work as an example of a particularly mind-deadening task. Yet most steel mill jobs have been computerized for decades and some are fairly high tech at this point. Smart young people just aren’t going to buy into these old socialists’ vision. The weakness of their sales pitch is magnified by the fact that much of America ’s wealth is now intellectual rather than physical -- and intellectual property can’t be effectively nationalized in the first place.
There’s another issue that rankles down here: CEOs making millions while they downsize their labor forces and move factories to China . That just doesn’t strike people as right. In some cosmic way they have a point, which goes back to the whole notion that man, for most of his history, lived in egalitarian hunter-gatherer tribes. As such, when a few people get super-rich by firing others, it just doesn’t sit well. That’s an emotionally live issue and one that’s not going away.
Who are the 1% that these protestors are so mad at? My sense is that the 1% does not refer to successful people generally, but rather to those few who get rich via collusion between government and business. For instance, defense contractors greasing palms of congressmen would fall into this category, as would bankers who receive billions in bailouts. I’m reminded here of Amity Schlaes’ concept of “the Forgotten Man,” which dates back to the 1930s: When A makes a deal with B, the loser is very often C, who is not even at the table. The Occupy Wall Street people are “C”s to a man. They know this, they are not happy about it – and they have a point. The Tea Partiers also are mostly “Cs,” so I don’t think it’s a coincidence that I saw some Ron Paul signs at Zuccotti Park .
I saw a baby wearing a T-shirt that read, “Still waiting for the Great Leap Forward.” I said to the mother, “Um, I’m not sure if you know this, but the Great Leap Forward was a socialist experiment in China in the 1950s that went horribly wrong and killed millions of people.” She said she didn’t know that and had actually gotten the phrase from a Billy Bragg song. A few others nearby also were wearing T-shirts with slogans on them. They’d never heard of China ’s Great Leap Forward, either, and all said they would look it up on Wikipedia when they got home.
End hydraulic fracturing. There were several people around the park with signs calling for an end to fracking, arguing that it poisons groundwater. I am open to convincing either way on this one. I’ve read articles suggesting both sides have a case.
A number of people were carrying signs saying “Tax the Rich” or some variant thereof. I didn’t strike up conversations with any of them, on the assumption they wouldn’t have much interesting to say. Still, “Tax the Rich,” is clearly a popular theme now, even among many Republican voters. No wonder Mitt Romney is not proposing cuts to income-tax rates for higher-income Americans.
Big groups of people were engaged in drum-pounding, chanting, and call-and-response sessions at opposite ends of the park. After I left, I realized that I’d simply blotted them out, probably on the unconscious assumption they were all idiots. Later on, though, it occurred to me that these people likely were the real occupiers – i.e. the ones sleeping out in the park every night. It also occurred to me that many of the people I talked to probably were just down there during the days.
Later Saturday evening, some of the occupiers moved to Times Square and created a real mess. I was walking down 7th Avenue trying to catch a train at Penn Station when the cops shut down a couple of blocks. That cost me 10 minutes of extra walking and I almost missed my train. My empathy for the protestors declined substantially at that point. When protests start inconveniencing regular people just trying to walk down the street, you’re into Third World territory. The cops were everywhere around Times Square but just focused on directing traffic and channeling the people flow.
Feel free to forward this as there are no investment themes contained.
Mike Churchill
Bullets are archived at www.churchillresearch.com .
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