Forum Post: No need to hate the rich: hating the oligarchs will do

OWS has been characterized as a "hate the rich" movement. To some extent there is confusion on this point, but "hating the rich" has no explanatory value and cannot account for the success of the movement. Crucially, hating the will not motivate the American people, who care more about fairness than wealth inequality. But there is more than enough unfairness around, and general consensus across the political spectrum about who the culprits are.

Many Americans have seen their livelihoods threatened and destroyed by oligarchs who have shown no love of free markets. Conservatives who believe in meritocracy fail to see the merit in a rigged system that rewards oligarchs for their political position, and that punishes the remaining 99%, or more accurately, the remaining 99.5%, no matter how hard they work.

Wall Street wants Washington to give it business, and Washington has complied by providing it with privileged access to the money supply, lax regulation and an implicit tax on savings. Despite a public relations campaign according to which the oligarchs have repaid the taxpayer for bailouts with interest, the Fed zero interest rate policy (ZIRP) provides banks with very low interest cash loans they use to purchase debt from the Treasury, which remunerates the banks with interest, using public tax dollars. Savers are punished for saving, and popular social programs such as Social Security and Medicare are threatened. Bank reserves are very high compared with historical levels, and the Fed pays interest on these reserves, providing a further disincentive to invest.

These developments--among many others--have served to enrich the banking oligarchy at the expense of the taxpayer. This offends a basic sense of fairness--hatred of the rich is entirely unnecessary.

Some economists believe that by dismantling firewalls between investment and commercial banks, the too-big-to-fail behemoths ensured that the US government would have to bail them out, or else Americans would not have received their paychecks at the time, and their bank accounts and pensions would have been wiped out. Others dispute this, saying that the government would have stepped in to make payrolls. The point is that the system is an interlocking network, whose losses are largely absorbed by the taxpayer by design. In other cases institutions are permitted to survive even though investors take a bath, but someone has to pay for the institutions to survive. Whether making shareholders whole, or permitting failed institutions to fail another day, the bitter taste of unfairness and the profound sense that merit is nowhere to be found, leads to the animosity of the public toward the financial industry. This has nothing to do with hating the rich.

It's fine to be critical, but we should consider some proposals. These aren't original with me--they are due to an economist, Herb Gintis, who is in no way a liberal.

"These recommendations all stem from the simple observation that contemporary financial fragility is caused by excessively tight interactions among participants in the network of financial institutions. This excessive institutional interpenetration leads to amplifying rather than damping reactions to shocks to the system.

1. Banking regulations should foster a large number of small and medium sized financial institutions, as well as limited inter-institutional connectedness.

2. There should be firewalls between different types of financial institutions of a sort that limit contagious asset bubbles and collapses.

3. Stockholder groups should ensure that monetary incentives for decision-makers in the financial sector favor long time horizons.

4. There should be a complete separation of auditing and audited institutions. In particular, the latter should not hire and fire the former.

5. Auditing firms should be financially liable for covering up weaknesses in the firms they audit.

6. We need a new macroeconomic model replacing the rational expectations model that is engineered to deal with complex networks of financial institutions.

7. There perhaps should be a small tax on financial transactions.

8. The European Union should develop a central back with the full powers of a national central bank.

9. Government accounts should be audited by international lending institutions, thus preventing covering up the true state of a country's finances.

The major impediment to implementing these changes is the political influence of the financial sector, especially in the United States. The current "too big to fail" system is perfectly acceptable to the giants of finance, and the move to accountability will be vigorously opposed. In Europe, the obstacle to reform is political fragmentation."