Warren Buffet and Occupy Wall Streeters: 2 peas in a pod

The econ­omy stinks and we’re not going to take it any longer. While this may not be the offi­cial mes­sage of Occupy Wall Street (OWS) par­tic­i­pants, it seems to come pretty close to under­stand­ing why the move­ment was born, blos­somed and now searches for a uni­fy­ing mes­sage to pol­i­cy­mak­ers. Had the U.S. econ­omy expe­ri­enced any­thing like a nor­mal recov­ery from the Great Reces­sion, it seems unlikely the move­ment would have devel­oped. But with an unem­ploy­ment rate in excess of 9 per­cent and nearly 14 mil­lion peo­ple unem­ployed — and many more mil­lions under­em­ployed — it is lit­tle won­der that some peo­ple have taken to the streets to protest.

And who is to blame for this abysmal state of eco­nomic affairs? It would seem as though the vil­lains cho­sen by OWS are the top 1 per­cent of income earn­ing house­holds and any other dis­pensers of cor­po­rate greed. With OWS claim­ing to rep­re­sent the remain­ing repressed 99 per­cent of the tax­pay­ing pub­lic (nearly half of whom pay no fed­eral income taxes); yet another us-versus-them con­flict has been generated.

Oddly enough, one of the cham­pi­ons of the OWS crowd is multi-billionaire War­ren Buf­fet. Mr. Buf­fet is appar­ently lead­ing the charge of the 1 per­cent who have a con­scious and feel that the pro­gres­sive tax sys­tem of the United States is fun­da­men­tally flawed and that the less socially-conscious mem­bers of the 1 per­cent group are tax-dodging degen­er­ates. As such, Mr. Buf­fet states that the priv­i­leged 1 per­cent (and quite pos­si­bly oth­ers in high income cat­e­gories) should see their taxes increased to elim­i­nate inequal­ity and (pre­sum­ably) gen­er­ate renewed eco­nomic growth. Are the top 1 per­cent of income earn­ers really the despi­ca­ble crea­tures loathed by OWS, and will rais­ing taxes prove to be the sil­ver bul­let needed to kill our unwanted eco­nomic stagnation?

Of course, defin­i­tive answers to such ques­tions are impos­si­ble to ascer­tain, but one might legit­i­mately won­der if the cause of our eco­nomic malaise lies else­where and thus the Buffet-provided rem­edy is lack­ing. Does the prob­lem lie with indi­vid­ual Amer­i­cans, their desires to enrich them­selves, and the for-profit moti­va­tion that induces busi­nesses to prosper/grow in our market-based econ­omy? Or is it just pos­si­ble that the true impe­tus for eco­nomic insta­bil­ity may reside with a fed­eral gov­ern­ment that wavers back-and-forth from pro­mot­ing a free-wheeling, anything-goes econ­omy to one which is tightly con­trolled by politi­cians and bureau­crats intent upon vil­i­fy­ing and destroy­ing any­one who opposes their messiah-like mis­sion to save us from ourselves?

Con­sider the role of the fed­eral gov­ern­ment over the past decade. In the early 2000s under the pres­i­dency of George W. Bush, a noble cause was unfurled, that is, to increase home­own­er­ship rates among Amer­i­cans. Toward that end, much-needed reg­u­la­tory over­sight seem­ingly came to an abrupt halt and gov­ern­ment spon­sored enter­prises such as Fan­nie Mae and Fred­die Mac relaxed stan­dards for mort­gages they would purchase/guarantee (with the full bless­ing of many mem­bers of Con­gress from both par­ties). The mar­ket responded with a whole host of pre­vi­ously unthink­able arrange­ments from liar-loans to pro­vid­ing mort­gages above the value of the under­ly­ing home. All of this was done with reg­u­la­tors such as the Fed­eral Reserve and FDIC sit­ting qui­etly by and claim­ing they had no respon­si­bil­ity or jurisdiction.

When the hous­ing bub­ble burst, the knee-jerk reac­tion was to claim mar­kets were to blame (NOT gov­ern­ment or reg­u­la­tors) and move in the other direc­tion under the pres­i­dency of Barack Obama. Banks, auto man­u­fac­tur­ers and oth­ers were bailed out and gov­ern­ment assumed tremen­dous con­trol over a huge seg­ment of the econ­omy: health­care. So, after walk­ing away from its legit­i­mate regulatory-oversight role, gov­ern­ment mor­phed into an eco­nomic demigod capa­ble of mak­ing deci­sions indi­vid­ual people/businesses were too unso­phis­ti­cated and/or unsa­vory to make.

But in this lat­est War­ren Buffet/OWS world in which a vil­lain must be pun­ished, one should at least con­sider the pos­si­bil­ity that the much-despised 1 per­cent are not quite the evil-doers they are assumed to be. If they are sim­ply a con­ve­nient scape­goat at this time of extra­or­di­nary eco­nomic dis­tress, then the solu­tion of rais­ing their taxes may destroy indi­vid­ual eco­nomic incen­tive; with future eco­nomic vital­ity also becom­ing an inevitable casualty.

Despite what some in the OWS move­ment sug­gest, this sit­u­a­tion may not be about the priv­i­leged 1 per­cent, but rather the dearth of oppor­tu­ni­ties avail­able to Amer­i­cans due to a dysfunctional/overextended/fundamentally inept gov­ern­ment. Reward­ing this failed gov­ern­ment with greater tax­a­tion and spend­ing pow­ers makes no more sense than pass­ing leg­is­la­tion to allow Enron (if it still existed) to fur­ther manip­u­late energy mar­kets to its own advantage.

Dr. James New­ton serves as chief eco­nomic advi­sor to Com­merce National Bank and is an aux­il­iary fac­ulty mem­ber in eco­nom­ics and sta­tis­tics at OSU-Marion and OSU-Newark. Dr. Newton’s views do not nec­es­sar­ily reflect those of Com­merce National Bank or OSU-Marion/Newark.

Posted by Jim Newton on Oct 18 2011. You can follow any responses to this entry through the RSS Feed. Comments can be made below.