Thursday, October 6, 2011

Occupy Wall Street

You've probably heard by now, there are thousands of people protesting Wall Street, and they have issued their list of grievances. I'd like to take a look at these and either agree or disagree.

"Proesters want jobs and the financial security that comes with them." Agree! That sounds pretty reasonable. How it is that Wall Street is going to provide those jobs has yet to be seen. Most of the wealth traded there is from companies from around the country and even around the world. But I guess you can't occupy every business campus across the country, right?

"As in countries like Greece, Spain, Ireland and Egypt, more than 25% of the youth in this country are unemployed - and that number is growing" Agree! Of course, I think this phenomenon is linked to a particular government policy on wages that artificially distorts the supply and demand of low skilled or inexperienced workers (read: young people). This is, of course, the minimum wage, and whether we agree or not, it just doesn't make sense to pay people who won't deliver much value at a higher salary until their skills and knowledge support the salary.

"Students want affordable education. Due to our current monetary policy of near zero-rate money, banks receive exceedingly cheap financing terms, which they have not bestowed upon their degree-seeking customers" Hmmmm, so are we surprised that banks don't want to make riskier loans to people who may not find jobs after graduating while offering a low interest rate generally reserved for the most trustworthy and reliable of borrowers? Just when is the last time one of these customers stepped into a bank for a loan? Or a credit card for that matter? Higher risk borrowers require a higher interest rate to offset the risk to the bank. It's a bit like a game at the casino, the payout has to match the odds for the game to make sense.

"Homeowners want to keep their homes." Man, that sounds really reasonable, but it just defies the very basics of business. If we take out a loan, we make a promise to repay that loan at a given interest rate (which can sometimes be variable). This is important for a number of economic reasons, not the least of which is the stability of the banks who depend on the profit from a loan to stay in business and even make new loans. What we are really asking when we demand a re-negotiation of a loan is for the bank to take a financial loss instead of the homeowner. We are quite literally asking them to wipe wealth off the books. I know what you're thinking, better for them to take a loss than for me to lose my home. Well, tell that to all the other people who want to buy a home that now can't because of the finacial losses from loan modifications.

"Finally, protesters want a fairer distribution of wealth and taxes." Meaning what, exactly? Do you acknowledge that some people should be paid more than others? For example, should a doctor make more money than a ditch digger? And if so, how much? By what standard other than your own do we decide, comparitively, that their wages are 'fair'? Does a waitress who scraps and saves and invests for 40 years deserve the hundreds of thousands of dollars of wealth invested in Wall Street she now enjoys in her retirement account? Should she have more wealth than some smart-ass student who is protesting Wall Street, and if so, how much more? What really surprises me is that they understand that a majority of the wealth is controlled by a minority of the population, but they don't understand that many of the individuals in the protest will eventually become a member of that minority as they age, gain in experience, and are paid more and save more for retirement (and yes, I am an optimist, these people seem reasonably intelligent and will find a job eventually). A lot of this has to do with age. As was previously pointed out, unemployment for young people is higher, and substantially lower for older people. Likewise, the 'poor' (meaning not wealthy, not neccesarily low paid or unemployed) tend to be younger and inexperienced, and the 'wealthy' tend to be older workers who are paid more for their experience and have been saving and investing for decades.

An important distinction should be made, though the same principals apply. There is a difference between wealth and wages. Someone could be paid very well and have no wealth or be drowning in debt, and likewise a person could have a modest income while saving and creating wealth through prudent personal financial decisions.

The question someone should ask is what all of these wealthy individuals do with their wealth. They don't hoard it in cash vaults like Scrooge McDuck, or stuff it under their mattresses. They invest it, providing capital for businesses to grow and potentially create new jobs, which is one of the earlier demands of the protestors. They put their wealth at risk to sustain our economy.